Good day, and welcome to the Vista Outdoor Fourth Quarter Fiscal Year 2019 Earnings Conference Call. Today's call is being recorded. At this time, I'd like to turn the conference over to Kelly Reisdorf. Please go ahead..

Thank you, Brandon. Good morning, and thank you for joining us for our fourth quarter fiscal year 2019 earnings call. With me this morning are Chris Metz, Vista Outdoor's Chief Executive Officer; and Mick Lopez, our 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, Chris..

Thank you, Kelly, and good morning. Thank you all for joining us today as we discuss our fourth quarter and full year results. We've now completed the first year of the Vista Outdoor turnaround.

I am proud of our many accomplishments in fiscal year '19 and despite continued challenges, I'm optimistic about what the future holds for this company and its great brands. A company turnaround doesn't happen overnight or even in four quarters. We understand that and we suspect you do too.

But we are well on our way and made great strides this past year. To that end, I'd like to start today by taking a few minutes to discuss what we've accomplished this past year and why those accomplishments are so critical to our future. And then let you know where we are going from here.

From an accomplishment standpoint, probably most important is that we've delivered on many of the fiscal year '19 commitments, despite a very challenging environment. And as promised, it has created a solid and sturdy foundation for Vista Outdoor that will allow us to get back to growth.

Like all plans are says evolve evolved due to changing conditions throughout the year, but we're on the same path and at the same end results in our sights. I'm pleased with several specific accomplishments this past fiscal year and want to talk about a few of the building blocks that we laid to create that solid foundation for growth.

First, we ripped out lots of costs within the company that have been weighing us down and stifling potential growth. We also significantly reduce corporate overhead to become a leaner, more focused company.

Excluding the sale of our eyewear business this includes reducing SG&A by $44 million or 11% percent this past year through a variety of initiatives, including closing the corporate headquarters in Utah and consolidating the corporate leadership team. Second, we made solid progress on our portfolio rebalancing initiative.

We reduced our debt $211 million, a 23% reduction, 154 of that comes from the sale of our eyewear business which we sold at a 12 times EBITDA multiple and the rest comes from our continued focused on working capital improvements. As a result, our improved balance sheet will free up capital to invest in our growing brands.

We know we still have more to do here and this remains a top priority for fiscal year 2020. Third, we completed the restructuring of our brand teams.

We brought in several great new leaders for our brands and at the same time have driven more autonomy and accountability down to the brands and reconstituted a real founder's mentality in each of our businesses.

By moving away from a corporate operating model, we've now enabled our brands to control their own destiny and undertake initiatives that are better suited and more narrowly tailored to their individual business plans, while also addressing their unique challenges.

In the past when the company was operating the brands from corporate, many initiatives were a one size fits all proposition. However, these brands are unique and diverse and cannot all run on the same exact plan.

By pushing autonomy back down to the brands this past year, we quickly started seeing improved performance, more innovation and increased fuel for growth engines. Fourth, we re-prioritized and restructured what we do at corporate. For example we created brand new centers of excellence in e-commerce, sourcing and procurement.

Our brands are already benefiting from our ability to have a centralized specialization in e-commerce and digital marketing. We know that will continue to grow as we mature in the digital world. The digital investments we are making today will pay off in terms of increased sales and profitability tomorrow.

In fact fiscal year '19 saw us make good progress on e-commerce with several direct to consumer sites coming online. Our Camp Chef team continues to lead the way with the online shopping experience and we've had excellent growth on our CamelBak direct to consumer. We've also brought online select products under the Spear ammunition and Bullet Line.

Further, we took a different approach to corporate support functions this year, restructuring many of them to focus on the task, activities and initiatives that truly drive value to our brands during the turnaround. These functions are now leaner, more focused and have a much more disciplined service offering for the business.

Lastly, we have implemented a new rigorous monthly review process for all of our brands and business units that allows us to monitor performance and drill down on critical matters in real time, furthering our focus on achieving commitments.

At the end of the day all of these accomplishments have helped us reset our foundation to create a more stable base. Now with a secure foundation we can realistically start talking about growth. And as I said when I first announced our transformation, we are committed to profitable growth, not just top line revenue.

So let's talk about what's coming up here for fiscal year 2020 and beyond and why I'm optimistic that we're well-positioned to successfully continue our turnaround this fiscal year. First, let me acknowledge that I understand you have not seen an announcement on the sale of Savage yet.

We had expected that this sale would be complete in fiscal '19, but obviously it has slipped into the current year. We are still in the negotiation process, but we have not signed the deal yet. I certainly wanted to be able to make an announcement on this call, but our buyer still has some more work to complete their process.

And then of course, we need to take the deal to our Board of Directors for approval. We continue to believe strongly in the Savage asset and I'm extremely proud of the Savage management team for continuing to diligently work this process, while simultaneously delivering solid results.

Second, I discussed earlier that one of our fiscal '19 accomplishments was driving costs out of the company and that certainly has been the key to securing a more solid foundation. But this is an initiative that will continue into the current fiscal year as well. We're not done yet.

