Good day, and welcome to the Vista Outdoor Inc., First Quarter Fiscal Year 2021 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Kelly Reisdorf.

Ma'am?.

Good morning. And thank you for joining us for our first quarter fiscal year 2021 earnings call. With me this morning are Chris Metz, Vista Outdoor's Chief Executive Officer; and Sudhanshu Priyadarshi, 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 the 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, everyone, and thank you for joining us. Vista Outdoor reported significantly better-than-expected earnings for the first quarter of fiscal year 2021. We outperformed in most categories and metrics. Our performance can be attributed to a variety of factors, but the most important factor is our employees.

Our team has stepped up and answered the call time after time during these unprecedented and volatile times. I couldn't be prouder of our entire team. The adversity has brought our employees together, and we have rallied behind our shared mission of bringing the world outside. This mission helps guide our company's actions and decisions.

We are on the forefront of what we believe is a long-term resurgence in outdoor recreation. We also believe Vista is perfectly situated to capitalize on these trends with our market-leading brands and the transformation we have made.

Our first quarter results are a great start to the year and have accelerated our strategic transformation plan significantly. As I mentioned, there were a number of factors that contributed to our results. I'll provide more color on that in a moment.

However, one of these factors was a manifestation of the last couple of years of heavy lifting where we rationalized corporate overhead, streamlined and improved operations, simplified our business unit structure and improved key processes, all resulting in greater margin expansion and bottom line results.

We also continue to gain momentum on driving organic top line growth, which turned positive in the third quarter of our fiscal year 2020 and will continue as we go forward. For the quarter, I will provide some of the high points and Sudhanshu will provide more detail. First quarter sales were $479 million, up 10% organically from the prior year.

Our overall EBITDA rate improved significantly, ending the quarter at 13.5%, up almost 200% and nearly 870 basis points improvement over first quarter last year. We generated $0.51 of adjusted earnings per share versus a loss of negative $0.08 last year.

I'm equally pleased that we generated $73 million in free cash flow and what is typically a cash use quarter for us, and we brought our leverage ratio down to 2.6 times. As we discussed on prior calls, the first stage of our transformation included major progress on SKU rationalization, process improvements, margin expansion and cost reduction.

Combined with significant cuts to corporate SG&A, the result has been a far more profitable platform that generates improved earnings for each dollar of added sales. Free cash flow performance for the quarter has supported increased debt paydown while at the same time boosting liquidity and keeping us on a fiscally stable path.

Despite the challenges and unknowns that faced our brands heading into the first quarter, I am proud of our teams who stayed nimble and thrived among so many changes and unknowns. Some of the success in the first quarter can be attributed to the pandemic or civil unrest, but there are many more layers to the story.

When the first quarter began, the timing of store re-openings was largely unknown. And in hindsight, occurred quicker overall than experts were predicting. As lockdowns were lifted, stores were flooded with consumers, who wanted to recreate in safe and socially distant ways.

Outdoor recreation quickly became the go-to form of exercise and entertainment, which drove stronger-than-expected sales in most categories. The key to increasing participation over the long-term is recruitment and the silver lining in the pandemic is that Americans now, more than ever, have reunited and rediscovered outdoor activities.

We believe the structural change is not a three or six month, both in our country and lifestyles, but the beginning of a new norm and a way of life. Continued uncertainty drove sales in our Shooting Sports categories and volumes not expected when the quarter began.

We are seeing a whole new refreshed desire for self-sufficiency and personal protection with our consumers. The trends we saw in the back half of last calendar year towards personal protection was well underway prior to these societal changes, but recent events have accelerated new user recruitment and increased participation.

Much of our success can also be attributed to direct actions we took as a team. The quarter began at the height of the global pandemic and at the time when lockdowns and stay-at-home orders were fresh.

This uncertainty required our teams to be creative in their marketing, flexible in their production and innovative in what we make and how we sell in the marketplace. The results of these actions led to increased sales, organic growth and improved margins across the businesses.

The continued benefits of our operations, center of excellence and heavy lifting work done around SKU rationalization, clearly enabled us to generate much greater earnings than anticipated.

