Vista Outdoor(VSTO) - 2024 Q4 - Annual Report

Part I Business Vista Outdoor is a global designer and manufacturer of outdoor recreation and shooting sports products, undergoing strategic transformation including the sale of The Kinetic Group and implementation of the 'GEAR Up' efficiency program Company Overview and Reportable Segments Vista Outdoor operates through four reportable segments, with The Kinetic Group being the largest contributor to external sales in fiscal year 2024, and focuses on driving 'Power Brands' within its Revelyst business FY2024 Sales Contribution by Segment | Segment | FY2024 Sales Contribution | Key Product Categories | | :--- | :--- | :--- | | The Kinetic Group | 52.9% | Ammunition, primers, components | | Revelyst Adventure Sports | 22.1% | Protective gear, apparel, footwear, hydration, e-mobility | | Revelyst Outdoor Performance | 16.4% | Fishing, lifestyle apparel, outdoor accessories, outdoor cooking | | Revelyst Precision Sports Technology | 8.6% | Golf technology (GPS, rangefinders, launch monitors) | - The company's brand strategy for its Revelyst business focuses on driving its largest 'Power Brands' (Bell, Bushnell, CamelBak, Fox Racing, etc.) and nurturing 'Challenger Brands' with high growth potential[18] Strategic Initiatives The company is executing two major strategic initiatives: the planned sale of The Kinetic Group to CSG for an increased price of $1.96 billion, and the 'GEAR Up' transformation program for Revelyst segments to drive efficiency and reinvestment - On October 15, 2023, Vista Outdoor agreed to sell The Kinetic Group business to CSG. The agreement was later amended on May 27, 2024, increasing the base purchase price from $1.91 billion to $1.96 billion[27][29] - The 'GEAR Up' transformation program was initiated in Q4 FY2024 to drive efficiency and cost savings within the Revelyst segments by simplifying the business model, streamlining operations, and reinvesting in top brands[30][36] Market Opportunity and Competitive Strengths Vista Outdoor operates in a growing outdoor recreation market, leveraging its portfolio of iconic brands, strong innovation capabilities with approximately 1,832 patents, and scale advantages through centralized 'Centers of Empowerment' - The outdoor recreation industry's gross economic output grew to $1.1 trillion in 2022, representing 2.2% of U.S. GDP, up from $862 billion in 2021[34] - Participation in key markets is strong: on-course golf participation reached 26.6 million in 2023 (a decade high), and 54.5 million Americans fished in 2022 (a 4% increase YoY)[32][33] - The company holds a portfolio of approximately 1,832 U.S. and foreign patents and employs around 100 dedicated design and product development professionals to drive innovation[36] - The 'GEAR Up' program is establishing 'Centers of Empowerment' to centralize expertise in distribution, supply chain, direct-to-consumer, IT, and international operations, creating a significant scale advantage[40] Customers, Marketing, and Competition The company sells through diverse channels, with its top ten customers accounting for 30% of net sales in FY2024, primarily in the U.S. market, and faces significant competition based on price, quality, innovation, and performance - Sales to the top ten customers accounted for approximately 30% of consolidated net sales in fiscal year 2024[49] - In FY2024, U.S. customers represented 83% of sales, while international customers accounted for 17%. Law enforcement and military professionals made up 13% of sales[49] - Key competitors include Winchester Ammunition (Olin Corporation), Garmin, Nikon, Topgolf Callaway, Yeti, and Patagonia across the company's various segments[53] Regulatory Matters and Human Capital Vista Outdoor is subject to extensive regulation, particularly concerning ammunition, and employs approximately 6,400 individuals globally, emphasizing employee engagement, safety, and professional development - The company is subject to numerous laws and regulations, including those from the ATF, which control the manufacture, export, import, distribution, and sale of ammunition[59] - The company employs approximately 6,400 individuals globally, with 70% in production roles. Employee relations are considered strong, with no union representation in the U.S[62][63] U.S. Employee Diversity Statistics (as of March 31) | Statistic | 2024 | 2023 | | :--- | :--- | :--- | | % of employees identifying as persons of color | 19% | 20% | | % of leadership identifying as persons of color | 11% | 10% | | % of employees who are female | 27% | 28% | | % of leadership who are female | 28% | 29% | | % of employees who are veterans | 7% | 7% | Risk Factors The company faces numerous risks, including operational challenges, market competition, reputational issues, legal and regulatory hurdles, cybersecurity threats, macroeconomic factors, and specific risks related to the pending sale of The Kinetic Group Risks Related to Operations Operational risks include reliance on third-party suppliers, inaccurate demand forecasting, shipping disruptions, international operational challenges, and potential catastrophic events at manufacturing facilities handling explosive materials - Reliance on third-party suppliers for components and finished goods creates exposure to volatility in availability, quality, and price, which could increase operating costs[83] - Inability to accurately forecast customer demand may lead to excess inventory levels, write-downs, or product shortages, which could damage customer relationships and financial results[100][102] - Some manufacturing processes involve