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

Greg Konrad - Jefferies Rommel Dionisio - Wunderlich Andrew Burns - D.A. Davidson Brian Ruttenbur - BB&T Jim Chartier - Monness, Crespi & Hardt Scott Hammond - KeyBanc Capital Gautam Khanna - Cowen & Company.

Good day and welcome to the Vista Outdoor’s Fourth Quarter and Fiscal Year 2016 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..

Thank you. Good morning, and thank you for joining us for our fourth 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 the information known to us today. These forward-looking statements are subject to the risks and uncertainties that face Vista Outdoor and the industries in which we operate.

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

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

Okay, thank you, Mike. Good morning, everyone. Thanks for joining us this morning on our fourth quarter and our full fiscal year 2016 earnings call. In the last fiscal year, we achieved $2.27 billion in revenue, up 9% from the prior year and up 3% organically.

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

FY16 was a year of solid achievement for Vista Outdoor. We demonstrated to shareholders, partners, customers, consumers, and our employees, our ability to establish and execute a broad and defining strategic vision for our company.

Our focus on strategic growth and portfolio management resulted in $850 million in acquired business, including Jimmy Styks as you know is a leading supplier of stand up paddle boards, CamelBak, the world leader in personal hydration solutions and Action Sports with its category leading brands Bell, Giro, Blackburn, as well as Copilot, Krash! and Raskullz.

These acquisitions repositioned and broadened Vista Outdoor and rebalanced our portfolio with leadership in Shooting Sports and in the Outdoor Products Markets. We are now supplying the personal hydration in water sports Markets and have positioned Vista as a global leader in protective equipment for cycling and for snow sports.

The integration of our latest acquisition of Action Sports is going very, very well. I'm impressed by the management team and the rigor Action Sports brings to new product development and marketing. Their R&D facility in Scotts Valley, California houses industry leading design, development and testing facilities.

Action Sports’ commitment to safety, quality, innovation and performance is a real testament to the passionate employees who have made those brands leaders.

We are integrating the Action Sports team into a broader Vista Outdoor sales organization and are focused on opportunities for synergistic growth in cycling and snow sports markets with CamelBak, Bollé and Cebe brands. Leveraging our strong trade relationships across all brands remains a core strategy for the company.

Now with 50 brands, we are at leadership position and a key supplier to numerous top retail and wholesale customers. The integration of all of our recently acquired businesses is on track. We continue to develop best practices to ensure shareholders, the company, and our consumers all benefit from acquiring these market leading assets.

In terms of overarching Vista Outdoor accomplishments, we all know standing up a publicly traded company can be challenging; however, we were able to efficiently achieve outstanding results while at the same time putting in place new systems, programs, people, and new processes.

Throughout the year we've worked to further strengthen our already capable and talented teams. In the fourth quarter, we hired Kelly Grindle to lead our Outdoor Products segment. Kelly has nearly 20 years in consumer products and was previously with Johnson Outdoors.

His experience in the outdoor recreation market and his business background have added real value to the company. Kelly oversees more than 35 diverse brands that span individual recreation markets. I appreciate his strategic leadership and experience and his focus on results.

This week, Bob Keller joined Vista Outdoor’s as President of the Shooting Sports segment. I look forward to leveraging his 30 years of consumer products experience to help us deliver growth, profitability, product innovation, and execution excellence.

Bob was recently the President and CEO of Escalade Incorporated and has also held leadership positions in Disston Tool Company, the Russell Corporation, Coca-Cola and the Clorox Company.

Bob is a capable and passionate business leader who loves the outdoors and will bring new perspectives and a full complement of excellent leadership capabilities to our Shooting Sports segment. Bob will replace David White who recently announced his retirement after 40 years with the company.

I'd like to thank David for his many contributions over the years, including his oversight of the Shooting Sports segment last year and wish him well as he heads to the golf course. We repositioned our portfolio by significantly expanding beyond our traditional shooting sports capabilities.

To support this broad portfolio of brands and products, we've added Dave Allen to my Senior Executive team. Dave will serve as Vista Outdoor’s Senior Vice President for Sales. Dave was most recently the President of Coleman USA for the Jarden Corporation and has over 20 years of experience in consumer products.

Dave will be a key leader in executing our commitment to deliver global sales strategies, integration of acquisitions in the global sales model and he will be very positive influence on the sales organization, our customer relationships, and the company as a whole.

He has extensive experience operating within our primary sales channels and I'm confident he will hit the ground running. Dave is a very capable and respected executive in the outdoor recreation industry. He is results oriented, energetic, strategic, a team player and has a track record of accomplishment and excellence.

I'm extremely pleased that Vista was able to attract these top executives. Kelly, Bob and Dave all share my vision for Vista Outdoor and my commitment to results, strategic growth, and creating a world leading outdoor recreation company.

