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 30th, 2020. Joining us today for Claris Corporation, our Claris Corporation's president, John Walbrecht, Chief Administrative Officer and CFO, Aaron Cuney, and the company's External Director of Investor Relations, Cody Sua. 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 meeting of the Private Securities Litigation Reforms Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please go ahead.

Thanks, Sidarius. 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 the 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 impact of the global climate change trends may have on the company and its suppliers and customers, the company's exposure to product liability or product warranty claims and other loss contingencies, disruptions and other impacts to the company's business as a result of the COVID-19 pandemic and 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 COVID-19, changes in governmental regulation, legislation, or public opinion relating to the manufacture and sale of bullets and ammunition by our Sierra and Barnes 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, the ability of our information technology systems or information security systems to operate effectively, including as a result of security breaches, viruses, hackers, malware, natural disasters, vendor business interruptions, or other causes. Our ability to properly maintain, protect, repair, or upgrade our information technology systems or information security systems or problems with our transitioning to upgraded or replacement systems. The impact of adverse publicity about the company and or its brands, including without limitation through social media or in connection with brand damaging events and or public perception. 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 maintain a quarterly 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 November 16th, 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 Corporation is strictly prohibited. Now I'd like to turn the call over to the president of Claris, John Walbrecht. John?

Thank you, Cody, and good afternoon, everyone. I hope everyone is staying healthy. Though 2020 has been a challenging year, our portfolio of superfan brands has consistently shown us that through any difficult environment, whether it be a bad winter, an economic recession, or now a global pandemic, we will continue to perform. This was proven again in our third quarter results. As indicated in our pre-announcement a few weeks ago, our Q3 results showed the strength of our well-diversified brand portfolio. Total sales increased 7% with record results for our Sierra brand. We generated $9.1 million in adjusted EBITDA and $5 million in free cash flow, which built our cash balance to $17 million. These results? ultimately tie back to our well-defined strategy of preserving brand equity while continuing to execute our innovate and accelerate playbook across all the brand's portfolios. Let me address this further by speaking about our specific brand and business performance. Black diamond sales continue to improve and ended the quarter down only 8%. COVID-19 is still hampering the return of the normalized retail order patterns particularly domestically, so much of our sales were in the form of replenishment or at-once orders. This is despite otherwise strong consumer demand as people sought the outdoors during pandemic-related restrictions or concerns. In fact, in Europe, Black Diamond sales actually increased 11% with growth in every category. In our international distributor business, we made the decision to transition two more markets, Spain and the United Kingdom, to our in-house direct agency model. We are always looking to drive more direct contact with both our retailers and our consumers, and this move is fully aligned with this strategy. The transition reduced black diamond sales by approximately 2.5 million in the third quarter, but actually we'd expect to more than make this up in the future once it is fully internalized. We expect to start selling directly in the UK in the fourth quarter, of 2020 and then in Spain in Q2 of next year. For the brands of the whole, by category, Klein was down only 1%. Mountain was down 7% and Ski was down 9%. Facing market oversaturation and aggressive promotions by other brands, we are pleased to report that Apparel was down only 22%. While Apparel remains a key strategic growth initiative, It is important to note that the other categories make up roughly 90% of our sales, are non-perishable, and are viewed as a necessity for our activity-based consumers. Additionally, as we stated in the initial start of COVID last March, we decided to not aggressively promote the Black Diamond brand using off-price tactics, believing this would actually strengthen our competitive position long-term. We believe the category results I just mentioned show the resilience of our products in this current environment. Complementing our retail partners, we continue to drive strong sales in our direct to consumer business, which included sales online and through our retail stores. For the third quarter, total direct consumer sales were up 24% and up 31% just online. We continue to experience improved activation in our e-commerce channel, due to more effective prospecting and retargeting in order to drive higher levels of site traffic. We also continue to prioritize full-price selling with a focus on storytelling to capture the consumer's interest during their increased time at home and online. Within our own retail locations, traffic was down significantly due to COVID, but conversions were up nearly double, proving an innovative product and strong engagement wins out. In our Sierra business, we experienced record sales of 15.1 million, up 135%. Sales growth was across broad-based, across all geographies and channels, both bullets and ammunition. The continuation of our external demand drivers, such as social and civil uncertainties and unrest, as well as the upcoming U.S. election, drove very strong