Vista Outdoor Inc (VSTO) 2015 Q4 法說會逐字稿

Good day, everyone. Welcome to this Vista Outdoor fourth-quarter FY15 earnings call. Today's call is being recorded. At this time I'd like to turn the call over to Mr. Michael Pici, Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good morning and thank you for joining us for our fourth-quarter FY15 earnings call. With me this morning are Mark DeYoung, Vista Outdoor Chairman and Chief Executive Officer, and Stephen Nolan, Senior Vice President and Chief Financial Officer.

Before we begin I'd like to remind everyone that during today's call we will be making several forward-looking statements and we make these statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements reflect our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to the risks and uncertainties that face Vista Outdoor and the industries in which we operate. We encourage you to review today's press release and Vista Outdoor's SEC filings for more information on these risk factors and uncertainties.

Please also note that we have posted presentation materials on our website at Vistaoutdoor.com which supplement our comments this morning and include a reconciliation of non-GAAP financial measures. With that said, I'll turn the call over to you, Mark.

Okay. All right, thank you, Mike. Appreciate it. Good morning, everyone. Thanks for joining Vista Outdoor on our first earnings call this morning. We're going to discuss our performance for FY15, as Mike mentioned, and our fourth quarter, as well as provide an outlook on how we see FY16 shaping up.

As you know, on February 9 we spun off the ATK sporting group business and created Vista Outdoor. We also successfully merged ATK's aerospace and defense groups with Oracle Sciences, and we created a new Company which you know as Orbital ATK. Both companies are now fully aligned into their proper markets. They sound leadership teams, strong organic capabilities.

Vista Outdoor is a company with a skilled employee base. As you know, we have a broad portfolio of leading brands and a very seasoned and dedicated leadership team. We're committed and passionate about our mission to bring the world outside.

We've achieved numerous significant milestones in the past few months related to establishing a new standalone entity. We've attracted new talent. We've set a foundation for a strong and growing company with dynamic marketing strategies, innovative new products, and a strong value proposition for our customers.

Our financial results reflect solid performance in the midst of an ongoing correction in the shooting sports market. And they include investments and costs associated with creating the new Company. We delivered outstanding performance in our safety and environmental metrics. And our employees are motivated and focused on our business, providing great products for our customers and delivering long-term value for our shareholders.

I'm confident we've built the strongest leadership team in the outdoor industry. And we rounded out our new corporate leadership team with two very respected and capable executives from the consumer products industry in the last quarter.

Steve Clark has deep experience in human resources. He recently joined us from Heinz where he served as the company's Chief Human Resource Officer. He's responsible for developing our compensation and benefit plans, our HR systems, our talent development programs.

Steve is working toward the eventual migration away from the transition services agreement that we have in place with Orbital ATK. And he's also very focused on making Vista Outdoor a top-performing company in terms of talent development, creating a rewarding place to work, and giving us a competitive advantage through a skilled and motivated workforce.

We also brought Brett Merrell onto the team. He recently joined us to help lead our marketing efforts. He brings 25 years of extensive marketing and branding experience in consumer-branded products. Brett has worked in marketing and management for both manufactures and retailers.

Prior to joining Vista Outdoor, Brett was with Giant Eagle, and has also worked for Gerber, Sargento Foods, and Proctor and Gamble. So, a great background in classic marketing. Brett is working to implement new strategies and approaches that will improve the effectiveness of our branding and marketing efforts.

We're better aligning our resources and priorities to drive increased brand awareness and create a compelling marketing model for our portfolio of products and brands. In addition, I've asked Brett to work with our business segments to develop new and exciting products. Innovation and new products are the life blood of our business and we recently unveiled some very exciting new offerings, which I will talk about in a moment.

On the fourth quarter, which is typically show season for us, many of our retailers and wholesalers host their annual shows. And in the past quarter we launched over three dozen unique new products and over 600 new SKUs, setting the stage for future growth and leadership. Our recent introduction of several revolutionary new product innovations has led to strong orders for these new products.

In particular, the Bushnell Golf Tour X laser rangefinder, the Savage A17 semiautomatic rifle, and our advanced federal premium third-degree ammunition have really set Vista apart from our competition. These innovative new products offer unprecedented performance and real value for our customers and for the end consumers.

During several golf-related shows and other trade shows, such as the Archery Trade Association, the Shot Show, the NRA convention and others, we received numerous industry recognition awards, and I'd just like to share a few of those with you this morning. Our highly regarded Bushnell Golf Tour X laser rangefinder was listed as a top product in magazines like Men's Journal and Golf Digest. Outdoor Life awarded us the Great Buy Award for Bushnell's newly launched Legend binoculars.