The segment realignment is also resulting in a more effective organization aligned around the customer and benefits are materializing in strong ordering patterns and sales growth. Our marketing is a key element to driving organic growth and these unprecedented times brought out the best in our marketing teams.

Trade show season has historically been a big order writing opportunity for our brands, and given the cancellation of many of the larger shows, our sales and marketing teams have led the industry in creating virtual experiences to a wider audience of buyers, receiving accolades from many key customers.

We also met the consumer where they were, engaging in more meaningful ways and providing value that created brand loyalty, demand for our new products and ultimately supported our gains in margin expansion and organic growth.

In many of our brands, we doubled or even tripled the frequency of e-mail marketing communications to keep people informed on new products from our partners and influencers. We also pivoted to more relevant, live and creative content across our social channels, given increases in mobile screen time during the pandemic.

At Ammunitions, they connected with their audience, both new and old in many creative and impactful ways. Data from the National Shooting Sports Foundation shows that 40% of firearm purchases in 2020 have come from first-time buyers. Content focused on safety, how-to's and learning the basics have driven the Federal Premium website to new highs.

Since April, the website has experienced 80% new users. In addition to this influx of new users, we're starting to see more diversity. According to the NSSF, the combined purchasing of firearms from persons of color and women during the first six months of 2020 increased 58% over the same period last year.

The ammunition team is focused on engaging and building lifetime relationships with these new demographics. Within Camp Chef, the pandemic has led to a surge in outdoor cooking.

Our online presence has not only led to major brand awareness and significant growth in sales, but sales on the campchef.com platform were up 4 times year-over-year during the month of June, which led to significant profitability improvements. The cycling industry is seeing unprecedented growth due to the pandemic.

Sales of adult bicycles have tripled. Sales of children's bikes have more than doubled compared with the prior year. Bell and Giro, leaders in cycling helmets and accessories, are leading the charge. Both brands quickly embraced the new landscape and adopted a digital-first strategy to both sales and marketing.

This has led to exceptional growth in all channels from specialty retail to mass market and e-commerce. Our Bell and Giro brands are now preparing for the long-term resurgence of the industry by working closely with our retail partners. For CamelBak, the team has shifted their messaging content to focus on personalized pursuits of staying healthy.

This includes partnerships and content creation centered on home-based exercise and fitness. The social feeds and new Thirst Things First blog are filled with useful tips, tricks and routines to stay active, fit and hydrated in these trying times. Another major driver for the quarter was ammunition production.

The first quarter demonstrated again, why and how Federal and CCI Spear are the world leaders in ammunition manufacturing.

In a rapidly growing and unpredictable market, our team was able to make real-time adjustments and operations to meet market demands and simultaneously leveraged our commercial strengths and drove pricing leadership in the industry.

And as a result of our continued focus on employee safety, our Ammunition operations have stayed open through the pandemic.

During the last two and a half years, we've been taking advantage of the downturn to transform our Ammunition business into a stronger, leaner and more nimble operation, so that when the market recovered, we will be able to capitalize on growth even more than we could have before.

The fact that, we were able to improve gross margins in this segment by more than 1,000 basis points inside of 90 days is proof that our transformation in Ammunition is working.

All of these factors demonstrate the sophistication of our Ammunition operation and emerged as a major competitive advantage, allowing us to benefit from increased demand in ways that other ammunition manufacturers simply can't match. Another key element to our organic growth is new products.

Many of you heard me say time and time again, that new products are the lifeblood of this company. Our innovative new products drove demand, supported margin expansion, increased social following and interactions and ultimately accelerated organic growth this quarter.

The Wingman by Bushnell Golf is the industry's first speaker GPS and a true breakthrough product. With this quality sound performance, our BITE feature and GPS distances to the green, Wingman is unlike anything in the market.

The reception has been outstanding as Bushnell Golf outsold the full first year projection in the first couple of months of its launch. CamelBak's official launch of its Horizon Drinkware line on camelback.com was a key driver in CamelBak achieving a record quarter in D2C sales.

Digital marketing efforts in support of the Horizon launch also helped produce a record quarter for the website traffic and social media engagement metrics for the business. Spring is an exciting time for turkey hunters, and it's a perfect way to socially distance and enjoy the outdoors.