And we know that there are certain areas where we can continue to drive unnecessary cost out of both corporate and the brands so that we can we can go to market with an even leaner and more focused company.

Third, we're finally seeing signs of stabilization in the ammunition market, while 223, 556 POS data remain soft, we are seeing sell-in and sell-through from a POS standpoint in general finally starting to level out. We believe this indicates that we're getting close to the bottom of the demand trough.

Maybe equally as important is that the work we've been doing in our shooting sports segment will position as well to capture share when the ammo market comes back. We've been holding share in a highly competitive market, despite pricing pressures from competitors, and we believe that it is a good sign of our potential when the market returns.

Fourth, we are anticipating full year organic growth in our outdoor product segment for the first time in business history. The work we've been doing to stabilize our outdoor products brands is starting to bear fruit.

While I certainly don't expect to see growth every quarter from every brand in outdoor products, it will build as the fiscal year moves on, I do see an overall growth pattern emerging in that business segment that is extremely encouraging and serves as a long term indicator of our success in turning around the company.

Fifth, our focus on profitability is beginning to pay dividends. In fiscal year '19 we made it a priority not to chase after sales at the expense of profitability. Brands like Bushnell in particular walked away from deals that just weren't profitable.

While we all want top line sales growth, I'm pleased with the team's commitment to maintaining pricing discipline. I believe we're starting to change customer behavior through this discipline. While this may have eaten away at the top line revenue a bit this is representative of the continued commitment to improve the profitability of our brands.

Finally and maybe the most important reason for optimism is that we still have incredible brands in this portfolio. Our brands are still some of the most iconic brands in the outdoor industry.

And while some of these brands lost a little momentum as Vista was forming and maturing, the work we've done this year positions all of these incredible brands to lead their respective categories.

These brands are now all operating with more autonomy, creating a meaningful vision envision for their respective enthusiasts and forging a very compelling future. What they have in common now is a commitment to building great teams, a passion for innovation and the tools necessary to create amazing and user experiences for their customers.

And all of these brands have some really great products on tap for this year. We introduced scores of new products at are winter trade shows and I've just completed the launch of even more at the NRA show. Here's a few examples of the products we're very excited about.

For ammunition business we're already - we've already launched over 100 new ammunition products this calendar year. I told you about some of these last quarter, but a few others that I want to mention are the new Shorty shotshells and Top Gun Sporting shotshells, which are great for clay shooting.

We're now offering component bullets for Hydra-Shok Deep and EDGE TLR lines that we know our consumers are really excited about, as well as new offerings in our rimfire line, the CCI Clean 22 and Quiet-22 Semi-Auto and we're also offering Speers top of the line Gold Dot to ammunition to the commercial market.

Our Blackhawk T-series holster which is a new retention holster has been generating tremendous buzz with law enforcement agencies. On the Bushnell side, we've recently launched the Golf Pro XE V Rangefinder, which is the talk of the golf industry as a truly revolutionary technology.

The first of its kind to accurately measure changes in altitude and slope and the effects with humidity on golf ball distance. CamelBak has just launched their pivot line of products made from 50% recyclable materials. In addition to their 80 plus and peak fitness bottles and their women's run collection.

And Camp Chef continues to improve their portable grill and accessories offerings for the backyard and patio consumer. While I'm optimistic about fiscal year 20, I'm also realistic that we're not out of the woods yet. We continue to face headwinds that are pressuring our business.

While the ammo market seems to be bottoming out, we still aren't seeing that upward J-curve that we'd like to see. All of the best minds predicted that the recovery would take 18 to 24 months. And here we are at well over two years without the market rebounding.

We also continue to see retail pressures with consolidations and bankruptcies that really affected our fiscal year '19 and we'll again pressure us in fiscal year 20. We believe we've got solid guidance for fiscal year '20.

I surely appreciate that it's hard to get excited about a flat sales guide, but our guidance of doubling our EPS or better is the start to the trajectory we want to be on. However as we've stated previously, our goals remain to achieve profitable growth and I'm confident we're on the right track to get there.

With that, let's talk a bit about the future.

While I know we've made solid progress, it's surely not as fast as any of us would like and it's not a straight line either, but I can tell you this for fiscal year '20 we're going to see - you're going to see us continue to cut cost out of the business, improve our supply chain and move faster on e-commerce and empowering our brand teams.

One of the biggest aspects to our turnaround is what our portfolio is going to look like moving forward. As you know, we've made the decision to not immediately sell our Bell-Giro business. We discussed that on our last earnings call. But I want to spend a little more time on that decision to put it in the proper perspective.

When we announced our plan to adjust our portfolio we said and have continued to say that divestitures only make sense for the company and our shareholders if we can achieve the right price in the right terms.

As for the Bell-Giro business after further internal and external analysis was complete, we came to the conclusion that those brands can return to growth and display the leadership economics we expect from the brands in our portfolio.

