Vista Outdoor Inc (VSTO) 2021 Q3 法說會逐字稿

Good day, and welcome to the Vista Outdoor Inc. Third Quarter Fiscal Year 2021 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the call over to Kelly Reisdorf. Please go ahead.

Good morning, and thank you for joining us for our third quarter fiscal year 2021 earnings call. With me this morning is Chris Metz, Vista Outdoor Chief Executive Officer; Sudhanshu Priyadarshi, Senior Vice President and Chief Financial Officer; and Jason Vanderbrink, President of Ammunition.

Before we begin, I'd like to remind everyone that during today's call, we will be making several forward-looking statements and we make these statements under the safe harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements reflect our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to the risks and uncertainties that face Vista Outdoor and the industries in which we operate. We encourage you to review today's press release and Vista Outdoor's SEC filings for more information on these risk factors and uncertainties. Please also note that we have posted presentation materials on our website at vistaoutdoor.com, which supplement our comments this morning and include a reconciliation of non-GAAP financial measures.

With that said, I'll turn the call over to you, Chris.

Thank you, Kelly, and good morning, everyone. Thank you for joining us. Before I start with the results and prepared remarks, I want to take a moment to thank the men and women that stand behind the results I'm going to share with you. I am so incredibly appreciative and grateful for the hard work of our dedicated team. We've been through a lot the past few years to reposition Vista Outdoor to its rightful position as leaders in the industry. And our people have worked through incredibly challenging times the past 12 months, many juggling personal strife and heartache. Through it all, our team has contributed immensely to enable us to distinguish ourselves as leaders. I'm proud of our team and thankful to be a part of it.

Much has happened over the past 90 days, and our team has delivered another quarter of outstanding results across just about every facet of our business. Our third quarter was marked by continued strong consumer demand, a strengthened balance sheet, execution excellence and decisive moves for future strength.

Sales were up 35% year-over-year to $575 million, and gross profit was up 84% to $164 million. Our Shooting Sports segment was up 41% year-over-year to $402 million, and our Outdoor Products segment was up 24% to $173 million. Our EBITDA margin was 15.4%, which is a 735 basis point improvement over the prior year. Adjusted EPS was $1.03 versus $0.21 last year. We achieved year-to-date free cash flow of $294 million versus $46 million last year. Additionally, our leverage ratio is now below 1x.

Consumer demand during the pandemic-fueled period remained high and outperformed expectations in the third quarter. This is notable as the third quarter is generally slower, given the winter weather and the seasonalities in core products such as outdoor cooking, biking, golfing and target practice. With social distancing and other limitations still in place, our teams were able to capitalize on the heightened demand and provide the right products at the right time for our end users.

Like many of you, we are working to analyze the new core demand level for outdoor consumer products. We know that 2020 produced more than 8 million first-time gun owners, many of whom are more diverse and more active. There are 1 million new hunters powered by new and reactivated hunters. This has led to a 12% increase in hunting license sales across the country.

We know that more people experience the outdoors through their first camping trip. Of the camping trips taken in 2020, half of the trips were taken by first-time or reactivated campers. In November 2020, the most recent month in which People For Bikes data is available, we saw bicycles, bike equipment and bike shop services increase by 84% year-over-year. These are all key metrics we review each month, and this data is highly encouraging.

While we recognize we will return to a new and improved normalized growth rate at some point, the events of 2020 have clearly expanded the base and will support long-term growth of the outdoor industry for years to come. The trends we are seeing have contributed to us performing at our strongest levels to date. In fact, nearly every company we purchased is now operating at or near historically high levels of sales and profits. Because of the hard work of our transformation efforts over the past few years, our sales performance has translated into record profit rates, free cash flow and cash conversion. Our team's focus on both the income statement and balance sheet is delivering balanced results.

Our leadership team understands the importance of being great stewards of capital. Our acquisition of Remington is ahead of plan, and we expect similar results with our just-announced acquisition of Hevi-Shot. We most recently acquired Hevi-Shot ammunition for a total of $16 million. This iconic brand is an innovation powerhouse, specializing in the manufacture of top-tier shot shells, bullets and lead-free technology. Hevi-Shot is well known for their high-end, high-performing shot shells with a strong emphasis in waterfall hunting, which is an attractive category as lead-free hunting products provide stability and regulatory certainty, which helps mitigate volatility. Overall, the iconic Hevi-Shot brand adds technical capabilities to leverage across our ammunition portfolio, will provide cost and revenue synergies to us and also enhance our market-leading position. As with Remington, we expect Hevi-Shot to be accretive to earnings in under 12 months, post transition.

In total, we have the underlying strategy to deliver market-leading growth and profitability given our team's ability to execute. While we've had incredible acquisition opportunities in ammunition, as we look ahead, you should expect to see more activity in the Outdoor Products segment of our business.