Federal introduced a new ammunition partnership with MeatEater, special edition third degree turkey loads provided a great performance and cross pollinated with MeatEater's mantra of sustainable organic food. Sales of this product were strong, and the partnership is an extended market reach for our team.

Our first quarter is also a critical time for big game ammunition as we ramp up to the fall hunting seasons. In the quarter, we saw strong ordering patterns in our Premium hunting loads, which tracks with the spring increases and is an indicator for a strong fall season ahead.

All of these new products have taken a strong step forward in our first quarter. Our product vitality index, which we define as revenue from new products launched in the last three years, is growing compared with three years ago. We intend to provide regular updates on the vitality index moving forward and look forward to continued progress.

Critical to building on this momentum of product innovation, success, and increased participation comes with increased investments in R&D, which we are prepared to continue to do. Investments in e-commerce and digital infrastructure paid off in major ways when brick-and-mortar retail were forced to close their doors.

Our e-commerce business, including B2C and e-tailer accounts, grew more than 40% over the prior year. As more consumers came online, our systems were ready and we continue to fulfill the needs of the consumer through D2C and e-tail, supporting both top line and bottom line results.

Lastly, I'd like to briefly highlight a big win delivered by our team's proactive work on tariffs. Our teams were able to successfully obtain tariff relief in a variety of categories, including bicycle helmets.

As we look back on the quarter, we realize that the state of global affairs has driven people outdoors in historic numbers, and created surges of new participants in some of our categories. But like a sports team filled with all stars, teams without a game plan, make a deep playoff run.

Vista had a plan and when external events drove people outdoors, we answered the call, capitalized on the new demand and delivered profitable sales. Our team is not letting up, and continue to prepare for all scenarios as we navigate the world and its many changes. The migration back to nature and into the outdoors is the future.

Many trends and societal changes will drive a long-lasting resurgence in a healthier, more active population. This bodes well for the outdoor recreation industry and for Vista Outdoor. Simply put, we are in the right place at the right time.

Among the trends, Republicans and Democrats in Congress just passed the Great American Outdoors Act, which is the largest outdoor recreation legislation since the 1960s. This legislation infuses federal recreation assets with an additional $900 million in funding each year.

Recruiting, reactivation and retainment strategies deployed by the hunting, golf, bike and other communities are paying dividends, with scores of people coming back or trying out a new pursuit. And early pandemic trends are showing up as paradigm shifts when it comes to outdoor access.

New travel trends are showing that people want to stay closer to home, traveling to destinations by car or recreational vehicles and are opting for rural experiences versus metropolitan visits. There have been boosts in suburban housing markets, increases in remote work and an overall migration away from densely populated cities.

People For Bikes, which is the trade association for the bike industry, has research that shows 85% of new bike owners will stay in the category post pandemic. Across the country, state fish and game agencies have seen a major surge in hunting and fishing activity.

Lack of live sports, social distancing and field to table trends are additional drivers, getting people back into the woods. In the spring 2020 hunting season, license and tag sales were up about 35%. We follow several industry related KPIs, including federal excise tax trends, FBI NICS checks, data from the NSSF and our own consumer panel.

All of these indicators show the long-term potential for the shooting sports market. July firearms background checks were another triple-digit month, and we have said many times that ammunition sales typically take multiple months to catch up. Range membership has increased overall as well, and many new shooters are seeking firearms instruction.

Combined with working from home, less vacation travel and more free time, this has led to increases in participation in handgun, rifle and shotgun sports. We're seeing stockpiling happening to a certain degree, but the free time has given people more opportunities to recreate in real time.

The industry in retail have seen an influx of new users before and this time around, we are far more prepared. During the last several years, programs have been designed to be more welcoming, inclusive and educational with a focus on long-term engagement and sustainable participation.

Heading into these societal changes, having programs already in place will lead to greater long-term industry health and participation. In response to this changing demographic of new shooters, we are executing a series of targeted marketing campaigns designed to engage, retain and educate.

We are also expanding our consumer insights panel, leveraging analytics gained from our website traffic to better connect with a wider and more diverse audience. Recent trends in recreational shooting, personal protection and hunting presents an incredible opportunity to create new lifelong brand enthusiasts.