We earned Company of the Year from NSSF and SHOT Business at the Shot Show. NRA awarded us Golden Bullseye awards for optic of the year and ammunition product of the year. And we received several reader's choice awards for our rangefinders, our binoculars, our rifle scopes, game calls, reloading components, holsters, gun care and gun cleaning kits, to name just a few categories.

Many of these new products come from Bushnell portfolio which we purchased in 2013. The integration of Bushnell is nearly complete. And while there's always room to pursue additional efficiencies, and we will always focus on continuous improvement, we've made great progress in strengthening the talent and sharpening the focus of Bushnell. We are very focused on developing innovative new products, strengthening our brands, and creating a sustainable competitive advantage across our entire enterprise.

We've now entered our first year as a new company. As I mentioned earlier, we are operating under a transition services agreement with Orbital ATK while we work to stand up our own human resource system and programs and our IT capabilities. This transition requires additional investment to establish our own systems while we are still paying for transition support from Orbital ATK, but we are making great progress and we expect to be largely self-sufficient by the end of this calendar year, in line with our planning.

Vista Outdoor is committed to creating value for our shareholders through a balanced capital deployment strategy. As you know, shortly after the spin our Board of Directors approved a $200 million share repurchase program. Stephen will give you some updates on that program. We also generated long-term value through wise investments and CapEx and robust R&D and product development, and in our marketing, sales and IT capabilities to insure a solid foundation for future growth and for our performance.

As part of our continuous improvement initiatives we've taken action to further maximize efficiencies through consolidating our Blackhawk warehouse and distribution facilities in Virginia and Idaho. This facility rationalization strategy will reduce shipping distances and times to customers and allow us to use our automated capabilities to bundle orders and improve our deliveries. We are positioned to capture organic growth and additional market share when the shooting sports market recovers and returns to a more normal growth profile.

In addition, we have a strategy in place to create value through strategic M&A. Over the past few months, we have further matured our M&A pipeline and identified several potential candidates for acquisition that support our vision for growth in the individual outdoor recreation market. This is a large market with many opportunities to create leadership positions and value, with assets that will benefit from our knowledge of outdoor-oriented customers, our sales and distribution expertise, our outstanding leadership team, and our broad product portfolio. We remain committed to executing portfolio shaping and pursuing these growth plans.

As we discussed on our pre-spin road show, in the near term we face some tough comp quarters. In the first half of FY15, the demand for.223 and 5.56 ammunition was very robust and drove significant upside in sales and margins, particularly in this current first quarter. Also, as the shooting sports market softened, we were impacted later than many other companies in this space who have already faced some tough comp quarters.

We began to experience these market impacts in the back half of last year's FY15, impacting period-over-period results for the full year and our fourth quarter, and we expect this impact in period-to-period results this quarter. We then expect to see improvements later this fiscal year, allowing us to deliver some growth in our first full year.

Overall, FY15 was a solid year in a dynamic and changing marketplace for Vista Outdoor. We are excited about the future of the Company and committed to executing our growth strategy, making Vista Outdoor a premier company in outdoor recreation, and delivering long-term shareholder value. We are confident that we have the people, the processes, resources, products and brands to deliver on this vision and strategy.

As many of you know, Stephen Nolan is our Chief Financial Officer. Stephen previously served with me as Senior Vice President of Strategy and Business Development for ATK. He was instrumental in the acquisition of Savage and Bushnell, as well as serving in a leadership capacity on the recent transaction. I'm confident in his financial acumen and his strategic capabilities.

Stephen is now going to provide you with some additional insight into the financial results for our quarter and full-year FY15, and he will also provide some updates on outlooks for 2016. Stephen?

Thank you, Mark. Good morning, everyone, and thank you for joining our first earnings call for Vista Outdoor. To assist in your understanding of the underlying numbers, we've disclosed both as reported and adjusted results in our press release. As Mark mentioned we've also posted a more detailed financial presentation of our full-year FY15 and fourth-quarter performance on our website. I will provide details and drivers when I talk about segment results but first I will discuss the overall Vista Outdoor level.

The Company achieved full-year sales of $2.08 billion, up 11% from the prior year. On a pro forma organic basis, sales were down 9% from sales of $2.28 billion in the prior year, which was calculated by combining prior year results with the standalone results of Bushnell and Savage prior to our acquisition of those businesses. This is in line with our previously communicated expectation for organic decline resulting from the shooting sports market correction.

For the fourth quarter we recorded sales of $485 million, down 14% from the prior-year quarter. Full-year gross profit was $529 million compared to $467 million in the prior year, and our fourth-quarter gross profit of $123 million compared to $157 million in the prior-year period.