However today with the current state of that business we don't believe we get the offers we'd want to see for that business. So we're going to spend some time to improve the brand's performance to get them to where they rightfully should be.

Since that decision, we've also had a leadership change at Bell-Giro, and we're going to use that as an opportunity to continue rebuilding those brands with a fresh perspective.

As for Savage, we'll continue that process with an eye towards completing the negotiation as soon as practical, as soon as practical and we hope that the remainder of the process is productive and gets us the result that we need to have confidence in closing the transaction.

I hope it gives you a little more color on where we're heading in the near to mid-term with the portfolio. For those of you who have stuck with us far - stuck with us this far through the turnaround, we think you're going to see that you - that your belief in our company is going to be rewarded with long term earnings growth.

So I want to thank everyone for joining us today. And as I said, I remain extremely optimistic about the future of Vista Outdoor. I know everyone wants an immediate fix. But the truth is that we're on track with our turnaround. And as you know turnarounds are always a multi-year process. Our year one goal was to fix the foundation. We've done that.

We're stronger than we were a year ago and in a much better position to attack the next phase of our plan. Our year two goal is to build on that foundation. We will do that by ensuring we have strong growth strategies identified for y our brands and continued efficiencies at corporate to help support our brands.

We're already making good progress in this area. We've had excellent talent at the brands that is getting smarter every day. We continue to rip out cost and become more efficient in our business operations and we're setting aggressive goals for our brand teams so that we're in position to take or hold share in our leadership categories.

We continue to make progress each quarter and I remain confident that we're on the right path. I want to thank our employees for their hard work to get us where we are so far and I know they will help propel us to where we want to be in the future. With that, I'll turn the remainder of the time over to Mick to discuss the financials.

Mick?.

Thank you, Chris. Good morning, everyone. We have disclosed both as reported and adjusted results in our press release. You will also find a more detailed financial presentation of our fourth quarter and full year fiscal year 2019 performance on our website.

On that presentation, let's start on page four with the highlights in our fiscal year 2019 ending balance sheet that shows $211 million debt reduction or 23% as a result of asset sales and improvements made to working capital.

Most of these working capital improvements came from reductions in accounts receivable and also in capital expenditures year-to-year. We have reset over $500 million in goodwill and intangible assets to better reflect their valuation.

Also notice on our long term debt that we have been successful in obtaining a new credit agreement that is at a much lower cost with less strict covenants.

Moving on to slide five, you can see that we have consistently lowered our debt and consequently our net debt leverage ratio at the end of the year was about six times as defined by the terms of our credit agreement at the time. Now turning to our profit performance.

Today I will discuss adjusted results first for Vista Outdoor overall and then provide a little more color on our segments. Turning to slide six and looking at the fourth quarter, we recorded sales of $514 million down 10% compared to prior year quarter.

The decrease was primarily caused by the loss of $34 million in revenue from our eyewear business which we sold in the second quarter, which implies an organic revenue decrease of 4%.

Ammunition sales for the quarter were flat compared to the prior year quarter, while sales in outdoor recreation, firearms and hunt shoot accessories were lower this quarter. The company achieved full year sales of $2.06 million which exceeded our guidance.

This is a decrease of 11% compared to the prior year or 7% on a comparable basis without eyewear. We experienced declines in ammunition, hydration and hunt shoot accessories, offset by increases in firearms and outdoor cooking. Gross profit for the fourth quarter was $103 million compared to $112 million in the prior year quarter.

The gross profit rate for the fourth quarter was 20%, reflecting a small 34 basis point increase over the prior year quarter. Full year gross profit was $432 million compared to $524 million in the prior year.

The gross profit rate for the full year was 21% compared to 23% in the prior year, a decrease of 173 basis points, driven by 302 basis point decrease from shooting sports. Operating expenses for the fourth quarter were $92 million compared to 123 in the prior year quarter for total reduction of 25%.

On a comparable basis expenses decreased by $19 million or 17% adjusted for the sale of our eyewear business. The decrease reflects lower bad debt expense, benefits of cost reduction actions taken and lower overall selling costs.

Full year operating expenses were $371 million compared to $444 million from the prior year, the 16% year-over-year decrease reflects the sale of eyewear. On a comparable basis, expenses decreased as Chris said by $44 million or 11% as a result of multiple cost reduction initiatives across the whole company.

From a GAAP standpoint, please note that the Savage firearms asset that was classified as held for sale of third quarter was impaired for an additional $36 million in the fourth quarter in order to reflect the latest $170 million valuation from the potential buyer.

Interest expense for the fourth quarter was $11 million, down 4% compared to the prior year period. The decrease was due to overall lower debt balance, partially offset by a higher average interest rate. Interest expense for the full year was $51 million compared to $49 million in the prior year.

The four year increase reflects a higher average interest rate, partially offset by a decrease in average debt balance. The tax rate for the quarter was 170% compared to 46% in the prior year. The tax rate benefit for the full year was 14% compared to 8% in the prior year.