Finally, the pandemic has accelerated the migration to online commerce and shopping. The outdoor industry is not immune to this migration, and our teams are well positioned to adapt, adjust and thrive in this digital marketplace.

These and other trends demonstrate that what we are seeing is not a surge, but rather a lasting resurgence in outdoor recreation and activities. The future is bright, and we are excited about our positioning over the long term. Our successful navigation of the first quarter put us in clear control of our financial future.

Strong cash performance allowed us to shift our capital allocation in more balanced ways.

Our cash and debt positions give us the flexibility to move into more aggressive growth categories including tuck-in acquisitions, increases in R&D spending, new product development and digital infrastructure, while also maintaining liquidity for future slowdowns or unexpected turns in the market.

We realized during these times that domestic and global economic conditions can change in major and unexpected ways, and our financial foundation allows us to better adjust and adapt. We've also secured several contract and agreements, which will inject stability and certainty into our operations for the immediate two to five-year time horizon.

The Department of Homeland Security selected our Speer Gold Dot product in a $112 million five-year contract award for duty heavy ammunition for the Customs and Border Patrol. This contract is the largest single contract issued by federal law enforcement. This win illustrates that we make the best pistol ammunition in the market.

We expect for shipments to begin as early as our third quarter on this contract. The current supply agreement for Lake City concludes at the end of our second quarter. We are pleased to share that we have reached a new distribution contract agreement for Lake City Ammunition with a new operator at the facility effective October 1.

This agreement will contribute a portion of the previous volume at higher margins. Finally, we have repurposed a portion of our own internal capacity to meet the continued unmet marketplace demands for pistol ammunition, which has tended to be less volatile of a category and higher-margin profile when compared with the 223, 556 categories.

In closing, the confluence of strong market trends, accelerated financial performance and our steady pipeline marked the end of our turnaround and begin to transition to the next phase of the Vista Outdoor story.

In this phase, our corporate strategy will be focused on internal investments, conservative balance sheet management and capital allocation that is efficient, strategic and supportive of organic growth and tuck-in acquisitions. We also intend to place a larger emphasis on purpose and impact.

We want to do well so that we can do good for the outdoors and the communities where we operate. This mantra will drive passion and performance and help us to make outdoor experiences meaningful, more accessible and enjoyable for all. Sudhanshu will provide more color on our corporate strategy, our M&A criteria and detail on our financial results.

I'm extremely proud of our team for delivering over the course of our transformation and more recently in the first quarter. We will continue to stay focused on our internal strategy, external conditions and continued organic growth for this year and beyond. I'll now turn it over to Sudhanshu..

We expect revenue in the range of $495 million to $515 million, which represents a range of 11% to 16% increase over the prior year quarter. And we expect adjusted earnings per share in the range of $0.60 to $0.70 as compared with breakeven in the prior year quarter.

In my first 100 days with the company, I've been spending time learning the organization, getting up to speed on business drivers and integrating with the company's strong culture of business savvy outdoors in the U.S. It's clear that Vista Outdoor has a very knowledgeable, experienced and talented finance team.

We also benefit from a healthy industry going through some very dynamic times, great brands in our portfolio and the strong profitability and cash generation foundation, Chris and the team have built over the past few years.

We have many opportunities ahead of us, and I look forward to helping Vista Outdoor seize those opportunities, particularly in areas like e-commerce, where our initial investments are just beginning to pay off.

I'm excited to lead our finance organization and be a part of this dynamic time of growth in the Vista Outdoor story and look forward to sharing more details with you in the coming quarters. Thank you for your time today. And operator, we can open the line to take questions..

[Operator Instructions] The first question will come from Jim Chartier with Monness, Crespi, Hardt. Please go ahead..

Hi, good morning and thanks for taking my question. And congratulations on some great results this morning. Chris, it looks like you guys are on pace this year to hit your previous low double-digit EBITDA margin target.

What's the potential to maybe go above that given the strong demand you're seeing? And then, I guess, what levers can you pull to kind of sustain EBITDA margins in that low double-digit range when maybe the marketplace normalizes? Thanks..

