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

Greg Konrad - Jefferies Andrew Burns - DA Davidson Dave King - Roth Capital Rommel Dioniso - Wunderlich Securities Jim Chartier - Monness, Crespi, Hardt Gautam Khanna - Cowen & Company.

Good day and welcome to the Vista Outdoor First Quarter Fiscal Year 2017 Earnings conference call. As a reminder, today’s call is being recorded. At this time, I’d like to turn the conference over to Mr. Michael Pici, Director of Investor Relations. Please go ahead..

Good morning and thank you for joining us for our first quarter of fiscal year 2017 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 Michael, thank you. Good morning everyone. Thanks for joining us on our earnings call this morning, we appreciate it. In the first quarter of fiscal year ’17, we achieved sales of $630 million, up 23% from the prior year quarter.

We delivered gross profit of $171 million, that’s up 23% from the prior year, and fully diluted earnings per share were $0.48 compared to $0.53 in the prior year quarter.

The company achieved year-over-year increases in sales and gross profit, and like many other consumer products companies who have recently reported results, we faced a sluggish retail environment.

Our performance last quarter was also impacted by shooting sports consumers who shifted their spending to certain firearm platforms outside our firearms offering, primarily modern sporting rifles and handguns, and to certain ammunition products where we are currently capacity constrained, primarily 9 millimeter for handguns and 5.56 and .223 ammunition that support the major platforms in modern sporting rifles.

We believe the shift in consumer share of wallet impacted sales of our optics and shooting accessories. We were also impacted by recent inventory liquidations from the outdoor retailer bankruptcies that we’ve seen and the timing of certain international orders that we have now seen slip to later in our year.

We continue to execute on our strategy to create world-leading outdoor recreation company with a dynamic and exciting portfolio of brands and product offerings to deliver long-term shareholder value. We expect a recovery in the second half of our fiscal year driven by improving retail environment.

This is based on our observation of our point of sales data from many outdoor retailers as well as a return to broader shooting sports consumer spending profile benefiting our shooting accessories, something we also have noticed and is based on our POS observations, receipt of planned international orders in the back half of the year and execution of those orders, and the seasonal nature of the shooting sports which typically is weak in the first quarter.

As we execute our balanced capital deployment strategy, we repurchased approximately 462,000 shares for $22 million within the quarter. We continue to execute our integration plans for Action Sports and the CamelBak businesses.

I’m actually really pleased with the talent and the capabilities within these businesses, and we are leveraging their strengths to support the overall Vista commitment to execution excellence. We are creating improved visibility of our brands, our products, our innovation engine, and performance within the various outdoor markets.

We’ve attracted and retained top talent to ensure we are a stronger competitor and valued supplier of outdoor products solutions. We have numerous products coming online for the upcoming show season and we have improved our sales and marketing processes, and we have invested in our innovation and our branding.

I believe the future is bright for Vista Outdoor. We’re excited about delivering against our vision for the portfolio and the company.

We have initiated our previously announced ammunition capacity expansion project, and we continue to see opportunity for enhanced long-term growth in our ammunition business, given that we have been operating at or near capacity for some time while seeing continued demand for more of our products.

I’d like to highlight just a few of Vista Outdoor’s key brand and product-related accomplishments in the last quarter. Men’s Journal named Bollé’s breakaway modular B3 golf glasses as their best golf sunglasses.

Men’s Health also feature the CamelBak Kudu as the best gear for mountain biking, and Outside Buyer’s Guide featured CamelBak Skyline pack as one of the Gear of the Year award winners.

We launched nearly 100 new products at the NRA Show in May, and many of these new products are now available in stores, including Federal Premium’s Micro HST ammunition, American Eagle’s revolutionary Syntech range ammunition, the Stevens model 320 turkey shotgun, the Bushnell Trophy and Trophy Extreme lines of rifle scopes, spotting scopes and binoculars, new Blackhawk holsters, and Bushnell Trophy Cam wireless and Primos Bullet Proof 2 trail cameras.

