Vista Outdoor Inc (VSTO) 2018 Q3 法說會逐字稿

Good day, and welcome to the Vista Outdoor's Q3 Fiscal Year 2018 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Michael Pici, VP of Investor Relations. Please go ahead.

Thank you. Good morning, and thank you for joining us for our third quarter fiscal year 2018 earnings call. With me this morning is Chris Metz, Vista Outdoor Chief Executive 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, Chris.

Thank you, Mike, and good morning, everyone. I appreciate you joining us on our third quarter earnings call. It's an exciting time to be at Vista Outdoor. Over the last 4 months, I've taken the opportunity to better understand the industry, make good progress on all of these areas and delivered a solid third quarter in a continuously challenging market. I'll provide more details on our results in a moment.

In our last call, I shared with you some initial observations and significant changes that needed to take place, and I believe these still hold true. To achieve our vision for Vista to be the best platform in outdoor sports and recreation, we need to nurture authentic and exciting brands that can be scaled and leveraged within our portfolio, all of this aimed at delivering shareholder returns. We said we would and we are implementing change, acting decisively and moving quickly. In order to get the company on solid financial footing for the future, we are prioritizing profit improvement through cost reduction and margin expansion as well as cash generation.

During the quarter, we focused on our organizational structure to reduce costs, drive accountability and ownership into the brands and to provide business-centered support. In the last few months, we began to streamline corporate-level functions, eliminating positions both at corporate and the businesses while focusing on improving the business operations.

As you know, last week, our CFO, Stephen Nolan, left the company. Following his departure, we have named our Vice President for FP&A, Anneliese Rodrigues, as interim Principal Financial Officer. We are fortunate that we have a strong and stable financial organization that will maintain their current roles and responsibilities and allow us the time to find the best CFO for Vista Outdoor. We've been working with a national search firm and have identified a handful of strong candidates. We are looking for a CFO with a great reputation and a demonstrated track record for driving shareholder value. I expect to fill this position relatively soon.

We've also undertaken a number of cost savings initiatives across the entire company. These initiatives are looking at selling, marketing and G&A expenses as well as manufacturing operations and vendor management. I've hired a sourcing and procurement expert that I personally worked with in the past, who will report directly to me to put a laser-like focus on margin improvement. Although we have just begun, we've identified several opportunities, and the teams are putting achievable plans in place to help us obtain our objectives. We will share more detail on this very important initiative in the future.

We are deeply engaged in developing our long-term business strategy, and I plan to share more with you on our fourth quarter earnings call. To achieve our vision, we must reposition the business where we can focus on assets that are core to our mission and strategy and divest of those that are not. Our strategic portfolio review is ongoing.

The sale process of our Bollé, Cébé and Serengeti brands within our Sports Protection business is well underway, and we received strong interest from potential buyers.

When I took the job last October, I mentioned my commitment to new product innovation. I'm pleased to report that during the winter show season, we launched several award-winning solutions into the marketplace that are resonating well with customers and end users.

In Shooting Sports, we unveiled the most innovative, new ammunition round in the long-range shooting market, Federal Premium Supersonic long-distance 224 Valkyrie. The Valkyrie is one of our best-performing organic social media marketing campaigns and has already received an incredible 776,000 video views and nearly 300,000 engagements with consumers. The product is in the stores now, and it's going to be a winner.

In Outdoor Products, Primos has revolutionized hunting with this new SurroundView Blind, giving hunters 360-degree views with a one-way, see-through wall, a real innovation and a true breakthrough. Demand for the new blind has exceeded our internal projections. And for those turkey hunters out there, they'll be pleased to know that it's on the shelf today.

Bushnell Golf debuted the hybrid at the PGA Show last month, introducing golfers to GPS capabilities within a laser rangefinder. And Giro continues to lead the market in revolutionary goggles, like the VIVID, that increase contrast and deliver better snow vision.

So if you haven't yet seen these new products, I encourage you to take a close look, talk to some folks that are selling the product, I think you'll be really impressed.

