Earnings call: Vista Outdoor Announces Progress on Kinetic Group Sale

During its third quarter fiscal year 2024 earnings call, Vista Outdoor Inc . (NYSE: NYSE:VSTO) provided an update on several strategic and financial aspects of the company. Chief among the updates was the progress on the sale of its Kinetic Group to Czechoslovak Group (CSG), which is moving forward as planned with regulatory approvals in place. The sale is expected to deliver significant value to stockholders, with a cash consideration of approximately $750 million. Additionally, the company discussed its ongoing transformation efforts, cost savings goals, and reaffirmed its guidance for fiscal year 2024, projecting a return to growth in the fourth quarter.

Key Takeaways

• The sale of the Kinetic Group to CSG is on track, with regulatory approvals received and a stockholder vote planned for the second quarter of 2024.
• Revelyst, the company's remaining entity post-transaction, reported sales of $317 million and adjusted EBITDA of $15 million for the quarter.
• The company is progressing with its GEAR Up transformation program, expecting to achieve $25-30 million in cost savings in fiscal year 2025.
• Despite a decrease in gross profit and EBITDA, the company remains optimistic about returning to growth in the fourth quarter and doubling Revelyst EBITDA in fiscal year 2025.
• The company is experiencing flat POS performance across several segments, with expectations of market share gains and improved EBITDA margins moving forward.

Company Outlook

• The transaction with CSG is expected to close shortly after the stockholder vote in the second quarter of 2024, subject to regulatory approvals.
• Revelyst is anticipated to focus on strengthening its balance sheet post-separation, aiming to capitalize on its capital allocation strategy.
• The company aims to double Revelyst's standalone EBITDA by fiscal year 2025.

Bearish Highlights

• Revelyst sales were slightly lower than expected due to the phasing of shipments.
• Gross profit decreased by 17.2% to $85 million due to increased discounting, lower volume, and an unfavorable mix.
• EBITDA dropped by 52.6% to $15 million, primarily due to the decrease in gross profit.

Bullish Highlights

• The company is optimistic about the future, with plans to utilize cash for restructuring activities, organic growth initiatives, share repurchases, and acquisitions.
• Revelyst's direct-to-consumer sales channel saw improvement, and the marketplace retail and wholesale channels showed signs of optimism.
• The Kinetic Group reported strong adjusted EBITDA margins of 28% for the quarter.

Misses

• Sales for the Kinetic Group decreased by 9.1% to $365 million due to lower shipments across most categories.
• The company's overall sales and EBITDA fell short of expectations in the quarter.

Q&A Highlights

• The company addressed the state of channel inventory, noting that it is relatively clean, with plans to address pockets of bare shelves in upcoming quarters.
• A price increase was announced to offset propellant price increases, effective January 1.
• Revelyst's EBITDA margin is expected to be at the low end of the range in Q4, but significant improvement is anticipated over Q3.

Vista Outdoor's earnings call revealed a company in the midst of significant transformation, with a clear focus on strategic divestitures, cost savings, and reinvestment in core growth areas. Despite the challenges faced in the current fiscal year, the company's leadership conveyed confidence in their strategic vision and the steps being taken to position Vista Outdoor for future success.

InvestingPro Insights

Vista Outdoor Inc. (NYSE: VSTO) is navigating through a transformational phase with strategic dispositions and a focus on operational efficiencies. The company's recent earnings call highlighted the anticipated benefits from the sale of its Kinetic Group and its GEAR Up transformation program. To provide a deeper understanding of Vista Outdoor's financial health and future prospects, here are some insights based on real-time data from InvestingPro and InvestingPro Tips.

InvestingPro Data:

• The company's Market Cap stands at $1.77 billion, reflecting its current valuation in the market.

• With a P/E Ratio (Adjusted) for the last twelve months as of Q3 2024 at 9.93, the company is positioned more favorably compared to the negative P/E of -13.71, indicating potential profitability ahead.

• Revenue for the last twelve months as of Q3 2024 is reported at $2.793 billion, though it has seen a decline of 11.26% compared to the previous period.

InvestingPro Tips:

• An InvestingPro Tip highlights that Vista Outdoor has a high shareholder yield, which can be an attractive aspect for investors seeking companies with shareholder-friendly practices.

• Analysts predict that the company will be profitable this year, which aligns with the company's own expectations of a return to growth in the fourth quarter.

For those looking to delve deeper into Vista Outdoor's financials and market performance, InvestingPro offers additional tips. There are 9 more InvestingPro Tips available for Vista Outdoor, which can be accessed by subscribing to InvestingPro+. The subscription is now on a special New Year sale with a discount of up to 50%. Use coupon code SFY24 to get an additional 10% off a 2-year InvestingPro+ subscription, or SFY241 to get an additional 10% off a 1-year InvestingPro+ subscription. These tips can provide valuable insights for making informed investment decisions.

Full transcript - Vista Outdoor Inc (VSTO) Q3 2024:

Operator: Thank you all for joining. I would like to welcome you all to the third quarter fiscal year 2024 Vista Outdoor Earnings Conference Call. My name is Alex and I will be coordinating the call today. [Operator Instructions]. I would now like to pass the conference over to your host, Tyler Lindwall, Vice President of Investor Relations. Please go ahead.