Within Outdoor Products, each of our business units performed better than expected in the face of typical seasonality. Camp Chef continued to expand its positioning in the marketplace, with more consumers migrating to Camp Chef's back patio offerings, which include the WiFi Woodwind pellet grill and the versatile sidekick grilling attachment. This expansion has fueled multiple months of triple-digit growth. And with Camp Chef loyalty and lifetime customer value metrics, 2020 growth bodes well for the future of outdoor cooking platform.

Bell and Giro also had a strong quarter as cycling trends continue to power the industry, resulting in another quarter of double-digit growth for both our Bell and Giro brands. As expected, the snow-related parts of our business were down, given the COVID-related closures and reduced capacity to see resorts. However, we fully expect this to bounce back next year as resorts open back up.

Our Bushnell Golf team continues to enjoy phenomenal success, resulting from new product innovation. The Wingman GPS-enabled speaker continues to outperform expectations and was boosted further by holiday sales. We believe Wingman has a nice runway as the European and Asian golfing markets have been more constrained due to COVID restrictions than we've seen in the United States. The Bushnell Wingman is a perfect case study of what product innovation can bring to both our top and bottom lines. And importantly, all Wingman sales have come at map pricing, ensuring our customers make a fair profit and have every incentive to support and market the product.

For CamelBak, we're excited to share with you a collaboration with one of the industry's great companies, Peloton. Peloton is the world's leading interactive fitness platform with more than 3 million subscribers. We have collaborated with Peloton to create a new bottle and program. This program called Hydrea will feature a custom Peloton-themed CamelBak podium cycling bottle as part of a larger assortment of personal fitness equipment and will start shipping in April of this year. This partnership is a great fit to further build CamelBak brand awareness and is well timed heading into the spring season.

On the e-commerce front, Black Friday and Cyber Monday revenue and traffic were up more than 100% when compared with the prior year. Within hunt/shoot brands, revenue more than doubled over the prior year from Black Friday and Cyber Monday traffic. Hunt/shoot's strength was powered both by new product innovation and an enhanced marketing strategy that brought together Bushnell ambassadors, specialized educators and media for a week-long event for new product demos, training and brand education. The results were fantastic, and the team's efforts supported strong launches for the RX 100, RX 250 red box sites and the new T-Series L2C holster.

For the third quarter in total, revenue across our e-commerce channels was up more than 50% year-over-year. All of our businesses performed well online, with our Camp Chef and Bushnell Golf brands leading the pack with continued triple-digit increases.

As we have discussed previously, our e-commerce business represents roughly 20% of our total company sales. Importantly, we continue to see significant opportunities to grow this channel distribution with little to no cannibalization of our traditional brick and-mortar sales partnerships.

Now we'd like to spend some time talking about our ammunition business. I've asked Jason Vanderbrink, President of Ammunition, join us today and provide an update on the business, given the recent Remington and now Hevi-Shot transactions. Jason?

Thanks, Chris, and good morning, everyone. I'm excited to be here representing the men and women of Federal, CCI, Speer, Remington and now Hevi-Shot. Together, we have nearly 4,000 employees who work day and night, 24/7 to deliver the best products to our customers. Our nation's law enforcement, the United States military, citizens across our country who are heading out into the woods or heading to the range and many international partners; our workforce, including our newest employees out in Sweet Home, Oregon, are our #1 competitive advantage, and I'm honored to represent them today.

Safety is something we practice and promote on a daily basis. And throughout the pandemic, we have altered the way we operate to account for CDC guidelines and other best practices. Our employees wear masks, have their stations cleaned on a regular basis. And while most positions are naturally social distanced, we have ensured that all positions can operate with the proper spacing.

Now getting to the quarter. Touching on the consumer demand trends Chris just mentioned, key themes that drove our results this quarter were innovation. Innovation is the lifeblood of our company and is the key to driving increases in participation and consumption. We recently earned the American Rifleman Ammunition Product of the Year for Federal's Terminal Ascent and FireStick. CCI Clean-22 received the coveted Editor's Choice Award from Hon Targa Magazine. We are excited to bring new and better products out each year. Heading into fiscal 2022, we have more than 15 new product launches scheduled, including many within the Remington brand, and we are looking forward to a big green box come back.

Second, we saw continued strength in the government sales channel. I am pleased to share that Federal was just awarded the SDI 5.56 reduced lead training and service contract. This award grants us increased volumes for the next 5 years, with shipments beginning in the first quarter of our fiscal year 2022. This is a major win for our employees and our business, as this creates a halo effect for our portfolio of ammunition brands. Contract wins such as this serve to hedge from volatility we experienced in the commercial market.

Third, we were able to fully offset the impact of the loss of the Lake City contract with increased sales in our other ammunition categories. As Chris mentioned on our last earnings call, we've reached a 2-year agreement with a new operator of the facility to distribute a portion of former volumes of .223/5.56 ammunition from the Lake City plant.