domestic demand. We also returned to growth internationally in both our green box and OEM businesses due to the local markets finally opening up following their COVID concerns. Last but certainly not least, we experienced strong traction in our ammunition business with sales up 2.7 million or more than 3,200% increase since last year. We're extremely pleased with the rollout of our ammunition initiative supported by Game Changer, Prairie Enemy, Sportmaster, and now the Outdoor Master collections. Each of these new collections highlights the SuperFAM following within the Sierra brand, creating unmatched precision and accuracy in a full ammo cartridge. We are not only pleased with our top line growth, but also our ability to fulfill the extraordinary level of demand. At this time, We feel confident that this demand for our new ammunition collections will continue deep into 2021. In early October, we added the Barnes Bullets brand, our newest superfan brand, to our platform. Barnes has been an industry leader in bullet technology and innovation since the early 1930s and holds strong brand awareness amongst the core hunting enthusiasts. A complimentary consumer to those of the Sierra brand, much of which are focused on long range precision and accuracy. Consumers have long trusted Barnes to be the ammo of choice for all their hunting needs. They are the leader in lead-free monolithic copper bullets and ammunition and have what we believe to be an untapped market potential. In fact, Barnes is already developing a strong pipeline of new technology to be launched in 2021, already catalyzing our innovate and accelerate growth plan. Early retail response to the acquisition has been very encouraging, and we are quickly filling the order book. We expect numerous financial and operational synergies to arise during the integration, and we will use our strong balance sheet to execute upon these most effectively. Together with Sierra, Barnes gives us a leading specialty bullet and ammunition platform, targeting our sites on this segment being more than $100 million in sales over time and generating 20% to 30% adjusted EBITDA margins with high free cash flow conversions. The acquisition caps off our strategy to build the leader in specialty premium bullets and ammunition and also demonstrates our ability to patiently wait for strategic assets to attract value that we expect to drive growth and maximize our returns on invested capital. We look forward to seeking further acquisition efforts, being in similarly accretive strategic areas, but outside of the bullet and ammunition market. We expect to continue to ride our wave of momentum into the fourth quarter, generating revenue of approximately 67.5 million to 69 million. For Black Diamond, we are still tracking towards top line results being down high single digits, which, as communicated previously, would put us around the 2017 and 2018 levels, which were approximately 160 million and 177 million, respectively. Variables that could deviate from this trajectory of recovery on the downsides are, of course, retail and consumer response to what appears to be the second wave of COVID. On the upside, we are expecting a strong backcountry snow season. Regardless, I think it's important to reiterate the fact that the vast majority of our black diamond products are non-perishable and tend to be viewed as essentials to our activity-based consumer, and there will certainly be longings to get outdoors when the snow starts this fall. In our Sierra business, we would expect domestic trends to continue this strong trajectory given the broader social and political environment. We also expect to benefit modestly from the acquisition of Barnes in the fourth quarter as we continue to work through the integration efforts as we work to establish the relationships, processes, and ordering cycles that were severed when Remington entered bankruptcy. We expect to have these activities completed by the end of the year or in early 2021. It is still difficult to tell when our consolidated businesses will be fully normalized, but we do believe consumers will continue to be loyal to authentic brands that focus on their core users. Being a business made up of superfan brands, we feel well-positioned to handle the uncertainty of the future. As noted, our growth playbook includes seeking to further build our brands, our marketing position by investing in product innovation, strengthening our go-to-market strategy via sales and marketing, and pursuing new long-term revenue opportunities. The diversification of our portfolio across new product expansions, geographies, and channels has been one of our highlighted strengths that has proven to be unique to the market. Moving forward, we will continue to seek to invest in our direct-to-consumer channels, including e-commerce and flagship retail. This focus has proven to build both increasing revenue and awareness while preserving our brand equity. In fact, we are proud to announce our next flagship Black Diamond retail store in Big Sky, Montana, slated to open later this week. Lastly, we will continue to seek to leverage the strength of our balance sheet as we evaluate our long-term growth opportunities. Our primary focus is to maximize the organic growth and profitability of our brands. We believe this focus, along with taking a strategic and disciplined approach to our capital allocation, will provide the highest levels of return on invested capital. And as demonstrated this quarter, we regularly evaluate opportunities to acquire similar well-positioned superfam brands to add to our portfolio. We believe the growing demand in our brands, our fast-growing direct-to-consumer channel, and our team's ability to execute our innovate and accelerate strategy through the course of the pandemic has positioned us well for the future. With that, I now turn the call over to Aaron Cooney, our CFO, who will provide additional commentary on our performance in the third quarter and more detail on our game plan for the rest of the year. Thanks, Aaron.