Full-year operating profit was $184 million compared to $234 million in the prior year. Our full-year adjusted operating profit was $262 million compared to $269 million in the prior year. The full-year adjusted operating profit excludes a third quarter goodwill trade name impairment charge associated with the Savage acquisition, spinoff transaction costs, current-year Bushnell transition costs, prior-year inventory step up for both Savage and Bushnell, and prior-year Bushnell transaction and transition costs.

In the fourth quarter, we reported operating profit of $39 million, an approximately $47 million or 55% decrease from the prior-year period. Excluding the spinoff transaction costs and transition costs and prior-year inventory step up and transition costs, adjusted operating profit was approximately $51 million compared to $96 million in the fourth quarter of FY14. This decrease was primarily driven by the reduced gross profit and also reflects standalone Company costs, including stock-based compensation.

For the full year, we recorded net income of $80 million, down 40% from $133 million in the prior year, resulting in EPS of $1.25 compared to $2.09 in the prior year. Adjusted net income for the full year was $150 million compared to $158 million in the prior year, resulting in adjusted EPS of $2.35, down from $2.47 in the prior year.

Vista Outdoor's operating expenses for the full year, which include all of our general overhead, both at corporate and within our segments, were $345 million compared to $233 million in the prior year. Operating expenses increased by approximately $111 million primarily due to a full year of SG&A costs for Bushnell, a $52 million goodwill trade name impairment charge taken in the third quarter, and approximately $26 million of transaction and transition costs in the current year compared to $20 million of transaction and transition costs in the prior year.

Our operating expenses for the quarter were $84 million compared to $71 million in the prior-year quarter. The $13 million increase was primarily due to $12 million of transaction and transition costs in the current period compared to $5 million of transition costs in the prior-year period.

The tax rate for the year was 48.4% compared to 39% in FY14, reflecting non-deductibility of the goodwill impairment and transaction-related costs. The adjusted tax rate for the year, excluding the goodwill trade name impairment charge, inventory step up and corporate and Bushnell transaction costs, was 35.4% compared to 37.9% in the prior year.

The tax rate for the quarter was 53.1% compared to 38.5% in the prior-year quarter. The higher tax rate is due primarily to non-deductibility of transaction-related costs. The adjusted tax rate for the quarter, excluding inventory step up, transaction and transition costs, was 35.4% compared to 38.3% in the prior period.

The Company's financial statements for FY15 include approximately $29 million of interest allocated to Vista Outdoor from ATK prior to the spinoff. Subsequent to the spinoff the Company has $350 million of debt at an interest rate of LIBOR plus 1.75%.

Net income in the fourth quarter was $16 million, down 67% from the prior-year quarter, resulting in fully diluted earnings per share of $0.25 compared to $0.75 in the prior-year period. Adjusted fourth-quarter EPS was $0.47 compared to $0.85 in the prior year.

As Mark mentioned during the fourth quarter our Board of Directors authorized a $200 million share repurchase program. Subsequent to that, the Company repurchased 160,000 shares or $6.9 million in the fourth quarter. In addition, during the first quarter to date, we have repurchased a further 288,000 shares for $12.7 million.

The share repurchase program affirms our commitment to return value to our shareholders through a balanced capital deployment strategy. We are pleased to be able to execute this program due to flexibility within our balance sheet, and we will continue to opportunistically repurchase shares.

Now turning to our business segments where we report both sales and gross profit, for the full year, in shooting sports, we recorded sales of $1.35 billion, down 5% from the prior year. On a pro forma organic basis sales in the prior year were $1.48 billion, which was calculated by combining the prior-year results of the shooting sports segment with the standalone results of Savage for the pre-acquisition period. This 8% pro forma organic sales decline was largely due to the reduced volume of.223/5.56 ammunition, which is primarily sourced from Orbital ATK, plus lower sales in firearms, reloading and primers. The decline was partially offset by higher pistol, rim fire and other center fire ammunition sales.

Shooting sports recorded fourth-quarter sales of $314 million, down 17% from $378 million in the prior-year quarter. This decrease was primarily caused by reduced volume of the.223/5.56 ammunition as well as of reloading primers and firearms. All of these impacts were caused by the market correction in shooting sports which we have referenced previously.

For the full year, gross profit was $331 million, down 14% from the prior year. Fourth-quarter gross profit in shooting sports was $77 million, down 33% from the prior-year quarter. The decrease in both the full year and the quarter was a result of the previously noted reduction in sales, as well as a mid calendar 2014 price reduction and targeted promotional activity on our.223/5.56 ammunition.