Tyler Lindwall: Thank you operator and good morning to everyone joining us for our second quarter fiscal year 2024 earnings call. With me this morning is Jason R. Vanderbrink co-CEO Vista Outdoor and CEO Kinetic Group, Eric C. Nyman, co-CEO of Vista Outdoor and CEO Revelyst and Andy Keegan Chief Financial Officer, Vista Outdoor. Before we begin, I'd like to remind everyone that during today's call, we will be making several forward-looking statements, reflecting future events, and their potential effect on our operating and financial performance, 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 and we are under no obligation to provide updates to these forward-looking statements. These forward-looking statements are subject to the risks and uncertainties that face Vista Outdoor and industries in which we operate and actual results may differ materially from these forward-looking statements. 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. Andy I'll turn it over to you.

Andy Keegan: Good morning, and thank you all for joining us today as we discuss our fiscal year 2024 third quarter results. Before Jason and Eric provide you with an update on the Kinetic Group and Revelyst, I want to take a few minutes to provide an update on the status of the previously announced agreement to sell the Kinetic Group to Czechoslovak Group or CSG. I am pleased to report that the transaction process is progressing well and is on track. We have recently made large strides on the regulatory approval front, including the following: 1, HSR Act or antitrust notification was filed on November 9, 2023. On December 11, 2023, the waiting period under the HSR Act expired. 2, the United Kingdom National Security and Investment Act of 2021 Notification was filed by CSG on November 10, 2023. On November 20, 2023, the notification was accepted and on January 5, 2024, the transaction was approved and 3, CSG and Vista Outdoor filed a joint notice with the Committee on Foreign Investment in the United States, or CFIUS, with respect to the transaction, which was accepted on December 28, 2023. The transaction is currently being reviewed by CFIUS, and our team is working with CFIUS to obtain its Clearance. As a reminder, under the merger agreement, CSG has committed to take all actions necessary or advisable to obtain the necessary regulatory approvals and to pay a termination fee equal to $114.6 million if the transaction does not close due to a failure to obtain the required regulatory approvals. In addition to regulatory approvals I've noted, the transaction is subject to the approval of our stockholders and other customary closing conditions. With our S-4 proxy filed on January 16, 2024, we expect to hold our stockholder vote in the second quarter of calendar year 2024. If the regulatory approvals are complete by the time of the stockholder vote, which cannot be assured, we expect the transaction to close shortly thereafter. We reaffirm our confident belief that transaction will deliver meaningful value for our stockholders and is the best strategic alternative for maximizing value because among other reasons, the expected payment of approximately $750 million of cash consideration or $12.90 per share locks in certainty of value for our stockholders in the near term. Please reference the presentation materials for additional details regarding the tax treatment of Vista Outdoor shares at closing. Long term, we expect the separation to jump start our compelling vision for Revelyst by capitalizing its balance sheet with cash to accelerate its capital allocation strategy. We believe Revelyst will be well positioned to hit the ground running as successful independent company. Now I'll turn it over to Eric to provide an update on Revelyst for the quarter. Eric?