However, growth in our centerfire pistol and hunting ammunition sales have more than offset the decrease in Lake City volume. Demand for these categories has historically been less volatile than demand for 5.56 and .223. We are optimistic that the net result of the loss of the Lake City contract will be total ammunition sales that are more stable and more profitable in the future.

And fourth, Remington. This integration is ahead of schedule, has delivered better-than-expected results in the quarter, and we now expect this business will be accretive to earnings in as early as the first quarter of fiscal 2022. In a category where we are a leader, our talented teams are executing well, and we are excited to be able to infuse the market with this sought-after brand.

Additionally, many of you are following the stock-outs across distribution channels closely. Since we have last commented on our ammunition backlog, it has continued to increase, and velocity has accelerated since last fall across all of our ammunition brands.

The demographics of our end users are also changing. Our goal is to recruit, educate and retain as many of these more than 8 million new users as possible. In addition to increasing our presence in core market advertising and consumer engagement panel, we have quickly added messaging that speaks to the new market entrant in hunting and shooting sports. Our outreach campaign includes targeting people on websites outside of the traditional. We're seeing a video view completion rate of 90%, which is more than double our average. And we are driving prospective customers back to new getting started content on our websites. This has been particularly successful with messaging focused on personal protection, firearms cleaning and proper firearm safety and storage practices. The engagement on all of our social channels has been stronger than ever and proves our strategy is working.

Our consumer panel is giving us greater insights into consumption and participation trends, stockpiling behavior and a better look at what is most important to the new shooter. Throughout the pandemic, we've seen a 30% increase in engagement, which gives us great feedback for us to keep improving our product offerings and to service all of our end users.

Overall, this has been an exciting new adventure for the ammunition team, and we are excited to see such strong participation and demand for a whole new demographic. Our vision is to be a truly one-stop shop for all types of shooters to learn more about the safe and enjoyable use of our ammunition, so that they can count on each one of our brands to be a reliable and informative source of education material on everything from firearm safety to personal protection for the lifetime of their journey in hunting and shooting sports.

We promote safety through our partnerships and marketing. We support Project ChildSafe, which gets more locks and firearm space into the hands of consumers. We have recently partnered with the International Hunters Education Association to modernize their website, which will bring more safety and educational content to new and old hunters alike. And our branded social media channels and web platforms are populated with education material and tutorials to promote and share best practices for the safe use of our products.

Finally, our team at Federal deserves to be recognized for the work they've done to cut costs and improve sustainability through the conversion of materials. Federal just introduced a new shop shelf product line that has replaced the historical plastic wad with a 100% cardboard wad. This new feature adds to our industry-leading sustainable offerings, which includes steel shot, business shot, tungsten super shot and now this line of target loads with a paper wad, a more cost-effective, more sustainable alternative to plastic, while at the same time, setting the performance standards for shooters that are required to shoot biodegradable wads at various ranges.

Together, these products support our business while also complementing the conservation ethic that lives within all of us who hunt. Our ammunition business leads the industry in the use of recycled lead and other raw materials. We believe our innovation is good for the natural world and also for our bottom line. If shooters prefer to use nontoxic ammunition or if they are required, our broad offerings lead the industry for the end user.

Thank you for your time today and for your interest in our ammunition business and Vista Outdoor. Sudhanshu?

Thanks, Jason, and good morning, everyone. Vista Outdoor is currently in a position of strength to getting strength. Growing the search has enabled the company to further gain share, reach new levels of influence and buying power, reduce debt and build cash. This dynamic is a compelling overlay to the foundational attributes of Vista Outdoor such as leading brands, large and growing market, proven management and ability to create long-term value via factors within our control such as product mix, price and cost-saving initiatives.

Our long-term financial strategy remains as: first, focus our internal investments to provide fuel for continued organic growth; second, conservative balance sheet management; and third, a capital allocation approach that is efficient, strategic and supportive of tuck-in acquisition opportunities.

Let's discuss a few key points from the quarter. I'm not going to go through the whole P&L, as Chris covered already, but I'd like to provide context on a few areas. We have provided you with both as-reported and adjusted results in our press release and slides. My comments today focus on adjusted results.

Year-over-year increases in gross profit of 84% to $164 million reflects overall improvements in pricing, mix and efficiencies across nearly all of our brands. EBITDA margin increased nearly 800 basis points to 16% in the third quarter. Interest expense for the third quarter was $6 million, down 25% from the prior year. Third quarter adjusted tax expense was $6 million compared with a benefit of $710,000 in the prior year. The adjusted tax rate was 8%, reflecting benefit from the release of uncertain tax positions due to a statute of limited expression.

