Clarus Corporation

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Claris Corporation's financial results for the fourth quarter and full year ended December 31, 2020. Joining us today are Claris Corporation's President, John Wolbrecht, Executive Vice President and CFO, Aaron Cuney, and the company's External Director of Investor Relations, Cody Slam. Following their remarks... we'll open the call for questions. Before we go further, I would like to turn the call over to Mr. Slough 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.

Thank you. 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 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 claims and other loss contingencies, disruptions and other impacts to the company's business as a result of the COVID-19 global 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 barn 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, 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 SEC 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 of 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 March 22nd, 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 Clariscorp is strictly prohibited. Now I would like to turn the call over to the President of Clarus, John Walbrecht. John?

Thank you, Cody, and good afternoon, everyone. I hope everyone has remained healthy and active in these first few months of the new year. Though we operate in a dynamic retail environment throughout 2020, our strategy and our portfolio of superfan brands remain resilient. As indicated in our February pre-announcement and supported by today's results, Q4 showed the enduring strength of our well-diversified brands. Total sales were up 24% as we experienced accelerating sales growth of our Sierra brand and continued recovery of our Black Diamond brand. We generated $11 million in adjusted EBITDA for the quarter, representing a 56% increase year-over-year. Despite the retail demand freeze we experienced in the first half of 2020, our full-year consolidated sales, gross margin, and adjusted EBITDA results We're also resilient, declining only slightly from our record performance in 2019. We also generated $24 million in free cash flow in 2020, a more than three times increase from 2019. This is a testament to the hard work of our team and our commitment to our strategic priorities of preserving brand equity while continuing to execute our Innovate and Accelerate playbook across our brand portfolio. As we have historically stated, our playbook focuses on investing in R&D and expanding product categories, new product innovation, and driving brand awareness, all while remaining relevant to the core user. To break this down by our specific brand and business performance, Black Diamond sales continued to improve and ended flat to the prior year despite a lackluster winter season and continued negative impacts associated with COVID-19. Participation in the outdoor activities has broadly increased amid pandemic-related restrictions, and this trend has showed no signs of stopping in 2021. Amid this elevated demand, however, global supply chains remain impacted by the pandemic, challenging the speed and the efficiency with which brands operators across industries can fulfill their orders. Despite these challenges, we have worked hard to deepen our relationships with our key retail partners and global suppliers, which are reflected in our results today. Our SuperFam brand strategy has also benefited us in this regard, as we believe suppliers will form long-lasting and productive partnerships with the brands that are best poised for long-term performance. Complementing our wholesale business, We have maintained momentum in direct-to-consumer sales across our online and retail store channels. For the fourth quarter, total direct-to-consumer sales were up 12%. We have driven further improvements into activation with our e-commerce channel through our focus on increasing site traffic by optimizing our prospecting and retargeting processes. Within our own retail locations, traffic has continued to be down due to COVID-19-related restrictions, but conversions continue to rise, proving innovative products and strong engagement went out within today's evolving retail landscape. Moving forward, we expect to continue to seek to invest in our direct-to-consumer channels to further strengthen our omnichannel presence. As consumers continue to seek the outdoors amid pandemic-related restrictions, apparel was our highest-growing product category in Q4 with 19% revenue growth over the prior year quarter. This performance is reflective of our decision to not aggressively promote or discount Black Diamond products at the onset of the pandemic, and we believe that this has strengthened our long-term competitive position. By category, climb was down 15%, mountain was down 5%, while ski was up 3% during the fourth quarter. As I mentioned, consumer demand across all outdoor categories remains robust, with climb, backcountry skiing, and associated products such as headlamps and trekking poles gaining particularly strong momentum. However, we are still working to mitigate supply chain impacts to fulfill these orders in an optimal pace. Despite having a responsive supply chain that can be managed in a dynamic environment, we encountered unforeseen challenges at the raw materials and the component levels. This took away our ability to fully leverage the dedicated capacity we have with our vendor partners. Compounding this is the well-documented logistic challenges associated with the geographic imbalance in container availability and the current port congestion. These dynamics has caused us to experience significant delays in pre-planned product availability with expedited air freight as an on-setting lever, which comes at a much higher levels of costs. While certainly 2020 presented a difficult operating environment, we believe that superfan brands can provide market share gains even faster during challenging times. In 2020, BD was recognized with over 100 product awards, validating our superfan brand approach. Most recently, Black Diamond was recognized as one of the best-selling climbing equipment brands in a January installment of the S-News 2020 Retailer Survey. We are in leading positions across four product categories and were named as the number one selling brand for hardware and harnesses. Our team at BD strives to deliver the most innovative products for our core