Greetings, and Welcome to the Helen of Troy Limited call to discuss the agreement to acquire Osprey Packs, Inc. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jack Jancin, Senior Vice President of Corporate Business Development for Helen of Troy Limited. Thank you. You may begin.
Thank you, operator. Good morning, everyone, and welcome. On today's call, our CEO, Mr. Julien Mininberg, and our CFO, Mr. Matt Osberg, will discuss Helen of Troy's signing of a definitive agreement to acquire Osprey Packs Incorporated. Mr. Mininberg will highlight the strategic rationale of the acquisition, and Mr. Osberg will provide a summary of the transaction. Following that, the operator will open the call so that we may take transaction questions you may have for us today. Before I turn the call over to Mr. Mininberg, I would like to note that this conference call may contain certain forward-looking statements that are based on management's current expectations with respect to future events or financial performance. Generally, the words anticipate, believes, expects, and other words similar are words identifying forward-looking statements.
Forward-looking statements are subject to a number of risks and uncertainties that could cause anticipated results to differ materially from the actual results. This conference call may also include information that may be considered non-GAAP financial information. These non-GAAP measures are not an alternative to GAAP financial information and may be calculated differently than the non-GAAP financial information disclosed by other companies. The company cautions listeners not to place undue reliance on forward-looking statements or non-GAAP information. A copy of today's release, as well as investor presentation with further detail about the transaction, have been posted to the investor relations section of the company's website at www.helenoftroy.com. These can be obtained by selecting the Investor Relations tab on the company's homepage and then selecting Press Releases and the Events and Presentations tabs. Please note that our comments today are limited to this transaction.
We will be releasing and discussing our results from the third quarter of fiscal year 2022 during our earnings call in early January. I will now turn the conference call over to Mr. Mininberg.
Thank you, Jack, and good morning to everyone. Thank you for joining us today. Yesterday, we announced the signing of a definitive agreement to acquire Osprey Packs. We believe this acquisition is a powerful strategic and financial fit for Helen of Troy. Adding Osprey to Helen of Troy will amplify and diversify our outdoor offerings. It will add an iconic ninth leadership brand that complements our world-class portfolio. It will increase our presence outside of the United States, and it will provide more critical mass to our value creation flywheel. Over the 47 years since its founding in 1974, Osprey has become a global leader in technical and everyday packs, and it has earned its reputation as a highly respected pillar in the outdoor industry. I'm sure many of you already know the brand through its comprehensive lineup of outstanding products.
That lineup includes a wide range of backpacks and daypacks for hiking, mountaineering, skiing, climbing, mountain biking, trail running, commuting, and school, as well as rugged adventure travel packs, wheeled luggage, and travel accessories. According to third-party data sources, Osprey holds the number one U.S. share position in the technical pack, travel pack, and everyday pack segments. It holds the number two share position in the hydration pack segment, and it is the number one specialty packs brand in several European markets. This profile aligns well with our acquisition criteria of adding brands that complement our portfolio and have earned and maintained a leading position. Like so many Helen of Troy brands, Osprey has focused single-mindedly on delighting consumers by delivering superior consumer-centric designs, innovative features and construction, outstanding materials and quality, and a focus on sustainability, all backed by its legendary All Mighty Guarantee.
Outdoor enthusiasts around the world admire the brand and all that it stands for. Outdoor is a key strategic area for Helen of Troy, providing a large and growing market that capitalizes on the multigenerational wellness trend. Osprey will be a significant complementary addition to Helen of Troy's indoor and outdoor portfolio, alongside Hydro Flask and OXO. With the total addressable market for technical, travel, and daypacks currently estimated at approximately $12 billion, we believe Osprey is well positioned to capitalize on market growth. Approximately half of Osprey sales are outside of the United States, further accelerating our strategy to invest and grow international under Phase II of Helen of Troy's strategic transformation plan. We believe Osprey and Hydro Flask can make for a powerful combination that provides further international presence and additional distribution opportunities that can benefit both brands and consumers.
Osprey's significant international presence will also further diversify our brand portfolio outside of the U.S., and its focus on EMEA and Asia Pacific matches our focus in those regions. We believe this acquisition is a classic story of two companies that are better together. Combining the capabilities, authenticity, and credibility of this proven and highly respected outdoor pioneer with our global footprint and scalable global shared services creates opportunities for new efficiencies and growth. Through Osprey's complementary offerings, we can now serve even more passionate end users in the large and growing outdoor adventure category. At the corporate level, we expect Helen of Troy to bring significant additional value to Osprey through our shared services platforms, providing additional scale, IT systems, and on-the-ground capabilities in key functions and regions.