Adjusted net income was $62 million, resulting in an adjusted EPS of $1.03 compared with $0.21 in the prior year quarter. Key drivers behind EPS strength were volume, improved gross margin in both segments, growth of our e-commerce channel and benefits from the new product and cost-saving initiatives. The difference between GAAP EPS of $1.31 and adjusted EPS of $1.03 is the result of a gain on the sale of our Force on Force nonmetal training business, a tax value on allowance and M&A-related transaction expenses.

Our balance sheet has been strengthened by delivering $104 million in free cash flow this quarter and $294 million year-to-date. We had a strong working capital performance driven by good collections due to demand and an overall reduction in inventory in the channel primarily due to market demand, offset somewhat by COVID-related supply chain disruptions.

Turning to Page 12 of the presentation. At the end of the quarter, we had approximately $254 million in net debt, and our leverage ratio improved to 0.9x. The average outstanding balance of our ABL loan in our third quarter was $10 million compared with $209 million in the prior year quarter.

Our balance sheet continues to get stronger, and we continue to have ample liquidity to fund our growth. Based on the outsized strength these past 3 quarters, we now believe we can keep our leverage ratio in the range of roughly 1 to 2x. It is prudent that we target a lower long-term leverage ratio to derisk our balance sheet. Staying at 1 to 2x leaves us plenty of room to grow through internal investments and M&A.

Going forward, we will hold some cash as a safeguard, should slow down or headwinds emerge, while also ensuring that we have the flexibility to growth through internal investments and M&A at all points in the market demand cycle.

As a reminder, we are now in what is historically a seasonal step-down quarter sequentially. And soon, year-over-year comps will be compared to pandemic-fueled record-high quarters. As vaccines becomes more widely available, we will increasingly compete for the share of consumers' wallet with travel entertainment sector that has been restricted by the pandemic. So the pace of our sales growth and cash generation could moderate. We believe it is prudent at this point to resist the temptation to increase leverage or put our cash to more aggressive use.

On to segment results. Shooting Sports recorded third quarter sales of $402 million, up 41% from the prior year quarter. Of this, our ammunition business was up 42%, and our hunt/shoot business was up 37%. We continue to see strong demand for ammunition and hunting/shooting accessories. The strongest and recent categories being rifle and pistol ammunition. We also saw strength in both brick-and-mortar and online channels as overall participation remains strong.

Third quarter gross profit dollars were $114 million, up 120% from the prior year quarter. Gross profit rate for the quarter was 28%, which is more than 1,000 basis point improvement when compared with the prior year quarter. Commercial strength drove improvements to mix and price. We also saw improvements resulting from e-commerce growth and operating efficiencies. EBIT improvement in the quarter was, again, nothing short of outstanding. Dollars were up 189% over the prior year, and the rate improved by more than 900 basis points.

Turning to Outdoor Products. Third quarter sales were $173 million, up 24% over the prior year. We saw continued demand from the resurgence in outdoor activities and exceptional e-commerce performance across all brands. Gross profit was $50 million, up 35% from the prior year. Gross profit margin improved by just over 200 basis points. The segment delivered 110% year-over-year increase to EBIT, and the EBIT margin rate increased to 11% from 6% in the prior year.

Turning to our outlook. Today, we are providing guidance for our fourth fiscal quarter. Our key assumptions are: continuous strength of demand in commercial ammunition; overall e-commerce trends continue; a supply chain that remains largely uninterrupted to be offset somewhat by a quarter with seasonally lower demand; and lastly, we expect margin pressures from tariffs, commodity pricing and freight charges.

We anticipate Shooting Sports to show a higher year-on-year growth rate than other products, influenced by the headwinds of winter, possible risk of retail closure as well as possibility of vaccination, prompting people to leave their home more and conduct less e-commerce shopping. Also, for your modeling purposes, we anticipate full year annual capital expenditure to spend to be roughly 25% higher than the prior year, reflecting accelerated investments in Remington operations. We expect annualized interest expense to be significantly less than the prior year.

Our tax rate for the fourth quarter is expected to be in the high teens. We expect our leverage ratio to stay at or below 1x in the fourth quarter. And given visibility into cash flow, we expect fourth quarter free cash flow results to be better than the fourth quarter of last year.

Therefore, our fourth quarter fiscal year 2021 guidance, which includes Remington and Hevi-Shot is as follows: We expect revenue in the range of $510 million to $530 million and earnings per share in the range of $0.55 to $0.65. Fourth quarter sales guidance includes roughly $30 million in sales from Remington and Hevi-Shot combined. Hevi-Shot generated approximately $20 million in sales in calendar year 2020. In fiscal 2022, we expect Remington to reach a quarterly run rate of roughly $50 million plus by mid-next fiscal year and expect Hevi-Shot to be accretive to earnings within 12 months post transition. We intend to provide a more fulsome outlook on fiscal year 2022 in May.

In summary, growth in profit and free cash flow continues to strengthen our balance sheet and enables our ability to accelerate the building of our innovation pipeline, invest in our Centers of Excellence and deliver growth through thoughtful, aligned tuck-in acquisitions. This formula strikes the right balance between growth and fiscal discipline while positioning our brands and businesses for long-term success.