I believe great new products are the lifeblood of the industries where we compete. We are committed to delivering the most sought-after new products, enabling them to thrive in the market.

Turning to the market. We know that consumer preferences and shopping habits are evolving around e-commerce and brand authenticity. This year, we have seen disruption at retail, including consolidations and bankruptcies across the outdoor industry, ranging from large retailers to independent retailers. We are seeing closed door customers and monitoring the situation carefully.

In the Shooting Sports business, high-channel inventory and a heavy promotional environment have impacted our business since late fiscal 2017. We are now beginning to see wholesale channel inventory normalize. Typical downturns in the sporting -- in the shooting sports industry usually last 12 to 24 months. While we're not providing full year fiscal year '19 guidance, we did state in our last earnings call that we anticipate this down cycle, which you remember started in December of 2017, could last another 12 to 18 months, which will put into the back half of fiscal year 2019.

We are committed to maintaining and gaining market share with innovative, quality products and competitive prices. However, you will see a more disciplined approach to pricing and discounts as we move forward. In response to commodity pressures, we implemented an ammunition price increase in the low to mid-single digits in early January. We took this increase in categories where we believe it will be sustainable and where we believe we will remain highly competitive. As the commodity market remains volatile, we are again addressing opportunities to help offset these commodity headwinds and have announced a second price increase across certain ammunition products that will take place in April. This price increase will also be in the low to mid-single digits.

In Outdoor Products, we are monitoring helmet and goggle inventories with our dealers given the winter weather. Europe and Eastern United States have had strong snow season, while much of the Western U.S. continues to struggle. With the market conditions I just outlined as a backdrop, I'd like to take a few minutes to discuss our Q3 performance.

We have disclosed both as-reported and adjusted results in our press release to assist you in your understanding of the underlying numbers and how they compare to prior periods. You will find a more detailed financial presentation of our third quarter fiscal year '18 performance on our website. I will discuss the adjusted results, first, for Vista Outdoor overall, and then I'll provide more color on the drivers for each of the segments. Before I do, I want to take a minute to comment on the continued commitment to reduce our debt given the current market challenges.

We repaid $108 million of debt during the quarter. Since the end of the quarter, we have repaid the outstanding balance of the revolver. Our current revolver balance is 0. This was made possible by the team's determined focus on working capital management, specifically the outstanding progress made on inventory reduction and the strong free cash flow generation power of our businesses. We finished the third quarter with a total leverage ratio of 4.23, which remains below our credit agreement covenant of 4.75.

We have conducted a review of our outstanding debt instruments with assistance from our bankers and concluded that our current structure may not be the most efficient way for us to operate going forward. In light of current favorable debt market conditions, we believe that now is an opportune time to address this issue. We've initiated discussions regarding refinancing our current credit facility using an asset-based loan, or ABL, structure accompanied by a Term Loan B. In order to allow us sufficient time to execute the refinancing, we have requested and received from our lenders a waiver of our total leverage ratio requirement as of the end of the fourth quarter. We believe this change will provide us with additional flexibility to operate in this highly challenging market environment and allow us to drive targeted investments that will position the company for future success. Subject to debt market conditions, we anticipate finalizing the structure and completing the refinancing before the end of the first quarter of fiscal 2019.

Additionally, I want to address the impact of the recently announced tax reform legislation, which significantly changes corporate income tax. In our results, we recorded a noncash, $49 million benefit that was related to revaluing our deferred tax liabilities at the new lower tax rate. Since this was a onetime, nonoperational impact, we removed it from our reported results. The new law had no material impact to our adjusted results in the quarter.

Now onto financial results. The company reported third quarter sales of $581 million, down 11% from the prior year quarter. The year-over-year decrease was caused by lower sales in our Shooting Sports segment, partially offset by modest growth in our Outdoor Products segment.

Third quarter gross profit was $126 million, down 25% from the prior year quarter. The year-over-year decrease was caused by lower gross profit in our Shooting Sports segment, partially offset by growth in our Outdoor Products segment.

