Clarus Corporation

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Claris Corporation's financial results for the second quarter into June 30, 2020. Joining us today are Claris Corporation's President, John Walbrecht, Chief Administrative Officer and CFO, Aaron Cooney, and the company's External Director of Investor Relations, Cody Schloss. Following their remarks, we'll open the call for your questions. 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, Cori. 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 guaranteed 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 the 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 impact that global climate change trends may have on the company and its suppliers and customers The company's exposure to product liability or product warranty product warranty claims and other loss contingencies, disruptions and other impacts to the company's business as a result of the COVID-19 global pandemic, government actions and restrictive measures implemented in response, stability of the company's manufacturing facilities and suppliers, as well as consumer demand for our products in light of disease, epidemics, and health-related concerns such as the COVID-19 global pandemic. Changes in government 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 the date of this call and speak only as the date hereof. The 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 this call will be available for replay through August 24th starting at 8 p.m. Eastern tonight. Thank you, Cody, and good afternoon, everyone.

Despite a challenging consumer environment amidst a global pandemic, the strength of our well-diversified brand portfolio and a multi-channel distribution platform was apparent in our second quarter results. We believe that superfan brands show their long-term strength and core consumer demand even more so in difficult times. When the year ends, we believe we will see the strength of our brands proven through increased market share. Let me step back and address the plan we enacted at the onset of COVID-19 in March of earlier this year. At the onset of the virus, we devised a plan to focus on three things. First, our people, the preservation of brand equity, and then the maximization of liquidity, which together we believe would make us emerge as an even stronger company. The first pillar of the plan was the safety of our people. We have maintained our work at home stance for all office employees with minimal disruption to our operations. For those employees at Sierra and others in distribution where work has been deemed essentially significant, health checks as well as precautionary measures were implemented to protect their well-being and are ongoing. The second pillar was the preservation of brand equity. For Claris, brand equity amongst the core consumer is our lifeblood. We supported our retailers during the quarter by continuing to ship products to those in need while keeping the integrity of our pricing. This included products to support our partners' e-commerce businesses or avenues like curbside pickup. Most importantly, we continued to maintain and protect the integrity of our MAP pricing policy with each of our retail partners, thus limiting the amount of off-price promotions of our brand. Complimenting our retail partners, we continue to drive strong sales in our direct-to-consumer business, which includes both online and our retail store sales, with sales up 7% overall and growth of 25% on BlackDiamondEquipment.com. We continue to experience improved activation in our e-commerce channel due to more efficient prospecting and retargeting in order to drive higher levels of site traffic. We prioritized full-price selling with a focus on storytelling to capture the consumer's interest during this increased time at home and online. Ultimately, the strongest case to be made for our ability to preserve brand equity was the 140 basis point expansion in gross margin during the second quarter. We expect our well-performing e-commerce business along with third-party sites of our wholesale partners to carry more weight in 2020 as the percentage of our total sales, offsetting some of the weakness that will be felt at traditional retail. Finally, we prioritized our liquidity and ended the second quarter in a solid position. Aaron will walk through this shortly, but at June 30th, we had $21.5 million in cash with an access to $50.4 million on a revolving line of credit and a leverage ratio of .6x. Now I'd like to address the specific brand performance in the quarter. For Black Diamond, the impact of COVID-19 largely caused our retail partners to temporarily close their doors during the second quarter, freezing pre-season and replenishment orders. However, demand improved each month in the quarter, particularly in regions that have shown marked progress in the recovery, like Europe. In fact, we came into the quarter expecting our results to be Down 80% in April, 60% in May, and 40% in June We were able to exceed each month by approximately 10 percentage points We also showed positive momentum and resilience with various essential key accounts and strengths in our direct-to-consumer channel We continue to experience improved activation with our online sales due to more effective consumer prospecting and retargeting in order to drive higher levels of traffic and visit to our website. We are also encouraged by the amount of press and earned media the brand continues to garner. In June alone, we had more than 325 earned media PR placements and over 600 million impressions, and we won over 10 product awards. June's product PR highlights include the BD Stormline Stretch Shell in Forbes, the Impact Crash Pad in MSN.com, and the BD Icon in Popular Mechanics. Year-to-date, earned impressions are $2.2 billion with 72 product awards, both up from last year. And