Yes, Jim and I appreciate the question. And so as evidenced by the first quarter, 15.5% EBITDA margin, we feel like - and the way we've guided here in the second quarter, we feel like we certainly have the momentum to exceed the long-term guidance that we had given before.

What excites us about the current environment is the - all the work that we've done in creating the platform that allows us to ensure that the sales we get are increasingly more profitable. So Ammunition, at some point in time, we all know that the surge that we're seeing right now will subside.

But I'll talk in a bit about why we feel like it's even more exciting as we go forward, given the underlying trends. But we certainly see ammo margins - ammunition margins continuing to be strong. We love where we're at in Outdoor Products and some of the new products that we're introducing that are margin accretive will continue.

And so the new products, combined with our e-commerce efforts, all give us the confidence that the margin lift that we're seeing is certainly sustainable..

Great. And then I appreciate your - congratulations on getting some of the Lake City volumes through the distribution agreement.

But how should we think about the impact of that kind of net on the back half of this year?.

Yes. So Jim, as everyone knows, the contract expires October 1. And so we're bound by confidentiality agreements. So I can't give too much detail, but we feel very good about replacing a portion of the volume given the agreement that we've got in place with the new operator.

We've also got a number of other things that we're looking at to help replace some of that lost volume. And we've always kind of quantified the volume as fairly meaningful on the top line, but not as meaningful on the bottom line.

Well, given the fact that we're going to replace a portion of the volume with the new operator, the fact that we just won the new Customs and Border Patrol contract, and the fact that we're doing some things within our factory that we've been working on over the past six months that gives us a bit more capacity to meet some of the current demand, we feel very good that we're going to be able to replace that Lake City volume..

Great. Thank you..

Thank you. The next question will come from Mark Smith with Lake Street Capital Partners - excuse me, Lake Street Capital Markets..

First off, Sudhanshu, you talked a little bit about that shipment of the international order.

Can you just give us more insight on the decision to kind of rescind that and take that away? And then how much maybe that helped boost ammo sales during the quarter?.

Yes. So thank you for the question. Basically, with the way commercial ammunition market was doing here, it didn't make sense for us to keep waiting for those contracts. So we managed to sell here and got much better margin. We still have a portion of inventory to sell, which we believe we will be able to sell that during this fiscal year..

Yes. So Mark, we didn't - just to make it clear. We didn't ship the full international order. We shipped a portion of it. The rest of it will ship the rest of the year, we were just being pragmatic.

So when you think of how ammunition performed in the first quarter, don't think that, that international order had a big effect on the quarter because it didn't..

Okay. Perfect. And then you guys talked about the e-commerce, and I know you guys have done a lot of work there on direct-to-consumer.

Can you quantify at all or maybe break down at all kind of the impact within the ammunition market and how you've been able to kind of turn that on more? So as we've seen strong demand and maybe lower supply in retail, kind of how you've seen a shift of people coming directly to you?.

Yes. It's a good question, Mark, because certainly, our e-commerce efforts in D2C don't apply just to our Outdoor Products business. In fact, our Ammunition business, their website traffic is frankly on fire.

In fact, they've seen an 80% increase in new user activity on the website in the first quarter from new purchasers of firearms that are frankly looking for tips, education, safety classes, what have you. And all of this gives us an opportunity to interact with a new group of users that we hadn't before.

It also informs the marketing that we do in terms of different demographics and different type of users. So what we see online is a continued growth. And a lot of these trends, we're able then to go right back to our retailer and share those trends with them.

So we can get stock positions appropriate, we can help share with them all the knowledge that we're gaining to make sure that what we're shipping to them is exactly what their consumers are looking for. So there's a number of exciting insights that we're able to garner from all the activity and the interaction we're having with users online..

Okay. And then as we look across the board in supply chain, can you talk about any headwinds that you see? Or maybe where the quarter was negatively impacted? I know CamelBak, some production out of Mexico early on in the quarter that maybe was impacted.

But anything that you can talk about in the supply chain that maybe is tough right now or we should have on our radar going forward?.

