Good day, and welcome to the Vista Outdoor Inc. Fourth Quarter and Full Fiscal Year 2021 Earnings Call. Today's conference is being recorded. .

At this time, I'd like to turn the conference over to Kelly Reisdorf. Please go ahead, ma'am. .

Good morning, and thank you for joining us for our fourth quarter and full fiscal year 2021 earnings call. With me this morning is Chris Metz, Vista Outdoor's Chief Executive Officer; Sudhanshu Priyadarshi, Senior Vice President and Chief Financial Officer; and Ric Kern, President of our Bell + Giro business unit. .

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. Good morning, everyone, and thank you for joining our fourth quarter and fiscal year 2021 earnings call. The Vista Outdoor team finished the most profitable year in the company's history, capped off with a record-breaking fourth quarter.

We have not been immune to the impacts of the pandemic, and I would like to extend my sincere gratitude to all those associated with Vista Outdoor. Our employees and their families, customers, suppliers and everyone who is committed to our success has stepped up in major ways this year. .

Our team rose to the occasion, and as a result we reported more than $2.2 billion in sales, representing 40% sales growth for the fourth quarter and 27% sales growth for the full year. We also set a few new financial records in our company. First, we ended the year with an all-time high adjusted EBITDA margin of 15.5%.

Second, we ended the year by delivering an all-time high of $3.66 and adjusted earnings per share for the full year. And lastly, we generated a total of $318 million in free cash flow or 92% of adjusted EBITDA as a result of improving our balance sheet and free cash flow conversion. .

Completing a tremendous year, we enter fiscal year 2022 stronger, more resilient and more profitable than we have ever been. Our culture, which is the measuring stick for the way we work and the way we act, is stronger than ever. I'm proud that we were recognized by Forbes as one of the best employers in 2021, as voted anonymously by our employees. .

We're also a more sustainable company. Sustainability is a core tenet of Vista strategy, and we were excited to share our first ES&G impact report this past fiscal year.

The report outlines our Vista vision, which is focused on delivering improved outcomes in key areas, such as improvements in recycling, packaging, energy management, diversity and inclusion and corporate social responsibility. .

Sudhanshu will cover in a moment our financial results in more detail. But first, I will review the key drivers that supported our outstanding results. .

First, we entered the year with a solid foundation, the result of a multiyear disciplined business transformation.

The actions we took in our prior fiscal years to rightsize the portfolio, reduce debt, build out our centers of excellence, attract talented leaders and change the culture to be more disciplined and nimble, pay dividends when the market conditions turned favorably. .

Second, we executed a disciplined strategy in a dynamic year. Our team never wavered in our approach to managing the company. We stuck to our game plan even when circumstances presented new and unprecedented challenges.

This was especially true in the early days of the pandemic when the strain on supply chains retail and the broader economy created the most uncertainty, and it was hard to know what the future held. .

That said, the pandemic accelerated many of the customer -- consumer trends that were already in motion, and we believe will help fuel our continued success in FY '22 and beyond. For example, there were 8.4 million new entrants into the Shooting Sports in 2020. This pace has not slowed in 2021.

Hunting licenses grew 8% in 2020, bringing in over 1 million new hunters. In fact, 38.9 million hunters is the highest level on record going back to 1958. This trend in 2020 is a reversal from the prior decade-long decline in hunting participation and points to people embracing the field-to-table movement. .

Domestic bike sales climbed 65% in 2020 and electric bike sales were up 145% despite shortages at many bike shops. Domestic golf brands were up 45% for the month of March and up 24% for the first quarter. The Outdoor Industry Association reported overall participation growing amongst women and people who are younger, urban and more ethnically diverse.

And for Vista, demand continued to accelerate as we move through the year, resulting in the highest year-over-year sales growth in our Q4 of fiscal 2021 with our Outdoor Products segment growing 47% year-over-year. .

We believe we outperformed many of our peers as we remain focused on execution and our commitment to the following. One, organic growth.

We will continue to be disciplined stewards of capital and invest our strong free cash flow back into our brands through investments in new product innovation, R&D, e-commerce and enhancements in digital and best-in-class marketing. .

Two, our centers of excellence. We leveraged our shared resources to identify and capture operational efficiencies across our supply chain and build our omnichannel strategy and online presence, which allows us to better control our brand messaging and consumer experience while delivering stronger returns. .

Three, our commitment to disciplined capital allocation. During my 3.5 years for the company, we have reduced debt by more than $1 billion, while closing on 2 acquisitions.

We must maintain a strong balance sheet to ensure we have the financial resources to continue to invest and accelerate organic and inorganic growth at all points of the market demand cycle. Our long-term leverage ratio target is 1 to 2x, which takes into account an M&A strategy that focuses on value creation.

We continue to seek out complementary synergistic businesses that we can take to the next level in terms of sales and profitability. .

And four, our commitment to ES&G. We are committed to managing business operations in support of environmental, social and governance progress. We believe the best approach to sustaining long-term value and better outcomes for our planet is through operational efficiencies, community engagement and a culture based on doing well so that we can do good.