The current year tax rate was primarily affected by the release of tax reserves, as well as a true up of prior year taxes, partially offset by non-deductible expenses incurred over the year. Any of these fixed amounts of course moved the tax rate significantly EBITDA for the year was 6.7% and in line with our guidance of about 7%.

EPS in the fourth quarter was $0.01, up from negative $0.22 in the prior year quarter. The company delivered earnings per share of $0.14 for the full year, down from $0.50 in the prior year. The EPS shortfall to a full year guidance was the result of several factors in the fourth quarter.

First, we experienced a number of discrete production and supply related issues which limited our ability to meet demand for higher margin products. Secondly, approximately $0.04 of the impact resulted from increases to our bad debt reserve in the quarter to account for material bankruptcy risk with respect to a large customer.

Finally in the quarter we also increased our product liability reserves to reflect increased risk in that area resulting in a further $0.03 impact to earnings per share. We delivered free cash flow for the full year for $79 million, which was within our guidance of $70 million to $100 million dollars.

Now turning to our business segments on slide seven, where we report both sales and adjusted gross profit by segment. Looking at the fourth quarter our outdoor products segment recorded sales of $220 million, down 19% from the prior year quarter on a comparable basis, without eyewear the decrease is 8% [ph].

We continue to see softness in the hunt shoot accessories market. For the full year sales were $990 million, down 14% compared to the prior year, organically without eyewear the decrease is 7%. As we focus on profitable sales, we see revenue decreases across most product lines offset by growth in outdoor cooking.

Gross profit for the fourth quarter was $53 million, down 17% compared to the prior year quarter.

The gross profit rate of 24% for the quarter increased by a total 70 basis points over the prior year quarter, in our lower sales volume environment the gross profit rate increase is the result of our continued focus on improving pricing discipline and cost saving initiatives.

Gross profit for the full year was $248 million compared to $290 [ph] million in the prior year. The 15% decrease reflects the sale of eyewear, again, lower sales volumes and product mix. The gross profit rate for the full year was 25% and was flat compared to the prior year. Now turning to our shooting sports segment on slide eight.

Sales for the fourth quarter were $295 million, down 1% from the prior year quarter, which reflect the continued challenges within the firearms category. Ammunition sales were flat to the prior year quarter.

Sales are up 22% on a sequential basis which reflects the timing of international contract deliveries and increased demand in key ammunition product lines. For the full year, shooting sports reported sales of $1.069 billion, down 8% which was primarily caused by overall continued shooting sports market softness. Turning to gross profit.

Fourth quarter gross profit was $50 million, up 3% from $49 million in the prior year quarter. The gross profit rate for the quarter was 17% which is a 63 basis point increase from 16% in the prior year quarter.

The gross profit rate improvement and lower sales volumes is a result of favorable commodities, reduced overall discounting, offset by continued weakness in the 223, 556 market. Full year gross profit in shooting sports was $184 million, down 22% compared to the prior year.

The full year gross profit rate was 17% compared to 20% in the prior year for a decrease of 302 basis points. The decline reflects overall less favorable commodity pricing, increased promotional activity and lower overall sales volume tied to continued market softness through the year. Lastly, on page nine.

We have established guidance for fiscal year 2020. This guidance includes the Savage firearms business for the full year. As with previous guidance we have given, we reflect all operating results, including amounts normally adjusted during the sales process such as depreciation and amortization.

Our intent remains with a successful sale of this Savage firearms asset, which will further our debt pay down goals. Given uncertainties are on the timing of the firearms transaction, we have included firearms for the full year in our guidance. From a total company perspective, we expect sales in the range of $1.94 billion to $2.03 billion.

We expect overall gross margins and research and development investment generally in line with fiscal year '19. We anticipate shooting sports margins to be in the mid to high teens and outdoor margins to be in the low to mid 20s. We also expect EBITDA margins of approximately 7%^.

We expect annual interest expense in the range of $45 million to $50 million. The effective tax rate for the year is expected to be approximately 5%. We also expect to deliver full year EPS in the range of $0.28 to $0.38, with improvements shown towards the back half of the year.

We expect full year capital expenditures to be in the range of $45 million to $50 million. Lastly, we expect to deliver free cash flow in the range of $55 million to $65 million. For modeling purposes were Savage to be sold at the beginning of the year, EPS would be affected by a range of $0.10 to $0.15.

For our first quarter, we expect continued challenges in the market and more excess inventory sold at lower margins. New product introductions, commodity improvements and further cost reductions will gradually increase our gross profit every quarter.

We do expect that our performance this fiscal year '20 will reflect normal seasonal variability between quarter to quarter earnings and in particular lower international ammunition orders. And with, that Brandon we will now take questions..

Thank you. [Operator Instructions] The first question will come from Eric Wold with B. Riley. Please go ahead with your question..

Thank you. Good morning. A few questions. I guess, one I wondered, if you dive a little bit into your comments around on Bell-Giro to make I am understanding your thoughts on those brands now.

Would you characterize that as continuing to run it to improve valuation on an eventual sale or was this situation where actually could be factored back in the portfolio long term and not being sold?.