We continue to focus on being a good corporate citizen and a responsible environmental steward. In April, CamelBak unveiled its National Park line of water bottles in celebration of Earth Day. We donated $2 to support the National Park Foundation from every limited edition bottle that we sold.

During the quarter, our Bell bike brand celebrated the grand opening of the Devils Racetrack near Knoxville, Tennessee, which was funded by a Bell Built grant. The racetrack is part of a public trail system that is open year-round.

We have partnered with numerous organizations who share our commitment with the conservation and the responsible use of public lands and waterways, wild places and wildlife. In conclusion, I must tell you I’m confident in our company’s strategy and the initiatives that we have put in place to deliver long-term shareholder value.

Our balanced capital deployment strategy, our investments in R&D, marketing and ammunition manufacturing capacity expansion, all complemented by value trading acquisitions position Vista Outdoor for long-term success. Our acquisition pipeline remains robust with attractive opportunities, and our balance sheet is strong.

Stephen will now provide more details on the financial results for the quarter, and then following Stephen we’ll come back around and entertain your questions..

Thank you, Mark. Good morning everyone and thank you for joining our first 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 comparison to prior periods.

You will find a more detailed financial presentation of our first quarter fiscal ’17 performance on our website. Today, I will discuss the adjusted results, first for Vista Outdoor overall and then for the segments. The company achieved first quarter sales of $630 million, up 23% from the prior year quarter.

The year-over-year increase is due primarily to $134 million of sales from our Jimmy Styks, CamelBak and Action Sports acquisitions, and an increase in the shooting sports segment partially offset by a decrease in the outdoor products organic business.

First quarter gross profit was $172 million, up 24% compared to $139 million in the prior year quarter, including $43 million of gross profit from our acquisitions as well as increased organic gross profit in the shooting sports segment partially offset by declines in the organic outdoor product segment.

Our operating expenses for the first quarter were $114 million compared to $80 million in the prior year quarter. The increase reflects additional operating expenses incurred by our acquired businesses as well as ongoing SG&A and R&D investments, as we have previously discussed.

We reported operating profit of $59 million in the first quarter, a decrease of approximately 2% from the prior year period. The decrease was driven by increased operating expense partially offset by increased gross profit.

Interest expense for the quarter was $12 million, an increase of $9 million over the prior year, driven by an increase in the average debt balance due to acquisitions and the write-off of deferred financing fees. The tax rate for the quarter was 36.9% compared to 39.9% in the prior year quarter.

The lower tax rate is due to a one-time true-up of deferred tax assets that occurred in the prior year. For the first quarter, we recorded net income of $29 million, down 14% from $34 million in the prior year quarter, resulted in EPS of $0.48 compared to $0.54 in the prior year quarter.

Year-to-date free cash flow use was $41 million compared to a use of $52 million in the prior year. The year-over-year improvement in free cash flow was largely driven by improved working capital positions partially offset by increased capital expenditures.

The company repurchased approximately 462,000 shares for $22 million in the first quarter under our existing $200 million two-year share repurchase program. Since the end of the first quarter, we’ve repurchased approximately 159,000 additional shares for $8 million.

Since the program’s inception, we’ve repurchased approximately 4 million shares for $179 million, or approximately 90% of the overall program. The company will continue to opportunistically repurchase shares under the authorization, and we continue to anticipate completing the program this fiscal year.

Now turning to our business segments, where we report sales and gross profit. Shooting sports recorded first quarter sales of $343 million, up 3% from $332 million in the prior year quarter. The increase was due to strong market demand offset by lower international sales of center-fire ammunition.

First quarter gross profit for the segment was $91 million, up 5% from $87 million in the prior year quarter. The year-over-year increase was driven by volume, a calendar year 2015 price increase, and product mix.

First quarter sales in outdoor products were $287 million, up 57% from $183 million in the prior year quarter, including approximately $134 million of sales from acquisitions. Organically, the segment was down 16% from the prior year period.

