Ladies and gentlemen, hello and welcome to the Fourth Quarter Fiscal Year 2023 Vista Outdoor Earnings Conference Call. My name is Maxine, and I'll be coordinating the call today. [Operator Instructions] I will now hand you over to Tyler Lindwall, Vice President, Investor Relations to begin. Tyler, please go ahead, when you’re ready..

Thank you, operator, and good morning to everyone joining us for our fourth quarter fiscal year 2023 earnings call. With me this morning is Gary McArthur, Interim Chief Executive Officer; Jason Vanderbrink, CEO, Sporting Products; Jeff McGuane, President of Action Sports; and Andy Keegan, Vice President and Interim 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 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 investors.vistaoutdoor.com, which supplement our comments this morning and include a reconciliation of non-GAAP financial measures.

Gary, I'll turn it over to you..

Thank you, Tyler, and thank you all for joining us this morning as we discuss our fourth quarter and fiscal year 2023 results. This is my second earnings call as Vista Outdoor’s interim CEO, and I am excited to share with you the strides we have made since we last spoke in early February.

Let me begin by thanking all Vista Outdoor employees for their hard work during the quarter and year.

As a result of the worsening economic environment with increasing inflation, decreasing consumer demand, and increasing federal fund rates, which resulted in reduced forecasts and increased discount rates, during the fourth quarter, as part of our annual impairment testing, we took a non-cash goodwill and indefinite lived tradenames impairment of $374 million.

My remarks for the remainder of this call exclude that impairment. For the call, there are five core themes I will highlight.

One, our financial performance continues to be solid in these challenging times; two, fourth quarter costs and earnings improvement actions better position the Company for fiscal year 2024; three, Outdoor Products is expecting a challenging first half of fiscal year 2024 with an improving back half, while Sporting Products is expecting a more normalized purchasing cycle throughout the fiscal year; four, we are committed to and working hard to be ready to spin later this calendar year; and five, our future is bright.

Let me first turn to our financial performance. Sales for the fiscal year topped $3 billion with both segments increasing year-over-year. Our adjusted EBITDA margins were 20%, a solid performance as we navigated the markets that have seen multiple inflationary pressures and higher input costs.

We also generated strong adjusted free cash flow of $493 million during the year. Our leverage ratio is now 1.6 times, well within our long-term target of 1 to 2 times, and we will continue to prioritize maintaining a strong balance sheet. Organic sales for fiscal year were $2.7 billion, and our organic EBITDA was $574 million.

Sales for the fourth quarter were $741 million, down 8.4%, and adjusted EBITDA was $120 million, and adjusted EBITDA margin was down 618 basis points. Organic sales were $654 million, down 19.1%, and organic EBITDA was $118 million. Organic EBITDA margin was down 438 basis points.

Sales for Sporting Products are expected to normalize in the high $300 million range with EBITDA margins of low-30s near term with expectation EBITDA margins will move downward in the back half of the year to the mid-20s. These levels are well above pre pandemic.

Outdoor Products faced a very challenging market in the second half of fiscal year 2023 with expectations this will continue at least through the first half of fiscal year 2024. Sales for Outdoor Products in the fourth quarter were $327 million, down 5%, while organic sales were $241 million, down 30.2%.

EBITDA and organic EBITDA margins were both around 3%. Adjusted free cash flow in the quarter was very strong at $178 million, which included an IRS refund of over $40 million. Andy will provide additional details on our financial results from our fiscal year and fourth quarter shortly. Let me now talk about cost and earnings improvement actions.

Due to the macroeconomic headwinds and organic declines experienced in our Outdoor Products segment, we launched a more than $50 million cost reduction and earnings improvement program in our fiscal fourth quarter.

Actions included office closures, spending cuts, operating income improvements, headcount reductions across our brands and corporate teams and acceleration of the Fox and Bell/Giro integration.

These tactical and strategic actions position us to achieve meaningful margin improvement as we head into fiscal year 2024, bolster our already solid financial position and ensure a compelling financial profile for each segment on a standalone basis post spin.

Our strong adjusted free cash flow in the full year also shows the resiliency of our company and operating model despite challenging market and macro conditions. As a prime example, we paid down $170 million of debt during the fourth quarter and $260 million in the back half of fiscal year 2023.

