Michael Pici - Vice President of Investor Relations Mark DeYoung - Chairman and Chief Executive Officer Stephen Nolan - Senior Vice President and Chief Financial Officer.

Gautam Khanna - Cowen and Company Greg Konrad - Jefferies Brian Ruttenbur - BB&T Jay Sole - Morgan Stanley Jim Chartier - Monness, Crespi & Hardt Robert Sassoon - R.F. Lafferty.

Good day and welcome to the Vista Outdoor Third Quarter Fiscal 2016 Year Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Michael Pici, Vice President of Investor Relations. Please go ahead, sir..

Good morning, and thank you for joining us for our third quarter fiscal year 2016 earnings call. With me this morning are Mark DeYoung, Vista Outdoor’s Chairman and Chief Executive Officer; and Stephen Nolan, Senior Vice President and Chief Financial Officer.

Before we begin, I’d like to remind everyone that during today’s call we will be making several forward-looking statements and we make these statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act.

These forward-looking statements reflect our best estimates and assumptions, based on our understanding of information known to us today. These forward-looking statements are subject to the risks and uncertainties that face Vista Outdoor and the industries in which we operate.

We encourage you to review today’s press release and Vista Outdoor’s SEC filings for more information on these risk factors and uncertainties. Please also note that we have posted presentation materials on our website at vistaoutdoor.com, which supplement our comments this morning and include a reconciliation of non-GAAP financial measures.

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

Okay, Thank you, Mike. I appreciate that. Welcome everyone. Good morning. And thanks for joining us for Vista Outdoor’s third quarter call this morning. It’s been one year since we launched the company and I am very pleased with our tremendous progress and our accomplishments over the past twelve months.

As we prepared to launch Vista Outdoor, we shared with our strategy, we discussed our mission, we laid out our plans for creating a leadership position in the individual outdoor recreation market and we’ve done exactly what we said we would do. We’ve expanded our portfolio with adjacent capabilities and top brands.

We’ve leveraged our customer relationships and distribution network for growth. We’ve revitalized our innovation engine. We’ve delivered against balanced capital deployment strategies. We’ve hired top talent to the organization and we’ve created shareholder value.

In the past quarter, the company again recorded sequential and year-over-year organic growth. Third quarter results reflect a year-over-year increase of 17% in revenue with 7% sequential revenue growth. We achieved third quarter year-over-year increases and gross profit of 25% and adjusted operating profit of 15%.

Adjusted EPS was also up 15% year-over-year. As a result of our strong performance, and improvements in the marketplace, we’ve raised our full year guidance for sales and adjusted EPS. Stephen Nolan will share more on market conditions and our outlook in just a moment when he provides more detail on our financial results.

In our first year, as Vista Outdoor, we’ve executed $138 million of our two year $200 million share repurchase authorization program. We have built an industry-leading executive team including a new President of the Outdoor Product segment, Kelly Grindle.

Kelly comes to us from Johnson Outdoors and he is leading a diverse segment encompassing eight global product lines and 31 brands. Each product line and each brand within Vista Outdoor has a defined strategy and roadmap with clear accountability for projecting the unique character of the brand and for delivering profitable growth.

We’ve established a very talented M&A team that has helped us close on two strategic acquisitions in the outdoor recreation space this year. Jimmy Styks and CamelBak, both of which are performing as expected and enhancing our ability to leverage our product portfolio with new and existing customers.

This M&A team continues its full-time work with a disciplined focus on strategic acquisitions. I obviously can’t comment on specific targets, but I can tell you that we have evaluated and pursued a number of strategic targets this year and we will continue to do so.

The targets we need to offer need to be a good strategic fit and they need to be at the right price. If our M&A criteria aren’t met by a specific target, we move on to other opportunities.

I am confident this disciplined process is right for the company and our shareholders and supports our strategy for creating a leading outdoor recreation branded portfolio that will deliver long-term profitable growth. We have strengthened our product development process and launched award-winning new products this year.

These new products have been well received by the market as evidenced by feedback we heard at several sales shows including the Archery Trade Association Show, The Outdoor Retailer Winter Market, The Shooting and Hunting Outdoor Trade Show and The PGA Show. I’d like to highlight a few of our new products.

For the second year CamelBak has won the Enduro Magazine’s Design and Innovation Award for our Skyline Mountain Bike Pack, which is the pinnacle pack within a new low rider collection. These packs are focused on maximizing stability with a lower center of gravity for the rider.