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Our combined scale, resources and expertise allow us to invest for future growth and achieve a level of excellence that would be out of reach for our individual brands, while also building a culture that is decisive, fast-acting and nimble.

We believe that our brands and their market positions are a key and lasting competitive advantage for Vista Outdoor. We have many #1 and #2 brands in their respective markets, and we are getting better at leveraging this advantage to capture greater market share. .

I'd like to spend a few minutes highlighting our fiscal '21 brand wins, opportunities and challenges. Overall, we did what we said we were going to do. From sales growth and margin expansion to strong free cash flow generation and impact, the effectiveness of our strategic transformation is clear. .

So let me start first with Shooting Sports. The ammunition team delivered incredible results for the fourth quarter and the entirety of fiscal 2021.

Our sales and operation teams across every location deserve great credit as they worked over time to keep pace with demand, integrating new facilities and enhanced safety protocols following COVID restrictions. The Remington and HEVI-Shot integrations remain ahead of schedule. .

The strength of our commercial market has continued into calendar 2021. In fact, demand has increased each quarter of the fiscal year, resulting in the highest current backlog in our company's history. Low channel inventories, combined with heightened consumer demand continues to pressure supply.

Our new and existing facilities are working 24/7 so that we can deliver more product to the marketplace and reduce our growing sales backlog. .

Leveraging our commercial strengths, our team has secured major contracts with leading law enforcement and military agencies during the fiscal year. The FBI awarded Federal the 5-year 5.56 service round.

This is a notable accomplishment as the FBI has some of the strictest performance requirements in the world and creates a halo effect for the rest of our products. The U.S. Army awarded Federal a significant order for the AA40 frangible ammunition, which is a military-grade training ammunition round utilizing our catalyst, lead-free primer. .

The Department of Homeland Security awarded Speer a $112 million contract, the largest in company history for 9-millimeter service ammunition. Federal and Speer were awarded a major duty and training contract in Australia. And the Nordic Police awarded Speer the 9-millimeter duty contract, while Federal continues to hold the.

223 and 308 duty rifle contract. .

Our Hunt/Shoot team delivered double-digit sales growth for the year and quarter, strengthened by consumer trends, a much larger base of users, dynamic new products and the optics repositioning strategy. This repositioning strategy has created better margins and higher sales. Hunt/Shoot also delivered some fantastic new products.

The tactical team successfully launched the upgraded T-Series holster, which drove record sales for the month of March and a great year overall. And the Bushnell Prime 1700 laser pushed Bushnell back into the #1 market share position in the hunting laser rangefinder market. .

Hunt/Shoot operations are also becoming more sustainable, supporting our ESG vision while also leading to greater efficiencies and cost reductions.

The organization, which covers multiple facilities in multiple states, has developed an operating plan to increase production efficiencies and better manage energy utilization and water consumption as an effort to better control costs while also reducing indirect greenhouse gas emissions. .

Now let's turn to our Outdoor Products segment. CamelBak delivered an impressive fourth quarter of double-digit growth driven by the Drinkware line and a rebound in its international business, which increased over 100% compared with the prior year quarter. When it comes to sustainable new product development, CamelBak is leading the industry.

Just recently, the team launched REPURPOSE, which is a sustainability initiative designed to reduce climate and environmental impacts through improved product design, sourcing and operational efficiencies. .

Goff, our Bushnell golf business, also had an incredible year, extending our status as the #1 laser rangefinders in golf with the introduction of the Tour V5 and the Tour V5 Shift. Successful as those launches were, the highlight of the year came with the introduction of Wingman, the industry's first GPS-enabled speaker.

With this introduction, Wingman exceeded all expectations and, inside of 12 months, captured better than 8% of the total EMD market and becoming the top-selling GPS product in the industry. .

In our Camp Chef business, our Camp Chef team continues to knock the ball out of the park. FY '21 was another year of double-digit sales growth, driven by strong D2C growth and even more new product innovation. The Woodwind WIFI pellet grill has exceeded expectations in the market and now comes in 3 different sizes.

The Wi-Fi-enabled products are producing valuable consumer data and insights through the integration with the Camp Chef app, which is helping us fine-tune digital marketing and product development moving forward. .

For an update on our Bell + Giro business unit, I've asked our President and General Manager, Ric Kern, of Bell + Giro to provide comments on the quarter and the full year.

Ric?.

Thank you, Chris. Good morning, everyone, and thanks for having me today. Bell + Giro delivered a stellar fourth quarter and outstanding full year results. Sales increased double digits in both Q4 and fiscal year driven by new product launches and market share gains.

Gross margin expanded to historic levels and disciplined financial management drove operational efficiencies and improved profitability at the SKU level. No doubt, we have benefited from the cycling boom. We've also taken share in some key areas during this growing market. I'll touch on just a few of the highlights for the year. .

Blackburn has partnered with Walmart on an exclusive product line across 10 categories, including pumps, lights, locks and tools. With millions of new riders, this partnership expands our profitable accessories line while also creating a more diverse generation of users with an affinity for the Blackburn brand. .

Giro is leading new product innovation, expanding share in helmets and footwear on strong innovation and sales. Giro is also launching this year a line of urban helmets and flat pedal shoes to tap into the rapidly growing e-bike market.