Looking ahead to fiscal 2024, in Outdoor Products, the short term market is challenged, but as a result of the cost and earnings improvement actions taken, we are better positioned to capitalize on long-term tailwinds. Point of sale continued to exceed all sell-ins for most of our business units through the fourth quarter.

We are beginning to see improvement in retail inventory levels from quarter-to-quarter. However, retailers have been cautious in open to buy orders and of adding additional inventory. We expect this trend to continue through the first half of the fiscal year for many of our brands.

The record setting snow season in the western states was a boon for our Giro snow business. The history shows that long snow seasons delay the start of spring and summer camping and outdoor trips. This year is expected to be no different.

We see a return to organic growth in the back half of fiscal year 2024, once point of sale and sell-in become more closely aligned. And longer term we continue to be bullish about the future of the outdoor recreation industry. It’s participation that remains above pre-pandemic levels and our brand’s strong positioning in the marketplace.

In Sporting Products, the market is normalizing, as we have expected and communicated. And we anticipate a more normalized purchasing cycle throughout fiscal year 2024, based on stable market pricing and demand. We expect increasing material costs and we are seeing certain calibers selling at lower volumes.

Sporting Products EBITDA margin profile is expected to bottom at or above the 25% target communicated at our Investor Day last year, driven by more rational pricing and better structural dynamics in the market versus previous cycles.

Year to date, NICS checks through April are also up 25% compared to the same period in 2019 and remain above 1 million checks per month. Jason will provide additional detail on Sporting Products in a few minutes. Let me now address the separation.

We continue to believe the spinoff of our Outdoor Products segment is the best way to unlock shareholder value, and we are working hard to be ready to spin later this year.

Key to completing the spin this calendar year will be establishing the Outdoor Products senior leadership team, a more stable macroeconomic environment and improving Outdoor Products’ financial performance.

Upon completion of the spin, there will be two independent publicly traded companies, both of which will be two of the largest public traded companies in the outdoor space. Each company will have a dedicated strategic focus, tailored capital allocation approaches, and its own set of competitive advantages.

Our company currently trades about 5 times enterprise value to fiscal year 2024 EBITDA, in line with ammunition and sporting company peers. While pure-play Outdoor Products focused peers tend to trade at double digit enterprise value to EBITDA, we believe this value is not being reflected in our current trading price.

And after the spin, we expect that our Outdoor Products segment should move towards trading at similar multiples to its outdoor peers. We continue to have discussions with the SEC and are in the process of updating our Form 10 with our fiscal year 2023 Q4 financials. We expect to publicly file the Form 10 in advance of the spin.

We will have additional details on timing, the new company names and more in the coming months. With regards to Outdoor Products’ CEO search, the retained executive search firm continues to interview a strong pipeline of quality internal and external candidates.

Our criteria includes someone who has a proven track record, that has shown the ability to deliver value to shareholders and who can advance our mission of stewarding great brands and giving more people into the outdoors. We believe our candidate pool of internal and external candidates will produce the right leader for the Company's next chapter.

Moving to our future, beyond the short-term headwinds we are experiencing, we are bullish on long-term recreation trends. Industry participation is baselining well above pre COVID levels, and we have a stable of great brands well positioned to capitalize.

To name a few brand highlights, in golf, recent data shows that there are 3.4 million junior golfers, the highest level since 2006. 36% of junior golfers are girls, which is the highest ever. Leading golf product reviewer, MyGolfSpy just published their annual list of best rangefinders.

Bushnell Golf earned the top billing with the all new Pro X3 and the brand accounted for three out of the top five slots overall.

Stone Glacier's Sky Solus tent was recognized by Outdoor Life as the best tent for bad weather, and Stone Glacier's expansion into brick-and-mortar is also accelerating its brand reach with one major outdoor retailer delivering 100% year-to-date point of sale growth.

Camp Chef is navigating the difficult grilling market, one that is over-inventoried and dealing with record setting snowfall. Camp Chef's new smoke box technology has been well received in the market. QuietKat launched the new Lynx model, establishing a new category for our leading off-road e-bike ramp.