Yes. It's a good question, Mark. And it was a combination of factors. And so I will talk a bit about CamelBak. CamelBak is one of the businesses we're super excited about. And they really had a strong last fiscal year. They were hurt the most in our fiscal first quarter.

Some of it was due to the fact that, frankly, the shops that they sell-through were impacted more. So a lot of their retailers were shut more than, say, bike shops or some of the other locations, outdoor retail locations that were open. But they had a significant challenge in supply. So it was - it affected our reservoirs. It affected our packs.

It was multiple suppliers from Asia, frankly, down to Mexico. And it was all COVID-related. And so they were shipping, I guess, with one arm tied behind their back. They're still working through those constraints, but we expect those to be materially through us here in the second quarter, and we fully expect them to return to growth.

In fairness, given some of the excitement and demand that we saw on the golf side, the Bushnell Golf side, we couldn't keep up. The Wingman was so exciting that we outsold the first-year forecast in the first two months. And so, we're going to be chasing demand in a really good way all year on that. We've also got our distribution centers.

And one thing I've got to really call out for our employees. So we talk about COVID. And I know a lot of other companies were impacted greatly in the first quarter. And you look at how our total Outdoor Products business performed vis-à-vis peers or what have you.

We're really proud of the fact that our employees were able to fight through the pandemic, were able to fight through personal issues with kids being schooled at home and all the shelters in place and what have you. And so we shipped at record levels through our distribution centers. And in fact, we're still catching up.

So some of the excitement and demand we saw in our bike category actually could have been better, had we been able to ship more product. We're catching up on that as well. And you'll see that as we go forward..

Okay.

And then as we look at the ammunition market, any commodity or component shortages or issues that you guys see out there today?.

Well, that is - I mean, certainly, actually, to be honest, I mean there's not huge shortages in materials. There is more just capacity constraints, to be honest. I mean it's across the industry.

You walk retail today, if you saw what our wholesalers and distributors are carrying, it's the leanest we've ever seen them in inventory, which is a really good sign, and it's one of the key differences between previous surges and this surge is, inventory levels are as clean as we've ever seen them.

The one thing I will say about commodities as well is our team has done a pretty nice job of commodity hedging, if you will. And we've needed it because we've had to pay overtime rates. We've had to pay surcharges. We've had to pay all sorts of premiums to keep our factory going in the current environment that we're in..

Okay. And then last one for me.

Can you talk at all, especially within Ammunition about backlog or maybe a different way of looking at it if we shut off all sales today? How long would it take just to refill channel inventory?.

Yes. So Mark, it's an insightful question.

And I think if you talk to our retailers, which we talk to them all the time, they said, hey, listen, if everything were just to come to a screeching halt right now, it would take us months just to stock our shelves, to stock our warehouses to get back to a point where we feel comfortable that we've got the supply that we need.

So that - there is - so that was kind of the first part of your question.

What was the other part of your question, Mark, I want to make sure I address it?.

Yes. Just anything on that backlog, anything that you can quantify or help with on kind of how long you think maybe this goes just to try to catch up? ..

Well, here's the interesting thing about backlog. So we had our strongest order writing month back in March, followed by our second strongest order month, which was this past month, July. So July, which is the beginning of our second quarter, was our strongest order writing month. So it certainly hasn't slowed down at all..

Okay, that's great. Thank you, guys..

Thank you. The next question will come from Gautam Khanna with Cowen & Company. Please go ahead..

This is Dan on for Gautam. Good morning..

Yes. Good morning Dan..

So I don't think that this would have been an issue, but just to confirm, were there any problems with consumers getting out to ranges during the lockdowns? And then as a follow-up to that, you have a good idea of demand from usage versus stockpiling. ..

Yes. So Dan, to answer your question specifically on ranges, at the beginning of the COVID shelter in place, it was a bit of a mixed bag. It was - some ranges were able to be open, some ranges were not. They gradually through the first quarter worked their way to the point that they're all open and going strong.

We have personally reached out to all of our big range customers. The biggest ranges in the U.S., in fact, what we're hearing from the ranges is really, really exciting. Their volume, as measured by number of rounds shot, is up dramatically year-over-year.

They've also told us that the increase in first-time buyers as evidenced by their total sales, so new buyers divided by total sales is up over 50%. And they've also told us that their classes are oversubscribed.