Eric C. Nyman: Thanks, Andy, and good morning, everyone. As we gather today for this earnings call, I feel encouraged to speak about the tremendous opportunities that lie ahead for Revelyst. Over the past few months, as I visited employees across our company locations, I have continued to be impressed by their dedication to our transformation and I have gained insight into their enthusiasm for the future. The conversations I've had left me energized, deeply inspired and optimistic about what is to come. The commitment and talent that our employees bring to the table, harnessed within the revamped structure that we are building, made me confident that we will achieve both our short term and long-term goals. I am honored to steer the course with our exceptional team as we begin to unlock the potential of the Revelyst business. Revelyst sales for the quarter were $317 million which is slightly lower than expected due to the phasing of shipments with a small number of dollars shifting into the Q4 period. Adjusted EBITDA was $15 million with adjusted EBITDA margins of approximately 5%, which met our performance expectations due to higher promotions to move higher price inventory. The Revelyst culture of innovation drove many exciting new product innovations and content collaborations over the last few months and also secured incremental revenue opportunities. Our team delivered new and innovative products, collaborations and contract wins that will allow us to exceed the requirements of our ambitious consumers. I would like to quickly highlight a few of these exciting products, collaborations and contract wins our team delivered in the quarter. In our adventure sports platform, Fox Racing expanded its helmet line with the introduction of the Crossframe Pro. Fox will be celebrating its 50th anniversary in 2024 and to commemorate and celebrate its storied history, passion and future yet to be written will be releasing a 50th anniversary limited edition collection of its most iconic and category defining year. In our Precision Sports Technology platform, Foresight Sports is coming off its best quarter in company history with its strongest ever period of new product launches. Foresight recently launched the Falcon and QuadMAX to consumer delight. The Falcon is a direct response to meet the evolving demands of the ever growing simulation technologies and simulation golf market, The top 6 million participants in 2023 which represents growth of over 70% since 2019. The Falcon is the next evolution of the simulation focused GC Hawk, it includes a full complement of cutting-edge simulation capabilities in a more powerful form factor that is roughly half the size of its predecessor. In addition, Foresight launched the QuadMAX, the newest and by far most powerful iteration of its award-winning launch monitor technology. Built with the most advanced 4 camera photometric data capture system, the QuadMAX packs our most features ever presented for the golfer, including a touchscreen display with the ability to customize on screen data and new performance data tracking parameters into its compact ruggedized form factor. Foresight also demonstrated its mass appeal, delighting crowds by exhibiting and launching a new product at the Consumer Electronics show in Las Vegas earlier in the month. The ForeCaddy powered by AI is a push card that holds your clubs while seamlessly following you around on the golf course without any human power. It's an innovation packed product with leading battery life, wireless remote and a magnetic strip for your Bushnell Golf Laser Rangefinder. In our outdoor performance platform, Blackhawk, our leader in law enforcement and military equipment, announced a 4-year contract from the Federal Police in Belgium to deliver new duty holsters from the brand's T Series Holster line. We believe serving military, law enforcement and first responders around the world is incredibly important to our business as well as to the safety and service of our citizens. Congratulations and thank you to teams across our organization for their hard work, not only on these exciting products and opportunities, but also all the important work we are doing to equip and inspire our diverse range of consumers around the globe. As we look ahead to Revelyst being a standalone company post separation, our brand led consumer obsessed and maker fueled culture is coming into shape. We are positioned well with winning brands, an efficient structure, a clean balance sheet post separation and the right people to drive shareholder value. Revelyst business fundamentals are improving and our balance sheet is healthy due to actions taken in the quarter. We were successful in moving through higher priced inventory by using discounted products and promotions to drive sales as we discussed on our earnings call last quarter. These efforts produced solid results as we saw Revelyst inventory decrease approximately 25% year over year and just under 10% sequentially. As mentioned earlier, we maintained adjusted EBITDA margins of 5% during these actions, which was consistent with our guidance and is a testament to our team's focus on cost containment measures and profitability. We have observed marketplace retail and wholesale channels is healthier in recent months. Channel inventory weeks on hand has come down year over year and our brands are seeing signs of optimism in the channels compared to more cautious behavior that we experienced in calendar year 2023. We expect this dynamic to translate into future results now that channel inventory is in a healthier position. Our direct-to-consumer sales channel is building momentum and saw marked year over year improvement in both the quarter and during the holiday season. Our D2C sales for the quarter increased 15% year over year led by our adventure sports platforms over 40% year over year increase. During the holiday season measured from mid-November through the end of December, B2C sales were up 9% year over year. Our Precision Sports Technology and adventure sports platforms performed strongly as both increased their holiday sales by nearly 20% compared to the same period last year. Our teams also were boosted by the Revelyst List, a first of its kind social campaign bringing Revelyst products directly to consumers at the enterprise level. This growth continues to prove out that in a channel that is not impacted by destocking and other noise, our brands have a strong positive connection with our base of passionate consumers who are able to access our full portfolio of products wherever and whenever they want to shop. We will continue to focus our D2C strategy on our Power Brands and Challenger Brands through centralized resources and a consolidated ecosystem to accelerate higher margin revenue and share growth. Our GEAR Up transformation program, which we introduced during our last earnings call is well underway and we continue to make progress on implementing our vision and the cost savings initiative announced last quarter. As a reminder, the GEAR Up transformation program is expected to drive $100 million of run rate cost savings by fiscal year 2027 by focusing on three areas. First, we're simplifying the business model to accelerate our vision of becoming an integrated house of high performing platforms and iconic outdoor brands working together as one cohesive a globally branded company. Secondly, we're delivering increased efficiency and streamlined operations to drive profitability from that simplified structure and lastly, we're reinvesting in our highest potential brands to accelerate their growth and innovation pipelines and transforming them for the future. Since last quarter's earnings call, we have continued to work diligently on our transformation and are confident in our ability to realize our cost savings goals. Additionally, we have started to take actions that we believe will position us to capture $25-30 million of run rate cost savings in fiscal year 2025 as previously communicated on our last quarterly earnings call. These actions include the consolidation of offices within our new platforms, our back office technology stack, supply chain and organizational structure. We believe these initiatives will maximize the efficiency and profitability of Revelyst. We will provide further details on the GEAR Up program at our Investor Day in the spring of 2024. Additionally, we are performing a strategic review of our brands and portfolio composition to assess core assets and focus on streamlining our brand portfolio into our Power Brand and Challenger Brand framework. Through this review, we have identified certain non-core assets as candidates for divestiture and have begun holding preliminary transaction discussions with various parties. These assets have garnered strong interest and the conversations have been progressing well. We expect to have further communications and announcements in the coming months. We are optimistic that potential future divestitures alongside the $250 million in cash that we expect to capitalize the Revelyst balance sheet with at the time of separation will allow us to accelerate our momentum through a capital allocation strategy that we expect will include investment in core organic growth opportunities, opportunistic share repurchases, when we believe valuation is highly attractive and selective tuck in acquisitions with clear integration used cases. Our focus will be to drive tech enablement and unlock performance in our existing brands with an initial focus on Precision Sports Technology, our highest growth potential and highest margin business. Through the strength of our balance sheet and decisive actions under GEAR Up, we expect our operating model and platforms will be able to drive value and synergies through M and A compared to previous acquisitions that were completed under a holding company philosophy. Moving forward, we believe the business is transforming for the better, both operationally and financially as a result of all these factors. We are reaffirming the Revelyst guidance for fiscal year 2024 and expect to see top and bottom line improvements in the business with a return to growth of Revelyst in the Q4. We will continue to build on this momentum and action further GEAR Up initiatives to head into the separation on solid footing with the expectation that we will still be in position to double Revelyst EBITDA on a standalone basis and our fiscal year 2025. In closing, we are positioned well with winning brands, the right structure and a clean balance sheet post separation. We have a clear line of sight to a solid foundation to the GEAR Up transformation program built upon an improved and more closely integrated platform structure. Our culture is permeating across the business with our teams unified behind the brand led, consumer obsessed and maker fueled mentality. I have the passion that our team has for our products and customers and believe this will fuel our success as we embark towards the next phase of our company. I am proud and excited by the work that we are doing to transform the company, execute our strategic vision and deliver value to our stakeholders. Thank you for your continued dedication and support of Revelyst. I'll now hand it over to Jason to provide an update on the Kinetic Group for the quarter. Jason, over to you.