Hoppe's, Primos, Bee Stinger, and RCBS earn best of recognition in their perspective categories for firearm cleaning products, shooting stick, and ground blinds, stabilizers and reloading dies across a variety of leading publications and reviewers. Sporting Products, new products from Federal and Remington collected prestigious industry awards.

American Rifleman presented its Golden Bullseye to Remington's Core-Lokt Tipped, and Shooting Illustrated awarded its ammunition of the year to Federal's 30 Super Carry. Jeff will cover wins and updates in our Action Sports business. Looking ahead, we remain excited about the future.

Our iconic brands, strong business unit leadership team, talented employees, and solid financial foundation position us for success in fiscal year 2024 and beyond. With that, let me turn it over to Jason..

Thank you, Gary, and good morning, everyone. As the Sporting Products business prepares for its future as a standalone company, we're a well positioned as a healthy and robust business that draws strengths from these core principles.

Employees are our number one priority, our business model is positioned for sustainable profitability, and we never lose sight of the end user and delivering on their needs. Sporting Products had another strong year of financial performance.

Fiscal year 2023 was the second most profitable in the Company's history and we continued to deliver tremendous free cash flow. This is a result of an improved product mix to offset higher input costs, smart deployment of capital, lean operations, continued investments in R&D and a sharp focus on delivering better products every day.

As we look ahead and Andy will comment further on financials, we expect a more normalized purchase cycle throughout the year based on stable market pricing and demand. The first quarter of FY24 will be up against a comp of $511 million in fiscal year '23. And as a result, we anticipate lower overall revenue for the full year.

There are also significant headwinds on material costs, and we are seeing some softness in the rimfire category. We expect our performance to fall in line with what we communicated at our Investor Day. We forecasted a normalization of mid-20s EBITDA and that matches what we are anticipating in fiscal year 2024.

This is a very solid run rate and much higher than pre-pandemic levels in terms of sales, operating income and free cash flow. Our strength is derived from consumer demand for our brands and products, strong participation and expected post surge market rationalization.

We anticipate seasonal buying will be strong and benefit from positive participation trends. Industry data suggests more than 17 million new users have entered the market and NICS checks confirmed firearm purchases remain very strong. April data shows 45 straight months of NICS checks over 1 million.

Our factories are positioned for operational efficiency to service a higher consumption baseline. Our professional teams are lean and focused on best practices to build, sell and effectively market our innovative and industry-leading products, whether it be hunting, shooting, self-defense or law enforcement ammunition.

As pricing stabilizes, our ammunition brands are showing market share growth in profitable categories. Data from an industry survey conducted by South Lake shows consumer purchases of our brands more often across every ammunition category. Federal was the top purchase brand for shotshell and rifle and CCI Blazer leading the handgun category.

Lastly, as we've seen in other normalization cycles, smaller domestic brands and imports that rush to market during the surge are declining as larger, established brands gaining shelf space at retail. This is typical of normalizing and indicates customer preference for consolidating vendors.

In FY23, we continued to improve our digital presence to ensure our brands are top of mind no matter where consumers get their information. We launched a refreshed HEVI-Shot website and added educational content for new gun owners and hunters to help them get started right.

We have also grown in the farm and ranch channel in the past four years, significantly expanding our brand and sales reach. Our commitment to law enforcement and government remains strong, and we earned key contracts in fiscal year '23.

United States Army awarded the Federal brand a five-year up to $114 million contract to build frangible training ammunition, the largest contract in company history.

Internationally, the French Police with more than 250,000 officers across multiple agencies awarded Speer and its 124-grain Gold Dot with a four-year contract and up to 20 million rounds for its duty ammunition.

Speer was also recently awarded the New York Police Department, 9-millimeter duty and training handgun ammunition contract for the Speer 124-grain Gold Dot.

The NYPD is the largest law enforcement agency in the United States and this five-year agreement will supply the department with millions of rounds for the best American made ammunition to serve its mission of enforcing the law, protecting the people and preserving the peace.

We are collaborating across facilities to make our operations leaner and more efficient and build upon our leadership position in 2023. At Federal, new nickel-plating capacity and a new shotshell hull extrusion line are installed and operational.