The organic decrease of $29 million was primarily caused by lower sales in shooting accessories, optics and tactical products. Gross profit in the first quarter for outdoor products was $82 million, an increase of 54% from $53 million in the prior year quarter. The increase includes $43 million of gross profit from the recent acquisitions.

Organic gross profit in the segment was down 27% as a result of the decrease in revenue and unfavorable product mix. Turning back to the company level, we expect to see a return to revenue growth and recovery in operating margins in the second half of fiscal ’17.

As a result, we are reaffirming our fiscal ’17 guidance with sales in the range of $2.72 billion to $2.78 billion, interest expense of approximately $45 million, an annual tax rate of approximately 37%, adjusted EPS in the range of $2.65 to $2.85, capital expenditures of approximately $90 million, and free cash flow within the range of $130 million to $160 million.

With that, we’ll open it up for questions..

[Operator instructions] We’ll take our first question from Greg Konrad with Jefferies. Please go ahead, your line’s open..

Good morning..

Good morning..

There was some positive commentary around optics from a retailer.

I was wondering if you could maybe talk about that a little bit, and was there maybe some destocking and since the end of the quarter, you’ve seen some of the trends improve?.

Yes, so on the optics side of our business, as we’ve mentioned in the past, we’ve been focused on revitalizing that business.

If you look at the ads we’ve issued on our optics brands, particularly the Bushnell brand, you’ve seen a complete shift in how we’ve gone to market with that brand, as well as what we have in our pipeline for introducing some new products.

So our optics business has lagged a couple of the leading optics brands in that space, and so as optics have recovered here and there in some various pockets, we didn’t participate in that recovery as much as we would have liked to. However, we remain the largest sport optics company in terms of units sold.

Our brands are all recognized in all outlets, and I think we have an opportunity for some improvement on that front, so we are very focused on driving that optics strategy forward again. In general, however, across—in general as we look at POS across the marketplace, I wouldn’t call optics a highlight, nor would I call it a growth engine..

Then just overall in outdoor products, you mentioned some seasonality in new products and also an improving retail environment. With all the acquisitions, I think some of the seasonality of the business overall has shifted.

Can you maybe talk about the outlook and how much of that is more just seasonality and new product versus expectations of an improved retail environment?.

Sure. So in terms of the portfolio, we are adding capabilities which reduce our seasonality. However, if you look at shooting sports, it’s well over a billion dollars in our portfolio, so it is still a large component and it still has a seasonality in the third and fourth fiscal year quarters for us.

In terms of new products, those also have a seasonality in the shooting sports.

The show season for new products, where we actually introduce and begin to ship, deliver and sell new products, really begins in November and it runs through the show season through about February, so it definitely is also in the second half of our fiscal year where we’re introducing and beginning to ship new products.

We’ve put a lot of focus on new products both in Savage and in our accessories lines, and those will really come out and have an impact in that second half..

I think, Greg, it’s also important as you look at—as Mark mentioned, we’re seeing POS data which is already suggesting an ongoing recovery in the retail sector.

The other thing is you look at some of our acquisitions in the outdoor rec space, and several of the bankruptcies which occurred in the last six months in the outdoor rec space were prominently featured, the product categories of several of those acquisitions and some of our organic businesses have participated in.

So your question about destocking on optics, it’s certainly relevant in several of these other categories where there was a significant destocking in retail as the inventory of those retailers was liquidated, and that certain placed significant downward pressure in several categories throughout the first quarter..

Then just lastly, I think in the past couple of quarters under the gross profit in outdoor products, you had mentioned promotional activity, and it wasn’t there this quarter. Maybe talk a little bit about overall pricing and promotions within outdoor products..

Sure, so in terms of—if you look at some of the other releases from retailers that have come out, particularly I might point to Cabela’s as an example, in their latest release there was a lot of discussion about promotions and promotional pricing, and sales were driven, it appears, from discounting.

So I think that that has been a trend through this first quarter, where a lot of the retailers were driving revenue and destocking some of their inventories and leaning down their inventories based on some uncertainties associated with bankruptcies that Stephen discussed and other things in the retail sector, which has been slow and sluggish, so I think certainly that’s been part of it.