Our revolutionary solution for the 17 HMR rifle was the Savage semiautomatic A-17. During the quarter, the gun was named Rifle of The Year by Gun and Ammo Magazine which said “the rifle amazed us with reliability that we have never seen”.

The magazine also recognized our complementary ammunition design specifically for this new fire arm and offered in our CCI brand. The optimization of the ammunition to enhance the performance of the A-17 rifle is a prime example of the innovation and collaboration possible within our strong and diverse portfolio of brands and capabilities.

Bushnell’s Elite binoculars and Trophy XLT Riflescopes won OpticsPlanet’s Brilliance Awards. These awards were determined by consumers who voted on the best of the best in the birding binocular and air gun riflescope categories.

OpticsPlanet also bestowed its Brilliance Awards to BLACKHAWK for the Best Holsters Brand, the Best Tactical Vest and the Best Soft Pistol Case.

At the Archery Trade Association Show in early January, we launched our new Pierce Arrow with a micro diameter composite shaft that provides deeper penetration and less wind drift while maintaining Gold Tip superior reputation for extreme durability.

Also during the Archery Trade Association Show, Primos, won our Readers Choice Gold Award from Bowhunting Magazine for the Primos Deer Call, Turkey Call, Elk Call and our Hunting Blind. Primos also received the Members Choice Gold Award for 2015 from Bowhunterplanet.com.

At last month’s Shooting Hunting and Outdoor Tradeshow or the SHOT Show, the company launched more than 100 new products including the Savage A-22 Magnum semiautomatic rifle which builds on our A-17 success.

A new line-up of semiautomatic Steven Shotguns, a technically advanced polymer encapsulated bullet known as syntech that delivers cleaner, consistent shooting at the range. We offer optimized trail cameras, versatile and comfortable holsters, advanced state-of-the-art gun care products and a variety of sporting optics.

At the PGA Show, we unveiled our new Tour V4 family of golf rangefinders. The Tour V4 and Tour V4 Slope edition are faster than their predecessors, 30% smaller and increase the ease and accuracy in acquiring yardages. We also launched the new golf GPS Watch, which is Bushnell’s lightest and thinnest golf watch.

It has been designed and redesigned and comes preloaded with 35,000 courses in over 30 countries. Our heightened focus on innovation is resulting in new product offerings across our brands and is being recognized and rewarded by both customer and user groups.

We will continue to invest in research and development and the introduction of new products and I am confident following our success in these recent shows, that we are off to a good start in 2016. In January, we launched our standalone company-wide benefit programs and completed the transition services agreement associated with the spin.

With the exception of some ongoing long-term tax issues, we have completed the transition services agreement and I am proud of the Vista team and our leaders across the company for the great work in standing up new systems and capabilities to ensure we operate effectively and efficiently as a standalone independent company.

Our safety and environmental performance remains at outstanding levels and our contributions to the conservation of wildlife and wild places continue to support our commitment to being a steward of the environment and a good corporate citizen in the communities where we live and work. Vista Outdoor is focused on bringing the world outside.

As you continue to observe our implementation of this mission, you will notice that we’ve not only articulated a compelling vision, we are executing it. I am pleased with our progress the past year and proud of the company and our employees and our products.

Stephen will now provide more detail on the financial results for the third quarter and the outlook for the rest of fiscal year 2016.

Stephen?.

Thanks, Mark. Good morning, everyone and thanks for joining our third quarter earnings call. We have disclosed both as reported and adjusted results in our press release to assist you in your understanding of the underlying numbers and to assist in comparisons to prior period.

You will find the more detailed financial presentation of our third quarter fiscal 2016 performance in our website. Today, I will discuss the adjusted results, first, for Vista Outdoor overall and then for the segments. The company achieved third quarter sales of $593 million, up 17% from the prior year quarter.

The year-over-year increase is due primarily to an organic increase within the Shooting Sport segment and $41 million of sales from our recent Jimmy Styks and CamelBak acquisitions.

Third quarter gross profit was $168 million, up 25%, compared to $134 million in the prior year quarter, including $17 million of gross profit from the recent acquisitions, as well as increased organic gross profit in the Shooting Sport segment, partially offset by declines in outdoor products.

Our operating expenses for the third quarter were $92 million, compared to $68 million in the prior year quarter. The increase reflects additional expenses as a result of acquisitions, standalone company costs, stock-based compensations and additional R&D, selling and marketing investments.