We also see opportunities in international snow and cycling markets, especially in Asia, with the Olympic Games tailwinds that are expected. .

And finally, in power sports, Bell the just launched a highly anticipated Moto-10 Spherical motocross helmet through a limited edition offering. The Moto-10 has already received great press coverage and reviews. The helmet sold out in less than 3 days. A full rollout will take place later in the summer. .

to break down barriers to cycling, including race and gender. We are also continuing to invest and grow our Bell Joy Ride program, which has excelled even during the pandemic. The Bell Joy Ride program is designed to introduce, inspire and enable women to the fast-growing mountain bike category.

These structured, instructional and fun social lines appealed to women at all different riding levels. .

On the sustainability front, Giro's Renew series is expanding, giving consumers new environmentally friendly, high-quality gear. This cycling apparel line is made with recycled materials, including reclaimed fishing nets and other ocean debris. We are expanding the successful program into other categories, including gloves, footwear and goggles. .

Our record success in FY '21 is attributed to a strong management team, solid execution, coveted products and sound financial discipline along with the growing market. But I am most proud of the people at Bell + Giro. We are a passionate group of people who are guided by and energized by our mission, our vision and our values.

It's the framework on how our strategy drives execution, leading by our values that strengthen our talent and our culture and taking the necessary steps to grow our business. Bell + Giro has come a long way in the past year, and I couldn't be more proud of this team and I'm excited for the future. .

Thanks, Chris, and back to you. .

Thank you, Ric. As we look forward, we expect FY '22 to be another strong year, fueled by improved profitability, strong balance sheet, strong free cash flows and continued demand for our products. .

That said, risks remain that we are closely monitoring. Supply chain constraints, tariffs and rising commodity costs will likely continue to pressure margins, some of these we will look to continue to offset with pricing as we did this past fiscal year.

In the channel, we see relatively low retailer inventories, most notably in ammunition, camping and biking as well as increased consumer behavior toward e-commerce transactions. .

Looking ahead at growth, we see the noted outdoor recreation trends in our favor as well as strength in consumer spending. We expect continued growth in new product innovation and from our acquisition of Remington ammunition. .

E-commerce growth will come partly in the form of continued sales and margin expansion, but also through connecting with and engaging a much larger user base than we have ever had before.

Vista Outdoor is well positioned to capture consumer traffic at retail or online in light of strong consumer preference for our brands and our purpose-built e-commerce platform. .

I'd like to now turn it over to Sudhanshu, who will share more detail on our financial results.

Sudhanshu?.

Thank you, Chris, and hello to everyone joining us on our fourth quarter earnings call today. Earlier this morning, we announced a new $100 million, 2-year share repurchase program and we reported strong financial results for the fourth quarter and fiscal year 2021. .

During both periods, we drove double-digit sales growth across our 2 segments, as well as gross margin expansion and improved operating leverage, leading to strong growth in earnings per share. We also ended the year with record free cash flow, EBIT, EPS as well as a solid balance sheet.

As Chris said, these results were driven by solid strategic execution across all our brands at Vista Outdoor. I'd like to echo Chris in saying thank you to all our team members for rising to the challenge in a difficult pandemic year. .

Driven by this strategic transformation, we have built a solid foundation with strong underlying business fundamentals and are now well positioned for growth. I will discuss how we are thinking about fiscal 2022 later in the call. First, let's review our financial results for the quarter and fiscal year.

My comments today will focus on our adjusted results. .

Q4 sales increased 40% to $597 million, a strong consumer demand drove double-digit growth across all business units. For fiscal '21, sales rose 27% to $2.2 billion, driven by a strong consumer demand for new products across our portfolio of leading brands. .

Q4 gross margin expanded to 30.6% and compared to 19.9% in the prior quarter, and fiscal year gross margin expanded to 28.4% compared to 20.4% in the prior year. These improvements were driven by higher sales, favorable pricing and mix and a strong operating leverage. .

EBIT in Q4 increased to $81 million, with an EBIT margin of 13.5%. The increase was driven by strong net sales growth and gross margin expansion and operating leverage. For fiscal '21, EBIT rose to a record $280 million, with an EBIT margin of 12.6%. EBITDA margin increased to 15.5%. .

In the fourth quarter, we had a tax expense of $13 million compared with a benefit of $2 million in the prior year period. For the full year, we had a total tax expense of $36 million compared with a benefit of $2 million in the prior year period. .

Q4 EPS increased to $1.02 and full year EPS rose to a record $3.66, mainly driven by higher sales, gross margin expansion, operating leverage and a lower tax rate. .

Turning to the balance sheet. We ended the fiscal year with cash totaling $243 million, up from $31 million in fiscal 2020. During the fourth quarter, we improved our capital structure with the refinancing of our senior notes as well as our credit facility, both with more favorable terms.

Our $500 million of senior notes are due in March 2029, extending the maturity by 5 years, with a lower rate of 4.5%, and our $450 million credit facility extended the maturity by 3 years. The credit facility is currently undrawn. .