We have not changed our strategy. We still strive to maintain our pricing in the price categories where we participate across our portfolio. We offer promotions based upon seasonality. We offer promotions based upon a way to manage and support inventories as we bring new products and potentially have obsolescence of others.

We offer promotions around holiday seasons to help drive traffic to purchase more of our products and support retailers in those programs.

But in terms of broader pricing, we are not seeing wholesale pricing in ammunition categories being dropped, we are not seeing wholesale pricing reductions across our portfolio by competitors, and we remain committed to our strategy to offer value in our brands with top premium products and promote those products through advertising, through rebates and other promoting strategies versus wholesale price reductions.

Really, the market seems to be marching along that same path..

And certainly, Greg, to follow up, unlike some prior quarters as we talk about drivers of our gross profit level in our outdoor product segment, promotional activity is not one of the principal drivers of the year-over-year change. It was primarily driven by the overall volume and by the unfavorable product mix which I referenced in my script.

We did not engage in significant promotional activity or price reductions to try to sustain our revenues through the quarter because we believed it would be, on a long-term basis, unfavorable toward the business for us to engage in that activity..

Thank you..

The next question comes from Andrew Burns with DA Davidson. Please go ahead. Andrew, please check your mute button on your phone..

Sorry about that. Good morning..

There you are. Good morning..

Would it be possible to quantify the impact of the international shipment timing, and for a historical perspective, maybe talk about how frequently those shift between quarters? Thanks..

So first off, unfortunately no, because we don’t break out individual contracts as a piece of our business. That said, the shift we’re seeing is extremely common in the international business.

Our international contract business, as separate and distinct from our international [indiscernible] consumer business, our international contract business is quite lumpy and it can create these year-over-year disconnects as it is not uncommon, even when we’re quite confident in an order, that it may shift by a quarter or two.

With many of these international customers, even for several months and several quarters after you have won an award, it can sit on the desk in a ministry somewhere waiting for a final signature before products can be shipped, and so we are just subject to that in our international contract business, so the behavior we’re seeing is quite common.

It’s just uncommon, I guess somewhat, for it to be large enough that it would rise to the level of being mentioned in our quarterly results, but the underlying behavior, it happens all the time that these contracts shift from quarter to quarter, so this is not one where we have some future hope or expectation of winning a contract, it’s more that there are just delays in final approval, and therefore shipping and revenue recognition on the contract..

Okay, thanks for the color. We’ve been through a couple of firearm surges in recent years, each one behaves a little differently than the last one.

Just curious, with this 16% organic growth drop in the quarter for the whole outdoor segment there, how surprising was that? Is this dramatically different than past surges, or any historical context there would be helpful..

Yes, so let me talk about that. I think it’s actually a terrific question. It’s certainly a relevant question to what we saw in the quarter.

So I mentioned previously what we’re calling share of wallet, so as you look at what happened in the firearms, we had, for example, the adjusted NICS checks in July were up almost 28%, long guns were up 35%, handguns were up 23%.

If you look at what’s driving long guns NICS checks, and we’ve talked about this numerous times, what is driving long guns NICS checks in this current surge is modern sporting rifles. We do not sell modern sporting rifles – that is what’s driving that.

If you look at Rugers’ announcement and release, or you look at others, Smith & Wesson’s release, that performance where they are up similar to these NICS checks is because they are the primary providers of modern sporting rifles and handguns.

So handguns were up 23% - we don’t sell handguns, so I think what happens sometimes, and I think what people sometimes fail to remember is when you look at those NICS checks surges, that’s only one indication of what’s really going on. The underlying premise driving NICS checks is MSRs and handguns, where Vista does not participate.

Also, when you look at ammunition, the ammunition that follows this, if you looked at Winchester’s releases or Remington’s releases, we outperformed everybody in ammo; but the surge in ammo is also being driven by ammo that feeds those MSR platforms and those handgun platforms, and as we’ve said repeatedly, we don’t have capacity in those areas.