We reported operating profit of $76 million in the third quarter, an increase of approximately 15% from the prior year period. The increase was driven by our gross profit performance, partially offset by the increased operating expense that I just discussed. Interest expense for the quarter was flat at $8 million.

Interest expense in the prior year period was based on an allocation to Vista Outdoor from Orbital ATK, while the current reflects interest on our actual debt balance. The tax rate for the quarter was 36%, compared to 33.4% in the prior year quarter.

The higher tax rate is primarily caused by the true-up of prior year taxes which typically occurs in the third quarter and was more favorable in the previous year than in the current year.

For the third quarter, we recorded net income of $44 million, up 13% from $39 million in the prior year quarter, resulting in EPS of $0.70, compared to $0.61 in the prior year quarter. Year-to-date, free cash flow was $51 million, compared to $80 million in the prior year quarter.

The year-over-year decline in free cash flow was largely driven by our improvements in working capital and income tax and interest payments in the current year. The company repurchased approximately 1.4 million shares for $61 million in the third quarter under our existing $200 million two year share repurchase program.

Since the end of the third quarter, we’ve repurchased approximately 360,000 additional shares for $16 million. Since the program’s inception, we repurchased approximately 3.1 million shares for $138 million which is nearly 70% of the overall program. I am very pleased on our execution of the program which has been in place for less than one year.

The company will continue to opportunistically repurchase shares under this authorization. Now, turning to our business segments, where we report sales and gross profit. Shooting Sports recorded third quarter sales of $356 million, up 15% from $309 million in the prior year quarter.

Shooting Sports had 5% sequential growth in the third quarter continuing the recent trend of quarter-over-quarter growth. The year-over-year increase was seen across all product lines indicating that the market has now stabilized and has returned to modest growth.

Third quarter gross profit in Shooting Sports was $104 million, up 28% from $81 million in the prior year quarter. The year-over-year increase was driven by volume, product mix, and raw material procurement favorability. Gross profit grew sequentially by 13%.

Third quarter sales in outdoor products were $236 million, up 19% from $198 million in the prior year quarter, including approximately $41 million sales from acquisitions. Organically, the segment was down approximately 2% from the prior year period, but up 3% sequentially.

The organic decrease of $3 million was caused by overall unfavorable foreign exchange impacts and lower sales in tactical products, partially offset by increased promotional activity and increases in golf and shooting accessories. Absent the unfavorable foreign exchange impacts, we would have delivered positive organic sales growth in the quarter.

Gross profit in the third quarter for outdoor products was $64 million, an increase of 17% from $54 million in the prior year quarter. The increase includes $17 million of gross profit from the recent acquisitions.

Organic gross profit in Outdoor Products was down 14% as a result of unfavorable foreign exchange impacts, the decrease in revenue and unfavorable product mix. Turning back to the company level, we’ve experienced a recovery in the Shooting Sports market, driven at least partially by a market response to the current political environment.

The benefits from this were tampered by overall weakness at retail and the warm fall weather, both of which led to a higher level of promotional activity for certain products, which is continuing into the fourth quarter.

In the fourth quarter, we will continue to ramp up our operating expenses toward the expected long-term level, while also making previously disclosed investments in our business which are back-end loaded, leading to higher operating expenses for the balance of the year.

Given our strong performance year-to-date and our current expectation for the balance of the year, we are raising our overall sales and adjusted EPS guidance for fiscal 2016. We anticipate our EBITDA margin to be around the midpoint of our previously disclosed 14% to 16% range.

Additionally, we expect to continue investing in working capital to support both increased inventory availability and promotion-related payment terms resulting in modestly reduced expectations on the high-end of our free cash flow range.

We now expect sales in the range of $2.24 billion to $2.26 billion, adjusted EPS in the range of $2.40 to $2.50, capital expenditures to remain flat at approximately $45 million, free cash flow in the range of $150 million to $170 million and an effective tax rate of approximately 38% consistent with our previous guidance.

I want to remind you that our adjusted EPS and free cash flow guidance include adjustments that are detailed in the company’s press release and investor presentation. With that, we will open it up for questions..

[Operator Instructions] Ad we will take our first question from Gautam Khanna with Cowen and Company. Please go ahead..

Hey, thanks, good morning and great results..

Thank you, Gautam..

I was wondering, Mark, if you could comment on what you are seeing in the Shooting Sports Ammo business? Are you starting to see kind of surge levels returning and any comment on either both the volume and the backlog as well as pricing dynamics that you are seeing?.