On the design and operations side, Osprey's design center and sourcing footprint in Vietnam will expand Helen of Troy's reach across durables and soft goods. Adding Osprey's Vietnam operation will diversify our sourcing mix, and we believe it can be further leveraged to accelerate supply chain diversification work already underway at Helen of Troy in Vietnam and in other parts of Southeast Asia. At the business unit level, we believe the commonalities between Osprey, Hydro Flask, and OXO will provide compelling new opportunities. Looking at product, Helen of Troy's reach will include best-in-class pack making capability for packs, totes, lunch, camp, storage, and cases. Within our houseware's portfolio, Osprey's soft goods and design experience will complement our considerable design capability and our know-how on hard good durables with Hydro Flask and OXO.
While OXO is traditionally known for its indoor products, its lineup now includes outdoor products in retailers such as REI, with more on the way. On the marketing side, we believe there is an attractive synergy between the consumer profile, message, and go-to-market strategies across Osprey and Hydro Flask. In sales channels, like with Hydro Flask, Osprey also has a robust omni-channel presence. Osprey and Hydro Flask both have prominent distribution across leading global outdoor retailers, including Amazon, DICK'S Sporting Goods, Cabela's, REI, and through distribution partners. E-commerce is a major sales channel for Osprey, including a significant direct-to-consumer business. We believe Osprey's direct-to-consumer business can scale faster and more profitably on the Helen of Troy DTC platform and on the ecosystem that we are investing in on the IT side as part of our Phase II strategic plan.
We believe the sales channel synergy opportunity between Hydro Flask and Osprey can be even more significant in EMEA, where Osprey's large footprint can be beneficial for both brands, as mentioned. Regarding consumers, both Osprey and Hydro Flask focus on outdoor enthusiasts, while all three brands concentrate on consumers looking to elevate their lifestyle in the higher quality market segments that also tend to have higher margins. On the people side, once the acquisition is completed, we look forward to welcoming Osprey's associates and leadership team to Helen of Troy as part of our housewares segment. This will bring continuity, and the Osprey leadership team alone would add more than 150 years of additional outdoor experience. The 2016 Hydro Flask acquisition was a catalyst for us to evolve housewares into a multi-brand segment for Helen of Troy.
To give you a little sense for the degree to which outdoor know-how has augmented the multi-brand housewares leadership team, now five years after the Hydro Flask acquisition, four of the seven members of that senior leadership team joined Helen of Troy through Hydro Flask. We look forward to the Osprey team similarly complementing our considerable existing talent. Osprey's Founder, Co-owner, and Director of Innovation, Mike Pfotenhauer, will stay on with us as a consultant for the next year. We look forward to working with him and wish his wife, Co-owner, and Board Member, Diane Wren, all the best as they transition to retirement. The Osprey business teams will continue to operate from their current locations in Cortez, Colorado, in Ogden, Utah, in Poole, England, and in Ho Chi Minh City, Vietnam.
Financially, we are excited about the expected accretion to our top and bottom-line growth rates from the acquisition. Osprey comes with a very exciting multi-year new product pipeline that's ready to extend its track record of product design, innovation, and quality across existing and new categories. We plan to further capitalize on growth opportunities by injecting additional investments into marketing and direct to consumer. We also plan to improve Osprey's IT system capabilities while lowering its back-end costs over time under key Helen of Troy global shared services and leveraging the scale of our buying power for commodities like sea freight and land freight. Once the acquisition is closed, we will form a cross-functional integration team to work these as well as other potential synergy opportunities.
Beyond the complementary business fit between Helen of Troy and Osprey, we see very close alignment in critical areas such as culture and ESG. Osprey's values are very similar to Helen of Troy's, which will help its people continue to thrive in our proven culture and to help ensure we preserve the authenticity of the brand. Regarding ESG, Osprey has a long-standing commitment to environmental and social principles. This is highly visible in the way its products are designed and produced, reducing the company's impact on the environment. This is important to Osprey customers and consumers. It's important to us and to our stakeholders. On the social side, it cares for its employees as well as the communities in which it operates, further reflecting the aligned ESG philosophy between Osprey and Helen of Troy. In sum, we believe this acquisition will be a classic story of better together.