As part of our commitment to building a resilient balance sheet, our net debt leverage ratio improved to 0.7x compared to 4.3x in the prior year period. As I mentioned last quarter, we continue to target a leverage ratio 1 to 2x. This allows us to be prudent and flexible in a dynamic environment while growing through internal investments and M&A. .

Now let's move on to free cash flow. We achieved record free cash flow of $318 million at fiscal year-end, primarily driven by growth in sales and EBIT across nearly all businesses as well as strong AR collections. Quarter inventory increased due to the acquisitions and to support current demand. .

Turning to our segment results. As Chris and Ric said, we continue to see higher participation rates for Outdoor Recreation and a strong demand for our products within Shooting Sports and Outdoor Products. As a result, both segments delivered higher sales and profitability in Q4 and for the fiscal year. .

I will touch on a few highlights within Shooting Sports. First, sales increased 37% in Q4 and 28% in the fiscal year, driven by strong demand in commercial ammunition and hunting and shooting accessories. All channels contributed to growth in each period. Both Remington and HEVI-Shot were acquired in the second half of the fiscal year.

Since then, they have contributed nearly $45 million in sales in fiscal '21. We are continuing to ramp up Remington's capacity and have been very pleased with the progress to date. .

Gross margin for Q4 rose to 31%, up from 18% in the prior year period, driven largely by higher sales and favorable pricing, mix, volume and operating leverage. Gross margin for the fiscal year increased to 28% versus 18% in the prior year. .

EBIT in Q4 increased to $82 million, with an EBIT margin of 20% versus 8% of EBIT margin in the prior year. The increase was driven by strong net sales growth and gross margin expansion and operating leverage. For fiscal '21, EBIT rose to $279 million and margin increased to 18% versus 7% in the prior year period. .

Turning to Outdoor Products. Sales rose 47% in Q4 and 25% in fiscal '21, driven by a strong consumer demand for our products as well as higher e-commerce sales across all brands. Gross margin for Q4 rose to 31%, up from 24% in the prior year period, driven largely by higher volume and growth in e-commerce.

Gross margin for the fiscal year increased to 29% versus 26% in the prior year. .

EBIT continued to expand in both periods. In Q4, EBIT increased to $25 million, with an EBIT margin of 13% versus 3% in the prior year period. The increase was driven by strong net sales growth and gross margin expansion and operating leverage. For fiscal '21, EBIT rose to $82 million with an EBIT margin of 12% versus 5% in the prior year. .

With that, I will now discuss our outlook. Given the continued uncertainty related to the longer-term impact of the pandemic on consumers and the global economy, along with supply chain disruptions, we are providing guidance for the first quarter of fiscal year 2022 where we have a clear line of sight into our operations. .

Our key assumptions include Remington hit sales of $50 million plus in Q1, continued demand strength in commercial ammunition and Outdoor Recreation, slightly increased supply chain disruption and margin pressures increasing due to rising commodity costs and higher freight and product costs.

That said, for the first quarter of fiscal 2022, we currently expect sales in a range of $600 million to $620 million and EPS in a range of $0.80 to $0.90. .

Looking ahead to the full fiscal year, we are confident in our ability to continue innovating and serving consumers with great products, but we are mindful of the continued macroeconomic uncertainty in the global marketplace. .

While we are not providing sales and EPS guidance ranges for the full year, we are providing insights into certain metrics for fiscal year 2022, including expectations of an effective tax rate in the low 20% range, interest expense in line with prior year adjusted interest expense, CapEx of approximately 15% higher than last year and R&D expense roughly 25% higher than prior year.

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While we ended fiscal '21 with record performance in many metrics, we expect growth in the second half of fiscal 2022 to moderate due to higher comps. Keep in mind that Remington's first full quarter results began in Q4 fiscal '21 and HEVI-Shot's first full quarter will be reflected in Q1 fiscal '22. .

From an EBIT margin perspective, we do continue to see margin pressure from higher commodity and freight costs as well as increased travel expense as the economy opens up in the second half. That said, we will remain financially prudent to help mitigate these rising pressures and are confident in our ability to manage other levels within our control.

We look forward to speaking more on this topic at our Investor Day taking place at the end of the month. .

In closing, Vista delivered record free cash flow, EBIT and EPS in fiscal '21, ending the year with a healthy balance sheet. Looking ahead to fiscal '22 and future years, we remain committed to creating value for our shareholders. .

Thank you, everyone. Now let's open it up to your questions. .

[Operator Instructions] We will take our first question from Gautam Khanna with Cowen. .

This is Dan on for Gautam.

So what are you seeing in terms of inventory in the channel so far in the quarter? And do you have any visibility into customer stocks?.

Yes. So Dan, this is Chris. I'll take that question. And the inventory in the channels, it's low across really all of our categories. I can't think of a single category, be it in Shooting Sports or in Outdoor Products, where our retailers would raise their hand and say they're in a healthy level of stock. So we continue to chase demand, if you will.

And as it relates to -- so I'll leave it that.

Does that answer your question, Dan?.

Yes. I was wondering as well about the consumer stockpiles -- sorry, I guess I said customer stockpiles. .