explosive and flammable materials, which have previously resulted in incidents that disrupted production and created liability[112] Risks Related to Markets and Brands The company's dependence on a few large customers, intense industry competition, and the need to maintain brand reputation, especially given its association with the firearms industry, pose significant market and brand-related risks - Sales are highly dependent on a few large customers, with the top ten accounting for approximately 30% of consolidated net sales in fiscal year 2024[113] - The company's association with the firearms industry may affect relationships with financial institutions, resellers, and other service providers who may cease or limit business due to reputational concerns[129] - Negative commentary and organized boycotts on social media platforms can have an immediate and adverse impact on the company's reputation and business[130][131] Legal, Regulatory, and Cybersecurity Risks The company faces potential product liability claims, extensive regulation, particularly for firearms and ammunition, and significant cybersecurity threats that could lead to data loss, enforcement actions, and reputational damage - The company manufactures products that create exposure to potential product liability, warranty liability, or personal injury claims and litigation[133] - Changes in government policies and legislation regarding firearms and ammunition could become more restrictive and have a material adverse effect on business[145][146] - A breach of security measures could result in unauthorized access to customer data, leading to reputational damage, loss of customers, and significant liability[151][152] Risks Related to Macro-Economic Conditions and Indebtedness The company is exposed to interest rate risk on its variable-rate debt, potential cost increases from global trade policy changes, reduced demand due to general economic conditions like inflation, and restrictive covenants in its debt agreements - A portion of the company's indebtedness has variable interest rates, exposing it to risk. A 0.25% change in interest rates would result in a $0.4 million change in annual interest expense on the unhedged portion of its debt[154] - General economic conditions, such as high inflation, affect consumer discretionary spending and can reduce demand for the company's products[165] - Debt covenants in the 2022 ABL Revolving Credit Facility and 4.5% Notes impose significant operating and financial restrictions, limiting the ability to incur debt, make investments, or sell assets[167][169] Risks Related to Announced Transaction The completion of the Sporting Products Sale to CSG is subject to various conditions, and failure to complete the transaction could adversely affect the stock price and business, while the pending sale imposes business uncertainties and a potential termination fee - The consummation of the Sporting Products Sale is subject to conditions including stockholder approval and CFIUS clearance, and there is no assurance it will be completed[173] - Failure to complete the sale could adversely affect the company's stock price, business, and results of operations due to transaction costs, business restrictions, and potential loss of key employees[174] - The Merger Agreement contains a termination fee of $47,750,000 payable by Vista Outdoor under certain circumstances, which could discourage competing acquisition proposals[177] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[180] Cybersecurity The company has implemented a cybersecurity risk management program overseen by its Information Security organization and the Audit Committee, which includes risk identification, testing, and employee training, with no material incidents identified to date - The company's cybersecurity program involves risk identification via third-party services, annual internal and external penetration testing, and mandatory employee training on identifying risks[182][183] - The Board of Directors, through its Audit Committee, provides oversight of cybersecurity risk, receiving presentations at least annually on the enterprise risk management program[188][189] - To date, no cybersecurity threats or incidents have been identified that have materially affected or are reasonably likely to materially affect the company's operations, strategy, or financial condition[187] Properties As of March 31, 2024, Vista Outdoor occupies various manufacturing, warehouse, research, and office facilities, mostly leased, and believes its properties are well-maintained and sufficient for near-term operating needs - The company's significant operations are spread across the U.S., Mexico, and Puerto Rico. Most facilities are leased, with key owned properties supporting The Kinetic Group and Revelyst Outdoor Performance segments[193] Legal Proceedings The company is subject to various legal proceedings incidental to its business but does not consider any currently pending proceedings to be material, nor does it expect environmental liabilities from former subsidiaries to be material - The company does not consider any currently pending legal proceedings, individually or in the aggregate, to be material to its business or likely to result in a material adverse effect[194] - Certain former subsidiaries are identified as potentially responsible parties (PRPs) for hazardous waste sites, but the company does not expect these environmental liabilities to be material[195][196] Mine Safety Disclosures This item is not applicable to the company - Not applicable[198] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Vista