Now, turning to our outdoor products segment, full-year sales were $730 million, a 62% increase from $451 million in the prior year. On a pro forma organic basis, sales in the prior year were $806 million, which was calculated by combining the results of the outdoor product segment with the standalone results of Bushnell for the pre-acquisition period. This 9% pro forma organic sales decline was primarily due to the impact of the market correction in shooting sports which affected certain outdoor accessories in our portfolio.

Fourth-quarter sales in outdoor products were $172 million, down 9% from $188 million in the prior-year quarter. Outdoor products gross profit for the full year was $200 million, a 139% increase from $84 million in the prior year. The increase in gross profit was due to a full year of Bushnell results plus operational improvements.

Gross profit in the fourth quarter for outdoor products was $47 million, an increase of 18% from $40 million in the prior-year quarter. The increase was due to restructuring activity and inventory charges primarily within our military and tactical related products that occurred in the prior year, plus increased operational efficiencies in the current year.

Looking forward we have established FY16 financial guidance for our existing business. We expect FY16 sales in a range of $2.05 billion to $2.11 billion and EPS in a range of $2 to $2.20 per share. Additionally, we expect capital expenditures of approximately $40 million and free cash flow in a range of $150 million to $175 million. The effective tax rate for the year is expected to be approximately 38%.

We expect to see continued market pressures during the first half of the year as a continuation of the ongoing shooting sports market correction. We expect that these pressures will manifest themselves in our results in two ways.

First, we previously experienced a particularly large growth in demand for.223/5.56 ammunition that peaked in the first half of FY15. We were able to respond to this market demand resulting in elevated revenue for that period. With the market demand for these products having returned to lower levels, our revenue for the first quarter and, to a lesser extent, the second quarter of FY16 will compare unfavorably to the level delivered in FY15.

Second, the lower revenue levels resulting from the reduced demand for this ammunition and other products will result in lower gross profit and therefore depressed operating margins in the first two quarters of FY16. We expect that both of these effects will be reversed later in FY16 when we expect to see return to revenue growth and a recovery in operating margins.

We also plan to execute the facility rationalization plan that Mark previously mentioned, affecting our Meridian, Idaho footprint which is associated with our Blackhawk brand. By closing this facility and moving distribution and packaging capabilities to our Kansas and Mississippi locations, we will simplify our structure and processes into singular common systems to add scale, efficiency, and profitability. We plan to close the Meridian facility by the end of June and we will record most of the estimated $2 million expense in the first quarter.

We do expect to invest approximately $2 million to $3 million of additional R&D in support of new product innovation efforts. As Mark mentioned, we were also using the first year to make additional investments to create a foundation for future growth and to return long-term value to our shareholders. We expect some dilution to our margins as we make those investments this year.

Additionally, our guidance includes some expected headwinds to both revenue and operating margins from the ongoing strength of the US dollar. Overall for the full fiscal year, we expect to deliver low single-digit revenue growth with low double-digit margins. We expect EBITDA margins to be at the lower end of the previously disclosed 14% to 16% range.

As I mentioned before, we expect to continue to opportunistically repurchase shares while driving our organic and acquired growth strategy. We expect to deliver a solid year in FY16 and I look forward to updating you on our progress after the first quarter.

With that, we will open it up for questions.

(Operator Instructions)

Our first question comes from Greg Konrad with Jefferies.

Good morning. I just wanted to start with free cash flow. When I look at the guidance for the year, it looks like conversion is quite a bit above 100%. How should we view the working capital needs of the business? And is that a level of free cash flow conversion that we could expect going forward?

Thanks, Greg. This is Stephen. As we look, you are correct in your assessment that free cash flow conversion is quite strong in our FY16 guidance, in excess of 100%, as you've calculated.

As we look at our working capital needs for this business, you see a couple of trends. Right now at the end of FY15, our inventory levels are particularly low. We do expect those to grow in the future. A number of factors contributed to the low level at the end of FY15, much of which will be reversed the later in FY16.

Also, our receivables are at a historically high level relative to the last couple of years. Traditionally, as we've disclosed before, in this business, we do offer some extended payable terms to our customers. In the last 12 to 24 months, we've been able to reduce the impact of those terms on our overall working capital due to the overall strength of that market.

We're now returning to more normal levels in terms of the payment terms we offer our customers, and therefore you see a somewhat higher receivable balance on our balance sheet. We expect that higher receivable balance to continue for the foreseeable future, roughly in line with the level you see today. All of those assumptions have been embedded in our assumptions for our guidance in FY16.

In summary, as we look at our free cash flow conversion going forward, the high level you'll see in FY16 is likely to be repeated in future years in line with the guidance we've previously provided for a strong cash flow generating business.