Sure, sure Gautam. So, as we entered into the holiday season, the holiday as we mentioned, we were concerned it might be slow because of the slow retail environment.

That was accelerated in the back-half of December by some social events that occurred including the San Bernardino issues and discussions – our political discussions that began late December and that has created to usher term a bit of a surge in the last six weeks or so. It’s done like prior surges.

However, I think this surge is much more modest and it’s more muted in terms of overall demand across a variety of ammunition products but it definitely has increased demand and we have seen that and been able to capture lot of that with additional sales in the last six weeks.

The ammunition continues to be – I think most focus in demand in pistol ammunition which is consistent with some trends we have seen previously and times likes this and also 223 and 556 ammunition demand has began to increase.

In terms of pricing, we have seen no broad pricing changes neither significantly up, nor significantly down by the competitive set in the market. It’s a general stability in pricing.

With promotional activity which was begun around the holiday season and then continues through the show season which is typical at some promotions in the end of our third and beginning of our fourth quarter. So nothing truly atypical with the exception of just that increased demand. .

Okay and with respect to the Savage arms business, are you now seeing some potential growth in that business after the low we have seen? Obviously, the mix data looks pretty favorable the last couple of months. .

Yes, the long gun mix have recovered as you mentioned and so Savage arms has been part of that recovery. We have also brought employees back in. As you’ll recall, we had some employee reductions we did back in the summer.

We’ve now been back in the hiring mode as we return back to higher levels of production at Savage, largely focused on center fire rifles.

But in Savage, we’ve also introduced a whole new line of shotguns in the Stevens brand which we are very excited about one of our strategies for Savage arms was to expand the capability of that brand and the product offering within that brand and we are seeing some very good success as we make move as to organically expand our offering which we think will help future revenue and growth as well.

But it is seeing an increase in demand as you mentioned following those mix checks..

Okay, one last one, just your comments on the M&A pipeline, can you characterize what you are seeing? Is it seller expectation still high? Is it a lack of available properties? How would you characterize the likelihood of a transaction over the next, call it, six months?.

Okay, well, I think, as only answer that as best I can without giving detail I can’t give in terms of specific targets or actions that might occur in the future. I think as we used to the term in the past and I would say it remains robust, we’ve used that term in the past.

We have a dedicated – as I mentioned in my initial comments, we have a dedicated team, they were at full-time only on M&A in terms of mining opportunities and seeking targets and beginning discussions with targets. I think there are lots of targets in this market as we mentioned when we launched the vision and mission for Vista Outdoor.

We talked about a $63 billion market in the domestic market and individual outdoor recreation. We explained to the investment community and to others who are interested in listening, that this is a very fragmented market with lots and lots of opportunity. That has not changed.

I think some of the expectations in that market, at least we have determined in our efforts through our M&A team and worked by the executive management team.

We determined in some cases the pricing is elevated upon what we believe that the appropriate responsible price for Vista Outdoor would be and we will walk away from those candidate companies if the price is not right and if the strategic fit is not right. But at the same time, I think we’ve demonstrated that we can find value.

We found value at Jimmy Styks that made sense. We found great value at CamelBak that makes sense. I am confident that we will find other value and be able to talk in the future about our efforts in M&A paying off. But our key is to drive a disciplined process and stick to our guidelines and principles in M&A in terms of strategic fit and price.

And that will pace the number of acquisitions which we are able to talk about with you. .

Thanks a lot guys..

Thank you..

And we’ll go next to Greg Konrad with Jefferies. Please go ahead..

Good morning and great quarter. .

Thank you. Good morning. .

I was just trying – I want to take a longer-term view, just when we think about your 6% to 8% long-term growth target, how should we think about ammunition in terms of price and volume growth and kind of where does capacity stands today versus what would be required to kind of get to that rate?.

Sure, and that’s always difficult as you know to look at into the future and predict what might happen with volume or what might happen to pricing, pricing for us is a competitive issue, that’s market-driven as is product mix is very important to those margins and to our growth rates depending on where consumers go and the kind of products that are in demand.

We think we are very well positioned for that. Stephen mentioned investments in working capital been important to us making sure we have the right products available for shipment.

We have had some mis-sales opportunities because we didn’t have the right products and inventory both in outdoor products, but also in our ammunition categories, that’s our investments in working capital are helping ensure that we don’t have loss revenue and profitability because we can’t deliver products.