With that, I'd like to turn the call over to Matt to review the financial aspects of the transaction with you in more detail.
Thank you, Julien. I'm pleased to provide some additional background on Osprey's expected future financial performance, the benefits of the transaction, some perspective on valuation, and our ability to continue to opportunistically deploy capital post-acquisition. We are very excited about the opportunity to acquire another highly respected outdoor industry and consumer trusted brand like Osprey. Not only does this become our ninth leadership brand, but we expect it to be immediately accretive to our consolidated Phase II long-term growth targets for both net sales and adjusted diluted EPS. It also allows us to accelerate our international strategy, and it further leverages the strong shared service capabilities we have put in place throughout our transformation.
Although COVID had an adverse impact on calendar year 2020 sales, the business is projected to grow significantly over the 2020 base and deliver net sales revenue in the range of $155 million-$160 million in calendar year 2021, only slightly below pre-pandemic sales levels in calendar year 2019. We believe that this business will return to its pre-pandemic high single digit compound annual growth rate throughout the remainder of Phase II and expect it to be immediately accretive to our consolidated and Housewares segment long-term net sales growth rates. We also expect this acquisition to be immediately accretive to consolidated gross profit margin, adjusted diluted EPS, our adjusted diluted EPS growth rate, and our cash flow from operations. Over time, we expect the business will also be accretive to our consolidated adjusted EBITDA and operating margin.
However, we expect supply chain cost headwinds in calendar year 2022 and investments in marketing and system upgrades in calendar years 2022 and 2023 to result in adjusted EBITDA and adjusted operating margins that are in line with the comparable consolidated margins expected in those years. With its strong pipeline of new products, high gross profit margins, and global reach, we believe this is the perfect opportunity to invest in Osprey's marketing platform, tools, and technology. We believe these investments can more fully leverage the brand's leading market position and capitalize on growth opportunities. We also intend to use the same playbook we have been using for Helen of Troy to help mitigate supply chain headwinds that we believe will continue into calendar year 2022.
We believe there are synergy opportunities as part of this acquisition, and we will be thoughtful in pursuing those synergies over time with a goal to improve the long-term performance of the business. I will note that we do not expect some of the synergies that were available in previous acquisitions, such as the benefit of our tax structure and our Asia sourcing operation. Finally, the implied multiple of less than 13.5x calendar 2022 adjusted EBITDA is accretive to Helen of Troy's August 31st, 2021, enterprise value divided by a trailing twelve-month adjusted EBITDA multiple of approximately 17.5x. Based on a third-party source, we believe this multiple is in line with recent comparable size transactions for businesses in the outdoor industry.
The addition of Osprey will meaningfully increase our presence and credibility in the outdoor category, which has been a key M&A vector for Helen of Troy since the early days of Phase I. The brand's authenticity and product differentiation delivers on consumer expectations in the outdoor market and amplifies our current strategic housewares portfolio into a more diversified platform under three growing market leading brands, OXO, Hydro Flask, and now Osprey. The acquisition also strongly aligns with Helen of Troy's capital allocation strategy of investing in businesses that can accelerate our flywheel for profitable growth in Phase II of our transformation. The total purchase consideration is expected to be approximately $414 million in cash, which includes the impact of an estimated $6 million favorable customary closing net working capital adjustment.
The working capital adjustment is primarily due to lower-than-average current levels of inventory as a result of COVID restrictions on Osprey's Vietnam supply partners during the fall of calendar 2021. These restrictions have largely been removed, and inventory levels have begun to improve as factories resume production in recent months. Osprey has finished goods inventory on hand at suppliers, and returning to normalized inventory levels is now more dependent on accessing freight and logistics carrier markets. We expect to finance the purchase price with cash on hand and our existing revolving credit facility. We anticipate ending fiscal 2022 with the post-acquisition pro forma debt to adjusted EBITDA ratio approximately one half to one full turn higher than our ratio as of August 31st, 2021.
As such, we believe we continue to have sufficient dry powder to actively pursue the next attractive capital deployment opportunity that is right for us. We will provide an update on our fiscal 2022 outlook, including the incremental impact from the acquisition, when we report our results for the third quarter in January 2022. With that, I'll turn the call over to the operator to take your questions.
Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. In the interest of time, we ask that you each keep to one question and one follow-up. Our first question comes from the line of Robert Labick with CJS Securities. Please proceed with your question.
Good morning. Congratulations on an exciting acquisition.
Yeah, thanks. Good morning, Bob. Thanks very much.
Yeah. I wanted to start with your last two acquisitions, you know, Hydro Flask and Drybar. There were obvious, you know, kind of white space growth opportunities, be it distribution gains, doubling the salon base of Drybar, or simply penetrating the country with Hydro Flask. Can you talk about the growth opportunities ahead for Osprey as a, you know, a little more established brand, certainly than Hydro Flask at the time. Is there additional white space? Are there distribution gains, adjacent categories? How do you see, you know, the primary growth drivers of this brand going forward?
Yeah, it's a great question. Every time we make an acquisition, we're very careful to make sure that the growth trajectory is rock solid. In this case, I'd give three answers. One of them in the existing prime of Osprey, which is all about its packs, both technical and everyday categories. There's a very rich pipeline that the business is coming with because Mike Pfotenhauer and his design team has done so much work in new product development. It's the core focus of the brand. There's a multiyear pipeline that's quite far along in those spaces, for the, call it, existing business. There's that type of growth, call it, close to home and natural growth, but in this case, an unusually robust pipeline.
The second area is travel, where the brand has been making significant inroads in recent years, but yet it's only 12% as it's shown in our investor deck that we posted to our website of the total business. As a result of that, plenty of upside. In fact, also in that same deck, we mentioned that, in the $4 billion travel category, any single share point of gain is worth about $20 million of net revenue increase to Osprey, just by the math, including trade margins and all of that kind of thing. We like the prospects in travel. The third is direct to consumer. Direct to consumer is already a significant part of Osprey's business.
It's not so different than our own ratios, and as a result, a growing engine, just like it is for us. That said, dropping it into our DTC platform, taking advantage of our scalability in that area and the significant investments that we've made in the transformation, we believe there's quite a lot of acceleration that's possible. Then kind of a bonus one that's not yet fully explored on our side is the international opportunity. As strong as the brand is overseas with more than half of its revenues, it's a growth driver that's growing even faster than the core business, similar for us. That said, attaching Hydro Flask to it and the two together opening more doors of distribution. There's further expansion opportunities in Latin America and in Asia.
Those should be the good near term growth drivers. Like with all brands, as we work on it, we'll find more.
Okay, super. Sticking to your instructions, I'll just ask one kind of quick follow-up and get back in queue. Obviously, this enhances your leadership in outdoor and the adventure space already. Are there other brands in the space that make sense too, or is this now an opportunity to, you know, just, you know, build versus buy? How are you viewing the kind of housewares, but I'll go with outdoor adventure space and brands in your portfolio now and, you know, might there be a tenth brand at some point too?
Yeah, it's hard to say on the day we do our next foray that we're already ready for the one after that. I can definitely say that the outdoor category, that whole vector of acquisition has been of interest to us. You saw us take the plunge early on in the transformation with the acquisition of Hydro Flask. I think everyone on the call knows that that's been a successful acquisition. It's multiples of what we bought. It's market leader, et cetera, and in the bottle space. That said, we didn't have the soft goods, and we've only done some expansion of that brand beyond the hard goods.
We see the better together of hard and soft, along with some of the other better togethers that you heard in the call today. In terms of other spaces, there are lots in outdoor, and we may continue to build in that area, but a couple of steps at a time rather than leap forward on a call like this. There's also other parts of our portfolio where we see opportunities. There's other M&A processes that are afoot, and it makes it possible to use our diversified portfolio to keep expanding in other ways. For outdoors itself, it's just a good category. It's growing. There's a mega trend that's been going on for a decade or so in the outdoor space towards health and wellness and this kind of thing.
We see that continuing and there are adjacencies. Now that we have the hard and the soft and the capability in both from a back-end standpoint, think of operations, sourcing, et cetera, these brands can extend. Osprey's already done so, as I mentioned before, and we think it has more legs. Then we'll see what else is out there in the mix.
Super. Congratulations. Thanks very much.
Yeah. Thanks, Bob. Appreciate it.
Thank you. Our next question comes from the line of Rupesh Parikh with Oppenheimer & Co. Please proceed with your question.