our apparel category is having its strongest year ever in terms of interest and product recognition from the media. In our Sierra business, domestic growth continued to accelerate in all channels with growth of 36%. This was driven by multiple demand factors like social and civil uncertainties and the upcoming U.S. elections. Partially offsetting this strong growth was the prolonged softness we experienced internationally which decreased 55%. It's important to note that these international markets had retail ordinances that prevented their opening unlike the U.S. where most have been deemed essential. and our international markets obviously don't have the unique demand drivers currently being experienced in the United States. Since the end of the second quarter, sales trends in both Sierra and Black Diamond have continued to build momentum. Black Diamond is expected to benefit from partner retail doors beginning to open and our ability to fulfill orders remain unaffected. This is a crucial point. The fact that 86% of BD sales are non-perishable equipment that is deemed as a necessity to our activity-based consumer is a unique asset during these uncertain times. In particular, we are excited by the early indications of what we believe could be a strong backcountry snow season, especially as it relates to snow safety product. Due to the prolonged social distancing constraints, we expect that the increase in backcountry participation that we saw towards the end of the past season will continue as our activity-based consumers look to get outside. For Sierra, domestic trends have only strengthened, including the reception of our recently launched AMO initiative, where we have seen growth of more than 300% through the first seven months of 2020. We have also started to see signs of recovery in our international market. Importantly, we have the capacity to fulfill what is anticipated to be a very strong second half of the year due to the focus over the last two years on improved efficiency and and increasing capacity. In fact, over this time, capacity has increased by approximately 30%. Just last week, we also made an important hire for our Sierra business, appointing Keith Inlow as president. Keith brings to Sierra more than 25 years of executive leadership, serving in roles in the commercial, military and law enforcement markets. Most recently, Inlow served as the general manager for Steiner Optics, Prior to his role there, he served as the CEO of the US Olympic and Paralympic shooting teams, as well as prior roles with Remington Ammunition and Barnes Bullets. Given his experience, we expect Keith to continue to lead the brand's strong growth path, facilitating strong relationships with our customers, overseeing the product expansions, such as our ammo initiative, and building overall brand awareness. Welcome aboard, Keith. It is great to have you on the Claris team. Assessing our expectations for 2020, we believe we are still well on track to achieve the goals laid out last quarter. These include liquidity improvements, cost savings measures, and key sales assumptions, which all underscore the optionality that we have sought to create in our brands to adapt to a changing consumer landscape. Furthermore, While it continues to be difficult to know when normalized business returns, we do expect consumers to remain loyal to authentic brands that stay true to the core. We believe this sets us up well for the future as we continue to focus on our Innovate and Accelerate playbook. This playbook includes seeking to further strengthen our brand's positions by investing in product innovation, sales and marketing, and pursuing new long-term revenue opportunities. Our diverse portfolio of products across geographies and channels is another strength we view as unmatched within the market. Our offerings span 30 single product categories and there is no single one that accounts for more than 15% of our sales. This provides a balance of sales across both the fall and winter, spring and summer sports seasons. And our brands are truly global with nearly 50% of our sales generated in over 50 countries outside the U.S. In addition, while apparel and footwear are key strategic initiatives where we believe substantial growth opportunities exist, it is important to note that they currently represent 14% of our business. The remaining 86% is equipment that is non-perishable and viewed as necessity for our activity-based consumers. These products are not driven by seasonal fads, instead they are rooted in best-in-class design, engineering, testing, and functional feature sets that enable the user to have his or her best days in the mountain. We will continue to invest in a robust direct to consumer sales engine to help grow the brand in key markets and in the digital space where consumer targeting, advertising and storytelling can quickly bring relevant scale to a business like ours. Lastly, we will continue to leverage the strength of our balance sheet as we evaluate long-term growth opportunities. As we have previously discussed, our primary focus is to maximize the organic growth and profitability of our brands. We strongly believe this will provide the highest levels of return on invested capital. We also take the strategic and disciplined approach to our capital allocation. We regularly evaluate opportunities to acquire similar superfan brands to complement our portfolio and where we can deploy our unique innovate and accelerate brand strategy. Ultimately, we believe our diversified brand portfolio, global distribution platform, and fast-growing direct channel is well-positioned for the future. With that, I'll now turn the call over to Aaron Cooney, our Chief Financial Officer, who will provide the additional commentary on our performance in the second quarter, as well as reiterate our game plan for the rest of the year.