We are at capacity, and that’s why we announced our large capacity expansion strategy and initiative. So ammo sales in 9 millimeter for handguns is still very, very hot, and we are at capacity. Then when you look at the ammo surge, it’s still great for ammo like 5.56 and .223. We’re buying all we can get from Lake City.

We’re making all we can make and sell in those categories, but we have limited upside capacity that doesn’t allow us to participate at the rates you see in adjusted NICS checks.

So I think a share of wallet where people are spending their money buying handguns and MSRs impacted our optics business, it impacted the decline you’re referring to in our shooting sports accessories business because people were putting their money, obviously from the numbers you’ve seen from other manufacturers, into MSRs and handguns, and that diluted the available wallet that they were spending on our accessories business, as well as just a softer retail environment and some of the other things that we’ve talked about.

So I think those are really the key drivers in what’s happening behind those numbers, so this surge is similar to some we’ve seen in the past except that it’s much more concentrated in modern sporting rifles and handguns..

And those factors, of course, just exacerbated what we discussed already, which was just the overall retail softness and the impact of the liquidating inventories from bankrupt retailers..

So it’s a little bit of a perfect storm for us in the quarter in terms of outdoor products. You had liquidations from retailers that carried a lot of outdoor products, a soft retail environment, and an overshadowed focus on share of wallet going to guns..

That’s helpful, thanks. One last one, if I can.

I know you don’t give quarterly guidance, but looking at the variance versus first quarter results and the commentary for a fiscal second half recovery, should we be thinking about second quarter earnings and revenue trajectories similar to the fiscal first quarter?.

Well again, we don’t give quarterly guidance, so we don’t want to do that today and try and guide you to some second quarter outcome, so let me do the best I can in helping you.

So one of the things we’re looking at when we talk about the fact that we are holding our guidance for the year and we see upside in the back half of the year, one thing we have in the company which is actually helpful to us, but we don’t share it publicly as it comes from information from a lot of other retailers, is our point of sales data, so we are able to see turns at the register, rings at the register by category in our categories, and we’re able to see that through our relationships with these key retailers, which are basically all the big guys in specialty outdoor retail and larger big box retail.

What we’re seeing there is we’re beginning to see improvements in point of sale across our categories. We began to see that in the trailing four weeks, and we’ve seen it in trailing eight weeks, so we are beginning to see improved point of sale from what we saw in that same data tracking in Q1.

So that, along with the other things we’ve already talked about, is the foundation or basis of why we believe in the second half of the year we’ll see some of these improvements..

Thanks, and best of luck..

You bet, thank you..

We’ll go next to Dave King with Roth Capital. Please go ahead..

Thanks, good morning guys.

I guess just maybe to follow up, Mark, on your comment there, in terms of that POS improvement that you’re starting to see over the four and eight weeks, is that across the board in your various categories, and then in terms of the inventory destocking from the retailers, has that fully abated? I guess my question there is at what point do you start to see the sell-in catch up with the sell-through? Thanks.

.

Sure, you bet. Good question.

So on POS, I guess I’m happy to tell you yes, we are seeing it across our shooting accessories categories, we’re seeing it across the ammunition category, and we’re beginning to see it in the firearms category, which will allow us to participate with the offering we have in firearms through our Savage and Stevens brand, which is basically long rifles and shotguns.

So yes, it is across all three categories where we’re beginning to see a trailing weak improvement in point of sale data, so we think that’s very favorable and encouraging. In terms of the destocking, that is not all behind us. Sports Authority in particular was a large chain that carried a wide variety of our products.

They had a hunting section in those stores, as you may be aware; they carried our optics brands in those stores, they carried Bell helmets in those stores, many of our products, and so that destocking is going to continue. We are not past that yet.

We think it continues through the second quarter, is mostly likely, so no, we haven’t got completely out of that pressure yet. .

Okay. That’s good color. Then on the shift in international orders, it sounds like, Stephen, that you’re not able to quantify the shift, but I guess maybe just when do you expect those to materialize? I just want to make sure we have clarity there. Is that a shift from 1Q to 2Q, or is that into the second half? Thanks..