Thank you. And just as a follow-up, you're ending the year with a very strong balance sheet and healthy free cash flow for the year. What is the right level of cash to run the business? And how do you expect to balance share repurchase, which it seems like you got off to a pretty strong start with, and M&A as we go forward?

Yes, as I think Mark has communicated before, certainly as we did our road show following the spin and our materials we released in conjunction with the spinoff, we have a balanced capital deployment strategy. M&A is clearly a priority within our capital deployment strategy and we do expect to emphasize that as we go forward.

That said, due to the strong cash generation ability of the business plus, as you mentioned, the very strong balance sheet we have today, we think we will be able to both execute our M&A strategy and deploy capital in a return to shareholders under our share repurchase. So we expect to be able to complete both as we go forward.

The level of repurchase activity will depend from time to time on our available cash. Plus, we will opportunistically repurchase shares based on our prevailing share price. So, that won't necessarily be a steady level throughout the year. It will vary based on those factors.

In terms of the cash required to generate the business we clearly today have more cash on hand than we need to operate the business. While we don't have a hard level, I suspect we would typically retain at least $50 million on the balance sheet at all times to provide us with a buffer should we need it, although we clearly have significant liquidity available to us also on our revolver. But as you think about modeling I'd think about $50 million might be a reasonable assumption to make for a minimum cash balance. And the remaining cash is available to us for both share repurchase and other capital deployment activities such as M&A and capital expenditures within the business.

Our next question comes from Scott Hamann with KeyBanc Capital Markets.

Hi, good morning. Just in terms of the outdoor business, if we could dive in there a little bit and look at some of the moving pieces, is there any way you could give us a little bit of help on what Bushnell looked like in the quarter? And then in terms of the rest of that segment, things that touch firearms, things that were not related to firearms, were there variances in how those performed in the quarter?

Scott, this is Mark. Let me try and do my best to help give you some insight into that without going into operating levels and sub levels below our reporting that we really don't want to have to talk about in detail because of the competitive nature of those businesses. But I'll do my best to give you some color on that.

Within outdoor products we had very strong performers. Our golf business is doing very well. Very strong growth in the golf business. The launch of our new Tour X laser rangefinder was very well received, as I mentioned in my opening comments. And the golf business in general with our electronic measuring devices -- EMDs we call them, electronic measuring devices -- is doing very well. So, that was a strong pocket for us going forward.

Our eye wear business in safety eye wear was doing quite well, as well. Our safety eye wear continued to perform very well in that space, so we are very pleased with that. The margins on that business are very attractive so we are very pleased with that.

The firearms and gun shooting sports-related part of that group did fall under some similar pressures as the broader shooting sports market. Optics, in particular, continued to see some pressure in rifle scopes, in particular, within the optics category. That continues to be a soft market.

Some of our tactical accessories were fairly soft in the quarter. That continues to be somewhat soft market related to the big run up we saw in tactical sales since 2012. So, there was some softness in that category within.

Our archery products, however, saw very good growth, as well. So, some of our game calls and archery-related rangefinders and gold tip arrows, those are performing very well and we saw growth in that space.

So, it is a bit of a mixed bag with some very nice growth components but pressure related to those products that are in the shooting sports market.

Okay, understood. And then just a follow-up on the competitive landscape within shooting sports. Can you just touch on what you're seeing in terms of channel inventory levels in some of those larger segments, and then, specifically, how pricing is playing out? Are people becoming more promotional and what's your strategy on that?

Sure, okay, Scott. Let's start with the back half of that one and talk a little bit about pricing and what's happening in terms of promotion. We are seeing some increase in promotional activity. As you listen to the earnings calls of some of our key customers in the retail sector, retail has been very flat. So, the retail market in general has failed to respond.

You can tie that back to macro-economics and the economy. But as you listen to those retailers retail has not fully recovered nor has year-over-year store sales been robust. So, of course, that does impact our business as we sell into those key retailers.

Inventory levels in terms of our products in inventory are in very good shape. Stephen mentioned our inventory levels in our business are down. We've been focused on making sure we have appropriate inventory levels to be responsive and to have good fill rates to our customers, but at the same time not tie up anymore cash than we feel that we need to. In some cases our inventory levels may be a bit low, as Stephen mentioned, and we may need to bolster some inventory to make sure we have availability as the market begins to respond. So, from an inventory perspective, both in the channel and the Company, we do not have any significant concerns with our products and brands from that perspective.

From a pricing perspective we did disclose that we had done a pricing reduction last July associated with 5.56/.223 ammunition. We have not been doing any other significant price reductions. We've been working with vendors and promotions. We have been working on co-op advertising and other ways to promote our products without having to do price decreases.