Yes, Eric we - our board and our senior leadership team evaluate our assets and our portfolio all the time.

And as we sat down and reviewed the Bell-Giro asset we came to the clear conclusion as a team and as a board that we're much better off holding this asset and continuing to improve it for a period of time and that will be a multi-year period of time. We see that much upside in the business. So at this point in time, we're excited about holding it.

We think it's the best thing to do for driving shareholder value and that's what our intended plan is..

Perfect.

And then on the outdoor products with the guidance or comments for growth overall organically for fiscal '20, can you give us a sense of kind of where you see strength and weakness with some of the various product lines or brands and kind of what the - the ones are expected to be weak, what the major headwinds are for those brands?.

Yeah, I mean, so starting first with shooting sports, you know in total we still have not seen the bottom. We've seen signs that the bottom is near. We're certainly seeing signs of stabilization. We're planning those businesses in our guidance to be slightly down in the fiscal year. So kind of low single digits, if you will.

On the outdoor product side, in total we expect that business to be up low single digits. And if we look across all of our brands just about every brand, in fact every brand, major brand is forecasting to be up some more than others.

And as we've stated before you know, we've got brands like Camp Chef that continue to capitalize on the outdoor cooking space, we would expect them to grow a bit more than some of our other brands.

But we've got some other brands with some really, really exciting new products that are coming on stream and some you know, e commerce, direct to consumer, marketing initiatives, that individual marketing initiatives that we're doing that we're very excited about.

So you know, we're very happy with the position we're in to grow our outdoor products business this year..

Okay. And this final question for me, if I may.

With the guidance for $55 million to $65 million of free cash flow this year versus $79 million last year, sales improving, margins okay, what's the biggest factor in keeping - driving that decline in free cash flow? Where you could see better opportunity to bring that higher beside the sale?.

Look, thanks for that question and to allow a little bit more clarification. We have looked at our conversion of EBITDA into cash throughout the years, on a revenue basis its anywhere from 3% to 8%, on a EBITDA basis it varies widely from 12% to over a 170%.

Just last year respectively the conversion rate versus revenue was about 4% and we're being a little bit conservative and saying it's in that range in the 3%, 4% range is what we're guiding to. So there is opportunity certainly on the inventory side. I think this year we made great strides in our accounts receivable.

You noticed also that we were very judicious in our use of working capital and whereas we've been as high as $80 million and actually had a run rate of about $60 million, we've brought working capital in now way below that in 40s - mid 40, so are very proud of that and we'll continue to focus on high return on investments on our working capital and to start turning our inventories more is where we see the upside..

Got it. Thank you both..

Thank you for the question. The next question will come from Gautam Khanna with Cohen and Company. Please go ahead with your questions..

Yeah. Thank you. I had a couple questions.

First, any update on the legacy [ph] supply agreement and the terms of that contract?.

Yes, so you know, we're deep into the process here and all we're able to comment on is publicly available information.

We mentioned last time that we're partnered with who we think is the best contractor in the industry and we feel like we've got to number one folks that are arm in arm and going down the process of answering all of the questions from the government for the contract. So there's going to be a best and final due here shortly.

The government will then take their time to review the process through the summer months and we'd anticipate an answer in the early fall timeframe..

Got it.

And just in the interim has there been any change to the underlying pricing [indiscernible]?.

Yes, so I commented - yeah I commented on the previous earnings call that we were hopeful that the Lake City organization would be more accommodating to help us go after some sales and they have. And they they've been very good to work with over the past 90 days.

But the market remains soft and you know we felt like we made the right decision to opt out of our exclusive contract because frankly the market has remained soft for a period of time and has continued to. But they've been more accommodating and we're certainly appreciative of their partnership as we look to sell more of their product..

Last from me, just on supply issue, you mentioned in the shooting sports segment.

Could you just elaborate on what specifically cropped up in the quarter and has it been resolved as of yet?.

Yes, so we don't want to get into very specifics of exactly what it was. But we can assure you that it was a onetime in nature. It was an incident that we strongly believe will not recur and we don't expect it to have an issue on our plan for fiscal year '20..

Thank you..

Thank you..

Thank you for the question. The next question will come from Dave King with Roth Capital Partners. Please go ahead with your question..

Thanks. Morning, guys..

Morning..

First on the $0.10 to $0.15 impact from the Savage sale, is that based on the contribution to operating income or does that assume any reduction in debt and interest?.

That's a very good question Dave. And it would be a reduction of interest also to compensate for the sale of the assets..

Okay. Thanks, Mick.

And then on the revenue guidance, how do you see each of the quarter shaking out versus the down one to five, you sort of laid out, it sounds like you were optimistic on the outdoor side of the business, should we be expecting improvement over the next couple of quarters or is that more second half loaded and then you know, sort of a similar question for shooting sports.

Thanks..