Our operating expenses for the third quarter were $103 million, flat with the prior year quarter. Cost reduction actions in the current year were offset by the absence of a bonus accrual reversal, which occurred in the prior year period.

We reported operating profit of $23 million in the third quarter, a decrease of 65% from the prior year quarter due to lower gross profit.

Interest expense for the current quarter was $12 million compared to $11 million in the prior year quarter. This slight increase resulted from a higher borrowing rate in the current period, partially offset by lower average debt balance.

Our adjusted tax rate for the quarter was 25.9% compared to 33.6% in the prior year quarter. The decrease in the rate was driven by a more favorable true-up of the prior year return, partially offset by lower domestic manufacturing deduction and higher nondeductible expenses.

For the third quarter, we recorded net income of $8 million, down 79% from $36 million in the prior year quarter, resulting in EPS of $0.13 compared to $0.62 in the prior year quarter. The reduced EPS was caused primarily by lower net income.

Year-to-date free cash flow generation was $205 million compared to free cash flow use of $18 million in the prior year period, an overall favorable change of approximately $222 million. The increase in free cash flow is driven by improved working capital, primarily tied to our continued focus on inventory reduction.

Now I'll turn to the performance of our business segments where we report sales and gross profit. Third quarter sales in Outdoor Products was $295 million, up slightly compared to the prior year quarter with increases in our Sports Protection business, partially offset by decreases in our Hunting and Shooting Accessories business. Gross profit in the third quarter for Outdoor Products was $74 million, an increase of 4% from $71 million in the prior year quarter. This increase was primarily driven by improved pricing and favorable product mix.

Shooting Sports recorded third quarter sales of $286 million, down 21% from $361 million in the prior year quarter as a result of persistent lower demand in the market for ammunition and firearms across most product lanes but primarily centerfire and rimfire ammunition. Third quarter gross profit in Shooting Sports was $52 million, down 47% from $98 million in the prior year quarter. The year-over-year decrease was a result of additional promotional activity, lower volume and unfavorable changes in product mix.

We delivered third quarter results that exceeded our expectations while facing continuing market challenges. We anticipate the following for our fiscal '18 financial guidelines. We are raising our free cash flow expectations and lowering our adjusted tax rate. Higher-than-anticipated rebate redemptions, deeper pricing discounts in certain products to maintain share and timing of expenditures will pressure earnings in the fourth quarter. As a result of these conditions, we are reiterating our sales and adjusted EPS guidance for the year.

To summarize, our fiscal '18 financial guidance is as follows. We expect sales in the range of $2.24 billion to $2.26 billion and adjusted tax rate of approximately 22%; adjusted EPS in the range of $0.50 to $0.60; capital expenditures of approximately $65 million; free cash flow in the range of $175 million to $185 million; interest expense at approximately $50 million; and R&D, also generally aligned with our prior expectations, at approximately $30 million. We expect EBITDA margins in the 8% range for the full year, with Shooting Sports gross margins in the low-20s and gross margins in Outdoor Products in the mid-20s.

We realized that the path forward is a challenging one. We continue to scrutinize every aspect of our business, and while we have made some progress, we have much more to do. This is a marathon, not a sprint. We continue to review our operations and brand portfolio for additional improvement opportunities, and we'll provide details on the results of that during our next earnings call. At that time, we will also provide our fiscal year 2019 outlook.

I remain excited about the future of Vista Outdoor. We have a broad portfolio of iconic brands, and I'm confident that improving the structure of the organization, continuing to drive new product innovation and improving our capital structure and our operational performance will place our brands and our company on solid footing and position us for future success.

With that, I'll be happy to open it up for questions.

(Operator Instructions) We will now take our first question from Brett Andress from KeyBanc Capital Markets.

So if I could hit on price first. You're taking low single-digit price increases. But one of your competitors commented earlier this week that they don't think that the recent industry price increases will be enough. So I guess, ultimately, I mean, how are those increases being received by the market that you've recently done? And also, how much price do you think you need to take to offset the raw materials where they stand today?