They are skilled and respected leaders who will further strengthen an already talented and capable executive leadership team. In FY16, Vista Outdoor demonstrated a culture of execution excellence. This culture of excellence is highlighted by our world-class safety and environmental stewardship performance.

One of many success stories is our Savage Arms facility in Lakefield, Ontario, where we achieved approximately 235,000 work hours without a single recordable injury. At Vista Outdoor, our social responsibility is also an important part of our culture.

Our mission is to bring the world outside and one of the ways we do this is through support of conservation organizations to put vital resources into wildlife habitat development. We are committed to conservation programs that advance the future of wildlife and wild places.

We advocate for safe and responsible recreation through our own initiatives and through our strategic partnerships. In FY16, Vista Outdoor contributed to conservation programs like Pheasants Forever, the National Wild Turkey Federation, Safari Club International, Rocky Mountain Elk Foundation through our branded royalty programs.

During the PGA Show in the fourth quarter, Vista Outdoor donated over $0.25 million to Folds of Honor Foundation through our royalty program on Bushnell Golf Laser Rangefinders. This program supports higher education for children of veterans and our wounded warriors.

CamelBak recently launched a program celebrating the centennial anniversary of our national parks. For every national park commemorative water bottle sold, $2 will be donated to the National Park Foundation. I believe employee engagement is key to a successful company.

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

To highlight some of Vista's outdoor achievements, I'd like to share with you a few key recognitions we received in the quarter. CamelBak was recognized by TotalWellness Health as having a world class wellness program. ACG Utah named Vista Outdoor its Dealmaker of the Year for our strategic acquisition of CamelBak.

Cabela's honored us with its 2015 Strategic Partner Award, demonstrating the importance of our roll and our productive relationship with this major outdoor retailer. Cebe won the ISPO award for its Fireball Junior snow helmet.

The ISPO award is determined by an independent panel and serves as a reference for retailers when they are choosing innovative new products to offer their consumers.

Federal Premium Ammunition won Telly Awards for outstanding new television commercials for our Fusion and our Black Cloud products and our Savage A17 rifle received numerous awards for its pioneering design and functionality including NRA's 2016 Golden Bullseye Award or Rifle of the Year. We delivered solid results across-the-board in FY16.

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

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

We call these ongoing efforts our factory of the future initiatives, even with factory of the future initiatives we see the opportunity for enhanced long term growth in our ammunition business.

Given that we've been operating near capacity in our ammunition factories the strength of our ammunition brands and the continued demand for more of our products we are initiating an ammunition capacity expansion project.

We are the world leader in ammunition and we intend to retain our leadership position, as well as capture additional share through low cost manufacturing, efficient capacity expansion, increased innovation, strong branding strategies, and an unparalleled distribution network.

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

As we continue our pursuit of organic growth, we will maintain a sharp focus on opportunities for continued acquired growth. Vista Outdoors acquisition pipeline remains robust with numerous potential opportunities.

The cash generated from our operations, along with our strong balance sheet, give us flexibility we need to pursue additional strategic opportunities, while also investing in our organic capabilities. In addition we will continue to repurchase shares under the company’s existing two year share repurchase authorization.

We anticipate fully executing the current share repurchase program this fiscal year. I'm very proud of our first year and the foundation we've built for Vista's future growth and performance. I remain very optimistic about Vista Outdoors future. I'm proud to be part of the great new company.

We are focused on strategically investing in our future to modernizing and expanding our operational capabilities, funding our innovation engine, enhancing our marketing and branding initiatives, and developing our talented workforce, all with the firm commitment to deliver long term shareholder value.

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

Stephen?.

Thank you, Mark. Good morning, everyone and thanks for joining our Fourth Quarter and full year fiscal 2016 earnings call. We've disclosed both as reported and adjusted results in our press release to assist you in your understanding of the underlying numbers and to assist in comparison to prior periods.

You will find a more detailed financial presentation of our fourth quarter and full year fiscal 2016 performance on our website. Today, I will discuss the adjusted results. First for Vista Outdoor overall, and then I'll provide a little more color on the drivers for the segments.

For the fourth quarter, we recorded sales of $612 million, up 26% from the prior year quarter and up 15% on an organic basis. Both segments were up organically year-over-year. In addition, outdoor products results include $56 million of sales from the Jimmy Styks and CamelBak acquisitions.

The Company achieved full year sales of $2.27 billion, up 9% from the prior year, including $120 million of sales from acquisitions. Organic sales for the year were $2.1 billion, up 3% from the prior year despite unfavorable foreign exchange impact in outdoor products.

Our fourth quarter gross profit of $164 million was up 33% from the prior year period, including $22 million of gross profit from acquisitions. Organic gross profit for the quarter was $142 million, an increase of 15% over the prior year period driven by Shooting Sports performance.

Full year gross profit was $619 million, up 17% from the prior year, including $48 million in gross profits from acquisitions. Organic gross profit was $572 million, an increase of 8%, driven by an increase in Shooting Sports, partially offset by the unfavorable foreign exchange impact in outdoor products.

