Clarus Corporation

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Claris Corporation's financial results for the third quarter ended September 30, 2019. Joining us today are Claris Corporation's President, John Walbrecht, the Chief Administrative Officer and CFO, Aaron Cuney, and the company's External Director of Investor Relations, Cody Slough. Following their remarks, we'll open the call for your questions now. Before we go further, I would like to turn the call over to Mr. Slaw as he reads the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please go ahead.

Thanks, Paul. Please note that during this call, the company may use words such as appears, anticipates, believes, plans, expects, intends, future, and similar expressions which constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are made based on the company's expectations and beliefs concerning future events impacting the company and therefore involve a number of risks and uncertainties. The company cautions you that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. Potential risks and uncertainties that could cause the actual results of operations or financial condition of the company to differ materially from those expressed or implied by forward-looking statements used in this call include, but are not limited to, the overall level of consumer demand on the company's products, general economic conditions and other factors affecting consumer confidence, preferences and behavior, disruption and volatility in the global currency, capital and credit markets, The financial strength of the company's customers, the company's ability to implement its business strategy, the ability of the company to execute and integrate acquisitions, the company's exposure to product liability or warranty claims and other loss contingencies, the stability of the company's manufacturing facilities and suppliers, changes in governmental regulation, legislation, or public opinion relating to the manufacture and sale of bullets and ammunition by our Sierra segment, and the possession and use of firearms and ammunition by our customers. The company's ability to protect patents, trademarks and other intellectual property rights, any breaches of or interruptions in our information systems, fluctuations in the price availability and quality of raw materials and contracted products, as well as foreign currency fluctuations, the company's ability to utilize its net operating loss carry forwards, changes in tax laws and liabilities, tariffs, legal, regulatory, political and economic risks, and the company's ability to declare a dividend. More information on potential factors that could affect the company's financial results is included from time to time in the company's public reports filed with the Securities and Exchange Commission, including the company's annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. All forward-looking statements included in this call are based upon information available to the company as to the date of this call and speak only as to the date hereof. Company assumes no obligation to update any forward-looking statements to reflect events or circumstances after the date of this call. I'd like to remind everyone the call will be available for replay through November 18th starting at 8 p.m. Eastern tonight. A webcast replay will also be available via the link provided in today's press release as well as on the company's website at clariscorp.com. Any redistribution, retransmission, or rebroadcast of this call in any way without the express written consent of Claris is strictly prohibited. Now I would like to turn the call over to the President of Claris, John Walbrecht. John?