Good morning. This is actually Erica Eiler on Rupesh. Thank you for taking our questions. I think I wanted to start on the category. Maybe you could talk a little bit about, you know, what type of category growth rates you see in the categories in which, you know, Osprey competes. You know, sticking to the category, kind of can you walk us through what competition in the category looks like in the U.S. and internationally? You know, are there any, you know, brands we should be thinking about, you know, that you consider, you know, head competitors? That would be helpful.
Sure. Starting with the category growth rates, Jack, you may be in a position there based on our research on the category itself versus the Osprey growth rates in particular.
Yes. I think it depends on which part of the segment you're looking at. With whether it's technical packs every day or even the travel, we've seen these categories historically grow at around a low to mid- single digit growth rate, and then there are certain years that are high single digit growth rates. It does vary, but there has been consistent growth in these categories as in the third-party data that we've been able to take a look at.
Yeah. On the growth rates, these are generally growing categories because of that health and wellness megatrend, like Jack said, varies by segment. Think of these as better than GDP growing categories on a fairly consistent basis. There was some up and down with COVID, like in so many categories. If you kind of take out the noise, what you'll see is that kind of faster than GDP, and frankly, faster than Helen of Troy's fleet average growth rates. It's true for the brand as well. The brand share is fairly stable over the last years in the pack space, which is the data that we have according to NPD over multiple years. As the category grows, Osprey keeps its share.
It's been even up a little bit in that period of time, so we like that. In the case of the competitors, on our website, we put an investor deck, and there's a chart there that shows in both the pack space as well as the technical as well as the everyday the major competitors. So, it'll give you a sense not only for who they are, but also what their market share is as measured by the same data source. Then in the travel industry, it's all the ones that you would expect. Importantly, on the travel side, we're focused on the outdoor adventure side of that. If you take a look at Osprey's product line, like on its website, you'll see just the type of products I'm talking about.
A natural extension for the brand as opposed to getting into sort of classic travel in that part of the luggage industry. It's not our intention. By the way, it's page 11 of the investor deck is the one I'm referring to that specifically names the competitor by subcategory.
Okay, perfect. I'll check that out. Just my quick follow-up. Is there any more granularity you can provide in terms of the, you know, the type of bottom- line accretion that you're expecting? Just any more color around kind of the magnitude of immediately accretive would be helpful.
Yeah, Erica, this is Matt. Thanks for the question. You know, we did talk about that they are accretive to, you know, the growth rates, and I know you're looking for the EPS number. I think we've given enough of the different assumptions that you could make kind of going up and down the P&L that you can probably get pretty close to what the expected accretion would be at an EPS level going into next year. I'm sorry we're not gonna be able to give you the number, but I think we've got a lot of good assumptions out there that you could work with to get pretty close.
Great. Thank you so much.
Thank you. Our next question comes from the line of Anthony Lebiedzinski with Sidoti & Company. Please proceed with your question.
Yes, good morning, and thank you for the opportunity to ask questions. You know, certainly looks like an attractive deal for you guys here. You know, just wanted to ask, in terms of the growth before the pandemic, I think you mentioned it was high single digits. Was that mostly a function of, you know, new products or just penetration to new doors, new retail doors? Just wanted to get a better sense as to, you know, how they were able to grow, specifically, you know, before the pandemic.
Yes, it's a combination of drivers. Hi, Anthony, it's Julien here. Thanks for the comment about the deal. We're excited about the brand. It's a great story. In the case of the growth drivers, it's what you'd expect, a combination of new products, as I mentioned before, design, new product development, and really nailing it for consumers is the very heart of Osprey and its ability to have those insights, act on them, and bring a superior proposition at a strong value. You know, the classic brand building story. It's unusually strong this many years on to have that level of design and innovation, and yet it's happening. They've also launched into some accessories, and if you take a look at their website, you'll see certain kinds of travel accessories that help.
The kind of urban trail has been an area of expansion for Osprey as well. You might think of it as, hey, next time I go hiking, I'll bring my pack. How about next time you go to school, next time you commute, next time you're in the university, next time you're on the bike going to the gym, whatever it takes. You know, those types of urban trails are a big deal, and you see that more and more in the types of products, the fabrics that they use and the designs and the kind of features that the products have and the materials as well. In the case of the expansion, there is new distribution that has been earned, and that new distribution gives the brand another growth driver.