Well, Brett, I mean, first of all, in terms of how the market reaction is, well, we're fortunate that we have extremely close relationships with our customers, and they're very understanding of the necessary need for increasing prices with the commodity pressures that we're seeing. We are putting forward price increases that we think are realistic. And so far, what we've seen from buying behavior is no real changes. So they're sticking in the marketplace, and they're being received well. How much do we need to take? We don't issue guidance for our fiscal year 2019. We will do that on our next call. And that's when we'll be able to talk specifically about how much commodity pressure we see vis-à-vis the price increases that we put in place.

Got it. And then I know we're going to get more details on the next call, but can you just give us some of the examples of the opportunities that you're seeing to cut costs and streamline the supply chain? I mean, just any color would be helpful. And maybe how quickly you think you could achieve some of the opportunities you see now.

Yes. So Brett, we will give a lot more color in the -- in our fourth quarter call with the guidance for next year. And as you can imagine, a lot of the changes that we're making in cutting costs are very sensitive and, frankly, very personal to a lot of folks. So we want to be careful how we look at this, and we want to be very thoughtful and mindful as we lay out our future plans. But I can tell you right off the bat, I mentioned we hired a procurement -- I'll call him a procurement czar. I mean, I've worked with David for a number of years. He's come in and has an excellent understanding of our supply base, the materials we purchase. And we see opportunities in improving the way that we procure our raw materials today. I think from an SG&A perspective, we're taking a very thoughtful approach. We're benchmarking where industry standards are. We're looking at our spans of control in terms of number of direct reports. And we think we've got a significant opportunity to help us simplify our organizational structure and at the same time, take costs out, which we think are going to benefit the business beyond just cost reductions. In pricing, I mentioned that we've taken a couple of pricing actions. Listen, we know we've got significant headwinds in front of us from a commodity standpoint. And to the extent that, that doesn't abate, we're going to have to continue to look hard at pricing as we go forward. And I would say the last area, which I think we're putting a much more increased focus on, is in the downturn that we've seen in our ammunition marketplace, which you think about the dynamics there where the industry for 8 years has been running flat out. We've got an opportunity now to take a step back and look at our plant layout, look at the way we flow material and the processes within the facilities. Some people might call this lean management, but that's exactly what we're looking at in our facilities right now, taking advantage of the time that we have. So we've got a number of initiatives in front of us. We'll give more detail the next call. Some of them are quick hitting and some of them are, frankly, a journey that will pay dividends for a long period of time.

Got it. If I could squeeze in one more. Just an update on the personal stockpiling issue in the industry. I know it's hard to gauge. But what are you seeing with retail takeaway? Just anything you're measuring to help get a sense of where we are with that situation.

Well, Brett, that's the million dollar question, right? I mean, how much is in consumer's personal stockpile. I mean, I can tell you that our channel inventories are at the cleanest level that they've been since before we went into this contracted downturn. I can also tell you that we're increasing our focus on talking to consumers to understand what their consumption rates are, and the one thing that I am pleased about is that the shooting sports in general is vibrant. We're -- the anecdotal information that we're seeing from surveys and what have you is that shooting sports is a sport where we anticipate continued increased consumption. Now how fast that works down the personal stockpiles, I don't think anybody has any answer yet, but we like the underlying dynamics.

The next question comes from Dave King from Roth Capital.

I guess, first, on the outdoor business, nice job on generating some growth there for the first time in a while. I guess, what's driving that? To what extent is that Cabela's is back in the market ordering, Camping World, I think, is stocking up some of the new stores? How sustainable are those benefits looking forward? And then sort of what's the near-term outlook for that business? Is it fair to assume that we've turned the corner to continued growth?