Thank you, Cody, and good afternoon, everyone. It's a pleasure to be joining you. Our third quarter continued to be driven by the momentum in our Black Diamond brand, with sales up 14% and adjusted EBITDA increasing 13%. On a year-to-date basis, our Black Diamond brand sales have grown 13% while adjusted EBITDA is up 43%. We believe this continues to demonstrate that our innovate and accelerate growth strategy, accompanied by strong financial discipline and operational focus, provides for substantial value creation and a playbook that we can replicate with other superfan brands. We experienced growth in every geography, every sales channel, and every category. This was led by 61% growth in ski on strong demand across our backcountry portfolio of products, like our new Jet Force 2.0, as well as beacons and snowpacks. As we continue to refine our focus on the activity-based consumer, we see multiple avenues for growth. One of them is backcountry, where we see increasing participation and a consumer appreciation for innovation performance alongside snow safety. Apparel also continues to be meaningful, contribute to our growth, up 23% in the third quarter, driven by men's and women's sportswear, technical outerwear, and logo wear. Apparel remains one of our fastest growing categories, and we believe there is a significant runway for continued long-term growth So much so that we continue to believe that we can become a $100 million sales opportunity over time. Signifying our commitment to long-term growth in this business, we just appointed Steve McMahon as General Manager of Apparel and Footwear. His past experiences include leading product and merchandising at Adidas, Nike, Under Armour, Skullcandy, and Merrell. Steve is an avid skier, has a passion for the outdoors, and a love of building innovative and differentiated product and we are thrilled to have him on our team. Our climb business was up 7% due to growth in core categories such as carabiners, harnesses, bouldering and accessories supported by continued positive overall trends and popularity of the sport. Additionally, one of our fastest growing product category segments within climb is footwear which continues to gain traction with existing customers and is bringing new consumers into the brand. Going forward, we also believe there is a large market share opportunity in the footwear space that we can capitalize on through performance-based innovation, focused execution and product extensions. We have quickly ascended to the number three player in the rock shoe market and we have our sights set on an overall footwear initiative also being a $100 million business one day. In our mountain business, we grew sales by 6% due to market share gains in headlamps, gloves, packs, and tents. Our teams continue to design and develop award-winning products within the mountain business, providing retailers and consumers with additional touchpoints to the brand. Our commitment to product innovation, new product introductions, and an accelerated go-to-market strategy are producing these overall continued strong results at the Black Diamond brand. As expected, bullets and ammunition market softness remained, impacted our Sierra brand during the quarter with sales down 24%. The cyclicality of this market was a factor we considered when underwriting this acquisition, and despite the current environment, we believe the brand is still outperforming the competition. This is due to Sierra's diversified customer base of retailers, distributors, and OEM partners, which is further enhanced by a 250 plus bullet SKU offering. Due to Sierra's premium products, our margins haven't been jeopardized, which has allowed us to continue our innovate and accelerate playbook regardless of the market dynamics. This includes further strengthening the brand's market positioning by investing in product innovations, sales and marketing, and foregoing new long-term revenue opportunities like our launch into ammunition. Irrespective of what we believe to be the short-lived market headwinds, Sierra Steel meaningfully contributes to our overall profitability and free cash flow and we look forward to various opportunities that we believe will once again re-accelerate the brand's sales growth in the near term. Now on to some regional sales comments for the third quarter. Sales domestically were up 10%, while the category expansion I just mentioned helped drive these results. We also continue to experience strong growth within our key accounts. Our direct business also performed well with higher levels of online traffic and higher foot traffic in store. We continue to focus our D2C efforts on building awareness for the brand, supporting wholesale in our key markets, and creating an elevated consumer experience focused on performance, storytelling, consumer engagement, our athletes, education, and the merchandising of the complete offering. Turning to our international regions, sales were up 6% due to strength in our BD European operations and our Asian Pacific market, specifically our focus on key markets like Germany, France, Austria, Scandinavia, as well as Japan, Korea, and Australia. This focus is particularly critical as we work to enhance brand awareness ahead of the upcoming 2020 Summer Olympics in Tokyo. As we've mentioned, it will be the first time that climbing has been an event in the Summer Olympics, and given our leading market share in this sport, we are planning to maximize the brand exposure we expect to receive from the various events. The third quarter was also faced with headwinds brought on by escalating trade wars, and the strengthening of the U.S. dollar. While the proactive steps we laid out in early August were expected to minimize the tariffs announced at that time, the impact of additional assessments since then will exceed our mitigation efforts. Aaron will walk you through this in more detail momentarily. We view these headwinds as transitory and most importantly, we believe our brands are better positioned for growth than they have ever been. Our commitment to innovation is fueling new and more disruptive products that are being well received by our retail partners and well recognized by trade publications. In fact, BD has garnered 2.8 billion brand impressions year to date, a 9% lift compared to the same period last year. We believe we have earned 66 product awards so far in 2019 and are on track to outpace our 2018 product award total of 72. Here are a few notable call-outs. Outside Buyer's Guide featured nine BD products with Jet Force Pro named the best airbag and the boundary line map jacket named the best insulated shell. The print issue of Popular Mechanics named our icon headlamp Editor's Choice while the spotlight received recognition as the best value option. We won 2019 Gear of the Year for our Deploy Shell in Men's Journal, Ski Magazine Editor's Choice recognized our Tour Glove, and Condé Nast Self Magazine recognized our Distance 15 Backpack in their Self 2019 Fitness Awards. We don't often make it into mainstream outlets from Condé Nast, let alone inside leading women's websites, so we're pleased to receive this recognition. Irrespective of the awards, we believe the continued focus of our brand will ultimately drive both long-term growth and profitability as well as shareholder value creation. Speaking of driving shareholder value, as we've discussed on the last couple of calls, the strength we have built across our brand portfolio, which has already driven significant value creation, is being supported by a strategic and disciplined capital allocation policy. Our results, along with expanded flexibility and capacity under our new cash flow credit facility, provides us the liquidity to opportunistically evaluate acquisitions of additional super fan brands, adequately fund our quarterly dividend, and potentially repurchase our common stock. During the quarter, we continue to be opportunistic in repurchasing our own shares and remain well positioned to explore other measures to drive shareholder value given $75 million untapped of our $100 million cash flow credit facility. Now I'd like to turn the call over to Aaron to walk through our Q3 results in more details. Afterwards, I will return to discuss some of the initiatives we believe will support our long-term success.