We have the right business model to achieve these goals. We bring together 2 segments who share a common bond of well-known brands, active end users and believe in expanding outdoor recreation through great products, policy and by reaching new users no matter where they live or what their background might be.

Thank you, everyone. And now we will open the lines and take your questions.

(Operator Instructions) We have a question from James Hardiman.

Can you hear me?

James, we can hear you just fine now.

Okay. Great. So sort of a question and then maybe just a little bit of clarification. So obviously, there was a lot going on in 2020 that would contribute to the growth we've seen out of Shooting Sports. Obviously, social unrest, the pandemic. I think the assumption was that we get into 2021 if things would sort of cool off. The opposite appears to have been the case. The mix numbers look like they reaccelerated. So maybe sort of talk us through, whatever you can, in terms of what you've seen since the beginning of the year. Obviously, with the Democrats holding legislative power for the first time in a while, that seems like a big deal for this space, even though it seems pretty far down the list of legislation priorities. So maybe just talk us through what you've seen year-to-date.

And then the FBI contract sort of seems like a big deal. When does that start? And is there any way to size that from a financial impact perspective?

Yes. So James, certainly, a good question and something that we think through every day, every week, every month here as we go through the remarkable events of calendar year 2020. And what made the 2020 different, certainly for the ammunition business that you're referencing is it was completely different than any previous surge we've seen. Previous surges had a large pinnacle that surrounded or was emanated from second amendment, political, legislative issues. And what we saw starting spring of last year with COVID was a pent-up, work-from-home, let's get outdoors type of surge. And that certainly helped our shooting and some of the activities.

Then that moved into civil unrest. And we saw a lot of folks looking for self-sufficiency and looking for personal protection. And then as we moved into the fall season, we saw hunting at record numbers. And as I mentioned in my script, hunting licenses were up 12%, all of this contributing to demand. And remarkably, we didn't see any run-up from the political general election.

Then when things went maybe a little bit different, we've seen of recent a political impact on our ammunition business. So I think in summary, James, what we saw in 2020 has not only slowed down or abated. It's actually increased in demand. So the demand continues to be strong. We've seen some of the highest levels of demand, frankly, in months that approached the end of the calendar year 2020.

And frankly, as we look forward here, we don't have a crystal ball that's perfectly clear, but we see this continuing for the foreseeable future. And it's also the knock-on effect on our Outdoor Products business because you can see the robustness that we saw in the second quarter continue into the third quarter, and we feel that momentum carrying forward.

Now, as it relates to the FBI contract, fortunately, we have Jason here, and I'm going to let him add some color to this. But it is a real, real coup for our team and really a kudos to our team for securing this. And as you know, we don't necessarily comment on long-term, the potential impact and necessarily the size of it because you know that whatever they contract for, it could exceed that number, depending upon how many rounds they shoot. But Jason, the FBI contract?

Yes. Thanks, James. On that contract, we expect deliveries to start in quarter 1 of fiscal 2022. As Chris mentioned, we do not size up that contract because there's lots of unknowns. What's nice about this contract is it certainly gives us a halo effect when you win such a prestigious contract, especially with the bureau.

So our business units with the new product that we delivered for the FBI, we expect that will have some sales

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want to size that contract up on the revenue side.

(Operator Instructions) The next question is from Gautam Khanna with Cowen & Company.

This is Dan on for Gautam. So we were curious on ammo pricing. So prices obviously increased a lot at the retail level, but we're wondering like how much of that benefit is Vista able to capture? And kind of like how do your pricing agreements work with customers? Is it spot or contracted or some mixture of the 2? And just kind of any level of detail that you could provide into that, how that relationship works would be helpful.

Yes. Sure, Dan. Let me answer that for you. So ammo pricing is a factor of many things. And the primary factor is us looking at the input costs that we have to absorb and then us looking at market conditions and what we think is an appropriate price given all of the circumstances we see. And the -- what we're seeing on the input side is a dramatic increase in our raw materials, be it copper, be it lead, be it corrugated paper, what have you. We're seeing over time rates increase as we're running continually flat out in our facilities. And in the last 90 days, we've seen an increase in freight, as every American corporation has seen. And so that all goes into our thinking as it relates to pricing.

Now, in terms of the sharing and pricing, it's a value chain that contributes to everybody. And so our distributors, our buying groups are very healthy. Our customers and our dealers are very healthy as well from just a financial standpoint in this environment, as evidenced by just basic supply and demand. So we don't necessarily size up how that pricing is shared. But you can see in the results that we posted that we're at all-time highs as it relates to what our profitability is.