Well, David, it's a very insightful question. I can tell you this on Outdoor Products, and I know most of you know this, but we've got a number of different businesses within Outdoor Products. And a not-so-insignificant portion of that is hunting and shooting accessories. So when you look at the results, bear in mind that they're being weighted down by hunting and shooting accessories that tie closely to the ammo and firearms. But for that, we think Outdoor Products would have grown a bit more. I wish I could say it was because we see some dynamic change in the industry. We don't. I mean, we see still challenges in the outdoor products, the retail marketplace, and that is a concern that we're continuing to watch. But what we see is our innovative products are really -- they are taking hold. I mentioned the VIVID goggles and Giro, super product. I mean, it is -- when we talk to snow shops, ski shops, what have you, it's one of the top products that they have. You look at some of the new products we're introducing in Bushnell Golf, terrific, terrific new products. So I like where we sit on that. Now you asked about retailers, and I can tell you from the Cabela's-Bass Pro merger, we certainly haven't seen anything but, frankly, a little bit of a contraction as they're trying to figure out their merger. They've got a challenging merger on their hands. They're working as diligently as they can to make 1 plus 1 equal 3. But the flip side to that is for folks like us that serve them, it's just a period of uncertainty and not quite the order pattern we're used to. I think as it relates to Camping World or Gander -- former Gander, I think that what you see there is like other suppliers, we've taken it on the chin in the past, and we hope as we go forward, in a measured way, we'll see upside coming from that as we go forward.

Okay. Okay, that's good color. Switching gears to free cash flow. If I'm doing my math correctly, it looks like the updated guidance implies $20 million or so of use in the fourth quarter versus what I think is kind of a typical seasonal increase in the March quarter. I guess, what's the delta there? I guess, do you expect to keep the factory production low to further reduce inventories? And then more importantly, is that the reason for the refinancing? It looks like the implied EBITDA guidance is kind of $193 million or so for the year, so that has you exceeding your covenants. Is that the reason for the refinancing? And then as you refinance -- there's a lot of questions there, but as you refinance, do you think then what you're sort of thinking is sort of the interest rate that you might have to pay?

Okay. There's a bunch in there, Dave, so let me try to make sure I catch them all. First of all, as it relates to the refinancing, no, this is absolutely not why we went to our banks to refinance. In fact, we felt as though even though you see a potential covenant issue, we felt like we could manage it within the business, to be perfectly frank with you, in the fourth quarter. We felt like, though, going to the banks to get a waiver would satisfy a lot of just concerns that we see coming in from investors. So we want to take that off the table. But make no mistakes about it, we feel like we could have managed it in the fourth quarter. As it relates to the interest rate we're paying, we're in the middle of discussing that with the banks right now, but we can tell you that we're confident that the amount of interest that we pay year-over-year should be about the same. So we're not looking at an increase in interest paid. We do feel like going to an ABL would give us some flexibility that we don't currently have. And every bank we've talked to was in unanimous consensus that the direction we're headed is the right direction given where we want to take the business. Now you mentioned the change in cash flow quarter-to-quarter. I mean, some of it is us managing our inventory to make sure that we're being the best stewards of capital we can. Some of it was, frankly, a little bit of the seasonality you talked about. I mean, the fourth quarter is our toughest quarter, as you know. And then lastly, we're taking advantage of our cash flow situation to make some capital expenditures that we think will pay dividends long term. I talked about the lean manufacturing and re-laying out the facility. Frankly, given the strong cash flow year that we have, we're taking advantage of that, and we're redeploying some of that into the business in ways that I think you guys will appreciate going forward.

The next question comes from Andrew Burns from D.A. Davidson.

Chris, you just attended the SHOT Show, and I had a longer-term product question for you. Looking more broadly at Vista's product innovation engine, some of which you highlighted earlier, do you see opportunity to enhance the innovation process, the go-to-market strategy across the portfolio? And then looking at the extensive products SKU count across your hunting categories, do you actually see the opportunities to edit, to amplify the SKU assortment, perhaps continue to enhance working capital and inventory turns?