Classes for all sorts of things, whether it be concealed carry, whether it be safety, whether it be general education, usage, marksmanship or what have you. So what we're seeing from a consumer and a usage standpoint is very, very exciting. Now there's no question, I think, in our minds, that there's some buildup at the consumer level.

But different than what we've seen previously is we see a lot more new users, and we see a lot more participation..

Got it. Okay. And that was actually my next question, was on the new shooters, which I think we've heard similar things about growth there. And I would assume that - I mean I would guess that those users typically use ammo more immediately than enthusiasts might start stockpiling.

Would you agree with that?.

Yes, definitely, Dan. In fact, some of the frustration we've frankly heard from some of the new users is they bought a firearm, they can't find any ammunition, because it's in short supply..

Yeah, definitely. These are for the same time. Okay, thanks..

[Operator Instructions] The next question will come from Scott Stember with CL King. Please go ahead,.

Good morning and thanks for taking my questions..

Yes..

Can you guys talk about the SKU rationalization process? It seems that it's fallen up pretty precipitously.

Can you talk about how much of an impact that's had to your organic sales over the course of the last few quarters?.

Yes. Hey, Scott, thanks for the question. So SKU rationalization is one of those secret ingredients in our recipe for simplifying the business and really getting the team focused on what really matters.

And so what SKU rationalization is meant to our businesses is, it's enabled us to carry less inventory, it's enabled us to focus on higher-margin product, it's enabled us to really focus on keeping our capital expenditures.

That's one of the reasons why capital expenditures are down is because we're discontinuing older, slower moving product because we think, frankly, it just cannibalizes some of the higher margin, more exciting product.

So that's all part of what we think has just given us, frankly, a stronger, more profitable foundation, which is a contributor to driving organic growth..

Got it.

And on the capacity front, mainly in ammo, you talked about your ability to keep up with demand and if you have to go to any extreme measures to be able to fulfill demand?.

Yes. So I mean as you can imagine in this environment, there's nothing of higher priority than working through our ammunition capacity and meeting the demand out there. And what is exciting to us is we spent the last - probably last three years of the environment that we're working in, getting ready for this moment.

And so we had a lot of CapEx investments of yesteryear that we called Factory of the Future that we really dialed in over the past few years to help us with efficiencies, to help us get more out of less, if you will.

So a couple of things that we feel like we've got opportunity in going forward is, one is, the rimfire category which had really, really slowed down. It picked up dramatically in the first quarter. And we frankly weren't able to meet demand.

We've been spending the last 30 to 45 days, getting ourselves in a position where we can more readily meet some of that demand, so that's just one example of some of the categories that we're looking at that we think we can grow our business and meet the demand there..

All right, that's great. And just last question. Brick-and-mortar, obviously, stores are coming back online, you talked about how that's improving. But where - I guess, how much of your end brick-and-mortar locations that you eventually sell-through do you think still have to come back online.

Are you close to being back to where you were pre-COVID?.

Scott, I'd say so. Yes. There's very little closures at this point, and there's very little disruption that we see in brick-and-mortar. And so even some of our customers that had really leaned out suggesting that they may have closures for longer are now open as well. So we feel pretty good about the environment of brick-and-mortar..

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

Yep, thanks Scott..

Thank you. The next question will come from Brian DiRubbio with Baird. Please go ahead..

Good morning Maybe just first starting off, how are you guys thinking about your capital structure now given that you're under three times the leverage?.

Yes. So as you might imagine, I mean, this is all come about pretty quickly, but we've been anticipating it for a while. And as we think about it, our number one goal is to continue to drive accretive earnings and free cash flow, so we can maintain our stated leverage of two to three times.

But as you state, we're there today, and we want to continue to focus on that. We also want to focus more on organic growth. We've stated over the past few quarters that is increasingly a focus for us. Sudhanshu mentioned in his remarks that we want to invest even more in R&D.

We've been behind the scenes investing a lot in e-commerce and those efforts, and we're going to continue to do that. We've also published on the - on our web slides that - what our acquisition criteria is.