The new raw materials warehouse is complete and the new rifle loading facility is up and running to be fully operational in quarter one of our new fiscal year.

At Remington, we are nearing the midpoint of a multiyear modernization of the manufacturing footprint, including upgrading our bullet assembly machine, serving the flagship Core-Lokt technology.

When our modernization is complete, we fully expect the Lonoke facility to be on par with the profitability demonstrated at the legacy factories in Lewiston, Idaho and Anoka, Minnesota. In Lewiston, Speer and CCI Ammunition will be producing the Catalyst primer, a lead-free primer in select products originally introduced at Federal.

This technology allows us to have our two largest factories producing the cleanest, most consistent ignition possible in primers.

Our competitive advantage as a house of brands, ammunition company is our ability to share and implement best practices, leverage strengths and work together for cost-saving solutions to return to shareholders, employees and customer value.

For the quarter, the fourth quarter closed out a successful year and extended a solid history of free cash flow generation that will continue as we become our own company.

These results are attributable to key drivers mentioned earlier that include a favorable mix, pricing rationalization in the market, including targeted price increases from our brands that have been accepted by the market, lean operations and new products that are driving higher profitability.

For fiscal year '24, as we have said from previous quarters, the market remains strong. Our multi-brand strategy is a tremendous strength in this market. Owning Remington and HEVI-Shot has added more revenue and significant operating income improvements from our previous Lake City commitment.

With all of these changes, it is why we are confident in our guidance and why we feel the ammo market, in particular, the Sporting Products team is much better than five years ago.

We expect to continue to take market share, expand our presence into new markets, make Remington more profitable than it is today, all while delivering mid-20% EBITDA margins and generating healthy free cash flow. As we have now demonstrated for four straight quarters, the Sporting Products segment is structurally better than pre-pandemic levels.

I have full confidence that with the best team in the ammunition business, we will continue to perform at the highest level and deliver on shareholder expectations. Thank you.

Jeff?.

Thank you, Jason. Good morning. My name is Jeff McGuane, I was recently promoted to President of Vista Outdoor's newly restructured Action Sports business unit, which includes 7 iconic brands, Bell, Blackburn, Copilot, Fox Racing, Giro, KRASH! and Raskullz.

I've spent more than 30 years in operating roles for performance brands in the sports and outdoor industry across Asia, Europe and North America. In that time, I have focused on the goal of creating differentiated experiences that inspire consumers and grow brands.

As the CEO of Fox since 2019, I have worked closely with our team to elevate and expand the most authentic and renowned brand in motor cross and mountain biking. And now I am excited to lead this expanded team and portfolio of distinguished brands. I want to leave you with three key takeaways from my comments today.

One, the market conditions in our categories have been challenging as of late, and we see an opportunity to enact change and reposition our platform for growth and profitability; two, the merger of Fox with the rest of the Action Sports platform is well underway, and we have renewed our commitment to putting our rider first and driving results so we can reinvest in the business; three, we have a powerful family of brands with a combined number one market share in many categories.

And with the actions we are taking, we believe the future is bright and we are better positioned than ever to win with our riders and our customers in our marketplaces.

As of late, the cycling industry has experienced pressures exacerbated by lower consumer spending, flat retail sales growth, higher input costs and elevated inventory levels at distributors and retailers, which has resulted in increased promotional activity.

This environment has lowered our near-term outlook, but also provides us an opportunity to reposition our platform for expanded growth. At the same time, the biking industry is showing signs of relief in certain areas. For example, the inventory supply situation has been improving over the course of the last 90 days.

Retailers are still sitting on elevated levels relative to historical norms but conditions are improving as the excess inventory continues to sell through. We have decisively begun to strengthen the bottom line and foster growth through the acceleration of our merger between Fox and Vista's existing Action Sports brands.

We've already achieved meaningful synergies by developing economies of scale, building stronger and more strategic relationships with our suppliers, producing our facility footprint, consolidating contracts and beginning to combine our back office.

We are still in the early innings and expect more synergies and process improvements as we continue to unite the teams at the current Fox headquarters, which will become a shared brand and design center that is a hub of culture, creativity and inspiration to spark innovation and drive the next chapter of our story.