So that’s part of our working capital investment plan and inventories and we mentioned in our road show almost a year ago that we needed to invest in inventory to ensure that we could capture demand. So we will focus on that to support growth.

I think in the near-term, Stephen mentioned in his remarks that the ammunition market has stabilized and we are seeing a return to modest growth in the low single-digits. It looks to us like that will likely continue trail for toward improvement over the long-term. There are lot of new shooters that have come into the market.

The demographics are good of those new shooters. We’ve talked about that in the past. A lot more diversity in the shooting sports in terms of female participation. A younger demographic of shooters continues to come into this market.

The shift toward target shooting from hunting consumes more volume in ammunition which benefits our factories which run more efficiently, obviously when we have higher volumes. So the indicators are good, I think for the future of the ammunition market.

And I think over the long-term, we don’t see anything today that is inhibiting our ability over the long-term to get back to those mid-single-digits growth numbers and I believe we are just beginning to get back on that course with these low single-digit growth numbers. .

And Greg, to your question about capacity as we look forward, as we discussed before, we’ve invested in a consistent basis in our ammunition factories and – but at a relatively modest level and we continue that year in, year out. We’ve added additional capacity every year for the last 14 years and we will continue to do so.

Obviously, if we saw more sustained higher growth rate at some point, we might revisit our levels of capital investment in those businesses, but right now, we are continuing those steady investments adding additional capacity particularly in those markets which have been hotter over the last few years which is really being rim fire and pistol over the last couple of years and we have made significant investments in those areas and those will continue to support capacity growth.

And obviously as we’ve discussed before, we will also do outsource – portion of our ammunition to the Lake City ammunition plant which may offer us increased capacity flexibility as we go forward in selected calipers. .

Yes, so I think Stephen’s point is important. If we are running our factories today at near capacity levels and if the market continues to grow as we believe it will, it will require additional investments in capacity. So we can maintain and grow our market share. So we are very mindful of that.

We are focused on trying to ensure we understand that long-term. I think we’ll have – I think, what Steve and I are both telling you is it appears to be favorable. .

Thank you. And then just, on outdoor products, there is some pressure on the margins. Some of that was mix, some of that’s foreign exchange.

Is that something you’d expect to kind of work itself out, this mix return to more favorable, I know, you’ve also made quite a bit in terms of productivity, whether it be facility rationalization or with Bushnell? How should we kind of think about that gross margin going forward?.

Yes, as you heard in my remarks, where I listed the win order significant – the most significant driver was the unfavorable foreign exchange impact. And it is very difficult obviously to predict that, if I could predict that with any uncertainty, I’d quit my current job and become a full-time foreign exchange trader.

But, we obviously see that in a year-over-year basis lessening its impacts, but in terms of absolute gross margin level, it may take a while to work that at the system. We are obviously working with our supply chain to get better pricing.

We have discussed before these supply chain initiatives we have underway in Asia and those started even before we faced these foreign currency headwinds. And so we will continue to work with those suppliers to try to reverse some of the impact of that, those efforts take a while. They don’t happen overnight.

So, we are not going to fix that – those challenges overnight. The unfavorable product mix, if that really varies quarter-to-quarter, and its impact even somewhat seasonal during the year where certain seasons where our mix is less favorable than others given mix between our various products with the winter sports, golf and alike.

And we can’t project that at this stage. But, obviously, expectations of reasonable performance are embedded in our fourth quarter guidance, for our full year guidance that we’ve provided today. .

And then just one last follow-up to that. I mean, you mentioned promotional activity.

Is that’s something that flows down as we exit your fourth quarter or is it tied to holidays and weather? How should we kind of think about that going forward?.

The bulk of it occurs around the holiday events in our third quarter and the show season in the fourth quarter. As we go through the show season, we mentioned some of the shows already with the SHOT Show or ATA or the PGA show, and there are lot of wholesaler shows in which we participate.

So the bulk of the promotional activity is during those two quarters. So it’s usually somewhat less in the first and second quarters of the year. .

Thank you. .

And we’ll go next to Brian Ruttenbur with BB&T. Please go ahead..

Yes, thank you very much. I wanted to ask about raw materials.

Is that helping you at all as a tailwind right now with copper and other things? Or is it really not that big an impact?.

No, Brian. It is important to us and we’ve mentioned in the past that we manage our purchasing of commodities in also very disciplined way. We try to mitigate risk in how we purchase commodities. We don’t run our business to try and make money on commodity volatility. We run our business to try and create stability in our cost line.