Pretty similar to what we've seen this past year where we feel like, we've got a stronger half. Our stronger quarter has historically been our second quarter from a shooting sports standpoint that drives our overall second quarter to be stronger. But you know, last year first quarter was fairly weak.

We expect that to continue as we have some very seasonal products that don't sell as s well in the first quarter.

So we expected to roll out from a quarterly perspective pretty similar to what we've experienced the past four quarters and we'll certainly on the outdoor product side will build as the as the quarters move on and as the new leadership, general management team that we have in place starts to see the you know, the fruit from their labors come forward and new products and what have you.

So that and that will certainly lean towards the back half. On the shooting sports side. Again, it's going to be a weaker first quarter, stronger second quarter and will mirror a little bit of the, what you've seen in the last two quarters in the back half..

Okay. That's great color, Chris. Thank you. And I guess lastly for me, on the production and supply chain issues. Can you talk a little bit, could you talk a little bit about what drove those and to what extent are those now behind you? Thank you..

Yeah. So we had some issues with some of our suppliers in terms of material you know, a little bit - you know was forecasting and a little bit was frankly just some opportunities that we had that we were chasing down that they came up and they were unable to supply and quick response the material that we wanted.

So there wasn't anything that would be in effect long term that we're concerned with, but certainly had an effect on our fourth quarter and held us back a bit..

Okay. None going forward. That's good to hear. Okay..

No..

Thanks for taking my questions and good luck with the year ahead..

Yeah. Thank you, Dave..

Thank you for the question. The next question will come from Brett Andress with KeyBanc Capital Markets. Please go ahead with your question..

Hey, good morning..

Morning, Brett..

Can you help us understand the variables within the Savage, the Savage sale process a little bit better, I guess is, is a timeline being stretched out over price discovery which I guess maybe that's what the impairment is telling us. Or are there any legal hurdles, any other complexities that we're not appreciating.

Just any color there?.

Yes so Brett, I think the Savage process is on many folks minds and so I think it probably makes sense to spend just a couple of minutes explaining where we're at today.

And what I think makes most sense as a start at the very beginning and what we said at the beginning of the process was that we felt it made sense to look to sell Savage because we thought it would be more valuable to others than it would be to us. We also said that we wanted to remain disciplined sellers and not give away the asset.

We did not want to be part of a fire sale and we also said that there was many interested buyers and therefore we thought it was going to be a robust process. In the last quarter 90 days ago, we felt as though we were far enough along that we deemed it highly likely that there would be a signed contract by the end of the quarter.

Now where do we sit today? We still believe that it makes the most sense to unlock long term value to Vista to sell Savage. We continue to have strong interest from multiple buyers and we're very far along in due diligence with one set buyer.

Unfortunately as many of you know, it's - the firearms is a very challenging industry and our buyer due diligence has taken significantly longer than we thought, we being us our buyer and our advisors ever thought it would take.

So you know as we look forward we're going to continue down the path of due diligence and the current process and we'll update - update you as we know more. Now the silver lining is Savage is a prized asset within the firearms industry. It's got a great track record.

It's got a great management team and we feel like it's not dilutive to our or our guidance this year..

Understood. Thank you. And sorry if I missed this one, but the increase in reserves for I believe customer credit risk and product liability litigation.

I guess where did that impact fall on the income statement and just any more color, I guess what that is you know, there wasn't really any bankruptcies on my radar, but now I haven't been paying attention. So if you could elaborate on that..

Sure. Sure. So let's take first the product liability risk which we attributed $0.30 for that. There is a - an assessment that yearend we do with our legal team, we go through a general reserve.

We also look at specific cases and as a result of that it was evident to us that we would take a cautious approach and at the right approach is to reserve for potential liabilities coming in the future, as we have done in the past. There was one particular case that prompted us to do the majority of the reserve. So it's one specific case.

On the bad debt, you've probably have heard that there have been no recent bankruptcies, but there are high potential for an impending bankruptcy.

We had reserve that particular customer at 50% and given recent developments that we have heard in the marketplace we thought it would be prudent to increase our reserve to 90% as we have in the past only received about 10% recovery on these types of bankruptcies. So hopefully that adds sufficient color..

Yeah, just to just to put a finer point on it. We feel like it was a hit that we felt like all the evidence supported securing for that credit risk.

And we feel like we're fully reserved now as Mick said you know, we typically get a 10% recovery, with 90 reserve we feel like it was prudent to take this in the fourth quarter and be fully reserve walking into 2020..

Thank you. Thank you for the color there.

And last one, Chris just any update on the pricing environment within ammunition you know, with commodity costs coming down across the industry are you seeing any signs of you know irrational pricing actions or just any movement you know kind of over the last 90 days along that front?.

So Brett, we're cautiously optimistic, but what's happened, what we've seen over last 90 days is all of our major competitors have taken price increases, which we find highly encouraging.

And so we see the pricing market in general stabilizing for ammunition and so we're encouraged by what we're seeing in the marketplace and we think that's a harbinger for better things to come this fiscal year than this past..

Got it. No that is encouraging. Awesome, thank you..