Under one roof, we will better connect our teammates and together ignite creativity to build an enhanced collaboration culture and platform.

Long term, our restructuring will enable us to enhance our investments in strategic imperatives, including investing to strengthen our brands for more impact, enhance go-to-market capabilities to better support our brands in international markets, accelerate new product technology across equipment, apparel and footwear and a concentrated emphasis on digital, connect e-commerce and creating a more seamless rider purchase journey.

Completing the merger will enhance how we focus, adapt and thrive in the post-pandemic marketplace. We plan to expand cooperation across our brands while maintaining distinct positions in the eyes of the consumer.

A transformation plan is thoughtfully crafted so we can realize and maximize opportunities, achieve meaningful scale and accelerate the development of the business globally. Together, our brands deliver a combined number one market share across many of our channels, customers and product categories.

Fox mountain bike helmets grew 25% year-over-year, and the brand recently entered the mountain bike shoe category, completing its head to toe offerings. Blackburn Life performed well in the quarter, selling out both online and in-store.

And Giro launched the Aries Spherical, the high-end road cycling helmet recorded the best sales ever for a new premium product in its first week of availability in stores and on giro.com.

In my short time as President, I've become increasingly excited about the opportunity with Bell and Giro and believe there is tangible opportunity to regain our leadership position in powersports and accelerate growth in Europe for all brands. Lastly, I'm most excited about the people I have the pleasure to lead.

Our teammates are the most capable, technical, creative and passionate in the industry, I'm encouraged about our future and the opportunities for each of our seven brands to thrive. And with that, I'll hand it over to Andy..

Thank you, Jeff, and hello, everyone. My comments today will focus on adjusted results compared to the prior year period, unless otherwise noted. Both as reported and adjusted results are included in our earnings release and website and can be found on our website. We posted another year of solid results.

On page 17 of the website, you will see our sales topped $3 billion as our teams continued navigating a challenging landscape. Adjusted free cash flow was a record $493 million for the year, and we have started to monetize our excess inventory position.

Our balance sheet remains strong and debt paydown continues to be our primary capital allocation priority. For the fourth quarter, total sales decreased 8.4% to $741 million. Organic sales for the quarter were $654 million, down 19.1%. For the fiscal year, total sales increased 1.2% to $3.1 billion.

Organic sales were $2.7 billion, down 9.7% on reduced purchasing across nearly all channels in Outdoor Products, partially offset by improved pricing and higher Sporting Product volumes in select calibers. Q4 gross margin contracted 362 basis points to 32%. Fiscal year gross margin contracted 273 basis points to 33.8%.

These reductions were driven by increased commodity and freight costs, along with organic volume declines, partially offset by improved pricing and volume from acquired businesses. EBITDA in Q4 decreased 33.7% to $120 million and EBITDA margin of 16.2%, contracting 618 basis points.

Organic EBITDA for the quarter was $118 million, a decrease of 34.9% and organic margin in Q4 was 18%. For FY23, EBITDA dropped 15.9% to $622 million and EBITDA margin contracted 409 basis points to 20.2%, while organic EBITDA for the year was $574 million, a decline of 22.4% and organic margin was 20.9%, a decline of 340 basis points.

The decline in organic EBITDA was primarily driven by decreases in gross profit. Q4 EPS decreased 47.1% to $1.08 and full year EPS dropped 22.8% to $6.40. Turning to slide 18. Our balance sheet remains strong. We generated healthy adjusted free cash flow of $178 million during the fourth quarter, bringing our full year total to $493 million.

Net debt decreased 15.5% since Q3 to $974 million as we prioritized the use of our strong free cash flow to pay down $170 million in the quarter. This equates to a net debt leverage ratio of 1.6 times. We will continue to prioritize debt paydown as our primary use of capital leading up to our spin. Turning to our segment results on slides 19 and 20.

Within our Outdoor Products, sales decreased 5% in Q4 and increased 1.2% in FY23. Organic sales were down 30.2% in Q4 and were down 24.2% in FY23, primarily driven by reduced purchasing across most channels in all of our businesses, led by the Outdoor Accessories and Action Sports businesses.

This was partially offset by a slight growth in our direct-to-consumer channel. Gross profit decreased 19.3% in Q4 and 3.1% in FY23.