Yes. So Andrew, SHOT Show was the first SHOT Show I attended, and well, what a remarkable show that is. It's a great opportunity to see all numbers of constituents. And so I really, really enjoyed it. And a couple of things really came clear to me. One is, you mentioned it, innovation. We launched this new 224 round of Valkyrie and just got rave, rave reviews. And we also introduced the Valkyrie MSR in our Savage line. And it -- we had a day at the shot range and before the show opened up, and we had a number of people try it and were just raving about it. It's a real breakthrough. I think as we go forward here, we've got a lot of innovation opportunities in both ammo, firearms and, of course, the rest of our business. So I'm excited about it. And I think that's one of the things as we go forward in our strategic plan that we'll give more color on the next call is that we want to not only dramatically improve our bottom line, but we also want to increase our investments in some of these innovation areas. As it relates to go-to-market, we feel like we're pretty innovative in terms of the way we're going to market, but we feel like there's things that we could bring to the marketplace that we haven't done to date. And so certainly more to come on that. You mentioned the SKU count, and it's one thing that amazed me as I walked in is that we've done a wonderful job of introducing some products over the years, but we haven't been as disciplined in removing some of the older, nonperforming SKUs. We've got business leaders now that are focused on it. And as we go forward here, that's a bit of a journey because getting your arms around and measuring it and holding yourself disciplined as you introduce new products, taking out nonperforming ones is something we have to be focused on. As we've taken out this big chunk of inventory to go forward and continue to improve that, we need to take measures like SKU rationalization, for sure.

The next question comes from Scott Stember from CL King & Associates.

Can you maybe talk about on the Shooting Sports side? I know we talked about the uncertainty for how much stockpiling has gone on out there. And you also talked about putting through some price increases, but also on the other side, that it's still a competitive market. Can you maybe just talk about the net-net what the pricing environment looks like now versus where it did, I guess, for the fourth quarter versus the third and the second quarter? Are you seeing meaningful improvements net-net, including these price increases? Or is it just steady improvements?

Yes. So Scott, what I would say is much more rational. So what you saw in quarters 1, 2 and 3 were competitors that were trying to catch up with the kind of falling off-the-cliff demand and trying to get their arms around rightsizing their overhead, rightsizing their inventory, rightsizing the flow out of their factory. And so as a result of that, you got the natural reaction of big discounts, big price reductions, what have you. So now what you see is a more rational approach. I think you see from not only us but from some of our competitors starting to raise prices. So in a word, I'd call it rational.

Got it. Okay. And dovetailing it to the fourth quarter, you talked about it being one of your more difficult quarters typically from a seasonal perspective. Is there anything else to explain -- I guess, if you look at the implied guidance for the fourth quarter, it's a loss of, I guess, $0.20 to $0.30. Can you maybe just talk a little bit more about that? Is there anything else going on from a cost perspective? Or is it just simply a function of conservatism and the fact that it is your seasonally slowest quarter?

Scott, the one thing we didn't talk about is -- we talked about the discounts, and we talked about the pressures in the marketplace. We have a little bit of carryover of that from the third quarter. So we had, fortunately or unfortunately, one of the best Black Friday programs we've ever run. I mean, it was a -- it was the Savage access rifle that we had $100 rebate on. And it was so successful that it cost us way, way more than we thought it was going to cost us. And you have until January 31 to collect your rebate. So we're carrying that over into the fourth quarter to a much greater extent than we thought. Now the flip side to that is in Savage's defense, they were using this rebate to make room for a new product line, which is the 110 Refresh that we introduced at the SHOT Show, which is getting rave reviews. So there is a silver lining there, but we're certainly carrying that over and it's cost us. It's not something we intend to do again either.

Okay. Got it. And just last question. I know it's probably a little bit early for your planning process for '19, but just what is your initial take on your net benefit from the upcoming tax legislation? And just trying to get a sense of where your tax rate could be for next year. And also maybe just talk about if there's any -- there should be some benefit in the fourth quarter, if I'm not mistaken.