I think it will be a shift into the back half of the year..

Okay. All right, I’ll step back. Thanks guys..

Thank you..

We’ll go next to Rommel Dioniso with Wunderlich Securities. .

Thanks. Just a couple of questions on the ammunition side. On your capacity expansion plans, just to double-check, that’s not going to come online until early fiscal ’18, if I’m not—I just want to make sure that you’re not building some of that into the second half recovery.

Second, yesterday Orbital ATK talked about restatement of earnings due to Lake City, so I just wanted to make sure that had absolutely nothing to do with you guys. Thanks..

Sure. So on the capital expenditure for the ammo, as we mentioned when we disclosed that capital project, that capital project has really no benefit to this current fiscal year. That capital, a lot of those pieces of equipment have 12 month-plus lead times, and so we kicked that project off. We put in place the resources we need from an HR perspective.

We’re strengthening our position and identifying where we will place some of that capacity in terms of which state and which location we’re putting in, so it’s kicked off, it’s on schedule.

Phase 1 of that—as you may recall, Phase 1 of that project, and it’s a phased capital project which will allow us to mitigate our risk by not taking a bold throw of a $100 million capex facility and building a new factory.

It’s a phased project, and the first phase allows us to drive capacity in the areas where we are, frankly, just out of available capacity to the current market trends which were experienced today. In other words, today if I had more 9 millimeter, I could sell it. If I had more 5.56 and .223, I could sell it.

But I think what happens sometimes, and what may have happened in terms of how we got a little disconnected from street expectations, is we are at or near capacity in ammo and we cannot participate in the upside when that upside is concentrated in calibers like 9 millimeter and 5.56. We can’t participate in that because we are at capacity.

Even though we’re procuring from Lake City and we have other partners, including international partners that are helping supply us ammunition, we just don’t have capacity to participate in the upside of ammo. So this project is still important, it still appears to be a very good decision for us to execute this.

We are on track in terms of our plan for the stage we should be at this time, and that capacity will largely come on next fiscal year in the back half of next fiscal year.

So as we mentioned when we kicked that off, just to refresh your memories, we said that it would occur late in FY18 where we’d begin to see the benefit of that, so that’s not factored in our discussions. Then in terms of Orbital ATK, we are aware of their restatement disclosure. It has not impact on Vista Outdoor.

It has no relevance to our long-term supply agreement, and it has no impact on any of our financials..

Yes, none of our financials, not our [indiscernible] financials nor our pre-spin carve-out financials are in any way affected by the announced restatement, and so we do not intend to restate financials for any periods. .

And we can’t comment on Orbital ATK’s decision. We did not participate in their process, we did not participate in their decision. They’re a separate company. They’re running their company. We have nothing else we can comment or say about that, because we simply have not been involved. We just can tell you it doesn’t impact Vista. .

Perfect, thanks for clearing that up. Thanks..

Sure..

The next question comes from Jim Chartier from Monness, Crespi, Hardt. .

Good morning. Thanks for taking my questions..

You bet..

Can you just comment on kind of the performance of your recent acquisitions, outside of the impact of what the bankruptcies did in the quarter? Are they performing in line with your expectations, aside from that?.

So certainly our acquisitions, particularly given the spaces they’re in as we’ve talked about Bell, Giro in the cycling and ski helmets and accessories categories, and CamelBak in the hydration accessories, and Jimmy Styks are all certainly categories which are sold in those retailers which experienced bankruptcies in the last six months, so undoubtedly those businesses were impacted both by the overall retail softness and by the liquidations that took place at those categories.

So they have experienced those impacts in a similar fashion to how our organic business has experienced those impacts.

We don’t report financials at the level of any individual acquisitions, so I can’t comment on any one specifically; but that said, we’re still very pleased with those acquisitions and we still achieved what we intended to achieve with those.

For example, Jimmy Styks, while it faces the same retail malaise we see across all of our categories, you now see Jimmy Styks paddleboards sold in several of our traditional retailers where they were not sold prior to the acquisition – at Cabela’s, at Academy, at Dick’s Sporting Goods, so we have expanded the distribution footprint for those products as we had described in advance.