Okay, consumer stockpiles. So we don't see stockpiling in the way that we did in previous surges. Now that's not to say that people aren't buying what they can when they can. But given the low levels of inventory throughout all the channels, it makes it much more difficult for consumers to stockpile. .

So we're seeing evidence of more participation in the ranges. We're seeing more participation in hunting and just more participation in general. We can see this in where we sell directly with our consumers, where we sell directly ourselves.

We know participation is up significantly, and we also have a database of users that we talk to as it relates to their monthly consumption. And so we're not naive to believe that people aren't trying to buy what they can, but there isn't nearly the stockpiling that we've seen in previous surges. .

Okay. Great. That's good to hear. And then I was also hoping that you guys could give some details into the Shooting Sports margin in the quarter, just given that we expected some dilution from like the Remington facility start-ups.

And then kind of how can we think about what a normalized margin level might look like at that segment? And then just to tag on to that, how -- remind us how long it takes for commodity inflation to flow through the P&L?.

Yes. I'll let Sudhanshu answer that, and I'll add on to it. But I'll just remind everybody on the call that our Shooting Sports segment includes Hunting and Shooting Accessories as well as our ammunition group.

And the results in Q4 were somewhat muted given the fact that -- by Remington's by the fact that we're just kind of still ramping up in that big facility we have there.

So Sudhanshu?.

Thanks, Chris. So margins Q4, you heard that Remington is doing a little better than what we expected and our integration is ahead of the schedule, so that helped us a little bit of margin expectation that we had. And we're also taking pricing to pass-through for any commodity increase.

So as you think about this year, we are expecting to pass most of the commodity increases in terms of the pricing to the marketplace because we see the demand high. And we expect more or less our Q1 margin to flow through during the year. .

We'll take our next question from Scott Stember with CL King. .

Maybe I'm missing something, but you guys are talking about the commercial side of ammo and really talking about the backlog and strength, I guess, within your guidance for the first quarter.

Am I misreading anything into the commercial -- what you're talking about the government and outside of the consumer? And how is the consumer side of the ammo market doing, if I understood you correctly?.

So Scott, we -- and for everybody else, when we say commercial business, we are referring to the, what you might call, retail, wholesale, the normal channels of consumer distribution. And when we refer to our military and law enforcement business, it's more contractual business. And frankly, both businesses are healthy.

Now those who have been following us for a while recognize that we're comping off of a lower Lake City volume, so we need stronger contracts to offset it, which we're getting. And the commercial business is really driven by that consumer demand, which continues to strengthen. .

Got it. Okay. That's very helpful.

And with regards to Remington, could you share what the revenue contribution was from Remington in the quarter? And I know you're not giving guidance for '22, but could you ballpark the -- as you exit next year, where you think the annualized revenue rates that Remington could do?.

Scott, this is Sudhanshu. Let me take this question. So Remington and HEVI-Shot, together, they did $45 million in basically last year Q3 and Q4. Remington and HEVI-Shot combined did close to $30 million in Q4.

And for the full year, we're saying they will hit $50 million plus run rate in Q1, and obviously, we will keep ramping our capacity as we see the demand. So you can assume for your model, if this $50 million run rate continues, it will be $200 million plus for Remington for this year. .

But as we have said before, we are managing Remington and HEVI-Shot and our legacy ammo businesses as one P&L to get the synergy. For the future, we will give you overall Remington combined with overall legacy business and have one number in terms of the top line and EBIT. .

Got it. And then last question, Sudhanshu. When you were talking high level about 2022, you made a comment about growth abating in the back half of the year.

Were you insinuating that you still expect, despite the tough comps, that you guys can grow in the back half of '22?.

So we haven't given guidance for the full year, but we are feeling bullish about the outdoor trend. We are feeling bullish about the ammo demand. Quarter-to-quarter growth may be a little lumpy. As you know, we had very different quarter in Q2 last year. But overall, we feel good about the year.

We're just not giving guidance in numeric terms for top line and EPS. .

Chris, anything you want to add on this?.

Yes. Well -- no, Scott, I agree with obviously everything that Sudhanshu is saying. We've talked about it at length. And when Sudhanshu talks about sales abating, we just had a record fourth quarter of 47% growth in our Outdoor Products business. And you get some of those comps and we love the underlying trends and the sustainability of those trends.

But we're going to be facing, like other companies, some pretty robust comps as we move into the back half. Now fortunately, we've got acquisitions like Remington and HEVI-Shot, which help us in total and give us confidence that we're going to continue to grow this business. .

Our next question comes from James Hardiman with Wedbush Securities. .

So if I'm doing the math right, and obviously there are some below the line items that make this a little bit more difficult, but it seems like really strong sales growth guidance for the first quarter. But correct me if I'm wrong, the implied margin seems like it's materially short of where we finished the fourth quarter.

I guess, first question, is that accurate? Second question, what -- if so, what's driving that? Is it more of a gross margin thing versus some of the operating expenses? And maybe just walk us through how we should think about the contributors to margin, whether it be supply chain versus some of the commodity costs that you've touched on. .

So there are 3 things that -- this is Sudhanshu. There are 3 things that are driving, from Q4 to Q1, margin deceleration. So you're right. Your math is right. And one is commodity and freight cost, as you're seeing about the freight delays. So that's one thing. But second is Remington mix.