So Scott, we haven't gotten into all the machination of how this is going to affect us in 2019. I mean, we're still trying to digest the Tax Reform Act and balance that against where we think we're going to land next year. So there's so much more color on that in the fourth quarter -- I mean, in the -- in our fourth quarter call. As it relates to tax effect here in the fourth quarter, I mean, we don't see much of any benefit here in the fourth quarter.

The next question comes from Bill Ledley from Cowen and Company.

This is Bill on for Gautam. I wanted to go back to your comment on industry pricing. Are you seeing all competitors raise prices in that low to mid-single-digit rate? Or is it a few that are raising prices? And how long do you think it takes for those to take effect? Is this kind of like a fiscal '20 benefit if you have contracts in place? Just any sense on timing or magnitude from the rest of the industry.

Yes. So Bill, I mentioned that we see a more rational and disciplined approach now from our competitors. I wish I could tell you that all competitors are reacting as quickly as we would've hoped, but that's just not the case. I think some are a little bit slower to it than we'd like to see, so a little bit editorial out there. But I think what you're going to see here is given the commodity pressure, it's impossible for me to see how competitors are not going to take price increases. They're going to have to.

Okay. That's really helpful. And then just regards with timing of asset sales. Are you expecting to have something done by the Q4 call? Or you have it -- stuff to announce like you did on the last quarter call where you announce you're going to sell some of these brands? What do you see out there? Is it interest from private equity? Or is it interest from other strategic buyers? Just any sense of kind of how you're seeing divestiture to play out.

Yes. So Scott, that's really hard to comment on because we really don't have a crystal ball. As soon as we mentioned portfolio look or rationalization, what have you, you can imagine the inbound calls that we've gotten. There's been no shortage of interest. And I can tell you on our eyewear sale, we're very pleased with the start in the interest that is being generating there. As it relates to other assets, we want to be very careful. We want to be very thoughtful in terms of strategically where we want to position this business long term. So you'll hear more of that on the next call, just too early for me to speculate.

Okay. And I guess just one last one for me. Q3 had some reorganization expense. Should we expect more of that in Q4 and next year-end? Do you expect to see any changes to segment reporting? I guess my question is, would you move some of that shooting and hunting accessories into the shooting sports category to more align sort of the drivers of each segment?

Yes. So the reorganization, again, no comment on that yet. We're in the midst of sorting through exactly what that strategic plan is going to be, which would then necessitate some of the changes that we want to make. But reorganization that we talked about in Q3, that was unusual in nature and that it was related to some of the actions that we took. Segment reporting, we haven't talked about changing any segment reporting, and so I'll just leave it at that.

(Operator Instructions) The next question comes from Rommel Dionisio from Aegis.

Chris, in your comments, you noted the 224 Valkyrie a couple of times. We've heard some great feedback from the channel on that. Actually, state the obvious here, but people have to buy the rifles first. Could you just discuss what you're seeing in the channel in terms of not just your own Savage MSR 15 Valkyrie but also competitors that have launched rifles that utilize the 224 Valkyrie, how they're doing so far in the channel? I realize it's relatively new, but do you have points you could give us there?

Thank you for the question. You're right, you need rifles to be able to shoot the rounds. And so we worked very closely with a number of manufacturers. And we've got, I'm just guessing, half a dozen to a dozen rifle manufacturers that have already signed up that are in the midst of building their rifles for this round. Now keep in mind, we're just now launching the rounds, so way, way too early to determine what the sell-through is going to be. But if social media interest, what have you, is any indication, I think this is going to be a super success for us. And I can tell you personally, shooting this at the Range Day and at other points in time, it's one of the most fun rounds that you could possibly shoot. And so we had several of our partners that were at that -- at the SHOT Show and at the Range Day that were shooting it, and we actually had some at the SHOT Show that were showing the Valkyrie. So like anything else on an innovative, new product launch, it takes time to build, I think this will build a little bit faster given the interest we're seeing.

The next question comes from Dave King from Roth Capital.