Action Sports, which recently completed—as Mark mentioned, the integration is underway and on track, and we have actually been very pleased with several of the personnel who came with that business.

They have now become integrated in our business and taken on roles even greater than just the Action Sports role for which they were responsible when they joined the company. So overall, the acquisitions, we’re still very pleased with them.

We obviously had a tough quarter for our entire business on the outdoor products and outdoor rec side, but it has not affected the long-term value of those businesses, so we remain on strategy with our acquisition plans..

Great. You talked about your visibility into POS trends.

As the TSA liquidation sale started to trail off in July and into August, are you seeing the business shift to other retailers, and when do you think you’ll be able to kind of shift your orders to those retailers that are picking up the market share?.

Yes, it’s very difficult to have the microcosm in which I could answer that question with certainty, that we’re seeing that the POS trends are driven by a shift of TSA customers finding new outlets and purchasing those products. I actually can’t tell you that I have the visibility and the clarity within that microcosm to answer that question.

So what we’re seeing is POS trends at the key retailers where we have data, and what we’re seeing is a continued liquidation of inventory from that retailer. Putting those two together, I simply don’t have that visibility. We can’t answer that question..

Okay. Then just the last question, looking at kind of the sales in the shooting sports business, $343 million this quarter versus $382 million last quarter.

Just trying to figure out why you were able to generate that kind of sales in fourth quarter but the capacity constraints in first quarter limited you to $42 million below the fourth quarter run rate..

That’s mainly driven by timing, partly driven by timing of just when shipments took place around the edge of the quarter, and also because of this international order we discussed.

While we had not been able to ship and recognize the revenue on that order, we have been preparing the product for that order, so that’s kind of, if you like, missed capacity for the quarter because it was used to produce product which will be sold in a future quarter..

Yes, Stephen’s exactly right, and the only other contributing factor is we had a nice international shipment that occurred in Q4, and it just didn’t repeat in Q1. So again, Stephen mentioned the lumpiness of these international orders.

These are largely orders—just to help you understand, there are largely orders that we sell to Ministry of Defences in various countries, and so if you know that business, then you can appreciate why they're lumpy. .

Right. Thanks, and best of luck..

Thank you..

As a reminder, it’s star, one to ask a question. We’ll go next to Gautam Khanna with Cowen & Company. Please go ahead..

Yes, thanks.

I would just be curious, given you see the more robust areas on the firearms market tend to be handguns and tend to be MSRs, at least for now, wondering what you’re seeing - is there any opportunity to broaden your portfolio when you look at your M&A pipeline? Is that an area you would like to expand in, or are you happy with the portfolio as it is?.

Yes Gautam, I think that’s a legitimate question. Certainly it is, and certainly as we sit here and see that some analysts or some other people kind of expected us to follow these very high numbers in firearms, maybe they didn’t fully understand our portfolio versus where the demand was, and maybe the same with ammunition.

So we definitely think about that and should we participate and can we participate in some of those other categories. I think your question, Gautam, was a little bit toward M&A.

I would answer a little bit more broadly, and that is we have--do we have the organic capability to participate in some of those categories? So we certainly are mindful of that, and we certainly are--I guess I would tell we’re certainly engaged in discussions related to how could we participate in growth segments where we don’t participate.

We look at that across our portfolio, where we’re always looking at the portfolio and evaluating opportunities where there might be market segments which are certainly in our area where maybe we aren’t participating, or growth segments that are occurring within the market in outdoor recreation.

If we’re not participating there, we certainly want to participate there. So it’s a good question. I guess what I can do is assure you that we are aware of this issue that we are missing on some of these categories, and we’re working through a process to make decisions about that. .

I think our M&A approach, as we’ve discussed before, we’re quite disciplined particularly with respect to the multiples we’re willing to pay for a given asset.

If you recall, when we bought Savage Arms, which was near the peak of the last firearms cycle, and given our recognition that we were near a peak, we paid quite a reasonable multiple for that business.