And we need to be there because we see continued pressure. And we're constantly evaluating the pressure we see and making sure that the way we're pricing it is fair in the marketplace. So we're very careful because we know that we supply a lot of products to people's self-defense and their hobbies and their passions and what have you. So we try to keep pricing at a level that is as fair as we possibly can make it.

Now, the majority of our pricing is not contract-based. It goes with the commercial market. But we do have contracts with law enforcement, with military that is locked in.

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

Congrats on the continued success. Again, following up on James' question before about, I guess, the sustainability of demand. Can you maybe talk about how the usage of your products is differing from, I guess, past surges and how that really speaks to how things can sustain at these positive levels? So maybe not at this growth rate, but just in general going forward. And then after that, maybe just talk a little bit more about the Peloton-CamelBak deal and maybe size that up for us a little bit.

Sure, Scott. So let me first talk about the CamelBak and the Peloton relationship. And I'll address the ammo sustainability and let Jason add on to it. But -- so the CamelBak and Peloton, as you can appreciate, is a confidential contract. We don't typically share terms, conditions, what have you, on our contracts, but it's a super, super win for the CamelBak team. It takes one of the great brands in the recreation space in Peloton with one of the iconic brands in the outdoor space and CamelBak and marries the 2 together. So we're really, really excited about what this brings to us.

The ammunition surge, I mean, again, what I alluded to on James' question is the fact that it's just very, very different. And it's probably the broadest-based surge we've seen. So it's not just 5.56/.223 calibers. It's 9-millimeter, self-defense. It's hunting loads. It's centerfire long, rifle hunting loads, waterfowl. You name it. Across the board, it's -- every one of the categories has seen a surge. And we mentioned 8 million new users, a lot of which are people of color, women, what have you, that are getting into the sport and shooting and enjoying for the first time. So it is pretty broad-based.

And Jason, anything else that you see?

Yes. Thanks, Scott. I would add that, as Chris mentioned, it is an extremely broader base than previous surges. I would venture you to go to a range that isn't busy today, whether it just be for recreational shooting. Hunting sales were up 12%. We hope that continues, and we think it will continue.

So it's a much broader surge than we have seen in previous years, which is good. Because when it's tied to 1 or 2 calibers, as some previous surges were, that's not good for manufacturing of the product. So everything seems to be doing well right now across broad-based categories where our brands fit, especially on the performance side for hunting ammunition and personal defense. We have a nice share of that market. So it's just -- it's a win-win for us and for the industry as a whole for the longevity of it.

The next question is from Matt Koranda with ROTH Capital.

Just wanted to cover the Remington ramp, if we could. I know you guys said it contributed a bit faster than expected this quarter. Maybe if you could cover a little detail on what enabled that fast a ramp and how much it contributed to the quarter in terms of revenue, that'd be helpful.

And then I think you mentioned, Jason, that Remington may be accretive as soon as the first quarter of this coming fiscal year. So I just wanted to understand, is that earnings-accretive or margin-accretive? And how should we think about the EBIT margin contribution at Remington as you get fully ramped middle of the year next year?

Yes. So good question. And we'll let Jason address the -- how this thing has progressed for us because I think what he and his team have done is a remarkable job of -- in the early stages of integrating that business much, much differently than we have with previous acquisitions. And it's right in our wheelhouse and Jason's team. So Jason?

Matt, on the integration itself, obviously, we did exceed our expectations for the quarter. We'll let Sudhanshu talk about the accretive remarks on it. But the ramp-up plan is going well. As you can imagine, when you have to hire hundreds of people and train hundreds of people at the same time, fighting raw material outages, it has its challenges, but our team has done a fantastic job. The workforce in Lonoke, Arkansas is remarkable. And we expect this ramp-up plan and integration plan to go above schedule for the rest of our year and into fiscal '22.

And Matt, on the sales point. We talked about in Q3, we did roughly $15 million and Q4, we're doubling it. We're saying $30 million with Remington and Hevi-Shot. So -- and after that, it's basically we're saying at mid -- by mid-fiscal year, we will go $50 million-plus run rate. So it will be earning-accretive in Q1 for us. And we are very excited about this deal. And it's really, really working well, the way Jason's team is leading it.

Great. And if I could ask one follow-up, if I could here, just a more modeling-based question. But in the earnings per share guidance, the $0.60 at the midpoint, you guys mentioned you're expecting some carrier and freight headwinds in terms of what you're factoring in. Could you help us quantify that a bit maybe in the fourth quarter guidance, if at all?

Yes. So Matt, we don't typically size that up. But as I mentioned, it is freight. As you talked about, it's container shortages, which we're going in and negotiating every day, different rates to make sure that we're being smart about getting product on the water where we're in a source product position.

We've also got increase in commodities. We've got various input costs all factored into the EPS model that we have. And frankly, some of this stuff is -- we expect to be onetime events. I mean the freight increases in the containers, it's going to work itself out at some point in time.