So we're going to increasingly start to look more closely at smaller tuck-in acquisitions that we think meet the criteria that would excite you as an investor and an analyst and us as shareholders as well..

Got it. And maybe on just M&A, there are a couple of ammunition properties that are up for sale currently.

Is that something you're going to focus on or you're more focused on the outdoor side?.

As you can appreciate, that's something that we can't really comment on what we may or may not do as it relates to specific M&A targets. But you can imagine, given our position in some of the segments that we're in, when something comes available, of course, we're going to look and we're going to monitor it closely.

But that's about all I feel comfortable saying at this point..

No, that's fair. Just a year ago, during your Investor Day, Bell, Giro was potentially up for sale. Obviously, the world has changed. I mean I told someone the other day, bullets and bike helmets are in short supply, especially around by May.

But how - is that no longer sort of being viewed as a property that you're looking to exit? How are you thinking about Bell, Giro right now?.

So I came out probably about nine months ago, 12 months ago and said or thereabouts and said, we think we we're better off holding Bell, Giro because we love the potential of the business. We felt like there was a lot of underperformance in that business, nothing to do with the people, just the way that the business was being looked at.

The more and more we studied it, the more and more we realized we got a highly talented group of people that are very, very capable of delivering much, much, much better results. And so we went in and helped them from an operational standpoint. So when we talk about SKU rationalization, we talk about spans and layers, we talk about focus.

That was a business unit where we put a concentrated effort on. And we're starting to see it read through in the results. And we're excited about how they finish the last fiscal year. We're really excited about how they started this first quarter. And that's a business that has got brands that aren't just riding the wave.

I mean we won't even talk about Snow, but Snow just completely shut down. And when it shut down last spring, all the resorts closed down. Giro was the fastest-growing brand on the slopes. Their helmet was - business was growing. Their goggle business had just taken the number two share position.

We've just reintroduced some new products this quarter that are really helping drive that Giro business. And Bell has got some super exciting things going on as well. So long way of saying, we like the business, no intentions to selling it. And certainly, in this environment, we're happy to be owners of it..

Understood. Just final question. Again, by going back to your Investor Day last year, you talked about the excess and obsolete inventory that you had on hand at that point in time. Just looking at margin performance, it appears as if you're mostly through that.

So can you give me a sense of if that's correct or not?.

Well, excess and obsolete is one of those slippery things that when you're swinging for innovation, you're going to have hopefully a lot more wins than losses. But in any consumer products business I've ever been in, you're going to have some excess product. No question about it. We've whittled it down considerably.

It's one of the areas I'm super proud of; our team is really focusing on whittling that down. But we still got a little more ways to go on that, but we're in good stock. We're in a good position when you look at the overall health of our inventory..

Excellent. Thanks for the time..

Thank you..

There are no further questions..

So one question I wanted to - or one thing I wanted to address is one of the reasons why we're so excited about the current environment that we're in. I know many of you have seen a lot of the underlying trends and question the surge that we're in right now.

And what is different now than previous surges as we see it is there's just unprecedented number of new people that are rediscovering outdoors in any number of our categories. And we feel like it gives us the ability to market and attract new users more so than ever.

And you take one of our big - our biggest category ammunition, I thought the day I walked in the door that it had some of the best underlying trends - underlying trends within the outdoor recreation space.

And I think what we're seeing with new users being young, being female, being people colored, that are coming in that are really rediscovering outdoors with some of our products is super exciting to see. And so that's kind of the mid to long-term trends that we see that have us pretty excited. So I want to thank you all for joining us today.

As today's discussion shows, the overall progress and accelerated financial performance marks the end of our turnaround and begins to transition to the next phase of the Vista Outdoor story.

The underpinnings of our strategy for this phase are familiar, and we are confident that sustained focus on driving organic growth, leveraging our centers of excellence, disciplined capital allocation and impact will serve us well.

Our strong balance sheet and resilient business model provide a sustainable model for profitable growth and fuel the innovation our consumers depend on.

Combined with encouraging market and outdoor participation trends, our brand and market share positions, internal investments in digital, new products and R&D, we are well positioned for success and believe the future is bright. I want to thank everyone for being on the call today, and have a great day..

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