Thanks, Brett..

Thank you for your question. The next question will come from [indiscernible] Please go ahead..

Good morning. Thanks for taking my question.

On the outdoor products outlook for the year, could you give us a little bit more color, maybe in terms of backlog that you have or POS trends that you're seeing that gives you confidence that that business won't flock to organic growth this year?.

Yes so we - there's no question that we've faced a challenging environment. I mean many folks have called it the retail apocalypse. And so there's been a lot of unnecessary, but not unnecessary. There's been a number of customer bankruptcies and what have you that have negatively affected a number of our brands.

What we see more of here is the strength of some of our brands and the sell through that we're seeing. So this past winter we had terrific snow. And we capitalized on that with you know with some of our zero helmets [ph] and goggles.

We grew to that number share to share position in our goggle line with our new vivid technology and things like that obviously lead to stronger growth the following year as our dealer base looks to refill and restock their inventory position.

We've had a number of new products that recently hit I mentioned Bushnell that you know frankly we can't build enough of them because the product is so hot right now.

So you know we've had a number of product hits that we're encouraged by and with the product road we've got in place and in some of the traction we're getting online with our digital marketing efforts, we feel pretty confident that we've got some momentum that is sustainable.

But again it's - you know there's still headwinds that are out there and that's why we're forecasting the low single digit growth that we were forecasting and we expect the outdoor products business to build as we move through the year and we start to see more of these products hit the marketplace..

Great.

And then you put in place some new brand leaders I think close to a year ago just wanted to understand you know what changes they've made you know, and what - you know are you starting to see an impact from the new leadership?.

Well, we certainly are. And anytime you bring in a new leader to some of the brands you it's going to take a bit of time before they start to get traction and that's why we feel stronger and better about the - you know about next year and as we move forward here because it just takes time for the initiatives to you know do to bear fruit.

And so you mentioned the timeframe. So the first general manager we brought on was probably about it was about a year ago right now. The others were brought in the last probably six to nine months. The general manager of our Bushnell business has been in place now for about a year.

That's where we have seen the biggest impact is frankly has been in the seat the longest. We implemented initiatives such as map pricing which is minimum advertised pricing and we didn't do quarter end deals and at first it hurt us but our customers started to realize that as they ordered our product we weren't going to give it away.

And so we became much more disciplined in our pricing and by the way this also helps our customers because they don't want to get behind product that doesn't have mapped pricing because they won't make money either. So it's a win, win and they're appreciative but it's taken some time to work through the system.

It had immediate effect on the on the product road as you've seen with our laser range finders and some of the other products that are starting to hit the marketplace right now. So you know we're excited about that we've got new leaders in place it you know at Blackhawk and Camelback and we're really, really encouraged by what we're seeing there.

Obviously we don't want to give away any competitive intelligence here but trust me they're having an impact on their teams and where we're highly excited about what we're seeing..

I would like to also add that they're very disciplined operational leaders besides very I have a lot of prowess on their marketing and sales side and we have seen detailed reviews of inventory reduction in skews, moving some of the excess and obsolete which is evident in some of their particular inventory numbers.

So I think the leaders are great general managers. And if I combined guess as Chris mentioned contribution that will yield more and more fruit as they build their teams out. Some of them are just recently filled with teams..

Yeah. And so to add on that point I think it's important for everybody on the call to understand you're seeing in our guidance here no real growth in the sales line as it's you know shooting sports has offset the growth that we're going to see in outdoor products. But you're seeing margin lift in that margin lift is coming from the efforts of mid top.

Mick talked about and so you know we sat down and partner with each of our general managers and really gone after that complexity that sits in the business and that means less skews, less inventory and taking action on stuff that gives us clear line of sight to the profitable products and you know where we can make the most money..

Great. Thanks for all the color. Best of luck..

Thank you for the question. The next question will come from Scott Stember with CL King and Associates. Please go ahead with your question..

Good morning and thanks for taking my questions. Could you guys give us maybe an update on what you're seeing at the personals stockpiling angle. I know it's very difficult to ascertain. I know that about a year and a half ago you guys conducted a study. And do you have any updated findings of you know when we could be seeing it turn there.

Is that baked into your expectations that the market I guess will be flattish to down a little bit.

Or do you still think that there could be some weakness on that front?.

Yes so what we've seen from our surveys is the underlying health of the shooting sports in general is it continues to be very healthy. What we've seen from our conversations with distributors by groups dealers as we went through all the winter shows was more optimism frankly than we've seen in a long, long time.

They all feel good about the inventory levels that they're carrying. The conversations they've had with customers, our range customers and folks that operate ranges feel good about where they're at. But nobody really honestly knows how the fickle consumer demand turns into stockpiling or what have you.

We feel really good about the inventory position and the underlying shooting sports. But what we're predicting is just a more normalized environment this year. We're not expecting any big run up.

We're not expecting any stockpiling we're just expecting normal replenishment of inventory and that's what we've guided to in fact you know maybe a little bit down as we said..