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

Full-year operating expenses were $343 million, compared to $267 million from the prior year. The increase reflects additional operating expenses incurred by the acquired businesses, standalone company costs, stock-based compensation, and additional selling and marketing investments.

Interest expense for the fourth quarter was $7 million, up 54% compared to the prior year period, as a result of the increase in average debt balance and an increase in our average borrowing cost. Interest expense for the full year was down $6 million.

The company’s financial statements for the prior year included approximately $29 million of interest allocated to Vista Outdoor prior to the spinoff. The tax rate for the quarter was 38.2%, compared to 35.4% in the prior year quarter. The tax rate for the year was 37.9%, compared to 35.4% in the prior year.

The increase for both the quarter and the full-year were primarily driven by adjustments to deferred taxes and payables, partially offset by a favorable accounting method change for the treatment of stock-based compensation. EPS in the fourth quarter was $0.63, up 34% from the prior year quarter. EPS for the year was $2.50, up 6% from the prior year.

These increases were due to the results just discussed and share repurchases performed throughout the year. Free cash flow for the full year was $163 million, compared to $160 million in the prior year. This increase was primarily driven by improved usage of working capital.

The company repurchased approximately 572,000 shares for $27 million in the fourth quarter under our $200 million two-year share repurchase program. Since the end of the fourth quarter we've repurchased approximately 200,000 additional shares for $10 million.

So since the programs initial authorization we've repurchased a total of approximately 3.5 million shares for $159 million, which is approximately 80% of the authorized program. Now turning to our business segments where we report both sales and gross profit.

For the fourth quarter our Shooting Sports segment recorded sales of $382 million, up 22% from the prior year quarter. The increase over the prior year quarter reflects increased demand due to the market stabilization and return to growth that we began to see earlier this year.

For the full year Shooting Sports reported sales of $1.4 billion, up 4% driven by firearms and rim fire ammunition, partially offset by a decrease in shotshell. Fourth quarter gross profit was $95 million, up 23% from the prior year quarter. Full year gross profit in Shoots Sports was $377 million, up 14% from the prior year.

These increases were driven by the sales volume increase noted previously by product mix and by favorable material procurement. Now turning to our outdoor products segment, fourth quarter sales were $230 million, a 34% increase in the prior year quarter, including approximately $56 million of sales from acquisitions.

Organically, the segment was up 2% over the prior year quarter driven by an increase in shooting accessories, partially offset by tactical products. For the full year sales were $862 million in the segment, up 18% from the prior year, including $120 million of sales from acquisitions.

Organically sales of our outdoor products segment were up 1% year-over-year, driven by shooting accessories, golf, and optics, partially offset by tactical products and unfavorable impacts from foreign exchange rates.

Outdoor products gross profit for the fourth quarter was $69 million, a 46% increase from prior year quarter, including $22 million from acquisitions. Organically gross profit was flat compared to the prior year. The benefit from the organic sales increase was offset by unfavorable product mix and increased sales programs during the quarter.

Gross profit for the full year in outdoor products was $243 million, an increase of 21% from the prior year, including $48 million from acquisitions. Organically, gross profit was down 3%, due to unfavorable foreign exchange impacts and unfavorable product mix. Looking forward, we established fiscal 2017 financial guidance for our existing business.

We expect fiscal 2017 sales in a range of $2.72 billion to $2.78 billion. As we’ve previously noted, the company expects revenue of approximately $350 million for Action Sports in calendar year 2016. Our fiscal 2017 guidance reflects investment in R&D of approximately $30 million. We expect EBITDA margins to be approximately 15%.

Our fiscal 2017 guidance also reflects interest expense of approximately $45 million, including amortization of financing costs. The effective tax rate for the year is expected to be approximately 37%. We expect EPS in the range of $2.65 to $2.85 per share, which includes a $0.07 to $0.10 contribution from the acquisition of Action Sports.

Our expected fiscal 2017 capital expenditures of approximately $90 million support both the start of the ammunition capacity enhancement plan that that Mark discussed earlier and the full year capital investment for our recent acquisitions, particularly Action Sports, which closed on April 1 and which accounts for approximately $10 million of the expected capital investment in fiscal 2017.

Even with these investments in future growth we expect free cash flow in the range of $130 million to $160 million. In closing, we are excited about our prospects for fiscal 2017. We are very pleased with our operational performance and our execution of our strategic M&A growth plan.

The investments that we plan to make across this outdoor will reinforce our position as a market leader in individual outdoor recreation and support our mission of bringing the world outside. With that we'll open it up for questions..

Thank you. [Operator Instructions] We'll go first to the site of Greg Konrad from Jefferies. Please go ahead..

Hi, good morning..

Hi, Greg..

I just wanted to start with the ammunition capacity expansion. It looks like maybe $40 million of spending in 20017, can you maybe size the three year program and then just as a follow-up to that, I think on last call, you talked about yet you'd continue to look at capacity expansion based on market signals.