Jason R. Vanderbrink: Thanks, Eric. We are three quarters through our fiscal year and on track to meet our prior guidance. Sales in the Q3 were $365 million with an adjusted EBITDA margin above expectations at 28%, driven by our team's focus on operational efficiency and profitability. I want to reiterate that the Kinetic Group ownership by CSG will allow us to grow the reach of our iconic American brands and expand into new markets where our legacy of superior U.S. Manufacturing will shine with our new consumers. The transaction will allow us to further expand our U.S. manufacturing footprint while providing new opportunities for our brands and our team members. CSG is a private, family-based company and has a rich history of excellence in manufacturing and experience in the American ammunition market. They are a strategic long-term buyer fully committed to continuing the legacy of our brands, support for the military and law enforcement customers and investments in conservation and our hunting and shooting heritage. Further, we expect the separation to jump start our compelling vision for Revelyst by infusing its balance sheet with cash to accelerate its capital allocation strategy and will put Eric and his team in a position to hit the ground running as a successful independent company. For the 53rd straight month, NICS data surpassed more than one million firearms checks. The month of December was up nearly 2% in 2023 versus 2022 and 14% higher than December of 2019, demonstrating that although moderating from pandemic levels, the industry has sustained its elevated base of users. Additionally, the National Shooting Sports Foundation recently released a report on firearm production in the United States that included information from the Bureau of Alcohol, Tobacco, Firearms and Explosives. The report estimates that there were more than 473 million firearms in civilian possession through 2021. From 2020 to 2021, the ATF reports a nearly 30% increase in domestic firearm production and an interim 2022 estimate shows an additional 11 million domestically made firearms were added to the United States from 2021 to 2022. Of those firearms, 7 million were pistols or revolvers, a market segment where recent industry surveys say Federal, CCI, Speer and Remington brands and products are leaders in consumer preference. Besides being preferred by the consumer, Federal and Speer are the duty and training ammunition and choice for many U.S. Law enforcement agencies. Finally, the ATF reports analysis reminds us that firearms and ammunition manufacturing accounted for more than 12,400 jobs in the United States and produced more than $5.6 billion in goods shipped in 2021. Several of our new products recently received very prestigious awards that recognize product performance and innovation. Field and Stream recognized Remington's premier long range as the best centerfire ammunition. CCI's Clean-22 Hypervelocity as the best rimfire ammunition and to make it a clean sweep in the ammunition category, Field and Stream awarded Heavy Shots, Heavy-12 in .28 gauge as its best shotgun ammunition. NRA Publications announced its prestigious Golden Bullseye Awards and among the winners are Remington's .360 Buckhammer for American Hunters ammunition of the year, Federal's Force X2 Shorty as American Rifleman's Ammunition Product of the year and Shooting Illustrated designated Speer’s Gold Dot for Pistol Caliber Carbines, its ammunition product of the year. Federal and CCI also won Reader's Choice Awards from Predator Xtreme Magazine with gold honors for Federal in the Shot Shell (LON:SHEL) category and CCI in the Rimfire category. Our government contract team continues to secure wins that amplify our strength as a proud supplier of the U.S. Military. Recently, the United States Navy awarded federal and Remington with contracts to supply rifle and shotgun ammunition to the maritime branch of the military. The Naval Surface Warfare Center Crane Division awarded Federal Ammunition a 2-year contract to produce its Mark 316 .308 rifle ammunition. The 175 grain Match ammunition built at our Anoka, Minnesota facility meets the outline specs for extreme accuracy and tolerance. Remington was awarded a 5-year contract to build the AO23 12-gauge 2 3/4-inch 1-ounce rifled slug for duty use by the United States Navy. This is the first military contract awarded to Remington since its acquisition by us, and the product will be built in our Lonoke Arkansas facility. As we look toward the closing of the sale of the Kinetic Group to CSG, we remain acutely focused on building the best ammunition in America and delivering on our goals. With a diverse customer base and multi brand strategy, we are positioned to grow while steadily expanding our presence into new markets. As we enter another election cycle in the United States, our teams are well prepared for whatever the market holds in the future. I have full confidence that with the best team in the ammunition business, we will continue to perform at the highest level. Our future is filled with great opportunity, and we look forward to closing the sale of The Kinetic Group to CSG. I will hand it back to Andy to provide an update on the financial results for the quarter. Andy?