So we're still working through Remington, and Remington is a lower level of margin with our current ammo business. And it will take time. But this year, we have -- it will be around 10% of EBIT margin. So that's another thing that's driving. So mix, commodity and freight, those are the 3 things I would say is driving from Q4 to Q1. .

And the only thing I would add, James, to that is that last year, we were in the midst of a pandemic shutdown, so our SG&A costs were lower. Now this year, we anticipate each of our quarters being higher in SG&A. Now to the extent that we go back into a shelter in place or what have you, we will certainly see a favorability in costs.

And I would also say, like a lot of other leaders, we're seeing more virtual and less travel, so there may be a little bit of upside in SG&A just based upon what we're seeing recently. .

Got it. And then secondly, I mean you touched on the fact that your net debt leverage at this point is sub-1x, which is obviously beneath the targeted rate. How long should we expect it to stay this low? I mean, presumably, you're going to continue to generate some nice cash over the next couple of quarters at least.

Is there anything sort of imminent, to the extent that you could speak to that?.

And then I think it relates to the share buyback program you guys announced today, the $100 million. In the release, you said that it's primarily to offset dilution.

Maybe why not do more than offset dilution, just given the war chest that you guys are building?.

So it's a great question. Two things. As we have said previously, we are a cyclical company and we don't mind being prudent in this current environment. So we don't mind keeping more cash on the balance sheet. I know the long-term target is 1 to 2x, but if it's below 1 in the short term, we are okay with that.

The second, we have active pipeline of M&A, which we are considering. We are also mindful of valuation. Right now, everything is trading at higher valuations, so we don't want to overpay. So we will keep cash and keep looking at the active pipeline.

And third, we think the $100 million announcement for share repurchase is -- it will manage dilution, but we don't want to increase too much of share repurchase right now while we're still thinking [ 2 ] active M&A pipeline. .

Yes. And James, I would add to that as well that we're really excited about the position we're in.

To your point being under 1x leverage, for the first time really in my 3.5 years, we've had a balance sheet that is at a historical strong high point, and we feel really good about our ability to go on offense here both strategically and opportunistically. So with the first 2 acquisitions we made, we were really, really smart about purchase price.

And we're going to, and you should, expect to continue to see that. .

We haven't had the luxury of being able to manage dilution over the last couple of years that -- because of our balance sheet. Now we're in a position to be able to do that, and we certainly will take advantage of that to the extent that the market allows it. .

Next question comes from Matt Koranda with ROTH Capital. .

Just a follow-up on the Q1 outlook. So I appreciate the margin conservatism given some of the headwinds you guys called out. But it also sounded like you guys are saying that you have the ability to take price in the ammo business specifically to sort of offset some of the margin pressure on commodity and freight.

So I'm just wondering where the incremental conservatism is coming from, is it just that the Outdoor Products business is seeing outsized pressure? Or is there just a healthy amount of conservatism baked in here the Q1 guide?.

I don't want to -- I want to make sure we didn't misstate. We didn't say that there's conservatism built into the margin line, we said there may be some conservatism in costs if we don't travel as much or what have you. But it's small on the margins, right? It's not a driver like our gross margin line might be. .

Now what we've talked about in terms of pricing, I haven't -- I mean, it's unprecedented in terms of the input cost increases we've seen. Copper, as far back as we can see, is at an all-time high. We've got pressures in labor that we're paying higher wages. We've got increases in resin and corrugate. And I could go on and on about the input cost.

Now as basic economics tells us, supply and demand allows us in this environment to continue to pass on price, and we just took another price increase April 1. .

So we feel like we're in a position that we can continue to offset it. We're going to have hedges that roll off this year. We're -- but we still are in a good position, but those will roll off. But we've got all that built into our guidance as we look going forward. .

Okay. And then on the Outdoor Products business, since nobody sort of asked on that front. Just wanted you to touch a little bit on channel inventory in that business. It sounded like you were alluding to it being relatively low, especially with camping equipment and other items.

But just wanted to give you the opportunity to sort of touch on how you see that playing out over the next couple of quarters. .

Yes. So Matt, good question. I mean, it's funny that it kind of gets forgotten because we're just -- the team just killed it this past year. So you think about the outdoor segments that we're in and the fact that they grew dramatically year-over-year, each of the first 3 quarters and then posted up 47% in the fourth quarter. So inventory is low.

I don't know if it is for the whole industry, but it certainly is for us because of the innovative product that we launched. .

Wingman was the most innovative product in the golf industry, and we took -- literally grabbed 8 percentage share points inside of 12 months. We've sold 5x more of that product than we ever thought. And our new laser rangefinders being the Pro V (sic) [ Tour V5 ] and the Pro V5 Shift (sic) [ Tour V5 Shift ] exceeded expectations.

Camp Chef with their Woodwind pellet grills are just -- they can't build enough of them. And I can go on and on about some of the great things our Outdoor Products business is doing and will continue to do. .

And this is one of the areas that, as we look forward -- we made a couple of acquisitions in the ammunition front because they were super opportunistic and strategic for us. But as we go forward here, we got our sight squarely focused on the Outdoor Products business.