Is there something specifically that you're seeing today that makes you comfortable moving forward with the expansion plan?.

Sure, so let me address the latter part of your question and I'll let Steven jump in and talk to you about the funding.

So, in terms of the strategy behind the expansion plan, as you know, Greg we've talked for some time about the fact that we have been very, very successful in driving extra capacity uptime and throughput through our facilities and as you know we've invested year after year after year for well over a decade in an ongoing investment in automation and efficiency through capital investment into our factories.

That has allowed us to compete, has allowed us to have substantial organic growth and do it with very minimal investment.

However, we've been able to drive these plants to be successful, but as we see the increase in the Shooting Sports demand continuing and now beginning to rebound, as we see 17 million new shooters have come into the sport, you now have over 50% of those new shooters are female, it used to be over a third, now it’s over half, brand new female shooters.

You see the average age of the shooter is hovering right around that 18 to 34 year old range as the average age of the new shooter, all of these things bode very, very well for long term support and consumption of volumes of ammunition beyond what we believe we might be able to produce through our current investment in capacity.

So this project is about a three-year program. We're going to kick it off this year. It is stage gated, so we have the ability with several off ramps as we execute the program. It will be across rim fire ammunition, center fire ammunition, and shotshell, and it's going to allow us to ensure we compete and maintain our number one position in ammunition.

I will know allow other companies to come in and enter our markets and compete with us and take share away simply because we failed to invest in capacity expansion.

So, our investment will allow us to compete, it will allow us to grow share, and it will allow us to maintain our number one position, and so that's our strategy and the time frame we're working to across the full ammunition complement. I'll let Stephen jump in and he can explain to you what we're doing in terms of the investment..

Thanks Mark. Good morning, Greg. Obviously, we don't provide guidance for 18 and 19 at this point in time. And as Mark said there are certain off ramps potentially in our capacity enhancement plan, so I can't give you exact numbers that said certain fiscal 2017 represents a full year of investment in our capacity expansion plan.

I would not expect future years to be any higher than our investment level in 2017. So if you take that as a ceiling for future investments I think that would be the best guidance I can give you at this point in time..

Thank you and then just backing into the 2017 guidance, I calculate maybe 2% to 5% organic growth implied by your guidance.

I guess first, is that kind of the right range and then if we balance that against your long term targets, what type of market conditions or events get us to kind of that 6% to 8% range?.

I think that is the right range. So I think generally you've captured that probably exactly right. We talked in the past that we believe we would come out of the turnaround, which we, as you know predicted almost perfectly, one of those things would occur from a timing perspective. So we're very well prepared for that.

We had put in place programs to be prepared for the setbacks that may occur in Shooting Sports as it took a breath and then as it began to grow again.

So we have said that we thought we would come out of this with low single digit growth and then over the long term that growth would be able to progress into that mid-single digit 6% to 8% organic growth. That growth will also be supported as we manage our portfolio and diversify the portfolio into markets that are also having good growth measures.

So, I think you're exactly right.

I think that that's what we're telling you and that's what the guidance is showing and I think as the portfolio expands and changes and I think as Shooting Sports stabilizes, as our acquisitions come on Board and we begin to drive growth from those acquisitions all those things are on our path to get us to the mid-single digit growth rate..

And certainly Greg as we’ve mentioned in our note we start to see capacity coming online from our capacity enhancement program toward the end of fiscal 2018, certainly we start to get into fiscal 2019 you're going to start to see us get back to those more traditional growth rates for the ammunition sector of our business..

I’m just going to sneak one last one, I'm sorry.

Just in terms of 2017, when we think about ammunition, have you included any type of price increases or is that more kind of captured as you go throughout the year if it happens?.

Yes.

When we look at our ammunition strategies on pricing of course as you know Greg it's a very, very competitive market and so right now as we go forward we've looked at pricing facility going into FY17 that's been our assumption as pricing stability and we'll just have to monitor those changes in our competitive position as we go through the year..

Thanks for your time..

You bet, thank you..

We'll take our next question from the side of Rommel Dionisio from Wunderlich. Please go ahead..

Thanks very much. So in the last several months we've definitely seen some significant actions taking place or significant events taking place among big box retailers of sports goods, some bankruptcies, rumors about potential consolidations.

How do you guys think about that strategically long term? You've obviously been so successful gaining shelf space and having long entrenched relationships with these big retailers strategically.

And I’m not just talking about near term bad debt expense and those sort of issues or inventory consolidations, but more long term how do you look to position yourself as the retail environment changes pretty dramatically?.

Yes, I think that's a good question. We all saw what happened to the stock market yesterday. We saw the poor performance in Macy's and Disney, which led the dove [ph] down. A lot of discussion today about weak retail environment continuing. Obviously, we're concerned about that and pay a lot of attention to that. I think if you look at our results.