Outdoor's common stock trades on the NYSE, with 2,642 holders of record as of May 20, 2024, and its $200 million share repurchase program expired in January 2024 with no shares repurchased under it during FY2024, aside from those for tax withholding - The company's $200 million share repurchase program expired on January 24, 2024. No shares were repurchased under this program in fiscal year 2024[203] - During the fourth quarter of fiscal year 2024, 51,000 shares were repurchased at an average price of $31.26 per share to satisfy tax withholding obligations upon the vesting of employee stock awards[203] Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal year 2024, net sales decreased 10.8% to $2.75 billion, driven by declines in The Kinetic Group and Revelyst segments, leading to significant impairment charges, yet the company achieved strong operating cash flow of $400.9 million and reduced debt by $340 million, while initiating the 'GEAR Up' program and proceeding with the sale of The Kinetic Group Critical Accounting Estimates Management's critical accounting estimates focus on goodwill and indefinite-lived intangibles, with significant impairment charges of $161.7 million for goodwill and $50.3 million for indefinite-lived intangibles recorded in Q3 FY2024, particularly impacting the Golf reporting unit - In Q3 FY2024, the company conducted an interim impairment test due to challenging economic conditions, resulting in a $161.7 million goodwill impairment loss and a $50.3 million indefinite-lived intangible impairment loss[220][223] - The goodwill impairment included the full carrying value for the Outdoor Cooking ($26.2M) and Stone Glacier ($10.0M) reporting units, and a partial impairment of $125.5M for the Golf reporting unit[220] - After the Q3 FY2024 impairment, the fair value of the Golf reporting unit was equal to its carrying value, suggesting high sensitivity to future performance. A hypothetical 1% increase in the discount rate would have resulted in an additional $35 million impairment[222] Executive Summary and Financial Highlights Fiscal year 2024 saw a $333.7 million decrease in net sales due to lower volumes and challenging economic conditions, yet the company generated $400.9 million in cash from operations, reduced debt by $340 million, initiated the 'GEAR Up' program targeting $100 million in annualized savings, and progressed with the sale of The Kinetic Group for an increased price of $1.96 billion - Net sales for FY2024 decreased by $333.7 million, primarily due to lower volume and pricing in The Kinetic Group and challenging economic conditions affecting the Revelyst segments[229] - The company maintained a strong balance sheet, with cash from operations of $400.9 million and a debt reduction of $340 million in FY2024. Total debt to capitalization decreased to 39.0% from 48.4%[231] - The GEAR Up transformation program is expected to deliver approximately $100 million in annualized pre-tax operating profit improvements by fiscal year 2027, with estimated pre-tax restructuring charges of $40 to $50 million[232] - The agreement to sell The Kinetic Group to CSG was amended to increase the base purchase price to $1.96 billion and the cash consideration per share of Vista Outdoor stock to $16.00[234][236] Results of Operations In fiscal year 2024, net sales fell 10.8% to $2.75 billion, gross profit decreased 16.7% to $859.0 million, and operating income dropped 53.2% to $50.5 million, primarily due to lower volume and pricing in The Kinetic Group and reduced consumer demand in Revelyst segments Consolidated Results of Operations (FY2024 vs. FY2023) | Metric | FY 2024 | FY 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $2,746.1M | $3,079.8M | ($333.7M) | (10.8)% | | Gross Profit | $859.0M | $1,030.9M | ($171.9M) | (16.7)% | | Operating Income | $50.5M | $107.9M | ($57.4M) | (53.2)% | Net Sales by Segment (FY2024 vs. FY2023) | Segment | FY 2024 Sales | FY 2023 Sales | Change (%) | | :--- | :--- | :--- | :--- | | The Kinetic Group | $1,452.6M | $1,757.9M | (17.4)% | | Revelyst Outdoor Performance | $450.1M | $460.8M | (2.3)% | | Revelyst Adventure Sports | $607.5M | $625.3M | (2.8)% | | Revelyst Precision Sports Technology | $235.9M | $235.8M | — % | - The Kinetic Group's gross profit decreased 25.7% in FY2024 due to lower volume and price, unfavorable mix, and increased input costs[249] Liquidity and Capital Resources As of March 31, 2024, the company had $60.3 million in cash, with net cash from operating activities at $400.9 million, and successfully reduced total debt to $720 million, believing its current resources are sufficient for near-term operations and strategic initiatives - Net cash provided by operating activities was $400.9 million in FY2024, compared to $486.2 million in FY2023[282][283] - The company paid off its 2022 Term Loan and made net repayments on its ABL Revolving Credit Facility during FY2024[285] Material Cash Requirements as of March 31, 2024 | Category | Total | Less than 1 year | Years 2 - 3 | Years 4 - 5 | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt | $720.0M | $0 | $220.0M | $500.0M | $0 | | Interest on debt | $143.1M | $37.8M | $60.3M | $45.0M | $0 | | Operating leases | $176.3M | $24.2M | $44.5M | $34.7M | $72.9M | - As of March 31, 2024, the company had $237.1 million available for borrowing under its 2022 ABL Revolving Credit Facility[287] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from interest rate, foreign currency, and commodity price fluctuations, using derivative instruments to mitigate these risks without engaging in speculative activities, with particular