I think if you look at the multiples at which firearms companies are currently trading, it’s well above that multiple, and I think it would be out of the norm for us to go that high in the multiple range for a target like that..

One other bit of color which may just be helpful a little bit, just by some references to our company, if you look at Savage Arms, in Savage Arms’ history they were the largest supplier of shotguns in the country at one point.

They were a handgun supplier at one point, so they’ve had a broad portfolio over the years which, through the course of their management and some missteps by prior companies who managed that business, they lost some of those positions or they surrendered them, or they frankly exited them.

If you look at what we have done with Savage now, Gautam, I think you’ve followed us closely I think you’re probably aware and appreciate this, but we have re-launched a rebirth of shotguns under the Savage and Stevens brand unlike has been done in decades, so we’re re-launching into categories where Savage has not participated recently but actually has participated in the past.

So we have a great asset in Savage, the growth there was good, the management team is good, and we’re certainly looking at the opportunities that you’re talking about..

Thanks Mark. That’s helpful insight. I just had one other one. We’re obviously on the verge of a presidential election, and you well remember 2008 and the last one where we saw these massive surges on the back of it.

I’m just wondering, do you anticipate something like that, and are you prepared to actually deliver on it? Maybe what are you doing to de-bottleneck, if anything, your capacity constraints in the near term, because it feels like we might be on the verge of another one of those surges..

Well, certainly the candidates who are on the stump are pounding the stump on Second Amendment issues. We saw a lot of that in the last week - gun control issues, reinstatement of the assault weapons ban under the Clinton administration.

I was recently at a couple of Congressional Sportsmen’s Foundation events, which as you know is a very bipartisan foundation that works with the bipartisan caucus, the Sportsmen’s Caucus, which is the largest caucus in Congress, so I was able to have lunch and sit down and have conversations with members.

It’s a very interesting, obviously, a time in which there is a lot of perspective and different opinions. However, that being said, this does not appear to be another ’08 or ’12 - it really doesn’t, and let me tell you why I think it doesn’t.

I think in part because in ’08 and ’12, there was a significant surge in purchasing of ammunition in particular. As you’ll recall, we were out of stock, and I know that you went out and did a lot of surveys, you do your own retail survey checks - we’ve talked about that over the years.

There was a real surge in those periods buying ammunition, and I personally believe that a lot of consumers over-stocked and built inventory at home and pulled that ammo as quick as they could off those retail shelves and took it home and put it in their own basement.

So I’ve talked for years that I believed that there was over-purchasing in those surges and that that created inventories which are off the books for us, which we can’t see, which are in people’s personal inventories.

I think that could be contributing to why we have not see a surge like that yet, is people possibly over-bought in those prior surges, so I think that’s part of it.

I do think, however, on the firearms side, and again it’s in areas where we don’t participate, but I do think you’re seeing a similar surge to ’08 and ’12 in firearms, but it is much more concentrated this time, as I referred to earlier, Gautam, in MSRs and handguns, and that is not helping us.

The ammunition that those platforms consume, we are basically at capacity. So yes, we are de-bottlenecking our factories all the time. We are looking for up time and improvement in operational efficiencies in our factories all the time.

I will tell you that we have retooled handgun calibers machining and manufacturing to 9 millimeter, so anywhere we could retool, we have retooled to capture that.

But as we’ve disclosed over the past few quarters, we’ve done a tremendous job driving upside in throughput and availability of ammunition, but that can only take us so far, and we’re to the point now we just have limited upside in the categories that are in demand. .

Thank you, Mark. I appreciate your exhaustive answer. Good luck..

Thank you..

It appears we have no further questions at this time. I’ll return the floor to our presenters for any additional or closing remarks..

All right, well thank you very much. We appreciate you all joining us today. We remain very excited about what we are accomplishing with Vista Outdoor and the shaping of our portfolio. Appreciate your good questions today and look forward to talking to you again in a quarter. .

This will conclude today’s program. Thanks for your participation. You may now disconnect and have a great day..