Now on top of this, the travel category was really only entered a couple of years ago, and I would say the same thing about DTC, where the pedal was put to the metal even harder during COVID because of the store closures early on. All of these together, I think make up the story of that high single digit growth rate. As Matt said in his prepared remarks, we expect that to continue for the foreseeable future and certainly what we've predicted, which is the back half of Phase II.
Got it. Okay. You know, in terms of the actual manufacturing of the products, I mean, I think you mentioned that some of Vietnam suppliers, obviously, you know, Vietnam was, you know, shut down for a while. Just wanted to get a better sense as to the Vietnam exposure in terms of the sourcing of the products and whether things have started to improve there, just lately, you know, just wanted to get a better sense about the supply chain disruptions.
Yeah. Vietnam is a good news story, and it goes like this. First of all, Vietnam was hit hard by COVID like so many other parts of the world, including the Asian manufacturing scene. The good story part is that the vaccination rates have soared, especially in the urban areas like Ho Chi Minh City and some other parts of Vietnam. Further, the reopening of those factories is now fairly established. This is measured in months, not weeks. That said, COVID is a wily thing, and I can't tell you the course it's going to take. I can simply say that the improvement in both vaccination rates and in reopenings is strong and not measured in a short period of time.
I can also say that officially the government has made its reopening choices, and that's greatly accelerated the flow of commerce, just like everywhere else in the world for Vietnam. When the factories reopened, the good news was further that there was more inventory at the factory level than was known, from a finished goods standpoint, and that helps with the subject of ensuring that there's inventory to supply the growth of the brand. As Matt mentioned in his prepared remarks, it's now a question of just getting it on the water and bringing it to its distribution centers, whether they're in Europe, for the European market or in the United States. That is occurring, so this is good news. Further, Osprey itself had inventory on hand, so able to meet the demand.
As far as the further good news on Vietnam, it's actually at the corporate level for Helen of Troy. We were already headed that way anyway. You've heard us for several years now since the trade wars talk about the diversification of our own supply chain beyond our current heavy concentration in China, and that has been occurring. We have good news in that area. We are exploring, we are shipping now, as we said in October, from some of the Southeast Asian places, and Vietnam is on our list, as is Cambodia, Malaysia, Taiwan, and others. In the case of this design center, it's also an operations center for Osprey, and soon enough, we'll have the ability to hub out of there to accelerate that from a Helen of Troy standpoint.
If you look at total diversification, just math-wise, if you look in our 10-K at the percentage of revenue that we make today out of China and the size of what's of Osprey, you'll be able to see that it diversifies us instantly just by math. Then the comments that I'm making will take it further over time. Good news story in Vietnam, and the disruption at the moment is heading in the right direction. Knock on wood, COVID is a wily thing.
All right. Well, thank you and best of luck.
Yeah. Thanks, Anthony.
Thank you. Our next question comes from the line of Linda Bolton Weiser with D.A. Davidson. Please proceed with your question.
Linda.
Hi, how are you? Congratulations.
Good. Thanks.
I was just wondering, you know, I actually follow Clarus, and it sounds like this would have been a really good deal for them. It would fit into their strategy as well. I was just curious about the process. Was this an auction process, and were you kind of bidding against others, or how did they come to, like, sell this business?
Yeah. We reached out to Osprey a while back, actually, before COVID. In fact, in 2019, we had a great discussion with them for just an introduction to Helen of Troy. We had our eye on outdoor. We saw the success of Hydro Flask, and we liked our prospects very much in this space. The hard good and soft good thing that I mentioned was a big deal, and therefore, we were attracted to a gem of a market leader like this. There's so few outdoor privately held icons left. You know, think of Patagonia as an example. Osprey is another. Many others have changed hands in recent years, like an Arc'teryx or a North Face that have been bought. We saw this as attractive.
We later met with their private equity firm that had bought a minority position in Osprey, and then they started an auction process in January 2020. Like so many other things, COVID interrupted that process. It took a pause in March due to COVID, and then, even though it was fairly far along, that interruption was not resumed until they were ready to restart. We rejoined at that time and ultimately became the buyer. I assume there were other players in the mix and that we were bidding. I don't know about the one you're speaking of, whether they were involved or not. It was our pleasure to get to know them over the years. They're terrific people. The fit is very strong, and we think we're better together.
