Vista Outdoor(VSTO) - 2024 Q3 - Quarterly Report

Part I - Financial Information Unaudited Financial Statements Unaudited financial statements for the period ended December 24, 2023, show a significant net loss, primarily due to impairment charges, alongside declining sales and gross profit Condensed Consolidated Balance Sheet Data (unaudited) | | December 24, 2023 ($ thousands) | March 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Total current assets | $1,136,199 | $1,196,114 | | Goodwill | $303,995 | $465,709 | | Net intangible assets | $638,298 | $733,176 | | Total assets | $2,453,601 | $2,798,882 | | Total current liabilities | $440,032 | $453,871 | | Long-term debt | $763,986 | $984,658 | | Total liabilities | $1,370,696 | $1,667,089 | | Total stockholders' equity | $1,082,905 | $1,131,793 | Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) | | Three months ended Dec 24, 2023 ($ thousands) | Three months ended Dec 25, 2022 ($ thousands) | Nine months ended Dec 24, 2023 ($ thousands) | Nine months ended Dec 25, 2022 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Sales, net | $682,253 | $754,775 | $2,052,394 | $2,339,065 | | Gross profit | $202,851 | $238,806 | $638,478 | $795,150 | | Impairment of goodwill and intangibles | $218,812 | $— | $218,812 | $— | | Operating income (loss) | $(180,049) | $96,686 | $(12,078) | $400,278 | | Net income (loss) | $(148,195) | $65,147 | $(45,673) | $284,617 | | Diluted EPS | $(2.55) | $1.13 | $(0.79) | $4.91 | Condensed Consolidated Statements of Cash Flows (unaudited) | | Nine months ended Dec 24, 2023 ($ thousands) | Nine months ended Dec 25, 2022 ($ thousands) | | :--- | :--- | :--- | | Cash provided by operating activities | $240,269 | $307,516 | | Cash used in investing activities | $(19,281) | $(786,611) | | Cash (used in) provided by financing activities | $(250,361) | $534,324 | | Increase (decrease) in cash | $(29,180) | $54,842 | - In Q3 FY2024, the company recognized significant impairment losses totaling $218.8 million, including $161.7 million for goodwill, $50.3 million for indefinite-lived intangible assets, and $6.8 million for amortizing intangible assets, all related to reporting units within the Revelyst segment[29][33][37] - The company renamed its reportable segments during the third fiscal quarter, with 'Sporting Products' now 'The Kinetic Group' and 'Outdoor Products' now 'Revelyst'[19] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes Q3 sales decline to normalized inventory and consumer pressures, recorded a $218.8 million impairment, and highlights the definitive agreement to sell The Kinetic Group for $1.91 billion - On October 15, 2023, Vista Outdoor entered into a definitive agreement to sell The Kinetic Group business to Czechoslovak Group a.s. (CSG) for an enterprise value of $1.91 billion in an all-cash transaction, expected to close in calendar year 2024[145] Net Sales by Segment (Three Months Ended) | Segment | Dec 24, 2023 ($ thousands) | Dec 25, 2022 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | The Kinetic Group | $364,949 | $401,504 | $(36,555) | (9.1)% | | Revelyst | $317,304 | $353,271 | $(35,967) | (10.2)% | | Total | $682,253 | $754,775 | $(72,522) | (9.6)% | - The Kinetic Group sales decreased due to lower shipments and pricing as channel inventory normalized, while Revelyst sales decreased due to increased discounting, lower volume, and unfavorable mix as consumers are pressured by high interest rates and inflation[153] Operating Income (Loss) by Segment (Three Months Ended) | Segment | Dec 24, 2023 ($ thousands) | Dec 25, 2022 ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | The Kinetic Group | $95,347 | $117,935 | $(22,588) | (19.2)% | | Revelyst | $(2,853) | $13,475 | $(16,328) | (121.2)% | | Corporate and other | $(272,543) | $(34,724) | $(237,819) | (684.9)% | | Total | $(180,049) | $96,686 | $(276,735) | (286.2)% | - The significant operating loss in 'Corporate and other' for Q3 FY2024 was primarily caused by the $218.8 million goodwill and intangible impairment expense, along with costs related to the planned separation of the business segments[163][166] - The company maintained a strong balance sheet, reducing total debt by $225 million since fiscal year-end to $835 million, with cash from operations for the nine months at $240.3 million[144] Quantitative and Qualitative Disclosures about Market Risk The company's market risk exposure has not materially changed since March 31, 2023, with further details available in the fiscal year 2023 Annual Report on Form 10-K - The company's exposure to market risk has not changed materially since March 31, 2023[192] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of December 24, 2023, with no material changes to internal control over financial reporting during the quarter - The Co-Chief Executive Officers and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of December 24, 2023[193] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[194] Part II - Other Information Legal Proceedings The company is subject to various legal proceedings but considers none currently pending to be material to its business, operating results, or financial condition - The company is not involved in any legal proceedings that it considers to be material to its business, financial position, or cash flows[197] Risk Factors New material risks are introduced related to the pending sale of The Kinetic Group business, including closing condition failures, adverse effects if the sale is not completed, and potential litigation - The consummation of the Sporting Products Sale is subject to numerous conditions, including stockholder and regulatory approvals, which are largely outside the company's control and could prevent or delay the closing[200][201] - Failure to complete the sale could adversely affect the company's stock price, business, and financial condition due to incurred transaction costs, business restrictions, and potential loss of key employees[202] - The merger agreement includes a termination fee of $47.75 million payable by Vista Outdoor under certain circumstances, which could discourage competing acquisition proposals[205] - The company faces a risk of litigation from stockholders challenging the sale, which could delay or prevent the transaction and result in significant costs[206] Unregistered Sales of Equity Securities and Use of Proceeds This item is reported as not applicable for the period - Not applicable[208] Other Information No director or officer adopted or terminated any Rule 10b5-1 trading plan or non-Rule 10b5-1 trading arrangement during the last fiscal quarter - No director or officer adopted or terminated a Rule 10b5-1 trading plan or other trading arrangement during the last fiscal quarter[211] Exhibits This section lists exhibits filed with the Form 10-Q, including agreements for The Kinetic Group sale, corporate governance documents, and officer certifications - Key exhibits filed include the Agreement and Plan of Merger with CSG (Exhibit 2.5) and the related Separation Agreement (Exhibit 2.6) for the sale of The Kinetic Group business[213]