We think there's been a structural change in the consumer demand in that industry, and we're going to take advantage of those smartly where we can. .

Next question from Eric Wold with B. Riley Securities. .

A lot of questions have been answered, so I'd kind of tack on to a couple that came out. I guess on the margin side, not to hit on that, but I know, Sudhanshu, you touched on that you're including some level of margin pressure in the Q1 guidance that you gave sequentially in Q4. I guess supply and demand is there.

How receptive have retailers and consumers been to price increases that you have taken or expect to take? Do you expect that to impact demand anyway? And then do you view these price increases as temporary, as much as they can be, in terms of if any of these cost pressures, supply chain issues, transportation, et cetera, abate in any way, do you expect those price increases to remain in place?.

So Eric, I'll take that question as Sudhanshu and I here together, and Sudhanshu can certainly add on to it. But I'm talking to customers every week and have a pretty good feel for how they would answer that question. I'll answer it as if they were sitting here with us. They're saying, "Hey, just get us the product. Just get us more product.

We understand the inflation that you all are seeing from an input side and we certainly understand that you have to be able to pass that on in pricing," as they do themselves. And so we're in a situation where, unfortunately, we're still allocating to our biggest and our best customers and everybody. .

And so I mentioned the backlog a year ago and haven't talked about it since, but it's only grown. And that's with adding about 1/3 of capacity. So we're industry leaders and we just added 1/3 to our capacity with the purchase of Remington, and we're continuing to tweak our facilities to be more efficient and get more out of them.

But we don't see the pricing situation changing. .

Got it. And then in the last question, you kind of touched on the end, Chris, on you're running 24/7 in the facilities now, you've added capacity through the acquisitions.

Assuming this demand continues for the foreseeable future, what options do you have to increase production further from this point? Are there viable acquisitions? Aren't there? Are there third parties you can tap into? Anything else that could make sense or help you in any way?.

Yes Eric, listen, we're looking at that every day. And our facility has -- our facilities have done such a wonderful job of eking out more capacity. And every month, they frankly surprise me to the better with some of the things that they're able to do in terms of eking out that capacity. There's umpteen different ways that they're doing it.

But outside of that, it really is structural PP&E investments, which you have to step back and ask yourself what are the long-term trends, because you'll be with that PP&E for a long, long time. .

So we like the position we're in. We think we've got the ability to continue to grow our top line, in our Shooting Sports business, in our ammunition business, double digits this year and beyond. So we like where we're at, and we'll continue to look at other ways to eke out a bit more. .

The one thing I will add, Eric. So Remington used to be $400 million in sales before. And we are at $50 million run rate in Q1. So we have a lot of room to grow in Remington. And it was, as Chris mentioned, a capacity investment last year. So we have a lot of room to grow there.

And we feel that, that will allow us to increase both margin as we'll get more operating leverage if you produce more there. .

Yes. And every penny of price increase results in a penny of sales increase, which obviously everybody knows. But that dynamic is occurring as well. .

Our next question comes from Ryan Sundby with William Blair. .

Congrats on another great quarter. .

Thanks, Ryan. .

Maybe I'll just follow-up on that last question there with -- it seems like integration for Remington and HEVI-Shot are running ahead of schedule.

Could you talk a little bit more about where that upside is coming from? And then as we think back to what Remington used to be, what are those key factors that you need to kind of solve or rework to get the business going back towards kind of that $400 million level?.

Well, what made the -- Ryan, the acquisition such a wonderful acquisition for us is we couldn't buy a more synergistic company. So when our team, and you heard from Jason Vanderbrink last time leading the ammunition team, he and his entire team, even during due diligence, walked in there and felt like they were at home, in one of our facilities.

So really, what we did was we went down there and we welcomed back the team. They welcomed us. And we put in some investments in place, started rehiring people, started to rebuild the culture, getting materials to flow. .

And so all of that upside is right in our wheelhouse, and it's really just a factor of us bringing it up to speed and getting the people trained and making sure we're putting out a safe product. And so we will get there. Particularly with the demand that we see, we're really excited about the trends we're seeing in that Remington facility.

It's a 200-year old iconic brand that both consumers and our customers and all of our channels of distribution were clamoring for, and it really took a big bite of capacity out of the industry until we brought it back online. And it's a beautiful facility that we've acquired, and we're excited that it's part of the family. .

Great. It seems like a great big deal for you guys. Chris, maybe I can just do one follow-up on margins. And I know we've hit this a lot here.

But with both segments surpassing 30% this quarter and given some of the tailwinds and headwinds you've talked about during the call, could you maybe just, bigger picture, talk about what you think normalized gross margins should look like for both Shooting Sports and Outdoor Products as some of these sectors normalize?.

Ryan, one of the exciting things that happened this past year is the fact that we expanded our gross margin line by over 700 basis points. And I've mentioned since the day I walked in the door, I thought there was very. very big upside in the gross margin line, and we saw that last year.

As we go forward, what continues to drive our gross margin line is, one, just pure demand, and we talked about that on the ammunition side. But two, is innovative products.