Andy Keegan: Thanks, Jason. My comments today will focus on adjusted results compared to the prior year period, unless otherwise noted, which are presented using non-GAAP financial measures. In the appendix to the slide presentation, we've included reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For additional information regarding forward looking statements and non-GAAP financial measures, please refer to Page 4 of the slide presentation. I will start by noting during the quarter we had a triggering event as our enterprise value decreased due to the decline in our stock price and the previously communicated decrease in our guidance, which resulted in recording an impairment of goodwill and intangible assets of $219 million. Now moving into the results for the quarter. Turning to Slide 21. For the Q3, total sales decreased 9.6% to $682 million in line with our expectations. The sales decrease was a result of declines in both segments. Gross profit was $203 million and gross margin decreased 257 basis points to 29.7%. The decline was caused by decreases across both segments. EBITDA in the quarter decreased 30.2% to $94 million and EBITDA margin was 13.7%, down 405 basis points. The decline was driven by lower gross profit in both segments, partially offset by decreased selling costs at The Kinetic Group. Third quarter EPS decreased 37% to $0.80. Turning to Slide 23. Our balance sheet has improved. We made significant progress in improving our inventory position, decreasing total Revelyst inventory more than 15% year over year and 5% sequentially. As Eric mentioned, Revelyst in particular had success moving through high priced inventory decreasing by approximately 25% year over year and just under 10% sequentially. Year to date free cash flow was $270 million. Net debt decreased $127 million sequentially to $778 million and our net debt leverage ratio is now at 1.7 times. Turning to our Q3 segment results on slide 24. Within Revelyst, sales decreased 10.2% to $317 million driven primarily by increased discounting, lower volume and unfavorable mix as consumers continue to face pressures from high interest rates and other short-term factors affecting their purchasing of consumer durable goods. Gross profit decreased 17.2% to $85 million due to increased discounting, lower volume and unfavorable mix, partially offset by favorable foreign exchange rates. Gross margin decreased 228 basis points to 26.7%. EBITDA was $15 million down 52.6% with an EBITDA margin of 4.6%, down 416 basis points. The decline in the quarter was primarily driven by decreased gross profit. For the Kinetic Group, sales decreased 9.1 to $365 million driven by lower shipments across nearly all categories as channel inventory has normalized and lower pricing. These decreases were partially offset by increased shipments of rifle and primer categories. Gross profit decreased 16.5% to $118 million driven by decreased volume, increased input costs due to inflation and lower pricing. Gross margin decreased 287 basis points to 32.4%. EBITDA was $102 million down 17.9%, primarily due to lower gross profit, partially offset by decreased selling costs. EBITDA margin was 27.9%, a decrease of 301 basis points. We are reaffirming the full year 2024 guidance discussed on our previous earnings call. For the full fiscal year 2024, we expect sales of $2.725 billion to $2.825 billion. The Kinetic Group sales of $1.45 billion to $1.5 billion and Revelyst sales of $1.275 billion to $1.325 billion. Adjusted EBITDA margin between 15.5% and 16.25%. The Kinetic Group EBITDA margin range of 26.5% to 27.5% and Revelyst EBITDA margin range of 7.75% to 8.25%. Adjusted EPS in the range of $3.65 to $4.05 an adjusted effective tax rate of approximately 19.5%. Interest expense in the range of $55 million to $65 million and adjusted free cash flow between $265 million and $315 million. At Revelyst, we expect a return to low single digit growth in the fourth quarter, driven by strength in golf as a result of the exciting new product launches, including the Falcon, the ForeCaddy and the Quad MAX. We also expect growth in Action Sports due to improving POS and stronger order books as compared to the prior year period. Additionally, we successfully moved through much of our higher priced inventory during the quarter and have observed marketplace retail and wholesale inventory becoming healthier in recent months. We are seeing more optimistic purchasing patterns and are starting to see convergence of POS and selling within certain categories. As we look at Revelyst margins, we expect high single digit adjusted EBITDA margins in the quarter, due to lower product discounting compared to the third quarter. We also see inventory cost improving as freight cost return to more normal levels and expected adjusted EBITDA margin towards the low end of the guidance range for the full fiscal year. At Kinetic Group, we expect sales to be down by low double digits in the quarter and closer to the low end of our guidance range for the full fiscal year 2024 as channel inventory has normalized in many categories. We expect adjusted EBITDA margins towards the high end of our guidance range for the full fiscal year of 2024. As we look at profitability on a total company basis for the full year, we expect adjusted EBITDA margins to be within our guided range for fiscal 2024 guidance and we expect an interest expense towards the high end of the range for the full fiscal year. Looking forward, we remain enthusiastic about the progress we saw in the quarter related to our GEAR Up Transformation Program. We expect GEAR Up to contribute limited cost savings in Q4 of fiscal 2024 and approximately $25-30 million in realized cost savings during our fiscal 2025. Additionally, we expect to unlock an estimated $100 million in realized annual cost savings in the fiscal year 2027 as a result of this program. In fiscal year 2025, we see a clear path to doubling standalone adjusted EBITDA at Revelyst is primarily driven by the following: 1, $25-30 million of cost savings related to our GEAR Up Program. 2, Contributions from our previously announced April 2023 cost restructuring program, of which $25 million is related to Revelyst. We expect these savings to fully run rate later in our fiscal year 2024. 3, improvements in supply chain and freight as our inventory with higher priced freight will have turned through our inventory balance and 4, lower expected promotions as we compare to our fiscal year 2024 Q3 period in which we had higher than usual promotional levels to drive inventory levels down. With these variables, our standalone Revelyst business, including estimated standalone costs, would be high single digit EBITDA margins. This would be approximately 400 basis point improvement from fiscal year 2024. Long term, we believe that Revelyst adjusted EBITDA margins will be in the mid teens, including estimated standalone cost, which is an estimated 1000 basis point improvement over standalone fiscal year 2024, primarily driven by GEAR Up savings. Post transaction closing, we expect Revelyst will have a well-capitalized balance sheet with no debt and $250 million in cash. We expect the $250 million in cash will be utilized to fund the remaining GEAR Up of restructuring activities as well as meaningfully accelerate return in share holder value to organic growth initiatives, opportunistic share repurchases and selective tuck in acquisitions. Thank you. Operator, please open the line for questions.