Q4 and FY23 gross margins decreased to 26% and 29.3%, respectively, driven primarily by organic business volume decline and increased product and freight costs, partially offset by the volume from acquired businesses and pricing. Q4 EBITDA was $9 million, down 80.8% and EBITDA margin for the quarter was 2.9%.

FY23 EBITDA decreased 39.4% to $125 million. EBITDA margin contracted to 9.5%. Organic EBITDA decreased to $7 million in Q4 and EBITDA margin for the quarter contracted to 3%. For the year, organic EBITDA declined to $77 million and EBITDA margin of 7.8%. The decrease in the quarter and the year are due to lower gross profit across all businesses.

Moving to the Sporting Products. Sales decreased 10.9% in Q4 and increased 1.2% in the fiscal year, driven by improved pricing and higher volume in primer and rimfire, partially offset by the termination of the Lake City contract in Q3 and volume declines in pistol. Gross profit decreased 16.7% in Q4 and 8.2% in FY23.

Q4 and FY23 gross margin decreased to 36.8% and 37.2%, respectively, driven by increased commodity and freight costs and lower volumes, partially offset by improved pricing. Q4 EBITDA was $131 million, down 16.7% and EBITDA margin was 31.6%, a decrease of 220 basis points. FY23 EBITDA decreased 7.8% to $577 million.

The EBITDA margin contracted to 32.8% in the year due to lower gross profit, partially offset by decreased incentive compensation and marketing. As we look forward to the spin, as part of our announced restructuring, we have significantly decreased planned corporate costs [ph] for fiscal 2024.

With this restructuring and the expected dyssynergies of $10 to $15 million, we currently expect the total corporate costs between the two standalone companies to be approximately $65 million to $70 million post-spin, with the majority of these costs at the Outdoor Products due to the rest [ph] segments being more complex to operate than our Sporting Products segment.

Given our robust adjusted free cash flow during the quarter and our adjusted free cash flow forecast for fiscal year 2024, we expect Sporting Products will have less than $1 billion in debt post spin, which will include the $500 million in senior notes in their current state and less than $500 million of an asset-backed loan and fixed asset term loan.

At the time of spin, Sporting Products leverage ratio will be approximately 2 times. Long term, we expect leverage of this business to be within the 1 time to 2 times. Our Outdoor Products segment will have no or minimal debt at time of spin and 1 to 2 times leverage long term.

As Gary mentioned, during the quarter, we recorded an impairment of goodwill and indefinite lived tradenames of $374 million due to economic uncertainty in the near term, which reduced forecast, increased discount rates and the stock price that does not reflect the higher multiple businesses in the Outdoor Products segment.

That being said, we have strong brands. And in the long term, we believe these businesses will grow meaningfully. In the near term, we are responding to the economic headwinds and preparing for the spin.

We have achieved cost savings through significant improvements in our ocean and domestic freight contracts, supplier cost reductions, more favorable foreign exchange and accelerating integration synergies with our Fox and Bell/Giro businesses being consolidated.

Additionally, we initiated a more than $50 million cost reduction and earnings improvement program which included closing facilities, workforce reductions and other operating income improvements. We have already begun realizing cost savings from this restructuring.

Savings across these items plus our cost savings and earnings improvement program are included in our guidance for the year.

As we look to fiscal year 2024, we see our Outdoor Products segment returning to organic growth as we head into the second half after channels are able to clear through high inventory levels, and we expect margins to be increasing as a result of the cost reductions I have mentioned.

In our Sporting Products segment, we have reached normalization of sales in our pistol and rimfire categories, while our rifle, shotshell and primer categories continue to see demand exceed supply.

Margins will come down slightly from the prior year as a result of raw material cost pressures and previous price actions in categories that have normalized. Moving on to page 21.

For the full fiscal year 2024, we expect sales of $2.85 billion to $2.95 billion, Sporting Products sales of $1.475 billion to $1.525 billion, and Outdoor Products sales of $1.375 billion to $1.425 billion, EBITDA margins between 17.75% and 18.75%, Sporting Products EBITDA margin of 26.75% to 27.75%, and Outdoor Products EBITDA margin of 12% to 13%, EPS between $4.50 and $5, and free cash flow between $290 million and $340 million.