So that we have predictable low cost products that we can price profitably in the market. So we continue that disciplined approach to commodities, but it has been very helpful.

I remember when copper pricing was almost $4.50 a pound and also tough times and so it is a bit of a relief out for us to be able to be in a market where pricing is good and commodity pricing is also good. So we are taking advantage of that and it’s contributing to our margin performance..

But within Shooting Sports, Brian, as we listed the drivers of our gross profit performance, the improvement year-over-year, they were volume, product mix and then material favorability. So that is not the primary driver of our gross profit performance, but it’s certainly a significant driver. .

Okay. And then, along – I know that’s a lot of clean-up questions here, but the capacity utilization right now on your ammunition side, you mentioned pistol is ramping up, that your demand is ramping up. Rifle is coming back, center fire.

Can you talk about your capacity? Are you hitting capacity in any of those?.

I would characterize it as we are near capacity in a lot of our ammunition lines. If you look in general at ammunition in the third quarter, SHOT Show was very strong. Rim fire was very strong. Pistol ammo started out a little bit weak in the beginning of the third quarter.

We got consistently stronger, particularly in the last two weeks of December it strengthened and center fire rifle ammunition, you are in the hunting season, in the fall. So it was – I would say modestly up in terms of demand, but that’s also seasonal around center fire rifle for hunting.

And I mentioned that the Lake City product was seeing some increased demand in the very tail-end of the quarter, where it had been a little bit weaker earlier in the year.

So, broadly across the ammunition segment in the third quarter as a whole including what occurred in the last two weeks of December, things were generally healthy and modestly up and we continue to operate our facilities at near capacity levels across most of our ammunition categories. .

Yes, our utilization was similar to that which we’ve described the last few quarters. Obviously, as we’ve often disclosed, we continue to bring on new capacity every year by eliminating bottlenecks by increasing the efficiency of our existing lines. But our utilization rate is relatively unchanged from prior periods. .

Okay.

And then, last question, in terms of your guidance, I assume that your guidance assumes demand on your shooting sports continues strong in this first calendar quarter fourth fiscal quarter, is that correct?.

Yes, we see that, what we saw happening in the end of December and occurring through our show season. Again, Stephen mentioned our show season as a time when we have promotional activity which can create volume shipments and deliveries. So, we believe we are going to have a relatively strong ammunition quarter and that’s reflected in the guidance. .

Great. Thank you very much. .

Yes..

And we will go next to Jay Sole with Morgan Stanley. Please go ahead..

Hi, good morning. .

Good morning, Jay. .

Mark, you mentioned that the ammo sales are really accelerated over the last six weeks and it seems like, based on the next shacks and some of the industry data that the gun – gun sale acceleration is less little bit longer than that.

How do you think about the lag between ammo sales and gun sales and what’s happening in the industry right now compared to previously and what implications you think that has for the amount of ammo being stockpiled in people’s homes out there?.

Yes, there’s been some work done on trying to correlate mix checks to ammunition. And there is a correlation with a lag. So there is a correlation to what happens with mix checks representing as a surrogate for fire arm sales.

And there is a lag and that lag can be up to three quarters or so tracking, but there is a correlation between mix gun sales and about a three quarter lag for recovery in ammunition sales. So they are correlated.

I think that the impact that we’ve seen recently with increases again in the purchase of fire arms will lead to some increased demand in ammunition.

It is difficult because of the point you made and that we have said and we have publicly stated that we are concerned that some shooters have accumulated inventory at home or their own personal inventory and that maybe stocked up.

So that could impact that correlation going forward, depending on what those inventories are and that’s very, very difficult for us to have any kind of insight or data on the inventory levels that shooters may have accumulated. But as we said our guidance reflects, I think what would be a good fourth quarter.

As we look into next year, we will be giving guidance in the May timeframe for next year and we can talk more about what we expect then. .

Okay, got it. Thanks so much. .

You bet..

And we’ll go next to Jim Chartier with Monness, Crespi & Hardt. Please go ahead..

Good morning. Thanks for taking my questions. .

You bet..

On the outdoor products, the organic decline, is that primarily weather-related? I know last quarter, you talked about weather impacting the hunting season.

So just curious if that was primarily weather issues for you?.

So, as I went through my script, and tried to list the major drivers. The primary driver was actually the foreign exchange impact, it was the largest single impact. Also there was some decline in tactical products. Some of which is, potentially weather-related.