Great. That sounds good. I was wondering about the distribution. I know you don't wanna, like, put numbers around synergies, but you've alluded to the fact that their international footprint will help you. I'm wondering if, what's going on in the U.S. piece? I mean, I would expect that Osprey is fully distributed in the U.S. Are there any kind of channel synergies or revenue synergies in the U.S. piece, or is it just really the international opportunity?
Yeah, it goes further in the U.S., especially in DTC. On the international, I think it will help the two brands actually, not just us. Osprey is a terrific proposition. The EMEA group, in our diligence, we've learned how good a job they've done. It's impressive. We look forward to visiting them in person as soon as we can. In the case of the Better Together, I think from a sales bag standpoint, from a promotional standpoint, and all the thousands of doors that Osprey is in Europe, you know, this creates opportunity, and we'll knock on those doors. In the case of us, we bring the hard good capability that they don't historically have, and so it's not just a one-way street.
In Latin America and Asia, Osprey does not have much on the ground, but we do. We think there's opportunity there as well beyond the distribution network that they've already established. We'll learn and see what we can do. Inside the United States, I would not make the assumption that it's fully distributed and there's no further opportunity, both in brick-and-mortar and in DTC. In brick-and-mortar, for example, they've recently added some attractive stores at DICK'S, as an example. That's a big customer and one where they can expand their footprint. Then the new products that I mentioned can broaden the size of the shelf, just like was done with Hydro Flask, where it's not just about being in the doors, but it's the shape of what you've got on the shelves that can significantly help.
We're very good at Amazon. In fact, Amazon is our number one customer, and we think we can help on top of what Osprey already does well with Amazon in that customer, and that's big, not only in the United States, but outside. On DTC, which is another part of the e-commerce area, we're ramping big time, so is Osprey, and we know that our IT systems can add value, and we have a small army of people that are working on this, who are able to focus on the outdoor category and that whole technology stack. The story is not yet over on distribution, and it's not just outside the United States.
Inside the United States, the ability to bring the Hydro Flask story and the Osprey story, we look forward to exploring what that tech can do. Beyond the distribution synergies, there's also the more traditional kinds of synergies, and we'll form a classic integration team to explore the ones that we've identified. We're gonna be very careful to do a kind of M&A Hippocratic oath, which is to first do no harm as we continue to just learn our way through every single corner. As we do, we'll verify, you know, are these the right areas to pursue? There's obvious ones where there's just overlap or duplication, and like any company, we'll take care of that quickly. In the case of the bigger synergy opportunities, as we learn them, we will pursue them.
In the long term, there will be synergies. We're just not in a position to give you a list and a dollar figure and a target date.
Thanks. Can you just tell us, is there seasonality in their business?
Yeah. Jack, what would you say on that one?
It's probably a little counter to what Helen of Troy has been, but not all that much. Think about when people start doing more outdoor. It does a little bit more in the first half of the year versus the second half of the year, but it's not that significant of a difference in concentration.
That's a good thing, though, just for clarity, because of diversification. I think everyone on this call knows by now how strongly we emphasize the point of diversification and all-weather portfolio. This is just another aspect of that. F or example, the next sale of a backpack or a travel pack is not dependent on cold/flu seasonality, just to give an example of it, or air quality or something like this. This is good from a diversification standpoint. From a seasonality diversification standpoint, we're a bit more heavily weighted to the back half of our fiscal year, and Osprey is a little bit more weighted to the front half.
It's just a couple of points, so it's not gonna make a huge difference, but it's a good news story to have diversity of shipment patterns as well as diversity of categories.
Okay, great. Thank you very much.
Yeah. Pleasure, Linda.
Thank you. Our next question comes from the line of Steve Marotta with C.L. King & Associates. Please proceed with your question.
Good morning, Julien.
Hey, Steve. Good morning.
Good morning. Could you please remind us what your long-term targeted leverage ratios are, the band there, and the pace of the deleverage that you believe will occur from the acquisition?
Yeah. Matt, would you like to take this?