And so every time we come out with a Pro V5 Shift or Wingman or Woodwind pellet grill or all the new calibers were coming out in ammunition, every one of those are differentiated, unique and deserve higher price points because consumers will pay for them. And that's what really starts to drive our margin. .

Three, the more e-commerce business we do, the more -- and that's one of our centers of excellence, right? We're able to drive e-commerce amongst the 34 brands that we have in a much, much larger way because of the -- because of Vista, right? We've got one single platform, the piping and plumbing that we spent millions of dollars on over the last 3.5 years since I've walked in the door, I mean, that's why we're growing our e-comm business over 50% each quarter year-over-year and our D2C business is up dramatically.

And that will continue. .

The other center of excellence, I think, really helps as well is our supply chain purchasing, where in this chip shortage which is shutting down automotive factories and what have you, we got chips in a lot of our products and we're able to continue to drive supply. Now we can't take advantage of all the demand that's out there.

But we certainly can meet our plan plus. And so those are the types of things that we see that will continue to drive margins in Consumer Products. And that's what I've seen in my a 25-year, 30-year track record is being able to drive margins with great products and brands. .

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

You guys have talked about a little bit in the past and may not want to speak too much about it or make a pattern of it, but can you talk about the backlog orders for ammunition and maybe where that grew or moved during the quarter?.

Yes. So Mark, as I stated previously, we quantified that backlog and we know there's numbers floating around. I'll just say that it's up dramatically and it continues to grow each quarter as demand stays strong. So the backlog is the least of our concerns right now.

And we're happy we see it growing and we're working as hard as we can to get it down to a level that everybody is happy with. .

Okay. And then you guys talked about the e-comm business being up direct-to-consumer.

Can you talk about that mix a little bit, especially within ammunition and maybe how much of a driver that was your gross profit margin improvement?.

Yes. So Mark, the ammo specifically, it was not as much of a driver of our gross margin. And so we are trying to be very careful in terms of allocating product. And so when we have a choice to share with our customers and the ranges versus selling direct-to-consumer, it's not even a choice. We're sharing with our customers as we should. .

Now we also know that there's a subset of people out there that want to go to the Federal Premium site in the Remington side and the CCI and Speer. And so we have to be able to allow that to happen through our direct-to-consumer sites. And it gives our consumers looking for that brand experience and interaction the ability to do that.

But it certainly wasn't a driver for us. What our dealer partners are doing is really what's driving our ammunition business. .

Okay. Perfect. And then as we look at the ammo business, can you give us more insight into primers specifically? It seems to be a bottleneck for the industry in trying to get primers, but you guys are a big manufacturer of primers.

How does this position you as a manufacturer, being able to build your own primers? And then also have you added capacity in manufacturing there?.

Yes. So Mark, another good question. And as you know, we are the leaders in primers, and not just regular catalyst primers but lead-free primers. And so we supply not only ourselves. We supply -- as an OEM, we supply to consumers. And we have the leading reloading business in RCBS.

And what stops people from reloading as much as they'd like to is the availability of primers. .

So we really like the position we're in. We're driving our primer production as fast as we can to be able to meet that demand. But it certainly puts us in, I guess, maybe a bit more of a unique position given the ability to produce the primers that we do. .

Okay. Last question from me, just kind of big picture philosophically as we look at adding capacity. And I know that everybody's been apprehensive following 2016 to kind of overbuild and have this big CapEx spend on facilities and equipment.

But at the same time, as we look at roughly 8.5 million new shooters added last year, that number likely continuing to grow at a rapid pace.

At what point -- do you feel like you've got enough capacity potential with the Remington acquisition? Or at some point here, do you look at some of your facilities in Minnesota, Idaho and say, hey, let's add more equipment, maybe more space or a new facility somewhere?.

Yes. So Mark, it's the right question and we're asking ourselves that all the time.

And we feel like -- Remington, although it's a very, very synergistic acquisition, the reason why we're not at that much higher run rate is it takes an enormous amount of team effort that -- it's an opportunity cost, right? So we're adding 30% capacity and we're doing it much quicker than if we brought in machinery.

And a lot of this machinery has many, many quarter lead time. So you can't just turn that on from quarter-to-quarter. So we're opportunistically and strategically putting our resources on the best and best use of their time in the Remington facility. .

Now that being said, we've also got other resources that are -- that we're already investing in, packaging, automation and automation in our warehouses to get product out faster. And where we see bottlenecks, we're investing in equipment today.

And that's why one of the reasons why our capital expenditure line is going to be up this coming fiscal year. But we'll continue to look at it. And as we see the longer trends -- the current trends continue, you'll see us evaluate capacity increases harder. .

That concludes our question-and-answer session. I would like to turn the conference back to your host for any additional or closing remarks. .

Well, thank you, operator. And I want to thank everybody for their time this morning. It's been an incredible year for us. And I just want to send out again my heartfelt thanks to all the employees, the men and women of Vista Outdoor.

We've just had a remarkable year because of the efforts of each of them as well as our partners on the supply and the customer side. So thank you, everybody, and thank you for the confidence, and our investors, and we'll talk to you next quarter. .

This concludes today's presentation. Thank you for your participation. You may now disconnect..