These are accessories to use, both for target choosing for certain hunters these accessories and then some softness in other product lines. So I wouldn’t think this is primarily weather-related. The overall softness in retail as we mentioned and weather had an impact on our business, but it was somewhat secondary to those other drivers I listed. .

Okay.

And then, on the ammunition business, do you believe that your sell-in is just kind of equal to sell-through? Or are your retail or distributor customers increasing their inventory to kind of meets into your demand?.

Yes, in our conversations which we’ve had recently over the past several months, I met personally with every major customer in the last couple of months in terms of whether they’d be retailer or wholesale distributors and I think what we heard from them is that sell-through was good that the order season in the November through January period has been strong, but that was going to allow for a sell-through of products without a lot of accumulation of inventory in the distribution channel.

As I mentioned on a couple of prior calls, I don’t believe we have ever on a call, talked about stuff the distribution channels impacting our financials of the company. I know other companies have had those conversations with you, perhaps we have not.

We are very careful to manage that and ensure that our products are selling through and that we are not just stuffing the channel.

And so, I think we have very good sell-through of our products, particularly towards the very end of the third quarter that really helped I think with some of the inventory levels in distribution and retail because that surge in demand pulled a lot of inventory through the system and off the shelf.

When I am in retail outlets looking at inventory stocking levels, it’s still very difficult to find some of our ammunition products in stock. I mean, rim fire ammunition remains scarce. Some pistol ammunition is picking up again and coming off the shelves nicely. So I think, for the most part, our products are selling through. .

Very good. Thanks and best of luck..

You bet. Thank you..

And we’ll go next to Robert Sassoon with R.F. Lafferty. Please go ahead..

Hi, thanks for taking my call. In terms of the retail trends, you say the recovery is more muted.

Do you think this is actually a sustainable trend? You mentioned that there has been acceleration maybe reaction on the shooting sport side and reaction to the San Bernardino tragedy?.

Yes, I think that based upon the demographics in the shooting sports and consistence on what we’ve said in the past, we believe this is a long-term growth industry. The shooting sports has a track record going back into the early 80s through today of growth, which cyclical perturbations around geopolitical events.

You’ll see those cyclical perturbations whether it be Y2K, whether it be Presidential Elections or whether it be other issues that occur that creates spikes or valleys in that. The long-term trend is a growth trend. We believe over the long-term that this is not just a surge.

We believe over the long-term that this is still a growth industry and we believe that will be manifest through increased purchases of ammunition and we’ve mentioned that we are seeing that growth as Stephen mentioned in his remarks, organic growth is beginning to return, stabilization in the markets is beginning to manifest itself.

So we do see continued growth. We don’t think this is just a spike. However this is an election year, 2016 is an election year. Election years tend to be good years in terms of purchases of fire arms and ammunition. So we would expect that that geopolitical event around the national election will help.

But again, speaking of the long-term, we do believe this is a growth market..

When you talk about your long-term organic sales, and it was like 20%, what sort of that – what is – could you tell me what that period is? Is it three years or five years?.

We have not laid out a period and said that that number is tied to two years, three years, five years. Our crystal ball is not that clear.

But what we do know based upon the demographics that more shooters, younger shooters, a better demographic of shooters range as being open, consumption of ammunition appearing to be healthy that all those indicate to us that we have a long-term opportunity to see continued growth. And we have not quantified that into years. .

You guided on the free cash flow, it’s basically a little lower than the top-end of the range than the previous range and then that’s just that your operating cash flow guidance has come down a bit.

What’s the main reason for that?.

Yes, it’s really two main drivers of that. If we go back to about nine months ago, I guess, we had our first earnings call as Vista Outdoors it would have been fourth quarter fiscal 2015 call, we did discuss how at that time inventory was particularly low and was lowered and ideally we would like it.

As we discussed few times a day here, we have been increasing inventory to support to have better fill rates from our customer as Mark mentioned that there has been quite some times where we could have had higher sales, but for the lack of inventory we had in specific products and this was not just within the typical ones we talk about whether it be rim fire or certain rounds in pistol.

It was also in several portions of our outdoor products segment, where quite frankly we had lower inventory than I deal. So we are ramping up our inventory to support that. And the second driver is promotion-related payment terms.

As we’ve discussed before in these calls that is a staple, that’s a standard feature of our markets, where certain customers are given extended payment terms and there is a little bit more of that going on and so both of those in junction are just tampering the top-end. We still think it’s a very strong cash generating year.