Our results have typically been able to overcome the weak, the major weak retirement sectors based upon our brands and based upon our broad distribution.

So one thing I would share with you just to give you some additional insight, although we have great relationships with key retailers and you mentioned big box, we certainly have strong partnerships there, regional chains are important to us, mass merchants are important to us, but independent dealer network.

So we do a substantial amount of our business through buy groups and through wholesale groups in addition to our just direct sales and distribution to retailers and those serve 10,000 independent dealers across the country and a lot of these are privately held small family businesses, so we have a very diverse distribution network, which we think is a great competitive advantage for us.

We are actually really, really good at servicing major retailers, while at the same time servicing small independent dealers. So, I believe all of that bodes well for us because we are in all geographies across the globe, with all outlets for our products being important to us.

I think as you look at what's happening in the outdoor retail sector and you hear the rumors of mergers or consolidation, you see some of the bankruptcies you described. Our exposure by the way, I would mention our exposure to those bankruptcies is minimal.

It's immaterial to the company in terms of any exposure we've had to sports authority or [indiscernible], or others is immaterial to us. So we've not had big exposures from some of those announcements you mentioned.

So again I think our strategy which we have touted for some time about ensuring that we have the best distribution network in the world will allow us to weather those retail storms..

Great, thanks Mark, congrats on the quarter..

Thank you very much..

We'll take our next question from the side of Andrew Burns with D.A. Davidson..

Thanks, good morning. Just a quick question in terms of the Shooting Sports gross margin, the timing of calendar based customer incentive programs.

Was there any change year-over-year or as you can just help us better understand the mechanics there and whether we should model that sequential decline annually going forward?.

Thanks, Andrew it's Stephen, good morning. So no, it really was as we've described just a timing issue given its calendar based of trueups at the end of the calendar year and then the new rate at which we would be accruing in what is the first calendar quarter for the fourth fiscal quarter, so there's no significant change in those programs.

There's no reason to expect overall for full year any material change compared to prior years..

Thanks, and as we think about your revenue guidance, I was hoping you could spend a little more time in terms of what kind of environment you're factoring in as you think about the upcoming fiscal year. Clearly as you mentioned the retail traffic issues, but this is an election year, we just came off some mini cycle in terms of firearm surge.

What's factored into the high end and the low end of guidance as you think about the environment?.

Sure, so we obviously as you said have thought through this and tried to get the best indicators we can and it is an odd year in terms of being a major election year with Canada stumping on guns and ammo and yet we aren't seeing this big surge that maybe we saw in 2008 and 2012.

So, I think what we have factored into this guidance is we aren't banking on some unpredicted huge election year surge.

We are banking on stability and growth, return to growth in the shooting sports, we are banking on more consumption of ammunition by millions and millions and millions of new shooters and significantly increase in target shooting and range shooting, which of course as we've explained in the past consume a lot more ammunition than the traditional hunter does.

So, we've taken a very middle of the road view in terms of our guidance and a return to growth position. Our firearms business savage is ramping up doing very well and ramping up producing against higher demand this year. So that's good.

We had significant improvement in capacity from our organic resources last year, which allowed us to service some of that growth we experienced in the fourth quarter. So, I was pleased to see us capture that growth. So this does not bank on traditional election year surges.

This banks on execution across a broad portfolio and outdoor wreck, as well as shooting sports.

On the lower end we've tempered a little bit that there could be some unforeseen instability in the outdoor rec market and that could be in part because of slow retail environment and consumer spending, but we believe our range accounts for all of those general market themes without banking on any unforeseen surges or spikes..

Thanks and best of luck..

Thank you very much..

And we will take our next question from the side of Gautam Khanna from Cowen & Company. Please go ahead..

Hi thanks. This is Bill on for Gautam this morning..

Hi, Bill..

I had a question for you on the CapEx and R&D and what you are expecting for return metrics either IRR or ROIC?.

Sure, and as we've discussed before we obviously have a hurdle rate as we look at these and it is well above our cost of capital, but we have not publicly disclosed our exact hurdle rate, so I can't give you the exact number, but what I can tell you is the capital investments we're making this year and obviously the bulk of the increase in capital investments we’ve discussed is growth CapEx.

While there's a small amount of maintenance CapEx within the 10 million in Action Sports, the vast majority of the increase is growth CapEx and that growth CapEx carries quite high IRR, which is in fact some multiple of our hurdle rate and that's all I can really disclose at this point in time..

Okay, thanks and then another question on the R&D, is that more geared towards the outdoor products or the shooting sports in fiscal 2017?.

It's really both. We are very focused in both segments in driving what I call our innovation engine. So we are increasing our R&D and Marketing spend across our 50 brands in both segments. We've got a very, very detailed management deep dive into opportunities for innovation.

All of our global product line managers held off sites and did brainstorming sessions and it was very exciting. We came up with thousands of new concepts for innovative new solutions much like we were able to do when we brought out the A17, which frankly was a revolutionary development.