And we have not seen substantial price decreases from competitors. We see more promotional activity such as rebates being offered on products, advertising being increased on products, specialty items being produced and sold at some value pricing. But in general pricing, I think, remains fairly stable and we are not making any significant or wholesale price declines.

Our next question comes from [Brian Ruttenberg] with Stern Agee.

Yes, thank you very much. I have a question on SG&A. Can you talk about SG&A levels with and without charges this year? And then my second question is about shares outstanding, what your assumption is on the year, because you gave an EPS range, and want to know what the assumption is for the number of shares outstanding.

Brian, this is Stephen. Just one clarifying question. When you talk about SG&A this year are you talking about FY15 or FY16?

I apologize, FY16, I'm trying to understand that level.

Sure, thank you. Appreciate the question. As we look at our SG&A levels, our SG&A investments -- so, as we separate the investment areas that Mark and I both spoke about in our discussion where we talked about additional investments in IT, in marketing and other areas, those investments in FY16 will contribute roughly $10 million to SG&A. We have not disclosed and are not disclosing the actual total SG&A number for FY16, although you're free to infer what it is from our guidance and looking at FY15. I'm sure you can get reasonably close. But the impact of those investments about $10 million on the SG&A side.

Just add some more color to that -- and I appreciate Stephen's comments in giving you the number -- so you have a feel for what those additional investments are in that $10 million range, we are implementing a new ERP system in our shooting sports segment. That is maturing and we've implemented that system now and are working through the post 120-day period after you launch a new ERP system. That is going to allow us to have much better inventory control, it's going to allow us to have much better order pick capability, it's going to allow us to get much better data in realtime in terms of what we have in production, what we have in the warehouse, what we have in finished goods and where we are with our customers.

So, we're excited, frankly, about these investments we're making because we can see they are going to create a competitive advantage and long-term value. And we thought it was best to address these issues right out of the chute with these investments and position this as a new company with the resources it needs and with the systems that it needs. So, that is what we are doing there and I, with Stephen, and comfortable with that level of investment. We think it's the absolute right thing to do in the first year of the new Company so we'll benefit from those investments going forward.

In terms of your question about our share count guidance, we are not releasing explicit guidance on share count. However, we have provided previously, and as part of this, some insight into our equity-based compensation, so you should be able to infer how many additional shares we are issuing. In addition, we are projecting some continuation of the share repurchase program under the $200 million authorization, as we disclosed previously.

Our next question comes from John O'Neill with Imperial Capital.

Good morning, everyone. Adjusted EBITDA was a metric that you referred to several times in your road show that I didn't notice in the release. Could you give us the D&A in the quarter? And also the stock comp charges, were those in the quarter as well or were those more a FY16 item?

Sure, thank you. Yes, we have tried to simplify our presentation of numbers as we put together this earnings release. So, there are some things we previously disclosed that we don't have in here. However, if you look at our cash flow statement, you can get a reasonable sense.

Our annual depreciation and amortization in FY15 was $66.5 million. A large portion of that, as we've previously discussed, is a result of the Bushnell and Savage acquisitions. But it's slightly more heavily skewed towards the fourth quarter as a result of the fact that we acquired -- I'm sorry, in FY15 it's fairly equal across all four quarters, apologies there.

And overall in terms of adjustments to EBIT, we have provided in the web slides that accompany our press release the non-GAAP reconciliation tables where you can look at that for the various adjustments to EBIT, which should provide you most of the insights you're looking for. But the stock-based comp and D&A is fairly visible in our cash flow statement, both in our earnings release and in those web slides.

Got you. And then just to follow-up on your comment about operating margins improving in the second half of this year, are you referring to improving on a year-over-year basis or just sequentially?

Sequentially within the year.

Our next question comes from Gautam Khanna with Cowen and Company.

Thank you and good morning. Mark, maybe back in the ATK sporting days you guys were kind enough to give us color on backlog dynamics, order metrics, and the like, and I just wondered if you could comment on what you're seeing in terms of orders, where demand in the shooting sports area is still strong, perhaps by ammo type, and just if you could opine on channel inventories -- not your inventories but that of your retail customers, how that's shaping up. And then I have a follow-up.

Okay, sure, Gautam. Let me do the best I can. We're not going to disclose backlog numbers or back order numbers. And those are two very different things, as you know, in a consumer products business. Backlog is an A&D term, which is common, and back order is a bad thing for us because it means uncaptured sales. But let me talk a little bit about that.

What we have done is we have looked at our back order and backlog position. We are still in that position, by the way. We still have a fairly substantial back order position for ammunition in particular where we are still trying to catch up and deliver to demand. Our order demand generally remains quite strong across most ammunition categories.