Operator: Thank you. [Operator Instructions]. Our first question for the day comes from Matt Koranda of Roth Capital Partners. Matt your line now open, please go ahead.

Matt Koranda: Hey, everybody. Good morning. Maybe just Drilling down on Revelyst, first. Eric, I think you mentioned phasing of shipments causing a little bit of weakness in the quarter and maybe some of that was pushed into the Q4. Any way to size up, sort of the impact there in any particular products that shifted over into the Q4?

Eric C. Nyman: Sure. Good morning, Matt. Nice to hear from you. Yeah, it was a marginal amount, Matt, just a couple of million shipments that moved from one quarter to the other.

Matt Koranda: Okay. I'll take the rest offline on that one and then, just in in terms of channel inventory, it sounds like you guys are signaling, there's a little bit more optimism in the channel, with Revelyst products, and we're expecting a return to growth, in the fourth quarter. Could you maybe just unpack a few more of the drivers? I know you mentioned Action Sports might be a driver of growth. Could you talk about the visibility there within Action Sports. And then golf as well, it sounded like more new product impacted in terms of the growth expectation, but just wondered if you could give a little more color on sort of what we're expecting from the Gulf side of things as well in terms of the organic outlook for the fourth quarter?

Eric C. Nyman: Sure. Well, I'll start with golf, Matt. We're just off the heels of several new product introductions that we launched both CES and the PGA show last week. The teams at Foresight Sports and Bushnell Golf are really hitting on all cylinders. We have the new Falcon, which is really one of the best new innovations in simulated projection technology that's ever been created. We've also launched our new QuadMAX, which is a terrific new launch monitor platform for both pro and casual golfers alike and we're seeing incredible new interests in that platform. So we do expect with those new product innovations and a very strong innovation pipeline to come that will have not only a strong Q4, but have good momentum going into the prime golf selling season in our fiscal Q1 and Q2 this year. With regards to adventure sports, it's a little bit of a mixed bag, but we are seeing more optimism. We talked about our D2C strengths in our remarks, and I'm very proud of the teams across the Adventure Sports Network for the strong growth in B2C, you know, in an no stock backup environment. We're seeing also some really good cleanup in mass, Matt. So we're optimistic that going forward that kind of destocking challenge in the mass market is really receding at a good pace. We still have some things to clean up. We don't want to minimize that. In specialty, there's still a few headwinds, but by and large, we're certainly more optimistic today than we were at the end of last quarter.

Matt Koranda: Okay. That's helpful, Eric. Thank you. And then maybe for Andy, it sounds like we're gonna be run rating basically, all of the $50 million in in action savings, at Revelyst, that have been implemented, as part of GEAR Up and then so as part of the prior restructuring program. Just curious, how does that only translate to high single digit EBITDA margins in the fourth quarter, but it seems like it should be dropping a bit more, into the fourth quarter in terms of margin. And so I'm wondering if there are any headwinds that we should be factoring in terms of additional discounting or promotions.

Andy Keegan: Matt, I guess what I'd first start with is the $50 million from the April 2023, those have been coming in throughout the year. So those have been over this entire year have been coming in. So the amount that actually is just coming in, in the fourth quarter is a little bit less. It's going to be then translating next hear from the Q2, Q3 and Q4 savings that were implemented into the full run rate that's going to be affecting it, but we are I guess I'd first share with we're doubling EBITDA from Q3 to Q4. I mean we're going from the 4.6% high single digits is going to be close to doubling your EBITDA from that perspective. So there's going to be a number of things that are coming along with the reduction in promotions that we took as we reduced the inventory in a significant way in our third quarter Q3 and as we start to see some of the inventory that did move now is going to result in some freight improvement. So we are seeing some, I'd say, pretty meaningful improvement in our EBITDA as we head into Q4 and then into next year.

Matt Koranda: Okay. Alright. Fair enough. And then I'll do a couple more on tonight and then turn it over. But, Curious, Jason, if you could maybe speak to channel inventory health after the surge in demand that we saw on October, November. Kind of followed through about weighing a little bit in December, per our checks. But I guess how far are you from sort of September levels in terms of channel inventory? Maybe just speak to sort of some of the dynamics that you're seeing after the surge in demand.

Jason R. Vanderbrink: Yes. Good morning, Matt. Great to talk to you. Channel inventory is pretty clean. There's still pockets of bare shelves, which is what we're working on in the next coming quarters. But the surge, as you referenced in October November cleared out a lot of categories that were at the point probably of more weeks of supply than customers would have liked. So coming out of the SHOT Show last week, customers were pretty bullish on the year and not too concerned on the inventory. So what inventory is out in the channel is pretty healthy inventory. So that will bode well for us in the fourth quarter and as we head into the fiscal year of 2025.

Matt Koranda: Okay. And then one more there. Just Could you speak to pricing, actions maybe taken last year or at the end of last year? and then just in terms of Supply chain, obviously, I think, Powder's been a topic, that folks have been concerned about lately. Maybe just speak to the availability there and how we think about sort of supply chain and component through this coming year.

Andy Keegan: Sure. We announced a price increase effective January 1 to the trade. We did it to help offset the propellant price increases that you referenced, and the price has been accepted to the market, which was good. We will say that we do expect propellant challenges to last. I mean, it's not only a calendar year 2024 thing. I think it's going to go on a little longer than that. Having said that, I think the procurement team, for the Kinetic Group has done a wonderful job to secure propellant for us. So while I don't see any big hiccups of us getting supply, I do think there's going to be some supply constraints in the world on Propellant.