consumers, and results like this show we are continued to be on track. Looking to 2021, we are encouraged by BD's brand momentum and return to growth. We expect the trends in the outdoor participation to continue, including an acceleration in our apparel business, Further adoption of lighting and trekking pole lines, expanded distribution with our gloves, and strong backcountry season provide an additional upside to our growing ski category. In our Sierra business, we generated sales of $13.5 million, up 167% from the prior year quarter. This performance reflects sustained broad-based sales growth across both bullets and ammunition in each of our channels. We continue to experience strong domestic tailwinds ahead of and following the U.S. election, as well as increased participation in outdoor hunting and indoor shooting ranges. Similar to fulfillment challenges within Black Diamond, our bullet and ammunition category was also impacted by industry-wide supply shortages as we worked to secure enough components to keep our manufacturing on pace with the heightened demand. To successfully navigate this environment, we will continue to leverage our strong relationships with our retail partners. Over the coming months, we will continue to work to increase our production of loaded ammo at our Barnes facility. In the time since we completed our acquisition of Barnes in early October, the brand has outperformed our expectations. We believe that this further validates that Barnes, with its rich history of product innovation and strong brand awareness amongst the core enthusiasts, is exactly what we seek with Superfan Brands. We have already driven numerous financial and operational synergies and will continue to advance this over the coming months. In addition to the brand's outsized revenue performance, we have reestablished relationship processes and ordering cycles that were severed when Remington entered bankruptcy, and there is more to be done on this front. We expect that Barnes' industry-leading technology will help us improve our production capabilities as well as expand our current product offerings to include a comprehensive lead-free all-copper line and facilitate future expansion into additional product categories. From a strategic standpoint, Barnes allows us to further mobilize our innovate and accelerate growth plan. In conjunction with Sierra, we are seeking to build the leading specialty premium bullet and ammunition platforms. We are already quickly filling the order book of 2021, and we continue to expect that this combined platform has long-term runway to generate $100 million in sales over time with a 25% to 30% adjusted EBITDA margins and high free cash flow conversion. As we think about 2021 in our Sierra segment, we expect to continue leveraging current demand tailwinds for bullets and ammunition and working to advance our integration of Barnes. Over the coming months, we will stay closely attuned to broader health recommendations and evolving conditions across the retail industry. The challenges the pandemic poses to our current operating environment, both from a supply chain and demand perspective, makes it difficult to gain further visibility on when our consolidated businesses will be fully normalized. But we believe our authentic, well-diversified, superfan brand portfolio will continue to optimally serve its core user and benefit from strong consumer loyalty. These brand attributes and our innovate and accelerate growth playbook provide us with a solid foundation from which to navigate any further changes in our operating environment. Through this playbook, we seek to continue to build our brands, bolstering our market position through investments in product innovation, and strengthen our go-to-market strategy via sales and marketing. We believe that this allows us to not only support our current portfolio, but also further distinguish and diversify it across new product categories, geographies, and channels. As we do so, we will continue seeking to leverage our strong balance sheet to provide us optionality for long-term growth opportunities. Our performance through 2020 has underscored the importance and success of our strategy. As we have highlighted before, Internally, we drive our financial results toward a modified return on invested capital metric. We believe this best aligns profitability targets within the entire organization, despite what accounting adjustments might be required during purchase accounting and representing our true invested capital in the different businesses. We calculate our internal return on invested capital by comparing adjusted EBITDA, as defined in our earnings release, for each of the businesses to the associated purchase prices, plus or minus any additional capital required or generated on a cumulative basis. Using this calculation on a consolidated basis during 2020, we generated more than 15% ROIC. We are very proud of this performance and we expect that our disciplined approach to acquisitions, integration, execution, and capital allocation will continue to provide the highest level of returns of invested capital and help insulate us against further market uncertainty. A few more words on our acquisition strategy. 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. While we will be sensitive to the market and economic environment as well as our leverage We expect to target acquisitions over the long term that provide access to new product groups and customer channels or can diversify us within the outdoor and consumer markets. Superfan brands not only have leading product market share and brand strength among diehard consumers, but also provide reoccurring revenue, sustainable margins, and strong cash flow to be accretive to earnings. They must be well-run businesses. This will ensure we are enhancing value of the company and continue to be careful stewards of shareholder capital, along with funding our quarterly dividend and repurchasing of common stock. We anticipate that this strategy, coupled with our focus on maximizing our brand organic growth and profitability, make us well-positioned to sustain our momentum into 2021 and continue to deliver strong long-term growth and shareholder value creation. With that, I'll now turn the call over to Aaron Cooney, our Chief Financial Officer, who will provide additional commentary on our performance in the fourth quarter and full year and more details on our 2021 outlook.