9 millimeter and.380 pistol ammunition is still quite hot. There is some inventory build occurring in.40 and.45, so some stability is occurring there at retail and in wholesale distribution. Shot shell, there's a strong demand, surprisingly strong demand, for Promo, double loads and target type shot shell demand is good.

The rim fire market remains very strong. As many of you know, we've invested a lot of money in rim fire, millions of dollars year over year for about the last three or four years in expanding capacity. That is a very strong order environment still, and it's very difficult to find rim fire ammunition in inventory at wholesale or retail levels. So, we continue to produce record volumes of rim fire and we are selling all we can make.

Center fire inventories remain fairly low at retail although there is some stability returning following the hunt season and the winter season. Softness in 5.56 and.223 continues. This is a big impact. You heard Stephen mention it several times. The year-over-year impact and quarter-over-quarter impact from what was a very robust center fire 5.56/.223 market has incredibly softened into this year at much lower rates. So, that is our single significant biggest driver in ammunition volumes and in our sales and margins, is significant softening in 5.56 and.223.

Hopefully, Gautam, that will give you some insight into where we're are backlog, back order and what we see with inventories and demand.

That's helpful. And, Mark, you've talked a lot about the acquisition opportunity. I wondered if you could comment on where your areas of focus really are. There's some rumors that Winchester might be available. Bolstering the ammo portfolio is something that you're keen to do. Just if you could give us some flavor for what you're actually looking at.

Sure. We have built out a very robust pipeline. I would call it a very robust pipeline with numerous potential targets now, that we believe is consistent with our strategy to grow an individual outdoor recreation and create additional leadership positions. We have a very broad lens.

As we mentioned on the road show, this is a big market, over $63 billion, lots of participants, very good demographics, good growth rates. We are finding lots of targets of opportunity and we're working through those processes. I obviously can't comment on specific targets or where we are in that processes other than I am very optimistic, and we are all very optimistic that that pipeline is filling with very attractive candidates. And we will continue to focus on that as one of our key priorities going forward.

We are in the hopper with everything from camping to water sports. There is some opportunity for adjacency in shooting sports markets. You particularly mentioned Winchester. We have watched the developments with Olin around what they have been doing on their chemical side and their recent announcements that they have made.

We have said in the past, and I think we reiterated it on the road show, that we will continue to look at opportunities to strengthen our core in shooting sports with firearms or ammunition or accessories that make sense to us. But we are also very focused on portfolio reshaping and, again, focusing on this individual outdoor recreation opportunity that we see.

We will keep you posted on developments there as we drive through this pipeline. And as we make progress we'll report that progress to you as soon as we can. But I remain very bullish, very optimistic and 100% committed to our portfolio shaping and driving this individual outdoor recreation leadership strategy.

Our next question comes from Jim Chartier with Monness, Crespi, and Hardt.

Thanks for taking my question. Can you talk about the Bushnell pipeline, how you feel about it today versus a year ago? And when do you start shipping the new products that you showed at the trade shows?

I appreciate you asking that question because about a year ago I mentioned specifically that I was concerned about innovation in the Bushnell product line, and that I was concerned that there had been a lapse in creativity and innovative solutions coming out of Bushnell that we would be able to take to market. We're about a year past that and I'm very pleased, actually, with what I see from our work with the Bushnell team.

Some of the innovations they have brought forward in golf -- rangefinder, for example -- is really state-of-the-art. It's setting a new bar for golfers to be able to have the kind of technology that we're providing in the Tour X with JOLT and pinseeker capabilities. It's being very well received and elevating the Bushnell brand in the golf sector. So, we're very pleased with that.

I think the Legend binocular relaunch which we did, I mentioned earlier we received recognitions and awards for optics of the year with Bushnell Legend series binoculars. I'm very pleased with what we've done there.

In our elite rifle scopes we've really raised the bar this year and reintroduced in our elite line three different series of scopes that have terrific optics, great technology, really providing a performance solution to shooters who are looking for a higher end rifle scope. So, I think that has gone very well.

In the archery segment coming out of Bushnell are gold tip arrows. We did a complete refresh of our packaging at retail and our branding of that product and we're seeing good growth and response in our arrow and archery business. We also introduced a new archery rangefinder under the Bushnell brand that is called ClearShot technology. It gives the archer an opportunity to look at the trajectory of his arrow and look for any obstacles that might be in the way such as tree limbs or things like that. It's a new approach which has not been provided before so we're excited about that.

In trail cameras we're introducing new innovative solutions, higher shutter speeds, higher megapixels in our trail cameras. So, we're excited about some of the technology we've been able to bring to the market there.