So we're very excited across the portfolio that there are real opportunities to enhance innovation and new product development and that investment will be spread into both segments..

Okay thanks and then on the Shooting Sports gross profit margin it was up nicely this year, do you expect it to be up again in fiscal 2017, any benefit from commodities heading into this year?.

Look as we discussed and we gave the drivers of the gross profit and gross margin improvement for the full year in Shooting Sports it was really product mix and favorable raw material procurement. As we sit here today, we see no reason to believe either of those is swinging back against us in any material way.

So we aren't providing guidance at the segment level. I would expect another strong year for Shooting Sports..

Okay thanks and then one last one. D&A this year, how should we think about the step up in amortization from the acquisitions and should we expect the depreciation to be flat? Thanks..

So depreciation will be up modestly, obviously you can look at the CapEx level of the acquired companies. We talked about the 10 million to Action Sports that clearly brings some depreciation with it in addition to the amortization related to the acquisition itself.

We certainly provided, I mentioned in my script, our expectation of the EBITDA margin in the 15% range and obviously, there's an implied EBIT margin that's pretty easy to derive from what we gave you in terms of guidance for the fiscal year taking our interest in EPS guidance. So you can quickly get to what a D&A number is, but we don't guide in D&A.

I think you've got all of the pieces and parts to calculate it fairly easily..

Thanks so much..

You bet..

[Operator Instructions] We'll go next to the site of Brian Ruttenbur from BB&T..

Yes, thank you very much. A couple of quick questions. First of all on capital expenditures.

Can you give us a break down of what's going into firearms and firearms accessories and are you spending money or CapEx in those areas or is it just ammo?.

Sure. Thanks, Brian. I was actually looking at our script from last quarter, Brian, and you are one of the analysts that I talked to when we gave you an early indicator we would be vesting in more capital this year.

I went back and read that and throughout that call we mentioned the opportunity to review and the fact we were reviewing capacity expansion to drive growth. So we're just basically delivering on what we signaled last quarter.

But to your question, we do not break out that information in terms of where we're investing capital as you know it's a very, very competitive marketplace between firearms and ammunition producers. So let me try and give you some color on that.

We have been investing capital routinely in our firearms business since the acquisition of Savage and that capital has included realigning that factory and putting even though they were very, very good, we were able to provide them some additional resources and they put that to work in lien factory layouts as well as expansion of our range and testing capabilities for savage, so that capital has generated terrific returns and allowed us to grow and do so efficiently.

We will continue to invest in our firearms business capital, but I don't see a major capital component in firearms and then the bulk of our additional CapEx is going to be obviously in the ammunition capacity expansion that we alluded to last quarter and then clarified on this call, but we also do invest capital in our optics businesses, in our hunting and shooting accessories business, and elsewhere, in tooling, and other capital investments making those products, but the bulk of it will be in ammunition..

Great. And then another question on promotional activity was mentioned customer incentive programs in the fourth fiscal quarter.

Do you expect to see this going forward in ammo work and firearms?.

The bulk of that was in our Outdoor Products segment. And in our Outdoor Products segment, we had a variety of programs that we implemented with retailers and functional wholesalers to sell-through those products in the fourth quarter. Outdoor products typically sees as a strong holiday season.

It's a little more dependent upon a strong retail environment and walk-in shoppers, if they got those products versus ammunition firearms, which is typically a drop for retailers to bring people in, so they buyout our product accessories, so most of it was in that channel.

And our approach to this is we pride ourselves on focusing on profitability and cash flow and as necessary, we will engage in promotions for growth. And so based upon the environment, we make those decisions as we get into the holiday season and we'll just do that again this next year..

Great, thank you very much..

Thank you..

And we'll take our next question from the site of Jim Chartier from Monness, Crespi & Hardt..

Good morning. Thanks for taking my questions..

Good morning..

Just wanted to talk about how you think about kind of the recent spike in firearms and ammunition, now that things seem to have normalized a little bit.

Was there a pull-forward in demand and how do you see that kind of playing out, should we see some slightly lower growth in ammunition and firearms in the next couple quarters as you kind of compensate for the last couple of quarters?.

Sure. So the mini surge that we saw that began in the end of December really followed the Paris and San Bernardino incidents, which created some mini peak demand again. That demand was not sustained. It's already settled into a more stable environment, so it was what we call a mini peak.

I think that bodes actually well for the shooting sports that we're getting beyond some panic buying or some pull-forward buying as you alluded to.

We're getting into what I hope will be a more normal operating environment and that's of course what we have banked our guidance and plan on is getting it back to a more normal growth environment, not counting on these unusual spikes and certainly none of us want to see anymore of those kinds of events.

In terms of our business and pull-forward, there's been minimal pull-forward in the Vista Outdoor portfolio we believe. We still are in a very strong order position in terms of our ammunition and firearms.

We are still working very hard to keep up with demand in both ammunition and firearms, and the demand is nicely balanced across our portfolio on the Shooting Sports side.