It's going to go on through the quarter, may even go on into the first quarter of our next fiscal year. But a lot of the folks that I talk to and my peers and other companies and our suppliers suggest that some of the input costs is going to abate.

And the one thing I didn't talk about is tariffs, which we've seen a negative effect on tariffs, not big, but certainly, something that has impacted a couple of our businesses. And we anticipate that, that will continue as we go forward.

The next question is from Mark Smith with Lake Street Capital Management.

Just wanted to ask about e-comm and as it applies to ammunition business. Can you walk us through and quantify or maybe even talk about the growth that you've seen in e-commerce for ammo? And then with that, can you also talk about the backlog in ammunition? And how much of that is maybe made up of e-com? Or how much you can fulfill of that backlog through your e-commerce channel?

Yes. Mark, this is Chris. I'll take those -- a couple of those questions. So e-comm, we had an actual slowdown versus previous quarters in our ammunition business. And it was all because of the choice we made to ensure that our retail and e-tail partners got their fair share. And so Jason and his team, in many cases, have limited purchases to 2 boxes.

So we know we can sell more in e-com, but we made the on-purpose decision to support our customers and our dealers who are working so hard to build the demand. And we'll continue to evaluate that as we go forward.

Now the backlog, we gave a general size of it last time. And as I alluded to in my prepared remarks last quarter, we don't intend to continue to do that because there's a number of factors that influence and impact that backlog. We just did it a time to give people an indication of the demand surge that we were seeing.

And so it's safe to say that, as I've alluded to earlier, that the demand has not only continued, but we've seen a strengthening of the demand, which would lead to a backlog across all of our channels of distribution, including our own e-commerce.

And the next question is from Ryan Sundby with William Blair.

Congrats on the quarter. Maybe can you just talk a little bit more about the rationale to lower the long-term leverage ratio to 1 to 2x? And is this a target that you'd be willing to flex off against if you see the right deal and then work your way back down? I'm just trying to understand kind of the background on that.

So Ryan, this is Sudhanshu. As I mentioned in my prepared remarks, we are in a cyclical industry, and we want to be more conservative in terms of the balance sheet management. We believe that the kind of earning and cash flow we will generate, 1 to 2x, it still gives us enough flexibility to invest internally to do tuck-in acquisitions, and we believe that that's good for the company for the long-term balance sheet management.

Would you be willing to go above the 2x, if the right deal comes along? Or is that kind of a cap that you won't go past?

So right now, our long-term guidance is 1 to 2x, and we believe that gives us enough flexibility to do the right type of deals, which will be accretive to us.

Yes. So Ryan, let me add a couple of points to that. Sudhanshu underlined the cyclicality nature of our business. And so what we don't want to do is run even a remote risk that we get back into the capital leverage situation that we got into a few years ago. So we're very mindful of that.

However, that being said, we're seeing a lot of opportunities to drive organic growth. And we're seeing increasing opportunities on the M&A side. But as everyone knows, multiples are high right now. So as much as we're excited about the potential M&A activity out there, we want to be really good stewards of capital. And so where we see opportunities and what we're looking at now, we feel like with the cash generation that we are demonstrating and what our projections are, we feel that we can stay within that 1 to 2x and do everything we need to do.

And the next question is from Eric Wold with B. Riley.

So maybe just a follow-on question to the last one, kind of the acquisition landscape and your goal for kind of tuck-in. Should we look at the $16 million price for Hevi-Shot and the $81 million for Remington as kind of bookends to kind of what you feel is an attractive kind of tuck-in acquisition range? Or what would get you comfortable going above that high end of that range, if that is the range?

So Eric, the way we're looking at it is a bit different in terms of how we value the businesses. We valued both -- and as you said, they're kind of bookends, right? So one's $81 million, one's $16 million. We didn't set out to play it that way. We looked at both independently and saw great opportunities to get them at attractive prices, to leverage the synergies we have in the Centers of Excellence that we're building and make them very accretive.

So we purposely not boxed ourselves into a size because they need to meet our criteria. And if they come in varying sizes, we're absolutely fine with that.

Now, I think it's fair to say we're not going to look at really, really small acquisitions that take an awful lot of our team's precious resources. We look at everything and look at it as though it has an opportunity cost. So please don't take those as bookends. We look at everything independently.

Got it. And then if I simply in -- I know you don't want to comment on backlog in the quarter. But just maybe kind of slay into kind of what you added last quarter and how you kind of added onto this quarter. What is the approximate kind of annualized ammo manufacturing capacity right now, taking into account kind of initially what you've gotten from Remington and Hevi-Shot? And what do you think over the next 12 months of those acquisitions get further integrated that get improved in the company? What could you see your total ammo manufacturing capacity being in the 12 months from now?

Yes. Eric, we certainly look at it. We want to be mindful of the total capacity within the industry, but we don't know the exact size. We're working as best as we can with different outside sources to understand how and where capacity is being put in. Because in previous surges, there was a lot of capacity that was added. What we're doing is smartly adding capacity to our organization without adding to the industry. One of our key competitors, I think, has done something similar on the Lake City front.