And, frankly, I think we could go on and on so I probably better not. But I'm really pleased with what I would call the resurrection of innovation within Bushnell. And our efforts there and the work of that team and those people is really beginning to pay off. I think we've turned the corner on that. We are making investments in both people and resources and engineering there, and that's beginning to generate the kinds of products we will need to establish these leadership positions and drive growth in the future.

Great. Could you talk about imported ammunition? In the past you've talked about imports ceding some shares as demand normalizes. How does the impact of the stronger dollar impact that dynamic now maybe versus historically?

Let's start with some general comments in terms of what's happening with volumes maybe. If you look at imported ammunition, it is significantly down. It is down, frankly, about two to three times more than some of the softening numbers you've seen reported in the sector from companies who are domestically based ammunition providers. So, significant impact in reductions in import ammunition.

As we predicted and as you mentioned, we had mentioned previously, that oftentimes import ammunition is strong when it can fill a void of domestic capacity, and then it is weak when domestic capacity can catch up and fill demand. And that's exactly how we're seeing that play out this year, with significant impacts in reductions to import ammunition beyond the domestic providers' reductions due to the softening market. So, that's playing out as we had predicted.

That is going to create an environment, I believe, at retail where domestic manufactures with premium brand equity offerings, like Vista Outdoor, will be able to capture that shelf space back which was given to or allotted to allocated to imports when demand far outpaced supply. We are positioned within Vista Outdoor to take that shelf space back and capture that opportunity at retail to be able to have more products available to shoppers.

I think in terms of the dollar, that's an always changing environment with ups and downs, and at times it favors imports, and at times it doesn't. I think that is overwhelmed today. I think that whole trade in terms of currency exchange is overwhelmed today by the other market dynamics that are going on in terms of supply and demand and consumer preference for domestic ammunition products.

And certainly as we look at the last few quarters at import ammunition data where they're down significantly, that was at a time when there was a particularly strong dollar. So, it does not appear, as Mark has suggested, it is having any significant impact on the shift towards imports.

Our next question comes from Chuck Cerankosky with North Coast Research.

Good morning, everyone. Could you talk please a little bit about what you're seeing in the recovery of shooting sports? Is it going to be more of cycling the softer numbers against the strong numbers as this year goes on, or do you see some particular changes that are positively affecting demand for firearms and ammunition?

I want to make sure I understand the first part of your question, Chuck. I'm not sure I understand exactly whether you were asking about how we think year over year will play out in the back half of the year. Can you just restate that for me?

Sorry about that. Really, we were talking about the back half of your FY16, are you thinking it gets better primarily because you're cycling against soft numbers or do you see some dynamics in the marketplace for firearms and ammunition moving in a positive direction?

Okay, all right, thank you. I do believe and we believe, and of course this is difficult because we do not have a crystal ball, we wish we did, so we see things vaguely and we try and get as much information as we can of trends that are occurring. We watch very carefully many of the same things I know you may watch, which is NICS checks. And we listen to what the retailers are saying because as goes retail, as goes manufactures. So, we're very in tune to that.

I think if you listened and consider all of those things you're seeing relatively stable firearm demand in the NICS checks numbers. These have been actually quite high levels and yet they were very stable numbers in the last several months. Handguns continues to lead in terms of consumer demand and NICS checks.

Long guns where were participate with Savage has been much softer. We think that there will be stability returning to long guns toward the back half of the year. As you may recall back in July under ATK, we announced we've done a reduction in force at Savage and reduced our production. We are ramping back up because order demand is beginning to return, so we're beginning to see a slight ramp back up into Savage. So, we think that's a good leading indicator from an order perspective that wholesalers and retailers are beginning to see increased demand for our brands and products. So, I think there's some recovery beginning there.

In terms of ammunition, our FY16 guidance and plan assumes that we will continue to manufacture a robust level of ammunition, that we will continue to run our factories at high production levels. We are banking on that and we believe that that is the case. As I mentioned to date, with the exception of a few calibers such as .40 or .45 or some center fire rifle ammunition or premium shot shell, the rest of the ammunition market remains fairly robust. And order volumes for our products at least, our brands, remains fairly stable, so we see that as a good sign. All of that, we believe, is going to lead to our ability to see some additional growth in this first fiscal year of Vista Outdoor over the prior year.

Thank you very much.

At this time I'll turn the conference back to management for any additional or closing remarks.

Okay, thank you all very much. We appreciate you joining us for our first call and appreciate the quality of the questions. Appreciate your support for the Company. And we look forward to talking with you again next quarter. Thank you very much.

This concludes today's conference. Thank you for your participation.