We are not concerned about our cash generating capability, but we are unlikely to hit the higher end of our previous range. So we just took the top-end down slightly. .

Okay.

And you mentioned that the EBITDA margin guidance, the current year is – in the midpoint of you are likely to be in the midpoints at least the range 14% to 16%?.

Yes, we’ve previously, on the prior call, talked about being at the lower-end of that range. I think now with – in conjunction with the EPS raise, we are now more towards the middle of that range and very pleased with our EBITDA performance and very pleased with the support improvement that we are able to share with you today..

And we’ll go next to a follow-up from Gautam Khanna with Cowen and Company. Please go ahead..

Yes, I was wondering if you could comment on 556 and 223 ammo which had been weak.

Are you seeing a pick up in that demand yet?.

Yes, Gautam, that’s – that has also begun to see a little bit of a pick up occurring in the very end of our third quarter. So, back looking again this call it’s about the third quarter, we began to see some of that in December.

It picked up in the second half of December and we think that we are going to be able to get back to a little bit of a more stable view in terms of 556 and 223.

We’ve been whipsawed a little bit by demand being peak demand and then demand really softening on us and that’s what you are referring to as we’ve talked about that in the past that it softened through the summer.

It appears to be coming back and we are anticipating hopefully some stabilization from the softening we saw in the summer to the pick-ups we’ve seen in the last few weeks. .

And that was the summer of 2014 when the real softening began, that markets we’re into right..

And, Mark, are you seeing evidence of double and/or triple ordering, as you have in prior surge periods where you worry about – you fill the first order and the other ones get canceled or how do you kind of….

We put a very focused effort, Gautam on that to make sure that – to make sure we have better visibility into that.

We put forth right at the launch of this – about the time of the spin in that very first quarter, we did a very concerted effort to work with our customers to go back through and open up all open orders and ask them to go in and scrub those orders with us to determine the quality of the orders versus what might have been panic ordering for quantities which of course were way overstated.

We think we did a good job getting that cleaned up at the first of the year.

We’ve monitored that throughout the year with our sales team and we believe our orders now are a good quality of orders and that that phenomenon that we saw that really began a couple of years ago, largely has subsided and our orders now are much better quality and our backlog position is a much more reliable backlog position.

And we are actually managing our factory schedules and deliveries against that and we’ve had very good success this year, because the quality has improved. .

Okay, and that’s – that also extends to OA’s Lake City facility there – they are on time, there is no issues now that you don’t own that asset?.

Well, they’ve struggled a little bit to deliver against some of the increasing demand and so, we have had some challenging situations trying to work with Lake City.

As you know, they went through their own cycles of military ammunition in their company and have restructured some of what they’ve needed to do at Lake City on their prime contract and we have been impacted by some of that.

But, I met with them recently the executive leadership of OA, just actually a few weeks ago and they are quite confident that they have brought stability back into that factory and that will improve the reliability in their orders.

So, we are feeling better about that, but we did had some challenges in the last year in getting the quantities we wanted in the timeframes we needed them. But we are feeling better going forward that the improvements that they’ve been making at Lake City will lead to stability for us as well. .

And can you renegotiate that contract? I can’t remember, was it three years?.

That’s a three year term. So the contract has a three year term and then it has renewal provisions based upon the length of the time in which OA is operating that facility. But it is open for discussions as we approach the end of the initial three year term which has two years remaining for revisiting terms and conditions within the contract, yes. .

Okay, and last question, R&D tax credit, is there any impact on a go-forward basis on your tax rate?.

There is an impact, but it’s really immaterial in the grander scheme of things. .

Okay, so we should be using, what going forward?.

So, we guided for this year 38% is our tax rate for the year and we reaffirm that today. There is no change in our projected tax rate for the year. .

Okay, and so, when we project that for 2017, that’s what we’ll use, 38%?.

We haven’t guided 2017 yet. We will provide guide for our tax rate in 2017 as part of our overall guidance in May. .

Okay, thank you very much guys. .

Thank you, Gautam..

Thank you..

And there are no more questions at this time. I’d like to hand it back over to our presenters for any additional or closing remarks. .

Okay, thank you. Thank you all for joining us today. We had a terrific quarter and it’s pleasure to be able to report our progress over the first twelve months of Vista Outdoor. Thanks for joining us and we look forward to talking to you again in a few months. .

And this does conclude today's conference. You may now disconnect and have a wonderful day..