So it isn't just peeking at a certain caliber, even though 9-millimeter still remains very strong for handguns and 223/5.56 remains fairly strong for small rifle, but we believe that hopefully this next year is going to be a year of a lot more stability and that we'll be able to manage in a way in which we won't constantly be chasing temporary spikes and certainly that's what we're seeing in the early part of the year..

Great. And then if I could have another question. You've talked a lot about kind of cross-selling and sale synergies from the recent acquisitions.

How much of a benefit is that if any provided to fiscal 2017 and does that build going forward?.

Yeah, so we have not disclosed and won’t today the exact synergy numbers that we've factored into our acquisition models, which has then influenced our plan. But we have put synergies in our plan for those things and the areas you describe cross-selling and leveraging our distribution are still very important to us.

We're focusing on our implementation of a global sales network so following the acquisition of both CamelBak and Action Sports. Those two businesses do have natural synergies. CamelBak has great biking products obviously Action Sports has great biking products.

CamelBak has some terrific ski and winter recreation hydration products as does Action Sports. So we look at those opportunities. We're looking at our distribution model right now to make synergies possible across those product lines and that will contribute to the financials in the year.

We won't disclose the exact amount again because the competitive nature of that. But we certainly are focused on it and our faith in that model generating returns for the shareholder remains completely intact. I'm very excited about those synergies actually..

Great. Thanks and best of luck..

You bet. Thank you..

[Operator Instructions] We'll go next to the site of Scott Hammond from KeyBanc Capital..

Thanks. Good morning, guys.

Just in terms of the seasonality of the business in 2017 with the Action Sports acquisition, can you gives a little bit of color there and then I know you don't like to give too much in terms of line by line guidance, but a little bit of color maybe on the gross margin implied in the 2017 guide?.

Yes, let me take the first part of your question, Scott, and I'll let Stephen jump on the back part. So in terms of seasonality, as we manage the portfolio, we are actually reducing exposure to seasonality.

If you would have looked at this portfolio a couple more years ago, we were much more focused on fall goods than we are now and that revolved around the hunting season and the shooting season, which typically was the fall season.

We built inventory in the spring and consumed cash in the first and second quarter and then liquidate that through sales in our third and fourth quarter. With the acquisition of both CamelBak, Action Sports and frankly Jimmy Styks that's brought a lot more of that spring business into our portfolio.

So part of our portfolio of strategy frankly has been addressing seasonality and trying to take some of that volatility out and those acquisitions certainly have helped us with that.

Even though there is the winter sports element in the action sporting group, there's a lot of biking and cycling which is a great offset to what was our traditional fall goods. So we feel good about reduced variability in the portfolio from seasonality with the acquisitions.

Stephen, do you want to take the margin?.

Absolutely. And Scott, you're absolutely right.

We don't guide in gross margin and we are not going to guide on gross margin, but as I mentioned earlier with respect to Shooting Sports, I could expand the comment to also include Outdoor Products most of the trends with the exception that the FX – unfavorable FX impact, which hopefully won't repeat itself, most of the trends we saw in fiscal 2016 should continue into fiscal 2017.

And so I would expect directionally in line with fiscal 2017 perhaps with the absence of the unfavorable FX impact on the outdoor product side..

So it sounds like Shooting Sports you're saying continues to move a little bit higher but the Outdoor Products seem to have had some, especially on the organic side, some pressures, I know some of that's been currency throughout the year, but I think you'll also call out mix in prior quarters, so should those trends continue that that is a little bit of a drag?.

Just to make sure I had to clarify in the first part of your segment, I meant the favorable trends, which have lead to improved gross margin in Shooting Sports are unlikely to reverse and not that they will continue to increase necessarily, but to more directionally in line.

On the Outdoor Products side, you're right that we should have a bit of pick up, that said certainly not all of our acquisitions will deliver gross margins higher than our legacy business, which are observed in our Outdoor Product side, which provides downward pressure as well.

So I wouldn't take all of the FX benefit and flow it through into increased gross margins on the outdoor product side..

Okay, great. And then just a couple on the ammo side.

Is any of this capacity expansion an effort to diversify away from Lake City at some point?.

No, no, Scott, it’s not actually. We have a great relationship with Lake City and Orbital ATK, and we have a long term agreement with a lot of runway left and the opportunity to renew that agreement.

The product that Lake City makes is an interesting and a bit unique product in that they make it to a military specification at Lake City and we believe that has some cache value in the retail market. So we are committed to that relationship with Lake City.

So this investment really is focused on expanding our already organic base in rim fire, center fire and shot shell within our facilities in Lewiston, Idaho and within our facilities in Minnesota and looking for opportunities that make sense to expand and look at other options for labor markets and cost markets for ammunition capacity expansion.

So it's very much an organic plan..

Okay.