I guess, first on Bollé. It sounds like you're getting a lot of inbound interest there. Have you put together your financial package yet to kind of allow those conversations to move forward? And then in terms of thinking about other asset sales, what was the reason you chose Bollé? Was it because it was more profitable than some of your other businesses? And I guess, how do you think about some of those other outdoor businesses, et cetera? Are any of them generating as much profitability to kind of make those be attractive to universal buyers?

Sure. So Dave, on the Bollé and the eyewear sale in total, as you know, we've hired Baird to represent us in the sale. We've been working down the process of pulling all the marketing materials together, including the financials. And we're just about at the point now where we're ready to go, sit down and really have serious discussions with the inbound interest that we've had. So we've had all sorts of overture and introductory discussions, what have you. We're just getting into more detailed conversations right now. We did not put Bollé and the eyewear business up for sale because it was any more profitable than any other business we own. We simply put it up because it was noncore to what we think our core businesses are going to be. And as I stated previously, I'll state it again, we just feel like it's more valuable to another owner than it is to us. As we look at the rest of our Outdoor Products, we're going to look at them very, very strategically. And that's part of a bigger process, which is what are those strategic cores that we think are going to be vital to driving shareholder value. And where those products fit into that, we're going to keep, we're going to nurture them, we're going to build them. And we'll give more detail on that as we go forward.

Okay. That's really good color. And then in terms of potential for cost savings, reorg, sourcing all of that, I guess, first off, what sort of drove the reorg charge that you have in the quarter? And then as we look forward, beyond the sourcing, what potential is there to kind of outsource your sales organization? I think some other people have started to look at doing some of that. To what extent are you looking at doing some of that? And then where are we in the progress -- where is the progress in getting drop ship and e-com capabilities and some of that kind of stuff up and running?

Sure. So Dave, let me take them one at a time here. So the cost savings and the reorganization charge that we took was not a large charge and it was predominantly related to the eyewear business that we're going to be exiting. So we're looking at doing some pruning there that was in the works for a longer period of time. As it relates to outsourcing sales, I'll tell you, one of the real highlights for me from the SHOT Show was how strong of a sales team we have. I can tell you, I sat in countless customer meetings, from the largest retailers in the world to the smallest independent dealers, and not just at the SHOT Show but some of our functional wholesale shows as well, and the relationships that our salespeople have built up are unbelievable. I mean, they've got terrific relationships because they've built them from knowledge and understanding and trust, and they really feel like a strong, symbiotic, win-win relationship. So I was really, really pleased. And I can tell you, I think we struck a good balance between using what you call outsource or what we call repping agencies. We've got some repping agencies that we've used for years in certain geographies that are like an extension of us. I mean, they feel like they're one of our sales forces. So there's not going to be any change to the way we go to market. We're going to continue to keep the blend that we have. I think we've got an enviable position in the marketplace as it relates to our sales organization. I think it's a real strength for us, and you're going to see us continue to leverage and capitalize on that. Now as it relates to e-com, we didn't spend much time on this call talking about e-commerce. And that's not to say that we're not focused on it. It is easily one of the top 2 to 3 big initiatives that we have to drive our sales, new products and e-commerce probably being the top 2. So what I would say is we're bringing some of our brands online as it relates to revamping their website. So we'll take a look at BLACKHAWK! and Final Approach. They're 2 brands that we just recently brought online. We've got 6 additional brands that were in the implementation phase right now. We've got Bushnell. We've got Bushnell Golf. We got RCBS. We got Bell. We got Giro. We got Primos. All brands that you're going to see us bring online. And we're building our capabilities in parallel with that to be able to support our retail partners to allow drop ship, one of the key initiatives that we're focused on.

There are no further questions from the phone. (Operator Instructions) As there are no further questions, I will now turn the call back to your host for any additional or closing remarks.

Thank you, operator. And thank you all for joining us today. As you can see, we continue to make significant changes to reposition and strengthen the company. There's a lot more to come, and I look forward to updating you on our fourth quarter earnings call. Thank you.

That will conclude today's call. Thank you for your participation, ladies and gentlemen. You may now disconnect.