Matt Koranda: Okay. Gotcha. I'll turn it over to the next. Thanks.

Operator: Thank you. Our next question comes from Anna Glaessgen from B. Riley. Anna, your line is now open. Please go ahead.

Anna Glaessgen: Hi, good morning. Thanks for taking my questions. First, I'd like to touch on some commentary from a Private outdoor retailer recently, they spoke to fairly challenging conditions in the broader market, projecting declines in 2024. As we think about the outlook for the next this calendar year, to what extent are you baking in a little bit of recovery in these categories or maybe you have a different view than this retailer on what the setup is?

Eric C. Nyman: Hey, Anna, good morning. Thanks for the question, Tarek. I would say we're we pay extremely close attention to our retailers and we've had many conversations particularly and I think what you're referring to is probably the outdoor specialty retail space. There certainly is continued headwinds in that sector of our channel strategy, whereas our inventory with a lot of those retailers is in pretty good shape and our inventory on our own side has also made significant improvement year over year. We are certainly understanding of some of the challenges that the specialty retail marketplace is facing at this point in time. Knowing that, we've certainly spent a lot of our time, effort and energy on our direct-to-consumer business. We saw the excellent momentum that we have there that we talked about in our remarks earlier today with the team up in a really positive way and we've also seen a nice recovery in our mass business and those are two areas that we'll continue to Seek to stimulate as we go forward into calendar 2024.

Anna Glaessgen: Great. And touching on that that mass, the commentary at the end there, you know, over the kind of COVID bloom period, you saw really difficulty in getting inventory among the retailers, and so they were a little bit less discerning on brands. And previously, there's been a thought that there would be a shift back to quality, so, you know, the big brands would recapture some of that shelf space. Have you seen that, as we kind of come into the next phase of the COVID recovery?

Eric C. Nyman: Well, I'll note, I really can't speak to all the different dynamics at mass retail, but I can say that the teams are doing a terrific job partnering with our mass retail partners across many different facets, sporting goods and you'd probably call it more mass overall. And they are certainly finding a lot of value in the brands at Revelyst. We continue to see good momentum in the mass market for a lot of our products.

Anna Glaessgen: Got it. Thanks, Eric. And one more for me. There's been a decent amount of coverage of the relatively light snow at this point through the winter. To what extent do you see risk of snow related products having to see some heavier discounting? And to what extent that could impair the guidance for the fourth quarter in terms of high single digit EBITDA?

Eric C. Nyman: It's definitely something that we're monitoring, Anna. Snow got off to a very slow start this year. I think probably across all of specialty retail, it was just I hate to blame anything on weather, but there certainly was not a lot of snow in the early start of the year across the United States in particular and that led to slower POS than expected. So it's something that we're looking at very closely. It has picked up in recent weeks, but that is something that we're going to continue to monitor for the rest of the quarter.

Andy Keegan: And just to add to that, just from the composition of our business, snow is a relatively small portion of the overall Revelyst business and Q4, in particular, is not the heaviest sell in. You're doing replenishments as we go through the Q4, the actual winter season. Most of your sell in, which is the bulk of it is the largest portion of your sales is happening in Q3 our fiscal Q2 and Q3, so the calendar Q3 and Q4 and then you're in replenishment mode. A lot of that went through, so we already saw some of those shipments come through. And then Q4, so this quarter is really more replenishment. So I wouldn't expect it to have a significant impact on our Q4. We'll be looking at that as we head into next order season.

Anna Glaessgen: Okay, great. Thanks, Andy and Eric.

Operator: Our next question comes from Mark Smith of Lake Street Capital Markets. Mark, your line is now open. Please go ahead.

Mark Smith: Hi, guys. First off, just wanted to look at the, kind of guidance of doubling EBITDA within Revelyst. Just want to confirm that that's kind of fully burdened by corporate overhead as you look at that number?

Eric C. Nyman: That's correct. When we're talking about doubling EBITDA, it would be viewed as a standalone. So pro form a 24 compared to a 25 if we were standing alone.

Mark Smith: Perfect. And then we saw that kind of corporate overhead number come up a little bit here during the December quarter. Is there any change in kind of the weighting of that, for how much of that maybe falls on Revelyst is still roughly 70% number may be the best way to look at that.

Eric C. Nyman: You're still looking at about 70%. Speak to the increase itself, there's a few things that are in those numbers. One, we are starting to see some of the dyssynergies that we expect to have as we start to more align on the separation of the business, we're starting to Implement some of those activities, so you're starting to see that come through. We also had some comps that had a timing adjustment due to the transaction. There is a little bit of traffic shifted between Q3 and Q4, so you'll see core costs actually come down some in the Q4 time period as well as what we mentioned last quarter, which was some changes in how we have some non-GAAP adjustments that were shifted between non-GAAP to GAAP and so you saw that come up a little bit, but the actual percentage that we're looking at is probably still roughly in line with what we discussed previously.

Mark Smith: Okay. And then just looking at segment guidance here, the guidance seems to imply Kinetic you know, EBITDA margin, coming down here in the fourth quarter to kind of stay within that guidance range. Yes we've seen recent price increases come in at the beginning of the quarter. Were those price increases, you know, not enough to cover some of the increased pressure maybe from Propellant or anything else or anything guidance you can give us on as we look at Q4, primarily EBITDA margins within Kinetic Group.