And then, Mark, big picture, kind of thinking about what's going on in the ammo industry overall, there's been some announcements about capacity expansions across the industry and I know some of those may not come to fruition, but how do you think about significant investments with seemingly more capacity across the industry coming online and what the implications are maybe longer term for pricing? Thanks..

Yeah, Scott. So certainly we thought about that and we've obviously been, very mindful of watching people try and enter the ammunition business with various plans, some are making minuscule amounts of ammunition, some of the gun companies have picked up ammunition under their brands that are selling miniscule amounts of that ammunition.

So there is capital drive toward demand outpacing supply, so let's increase supply and watching newcomers into that market.

I guess our strategy on that Scott is we believe if we invest in this additional capacity that with our brands, with our distribution, with our excellent sales teams, with our relationships, we will be able to maintain market share leadership and frankly we're happy to go compete with the newcomers and this will allow us to strengthen our position and compete with the newcomers who also see growth in ammunition.

Of course, all those people are doing this, because they believe ammunition demand is going to continue to grow as well. There could be some price pressures to the second part of your question that come from that in the short-term. We have seen no indication of that so far.

Those price pressures by the new players I think will have minimal impact upon the industry as a whole. Most of the new players are quite small and they are not at all – I mean they are more of a tail on the dog than wagging the dog, so I don't expect a big threat from that, but we're certainly mindful of it.

We'll watch it very, very closely, but our key of course is to insure that we can always compete and win and take market share as this growing market grows and maintain our number one position in ammunition..

Understood. Actually I had one more that I just thought of. In terms of the M&A since no one has really asked about it yet, I know you're still out there looking for additional deals and it seems like there's been potentially new some competition coming into some of your markets on the acquisition side.

Have you seen anything really shift there in terms of the competition for some of these assets that you're looking at? Thanks..

I was hoping you'd ask that question on M&A. I was disappointed nobody asked it. That's still an important part of our strategy.

So as I mentioned in our balanced cap deployment strategy, we're going to focus on continued pursuit of acquisition opportunities that strategically fit our portfolio that we can get at the right price and that strategically support the growth in the margins that we have forecasted for the long term performance of the company, so we're very much focused on that.

The pipeline is very robust. Brian Murphy and Stephen Nola and that team are doing a terrific job. We have lots of opportunities and we're engaged in pursuing opportunities to continue to grow our portfolio in that space. We'll continue to invest as we talked a lot today about and announced and CapEx, our share repurchase is chugging right along.

As Stephen mentioned, we're 80% complete, we'll complete that this year. I think we will be able to wrap up the full authorization this year and we're investing in our innovation engine.

So our balance cap deployment strategy is very much intact and we are going to deliver very strong free cash flow as we described in our guidance even after doing these investment initiatives and M&A is still an important part of that. We have not seen any significant barriers in terms of M&A from the competition you've talked about.

I know a few other companies have announced their desire to look at this and there's been some other activity going on in the M&A market, but honestly we're still finding opportunities that we believe we will be able to be the lead buyer in those situations and we have not felt really any threat from that competition in the M&A market..

Great. Thanks, guys..

Thank you..

And we'll take our final question as a follow-up from Gautam Khanna. Please go ahead..

Hi, thanks for squeezing me at the end. Just had one quick follow-up. On the M&A accretion from BRG, of $0.07 to $0.10 looks a little lower than I would have expected given the sales contribution. Can you talk about the puts and takes there and give maybe some color on the underlying gross margins of that acquisition? Thank you..

Sure. I'm not going to comment on the gross margin specifically. Obviously, at the time of the announcement of the acquisition, we gave some guidance in terms of EBITDA margin by providing a multiple and a revenue range and acquisition price allowing you to back into roughly an EBITDA margin.

Certainly, as we look at it on the D&A side, as we've disclosed there’s about 10 million of CapEx in that business here in fiscal 2017, largely related to growth investment in tooling and the like.

Certainly in the past business that as I think is that company and we have previously discussed had invested in both an SAP implementation and the significant expansion of distribution in Rantoul, Illinois, just outside Champaign, which are also being carried in terms of depreciation. So we do expect depreciation somewhat above the CapEx level.

By the time you combine that with the amortization directly tied to the acquisitions of the amortization of the intangible plus the financing cost, which obviously includes both the interest – direct interest, which we've disclosed our interest level under new credit agreement but also the amortization of financing costs, the upfront costs, I think if you combine those you'll get somewhere closer to that range, I understand that there were some estimates, which were slightly higher, but I think it's really understanding the full size of depreciation and the full scope of the financing charge..

Got it. Thanks so much..

I'd like to turn it back over to management for any closing remarks..

All right. Well, thank you all for joining us. We appreciate your thoughtful questions and it's a pleasure to be able to report our results. We're very excited about launching into the second full fiscal year of Vista Outdoor and look forward to sharing our successes with you on future calls. Thanks for joining us and have a great day..

We would like to thank everybody for their participation on today’s conference call. Please feel free to disconnect at any time..