So it's one of those things where I think the strong are getting stronger and adding capacity in a smart, smart manner to keep the market rational. And I think all of us are looking internally at how we can be more efficient. Can we reduce SKUs? Can we get more dedicated runs? Can we mix in a way that allows us to serve the consumer better.

Sorry, I might have misspoke, Chris. I'm trying to get not the industry capacity, just the Vista capacity?

Yes. So Eric, what you see us doing right now is running flat out. I think that gives you a good window into where we sit. Now, Remington provides great upside for us. Hevi-Shot provides more capacity. That's what I'm referring to.

So I think you've got some good information that we shared, that gives you a feel for where our capacity really lies.

And the next question is from Brian DiRubbio with Baird.

Just Chris, Sudhanshu, on raw material inflation. Are you doing anything to hedge that inflation cost over the near and medium term?

Yes. So Brian, we've talked about hedging in the past, and I think it's certainly helped us over the last 12 to 18 months a bit and will continue to help us a bit. But when we look at the spot rates of -- or the hedge rates based upon the current spots, we're very careful about locking into something that we feel like is not a smart bet.

So we look at the spot rates now. We see them at highs. So we're not excited about jumping in and locking our team into hedge positions that we don't think are smart. But we continue to evaluate it. Sudhanshu, Andy Keegan, who you all know, and our whole team, along with Jason and his team, and frankly, outside advisers and bankers that we work with, look at it very, very holistically.

Sudhanshu, you want to add anything to that?

No, Chris. This is our top priority. We keep watching it, and we feel that we will do the right thing as we get the different type of advice.

Great. And maybe just one last one. If you can just -- given the changes in the competitive landscape, can you talk about how the current ammunition environment is in terms of competition, imports versus sort of a consolidated base here in the U.S.?

Yes. So we -- the competitive landscape is -- it's a competitive industry, right? You've got a lot of good competitors that we work with in many respects on different initiatives. And I don't think, Jason, we see the landscape changing too much. As you see surges in this where demand is outstripping supply, you're going to see imports continue to grow as well because they just -- consumers can't get the brands they want initially.

Yes. I think history shows us that at times of a surge, imports come up. When there's not a surge, our customers much more prefer a domestic manufacturer. So it puts us in a good seat with the brands that we've acquired recently.

(Operator Instructions) We did just get another question in from Jim Chartier with Monness, Crespi and Hardt.

Jason, wondering if you can talk -- can you just talk about where you think EBITDA margins for the Remington business can you get to. Can they get on par with the rest of your existing business? And is it a factor of sales volume to get there? If so, what sales volume? Or is it more a function of just kind of training the workforce there as you brought them on recently?

Yes. So Jim, when we look at the Remington business, we're -- Jason and his team are making Herculean efforts to take a facility from cold start in a demand environment that we're in right now and produce at the highest level. So we've got challenges on the material front. We've got challenges on the labor front. And everybody in that area wants to come back and work for us, which is terrific. But we have to train folks, retrain folks that are coming off furlough and make sure that they're cross-trained.

So we're doubling the business this quarter, which Sudanshu prepared in his remarks, is almost a doubling again in the ensuing quarters as we get kind of to the middle of next fiscal year. So that Remington business, as you look at the challenges we've had, will not be at Federal, Speer and CCI margin rates this -- next 12 months.

But when we look out beyond that, there's no reason why it can't be at Federal rates. That's the way we look at it, and everything we've seen so far would support that.

Great. And then can you just talk about what the order book for the Outdoor Products business looks like and how retailers would kind of plan that business for spring of next year?

Yes. So the Outdoor Products business is equally as exciting. We've seen the same surge in demand. We've seen demand continue. And again, from what we see right now, we see it continuing, right? I mean there's a number of factors for it. People have rediscovered the outdoors again. COVID vaccination rates, I think, are surprising some people that they're not as fast as they could be. And so we see all the trends that we've continued to see continuing, right?

So people are cooking outdoors. People are still a bit reticent to go to restaurants. People are riding their bikes. We see e-bikes coming on stream, a lot of stuff that factors into our demand continuing, which we're very excited about.

We didn't talk much about outside the U.S., but we've got brands like Bushnell and CamelBak and Bell and Giro that have good footholds in areas of the world that, frankly, are struggling more than the United States is. And so that pent-up demand is there. We know it's there. And we also expect our ski-related businesses to recover as mountains open up.

So yes, I mean, it's a good time for, I think, bolstering the outdoor recreation business. And those who are most innovative and have really good brands tend to prosper in times like this.

All right. And there appear to be no further questions at this time.

Thank you, operator, and thank you, everybody, for your time today, and we look forward to chatting with you in another 90 days.

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