We are not providing specific quarterly guidance for the coming years. What I will say is we expect total Outdoor Products sales to grow at a consistent rate each quarter of fiscal year compared to the applicable prior year quarter.

Note that this growth rate includes inorganic growth in the first half and organic decline in the same period due to the challenges previously outlined.

In addition, due to the phasing of the restructuring costs outlined and as we move through much of the higher-priced inventory on hand in the first half, we see sequential incremental improvement in Outdoor Products margin each quarter FY24 from current levels to a margin above the guidance range by Q4.

In Sporting Products, we expect sales to be roughly consistent each quarter and believe that profitability will be stronger in the front half of fiscal year 2024 and move downwards to mid-20 by the back half of the year.

We expect free cash flow in the first half to be slightly better than breakeven and cash flows in the back half of the year will be very strong. Interest expense will be front-end weighted as we pay down our term loan over the fiscal year. Thank you, everyone. Operator, please open the line for questions..

[Operator Instructions] Our first question today comes from Eric Wold from B. Riley Securities..

A couple of questions just for Jason around the Sporting Products segment. Within the fiscal '24 revenue guidance, can you give a sense of what percentage of that you expect to be consumer versus government law enforcement? And how does that play into your ability to schedule production more efficiently? Then I have a follow-up on the consumer side..

So, we don't guide to channels, but I can tell you, for fiscal year '24, we expect the channel mix to be almost exactly the same as it's been for previous decade. A percentage of that business is both the DoD and law enforcement, and that mix won't change..

Got it. Okay.

And then, on the consumer side, I guess what are your assumptions around kind of purchasing behavior playing into your revenue guide? I guess, more specifically, can you give a sense of kind of what you're hearing from your retailers around purchasing behavior versus the elevated pricing that we're seeing in the market still that you kind of have to maintain, because -- commodity prices, et cetera.

I guess how is it impacting your thoughts around how often consumers purchase? And then, how do you balance that need to maintain higher prices with potentially wanting to drive more volume and inventory turns in this environment?.

Yes. As far as purchase behavior, we watch weeks of supply on hand at wholesale and at retail, and we obviously watch point-of-sale very, very close.

So, what we love that we're seeing right now is the purchase behavior on -- as we had mentioned, on primers, on shotshell and centerfire rifle, I'm not sure we'll be able to meet the demand that is going to be out there in '24 for us. So that purchase behavior could be very, very high range, very profitable categories for us.

And again, I don't think we're going to catch that demand. As far as the pistol ammunition category, as we talked about last quarter, we did take some pricing actions there, which gets us shelf space for the remainder of the calendar year.

And what we did is we had just -- we thought it was the right time to address that so we could get that replenishment orders for the rest of the year and take market share.

And then, as we mentioned in the script, we're obviously taking market share as vendors -- as customers want to vendor consolidate and as we see the import numbers continue that downward trend. So that's why we're pretty bullish on the rest of the year..

The next question comes from Matt Koranda from Roth MKM..

I just wanted to follow up on the Sporting Products segment as well. So these are probably for Jason. But just the outlook down 15 on revenue at a higher level, just curious how you're thinking about volume versus price in the outlook. It sounds like you're alluding to maybe you did drop price a little bit.

So are we assuming some volume backfills that? Just any color on sort of how you're thinking about volume price and the outlook..

Yes. So, we expect volume may go down a little bit, Matt. And as we annualize what we did last quarter, that's going to go down a little bit. But I think it's very important as we look at fiscal year '24, our input costs are going to go up. That's why we're guiding to the mid-20s by the end of the year and the low-30s in the beginning of the year.

So it's really a mixture of price and volume, but we are very, very confident we're going to gain some pretty good market share in this normalizing market. That's why we think that normalized EBITDA is going to be in the mid-20s..

Yes. Just following up on that, the mid-20s EBITDA. I mean, Jason, maybe just speak to -- it sounds like most of the factors are kind of going against you on that front. So lower volume, the pricing is probably a bad guy this year, higher material costs.