Jason R. Vanderbrink: Yes. Mark, this is Jason, and good morning. As we guided, we said we'd be at the high end of the EBITDA for the quarter, but it would be less than the third quarter. Obviously, the price increases that we are taking to keep the factories going were not offset by the price increases that we put to the market. And secondly, we may be a little less efficient in the quarter as we make more SKUs, obviously lose a little bit of efficiency on that. Now our hope on that is our gross margin on the products we make help offset the efficiency loss. But it's mainly driven due to the price Increases input costs that we have to take.

Mark Smith: Okay. And last one for me. Just Eric, you know, any additional insight in kind of your comfort level with Revelyst, current inventory? You know, is there still, you know, some work that needs to be done on cleaning stuff up here as we look at Q4 do you feel, pretty confident with where you're at today?

Eric C. Nyman: Sure. Well, I'm very proud of the teams, Mark, with regards to the progress that we've made on inventory. You know, we're down both year over year and sequentially. There's always work to do. I think there's still some pockets that we want to improve upon. But I'd say overall, we feel much more comfortable with where we are in inventory today than where we were coming out of the second quarter.

Mark Smith: Perfect. Thank you, guys.

Operator: Our next question comes from Jim Chartier of Monness, Crespi & Hardt.

Jim Chartier: Good morning. Thanks for taking my questions. First, can you talk about POS trends in the quarter for both brands, how that compared to last quarter? And then what's kind of the visibility into the timing of when we get the flat POS, for both businesses?

Eric C. Nyman: Sure. Good morning, Jim. I'll I guess, when you say both, I'm guessing you want both Revelyst and Kinetic. Is that correct?

Jim Chartier: Yes. Okay. Well, so I'll start, Jim, and then I'll turn it over to Jason if that works for you. With regards to our segments, and that's probably the easiest way to talk at a higher level. On the precision sports side, we talked about Golf already, but we saw that business from a POS standpoint being fairly flat, really good momentum on the direct-to-consumer side, offset a little bit by some specialty. With regards to Adventure Sport, I'd say the same headlines would be there as well. It is pretty flat for the quarter. We saw some good momentum again on the D2C side and mass, versus offset by some, you know, some small headwinds at specialty. And we already talked there about, you know, a small pocket of that being snow, really being the most challenged on that side of the business. With regards to outdoor performance our last business that was flat to slightly down for the quarter. Most of those brands are in what used to be called the Hunt Shoot portfolio and we're continuing to work through that.

Jason R. Vanderbrink: Jim, on the Kinetic side, we referenced this we had about a 6-week surge in the Q3 October, November and that really helped the channel partners out to clear out some inventory and since then, in POS has been flattish. I mean, there's some weeks that it's up single digits and there's some weeks that it's down single digits. But I think it's the market is showing normalization right now. And as we head into calendar year 2024, we fully expect the big American made brands to take market share from the smaller vendors. And I think that will help our POS out in particular.

Jim Chartier: Great. Thank you. And then, I believe you said Kinetic EBITDA margin toward the low end of the range for this year.

Jason R. Vanderbrink: What's driving that? We expect the EBITDA at the high end of the range was in our - was in our……

Jim Chartier: I'm sorry. For Revelyst EBITDA at the low end of the range. Sorry about that.

Eric C. Nyman: So the Revelyst EBITDA margins go in to the low end of the range, so a few items that we look at the returns that we're expecting in Q4. We're still going up to high single digits on the EBITDA level. It just what it is and it isn't going to quite get to it would have to be into the double digits. And we're based on what we're seeing for the promotion retraction, based on what we're seeing with the inventory levels at retailers, what we're seeing to move through, It isn't going to quite get to the higher end of the range at this point in time, but we are expecting to see significant improvement over what we saw in Q3.

Jim Chartier: Okay. And then in terms of sales growth for Revelyst in fourth quarter, do you expect POS is positive in fourth quarter?

Eric C. Nyman: So I think in different categories, it's going to be different. So as we talked about with Golf, new products will drive favorable POS as these products are getting new innovations, we expect those to sell through in a good way for those businesses. If we look at some of the other businesses our Action Sports business, this is going to be more kind of the flat to POS. What we're seeing is as the inventories are getting healthier our retailers are starting to put in more purchases. We're seeing preorders in that category at rates that weren't there last year. So we have better preorders. So we are seeing the signs that they're going to have purchased, and then that'll just be a little bit more in line with the POS that we're expecting. So not a significant Bumped in the POS.

Jim Chartier: Great. Thank you.

Operator: Thank you. Our next question comes from Rommel Dionisio of Aegis Capital.

Rommel Dionisio: Good morning. Thank you. You guys had referenced unfavorable mix on the Revelyst side for was impacting Q3 gross margins. I wonder if you could just provide a little more granularity on that. Was that more, you know, the shift away from, Action Sports or is it just across the board and across categories consumers in a difficult economy kind of shifting to lower price point, lower gross margin items? Thanks.

Eric C. Nyman: Yes. So it's actually a mix of both those items. So we did see both some of what was returning from a Sales perspective, in the quarter, it was a little bit more of our more mass type channels and the products that sell in our mass channels. Those are historically, a little bit lower margin. Our specialty channels are higher priced helmets and snow and helmets and those items are a little bit higher margin typically, so those did see a transition away as we saw a few of the fewer of those selling than what we had previously seen. So we did see that mix shifting a little bit in the channel and within the product categories that drove that.

Operator: Thank you. [Operator Closing Remarks].

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