Yeah. Hey, Steve. Thanks for the question. You know, we haven't really given kind of a long-term leverage ratio. I would say, you know, for us, we probably like to stay, you know, generally under three. You know, we're also growing in size, so the leverage ratio in our current revolver doesn't you know, you get more capacity restrictions than leverage ratio restrictions at some point in time when you just get big enough. You know, this has been kind of an odd year, as you've seen for us from a cash flow perspective in terms of how cash flow is flowing, the need to build inventory and continue to build inventory as we're battling some of these supply chain disruptions. So, you know, look, we're a strong cash flow business, and I expect us to continue to be.
This will, you know, put some debt on the balance sheet, but we're gonna continue to work that down. We typically have strong cash flow in Q3 and Q4. You know, even putting this on the books today, we still have sufficient capacity to continue to look at capital deployment opportunities that are out there. We'll lever up a little bit here, but we'll, you know, work it down to something that's, you know, more historically where we've been, and we'll keep looking for the next way we can deploy capital. You know, I think there's some more activity out there that we can continue to evaluate.
Yeah. For us, it's more about deploying the capital than targeting a specific leverage ratio. You've seen our history. We tend to stay in the 2x-3x range on the upper end. We'll go a little higher if we see a very specific opportunity that's worth it, where we're sure it would pass even a pressure test of some kind and where we know the cash flow is strong enough to bring it down, even if we're a little wrong. We tend to fish in that kinda 2x-4x range with a bias more towards a 3x than a 4x, In the case of underutilized, we're below that number, and we have historically been for quite some time.
It's more about how to put the money to work well as opposed to how to, you know, get every penny out of the balance sheet. With interest rates low and good deals like this available from time to time, we're not afraid to take the plunge. The cash flow is there, and we'll be right back down soon enough.
Sure. What is Hydro Flask's current international exposure?
It's getting big. Hydro Flask has done very well internationally. It's now a very meaningful percentage of the brand, so the law of small numbers is kind of over on those early years of building out. We don't disclose specific numbers by brand like that, but I can say that Hydro Flask is growing fast, and international for Hydro Flask is growing faster. That's been generally true for almost all the years that we've held Hydro Flask. Now that the law of small numbers no longer applies, it's more meaningful. In terms of Hydro Flask's future internationally, before Osprey, we saw significant double-digit, like high double-digit type of growth rates continuing. That's our internal view still.
If you add the Osprey Better Together proposition, it could be an increase for both brands from there. That's probably as far as we can go on that one. The proposition for Hydro Flask is just a good one in general. I mean, people want water or other drinks to be at different temperatures. As we learn our way around the world, it's amazing how different. For example, bottle sizes matter quite a lot in the United States. In Asia, on the other hand, bigger is not better. A smaller bottle is greatly preferred. Cold, where you can hear the ice rattling around the next morning, is also not preferred. In fact, we might say we don't like warm or tepid drinks.
In some parts of Asia, that's what people seek, but it's not possible, given that it's hot outside, to keep it only tepid, so they use a thing like a Hydro Flask. Hot tea in so much of the Eastern world or the Orient is such a big feature, and smaller Hydro Flasks are super attractive. We're learning our way and making the right products for the right markets in terms of sizes and how they're marketed to meet the needs of those consumers and get the old just one more going for Hydro Flask internationally as well.
That's super helpful. Can I slip one more in? I think-
Sure, Steve.
You mentioned something. I appreciate that very much. You mentioned something about the tax structure earlier. Did I hear you correctly in that the acquisition cannot take advantage of your advantageous tax structure?
Yeah, that's the way we see it right now, Steve. You know, based on the research that we've done, getting the IP to a place in our tax structure would create a very large initial charge, and then you'd have to see that would pay back over time with lower tax rates. You know, that's not something we're seeing right now. Clearly, with a lot of potential change in the global tax environment, that could make it even less advantageous. That's the way we see it right now. Clearly, you know, tax laws change, and we'll continue to look at things and evaluate over time. That's the expectation that we have right now.
Terrific. That's very clear. I appreciate it. Congrats again.
Yeah, thanks. Pleasure.
Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Mininberg for any final comments.
Yeah, thanks, operator, and thanks, everybody, for being with us today. We're super excited about the deal. It's a classic better together story. We look forward to speaking with some of you, and then we'll go back to our quiet period. We emerged for today because of the news, and then we'll report out our Q3 results in early January on our traditional timing, at which point we'll be able to take questions broadly on the quarter, this deal. We hope that it will be closed by then. We're targeting the end of the calendar year. Thank you very much for joining today, and we'll see you in January.
Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.