sensitivity to changes in variable-rate debt and major foreign currencies - The company is exposed to interest rate risk on its variable-rate debt. A 1/4 of one percent change in interest rates would result in a $0.4 million change in annual estimated interest expense on the $145 million of unhedged variable-rate debt[299] - To mitigate risks, the company uses derivative financial instruments, including interest rate swaps, foreign currency forward contracts, and commodity hedges, but not for trading or speculative purposes[300] - The company is exposed to foreign currency exchange rate fluctuations, particularly with the Euro, British pound, Chinese renminbi, and Canadian dollar, which could affect reported results[301] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for FY2024, including the independent auditor's unqualified opinion on both the financial statements and internal control over financial reporting, along with detailed notes on accounting policies, impairments, and debt structure Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP issued an unqualified opinion on Vista Outdoor's consolidated financial statements and the effectiveness of its internal control over financial reporting, highlighting goodwill impairment for the Golf reporting unit and indefinite-lived trade name impairment for Fox Racing as critical audit matters - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion, stating the financial statements are presented fairly in all material respects[305] - The audit identified two critical audit matters: the impairment of goodwill for the Golf reporting unit and the impairment of the Fox Racing indefinite-lived trade name, due to the significant judgments and estimates involved[310][312] Consolidated Financial Statements For the fiscal year ended March 31, 2024, Vista Outdoor reported a net loss of $5.5 million on sales of $2.75 billion, with total assets of $2.40 billion and total liabilities of $1.28 billion, and cash provided by operating activities of $400.9 million primarily used for debt repayment Key Financial Statement Data (FY ended March 31, 2024) | Metric | Amount (in thousands) | | :--- | :--- | | Income Statement: | | | Sales, net | $2,746,063 | | Gross Profit | $858,985 | | Operating Income | $50,453 | | Net Loss | ($5,505) | | Diluted Loss Per Share | ($0.10) | | Balance Sheet (End of Period): | | | Total Assets | $2,402,380 | | Total Liabilities | $1,276,083 | | Total Stockholders' Equity | $1,126,297 | | Cash Flow Statement: | | | Cash from Operating Activities | $400,887 | | Cash for Investing Activities | ($46,684) | | Cash for Financing Activities | ($380,441) | Notes to the Consolidated Financial Statements The notes provide detailed disclosures on significant accounting policies, the planned sale of The Kinetic Group, acquisitions, goodwill and intangible asset impairments totaling $161.7 million and $57.1 million respectively in FY2024, debt structure including $720 million in long-term debt, and the reorganization of Revelyst into three new reportable segments in Q4 FY2024 - In Q3 FY2024, the company recorded impairment charges of $161.7 million for goodwill and $57.1 million for intangible assets ($50.3 million indefinite-lived and $6.8 million amortizing)[352][355][359] - As of March 31, 2024, long-term debt totaled $720 million, consisting of $220 million outstanding on the 2022 ABL Revolving Credit Facility and $500 million of 4.5% Senior Notes due 2029[453] - During Q4 FY2024, the company reorganized its reporting structure, splitting the former Revelyst segment into three new reportable segments: Revelyst Outdoor Performance, Revelyst Adventure Sports, and Revelyst Precision Sports Technology[510] Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of March 31, 2024, with no material changes during the fiscal year, and this assessment was affirmed by the independent auditor - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024[520] - Management concluded that the company's internal control over financial reporting was effective as of March 31, 2024, and the independent auditor, Deloitte & Touche LLP, concurred[524][527] Other Information During the fourth quarter of fiscal year 2024, no director or officer adopted or terminated a Rule 10b5-1 trading plan, and the company maintains an Insider Trading Policy applicable to all personnel - No director or officer adopted or terminated any Rule 10b5-1 trading arrangement during the fourth quarter of fiscal year 2024[534] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - None[536] Part III Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Principal Accountant Fees Information for Items 10 through 14, covering directors, executive officers, corporate governance, executive compensation, security ownership, related party transactions, director independence, and principal accountant fees, is incorporated by reference from the company's definitive Proxy Statement for the 2024 Annual Meeting of Stockholders - Information for Part III (Items 10-14) is incorporated by reference from the registrant's definitive Proxy Statement for the 2024 Annual Meeting of Stockholders[6][539][542] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K, including key agreements such as the amended merger agreement for the sale of The Kinetic Group and credit agreements - This section lists all financial statements, schedules, and exhibits filed with the report. Key exhibits include the amended merger agreement for the sale of The Kinetic Group and the company's credit agreements[549][553] Form 10-K Summary No Form 10-K summary is provided - None[559]