Got it. And just going back to the leverage situation and through the potential sale of Savage arms in they're operating you know six times right now. And I know it sounds like you still expect this deal to get done but in the event that this deal doesn't get done at least with this one customer, maybe talk about or potential buyer.

Again just remind us whether you know the demand or the excitement about this is still existing with other potential buyers and also how comfortable are you operating within this six times leverage ratio range you know in the near term..

Sure. So we're in a process now with a buyer. We're in exclusivity. So we're hopeful that we can consummate the deal as agreed to. But there are other multiple buyers out there and we're willing certainly to reopen it certainly once it closes.

From a leverage perspective I think we have addressed this in the past, but would like to reiterate that Savage is a very profitable brand that yields a significant amount of cash flow and EBITDA and we expect it to continue to do so. And actually the leverage as a consequence will be approximately the same, whether we keep Savage or not.

We do hope to continue doing improvements to our reduction in debt through working capital management, as we had done last year not just on asset sales. So we're confident that we are on track to go below six throughout the year..

So let me let me also add onto that. I think it's important to note in the slides we provided in that Mick referenced in his scripted remarks. Slide five talks about an inflection point that we hit. So for the first time in over seven or eight quarters we actually saw our leverage ratio declined.

Obviously that did not include the impact of a sale of Savage. It points more towards the efforts that we're making in the business to generate better earnings. And frankly working capital improvements.

So as we go forward here with or without a sale of Savage which nobody's just nobody's forecasting anything other than you know finishing the process that we're in right now is a continued reduction in our leverage and that continued reduction our leverage is going to come from a combination of asset sale, as well as continued improvement in working capital and earnings growth..

Got it. That's all I have. Thank you..

Thank you. The next question will come from Gary Martinson [ph] with Jefferies. Please go ahead with your question..

Morning. In the past you guys talked about wanting to focus on the savage arms divestiture get that out of the way and then you know kind of review the portfolio.

With the delay here in the process, I mean have you ever given some additional thought to other assets perhaps that you would want to monetize?.

What really goes back to the previous question of how comfortable are we with the current leverage and as we stated before we want to continue to drive down our leverage ratio. You know we'd feel much more comfortable in that two to three times leveraged position and we're going to continue to work to get down there.

We - as I mentioned before as well that continue to dialogue actively with our board to discuss the best way to unlock and drive shareholder value. And if we felt as though there is a another asset sale that would contribute to that we'd certainly be open to it.

But at this point in time we feel like the best way to drive shareholder value and continue to reduce our leverage ratio is to improve the businesses that that we're running right now...

I'd just like to add that our new credit facilities are just perfect for us. Our rates are fairly low. As of March 31 the average interest rate was 4.8% on the revolver and 6.2% on the term loan. We certainly have a much higher rate on our second lean which is north of 10% but that's only $40 million. So our overall rate is lower.

That is reflected in our guidance for next year of lower interest expense. And then when we look at the covenants associated with our debt there they're much more lenient. That we do have a CCR fixed charge coverage ratio that there were competently way above right now. So there there's no concern there from a liquidity standpoint..

Yeah a debt on to mixed point. We spent an awful lot of time last year working with our lenders and it was a big initiative of ours, knowing that we're in a transformation of the company that we locked down a long term credit facility that would give us the ability to finish what we're doing. So all of our debt has a four year plus maturity on it.

So we feel highly confident operating in the current leverage ratio that we're in right now as we as we work to get it down..

Yeah. We constantly talk to our financial partners at Wells, JPMorgan and [indiscernible] and they're very confident of where we are.

And again as Chris mentioned we have our next maturity in 2023 and feel that our liquidity position is perfectly fine right now and we will continue to drive our leverage ratios down as we increase our EBITDA and contribution margins..

And notwithstanding the pricing pressures that you're seeing and ammo, it does seem like the shootings sports gross margin is bottoming out, is this the right way to think about that is that we you know we have a lower margin here in the first quarter but we sequentially build each quarter for the full year?.

It's a very good question, although you know we're not here to call the bottom on the sales growth, although we've seen as I said before stabilization in the marketplace which we're encouraged by. We do feel like we've hit that inflection point on margins.

The activity that we've got going on in our facilities, the commodities a little bit of tailwind year over year for a variety of reasons we've dropped out and ammunition margins and you're going to see an improvement this year not just year over year but sequentially as we go through the quarters. We feel good about..

Thank you for the question. This concludes the Q&A portion. I'll now turn the call back over to Chris Metz for closing remarks..

Thanks again for everyone's time today and being on the call this morning. I'm proud of what we've accomplished for fiscal year '19 and eager to prove what we can do in fiscal year '20. I believe we have a solid plan, a strong team, in the right mindset to accomplish our goals for the fiscal year.

We've built a strong foundation in the first year of our transformation and that gives me great confidence for what we can achieve in the future. I look forward to updating you on our progress in August. Thank you.\.

Thank you ladies and gentlemen this concludes today's event. You may now disconnect your lines..