I guess, what are the critical assumptions that are in that margin outlook that need to hold to achieve the mid-20s target? And where do we bottom in the back half? You mentioned we sort of bottom probably in the mid-20s, like more 25 or maybe even below, but maybe just speak to that..

Yes. I think it's really important as we've tried to convey over the last year or so, why we're structurally different and why we're confident that we're going to normalize in that mid-20s. If you look at five years ago, when we had the Lake City commitment, that was 20% of our business at really essentially zero margin or below margin.

So 20% of our business we've replaced with Remington and HEVI-Shot at very heavy -- not heavy margins, but very favorable margins. And again, we took the most irrational pricing competitor, we took -- we acquired Remington. So, we have rational pricing in the market today.

And then, we run a much leaner operation while we expanded capacity during the surge, we only expanded capacity to take cost out of the operation. So, when you put all of those factors together, we loved where we think normalized EBITDA in the mid-20s is going to lie..

Okay, great. And then just maybe one for Andy as well. Sorry, go ahead..

I was just going to add to Jason, and your comments on volume. We have to remember in FY23, the first quarter was a very large quarter with -- we've talked about that we had some inventory that we were able to push into the market at that point in time. Since then, the actual reduction for FY24 compared to FY23 isn't as significant.

So, the volumes are going to be down slightly, but it's not going to be meaningful as you look at the margin profile..

Okay. That's helpful. And then, just maybe a broader one for you, Andy. Just on the -- how the restructuring plan is built into the guide. How much of the plan has been actioned and how much is yet to be? I'm just curious, it sounded like the corporate expense for the year, there were a couple of different comments made in the prepared remarks.

But it looks like implied in the guide I think there was a $55 million corporate expense in the fiscal '24 guide, but then you said later in the prepared remarks something to the effect of, I think, $65 million to $70 million in total corporate expense post spin. So, just wanted to see if you can kind of clarify that commentary..

Yes, of course, absolutely. So to your point on the restructuring, we've implemented the majority of this. Action has been executed at this point in time. It will be coming through the year. Some of it will come a little bit more in the back half as it relates to businesses where we're executing on costs that are more in the cost of sales actions.

But in the SG&A expense line, those will be coming through starting in Q1, and we've seen that actually starting to come through in April. The corporate cost, the difference that we're talking about is post spin we will have dissynergies of $10 million to $15 million as we're operating in two different independent businesses.

So the $55 million you commented plus the 10% to 15% gets up to what we think post-spin total corporate cost between the two companies will be..

Our next question comes from Mark Smith from Lake Street Capital Markets..

Jason, I just wanted to follow up a little bit on input costs coming into Sporting Products.

Can you talk about maybe where you're seeing some pressure there or where maybe you expect more pressure here in fiscal '24?.

Mark, good morning. First off, we're not going to break that out as far as where we see cost increases. We know we have some pretty substantial cost increases going to hit the P&L in the back half of the year, and we're going to leave it at that..

Okay. One piece that we don't talk about that often within Outdoor Products guys is really the accessories business, and I realize that's the smaller piece of that side of the business. We've seen fairly significant declines here in the last four quarters.

Any update on kind of plans and thoughts around that business any innovation, anything you talk to regarding kind of plans for that business and how to get that business to turn more positive?.

This is Gary. I mean, we definitely look hard at that business and where it's positioned. Of all of our businesses, it's probably lower than our premium brands with regards to where it is. And so, it's been hit harder by the economy and consumer demand declining.

And so, as the economy improves, we do expect that business to improve, maybe even somewhat faster than some of the other businesses. But right now, it's been hit really hard from the impacts of consumer spend. And we have done a pretty good job. We can always do better on introducing new products into this space.

We're looking hard at what we can do on the marketing front. But, it has been probably hit harder than our other businesses in our portfolio..

Thank you. This concludes our Q&A session. So, I'll hand back over to Gary McArthur for any closing remarks..

Thanks to everyone, this morning, appreciate you joining us. Let me just close again by saying that we are really excited about the future. We have great employees, great business unit leaders. We have great brands. It's unfortunate that we're seeing the headwinds that we are, but we think those headwinds will pass.

And we have positioned the Company to be successful, and we're looking forward to the future. Let me just close with that. And thank you..

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