Clarus Corporation

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Claris Corporation's financial results for the first quarter ended March 31, 2021. 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 Slough. 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. 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 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 the COVID-19 pandemic, 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, 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 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 May 24th, 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 CLARIS, John Walbrecht. John?

Thank you, Cody, and good afternoon, everyone. I hope that everyone is staying healthy and active in the outdoors. It is great to be addressing you today and speaking about the strong results we announced earlier this afternoon. The first quarter was another quarter where we not only achieved what we set out to do, but we also exceeded our expectations. These results were driven by the continued execution of our brand playbook. This playbook focuses on our innovate and accelerate strategy, which calls for investing in R&D to drive innovation in both existing and new product categories, driving brand awareness, all while being easy to do business with and staying relevant to our core consumers. We believe that the SuperFan brands excel within our Clara strategy, making the execution of this playbook more seamless. Total sales were up 41% as we experienced accelerating growth in both our Sierra and Black Diamond segments, as well as robust demand across each of the product categories. We substantially improved gross margins and earnings thanks to the strength of our brands, our capabilities to fulfill demand, and our consistent pricing strategy. This marks our third consecutive quarter of revenue expansion, and we generated $10.6 million in adjusted EBITDA for the quarter, representing a growth of 191%. These strong results, as well as our continued momentum, have us raising our full-year financial outlook. Aaron will address the details of this shortly. Across Black Diamond and Sierra, we continued to outperform the market as we executed our playbook, in particular with our key account relationships via higher levels of product availability in support of our increasing brand presence and accelerating demand amongst the core consumer. In Black Diamond, sales increased 13% as we benefited from the recovery in the outdoor market and reduced inventory volatility at retail, which allowed us to accelerate our growth, particularly with some of the key retail accounts. This is despite continued headwinds from COVID-19 and supply chain challenges. Demand in our bullet businesses continued to surge, and we were able to navigate component shortages relatively well, as seen by 94% and 92% pro forma first quarter sales growth for our Sierra and Barnes brands, respectively. To contend with the supply chain challenges across our brands, we have leveraged our superfan brand recognition to strengthen our relationships with our key retail partners and our global suppliers. We continue to see evidence that suppliers prioritize the formation of long-lasting and productive partners with brands that are best poised for long-term performance, and we believe our brands fit this mold. Building these favorable relationships also benefit the navigation of the current supply chain environment, which is why we believe we're outperforming our competition in this area of our business in the recent quarters. Returning to our Q1 brand performance, the 13% increase in Black Diamond sales was mostly attributed to surging consumer demand and the recovery from the pandemic. By category, ski was up 23%, mountain was up 20%, and climb was up 3%. Hard goods growth of 16% was driven by solid double-digit growth across the product portfolio, in particular, trekking poles, skins, headlamps, lighting, gloves, packs, bouldering, and helmets. Our wholesale channel led the way of sales performance in Q1, on the back of solid growth at our specialty retail partners and especially our key accounts. The reopening of markets and broader COVID recovery is certainly a key factor enabling this growth. Our direct-to-consumer channel slowed compared to recent quarters as we prioritized inventory allocations to our wholesale partners to ensure their ability to have strong kickoffs to the spring 2021 season. This reinforces our partnership approach and the ease of doing business with Mint mentally. We continue to be excited by our ever improving digital presence led by launching our new website in January of 2021. This was a major undertaking, especially while most of the team was working remotely during COVID-19. During Q1, we continue to refine our updated platform, driving improved activation with more sophisticated prospecting and retargeting efforts. As we continue to improve our inventory position, develop more refined data-driven tools, and expand our retail footprints, we believe our direct-to-consumer channel will become the most brand-accretive touchpoint of our superfans. Our North American and European businesses both grew double-digit on the reopening momentum. This growth was partitionally offset by a decline in our international global distributor market due to lingering COVID-19 impacts, as well as our transition away from a distributor model into the brand control strategy in Spain in the second quarter. We successfully transitioned the UK in Q4 and believe this will become one of our top five markets in the region, serviced by our Black Diamond European office. In apparel sales, Sales remained stable during the first quarter despite the lower than expected inventory availability due to elongated logistic challenges experienced globally due to shipping delays. Our order books are quickly filling for the second half of the year due to our wholesale partners regaining confidence as their own customers return. Within our own retail stores, we are also seeing increasing traffic. This traffic is incredibly important as it helps us to gain insight into the brand perceptions. This is essential for something like our apparel offering. We continue to treat apparel like equipment, employing technical reach features as well as points of differentiation. At our stores, we were able to see and hear firsthand how our consumers use the product and how they can be improved, whether that's through next-generation material innovation or advancement of technical aspects. Speaking of technical aspects of our products, we recently saw that our black diamond quickdraws were used by the NASA's SpaceX Crew-1 in their mission back to Earth last week from the International Space Station. This is a great example of how our quality products can be used in a variety of ways and shows the importance of our tireless innovation efforts. Continuing on the topics of technical development, specifically in our apparel business unit, We recently hired Tony Rivera, who will lead the business unit under our vice president of product, Colin Palak. Tony has extensive knowledge in merchandising and was most recently responsible for driving consumer conversion at Arc'teryx. He's a key hire as we seek to expand our growing momentum in our apparel initiative. While inventory is a near-term challenge, we remain optimistic that we will grow apparel into a $100 million business over the long term. Now moving to our Sierra segment, we generated sales of 23.5 million or up 203% from the prior year quarter or 94% when excluding barns. This performance reflects sustained broad-based sales growth across both bullets and ammunition. We continue to experience strong domestic tailwinds ahead of and following the U.S. election as well as an increased participation in outdoor hunting and indoor shooting ranges. Our bullet and ammunition categories remain impacted by industry-wide supply shortages as we work to secure enough components to keep our manufacturing on pace with the heightened demand. To successfully navigate this environment, we will continue to seek to utilize our balance sheet to enhance product availability and leverage our strong relationships with our key retail partners. Since October, we've leveraged Sierra's leadership team to support the excellent existing teams at Barnes in order to increase daily output and navigate industry material shortages and effectively lift each brand's ability to meet and exceed customer demand. Our combined order book of 2021 continues to quickly fill as we get closer to achieving our stated goal of delivering 100 million in sales over the long term, while approaching approximately 30% adjusted EBITDA margins, and a high free cash flow conversion. Looking ahead, we will remain cognizant of health recommendations, especially as it relates to the conditions within the retail and supply chain environment that we operate in. While challenges remain, we are confident in our well-diversified SuperFan brand portfolio that has served its core users throughout the pandemic. We will continue to execute our strategy and produce strong results despite the dynamic environment. Another important piece to our organic growth plan is our M&A strategy. We have a disciplined acquisition strategy that we believe ensures we will be able to deploy our innovate and accelerate brand strategy. With the strategy, we target superfan brands that may give us a foothold in a new product group or customer channel, as we seek to diversify us further within the outdoor and consumer markets. We anticipate progress on this end and hope to be sharing further details in the short term. Lastly, I would like to welcome Susan Ottman as our Board of Director nominee to the organization. Susan has over two decades of leadership experience within large public companies and academia. She currently works at the University of Wisconsin in Madison, where she directs online degrees in engineering professional development program, as well as teaches courses in technical leadership and technical project management. Previously, she managed Thermo Fisher Scientific Global analytical instrument business, a multi-hundred million dollar business where she managed a team of 770 associates with operations in the US, UK, Germany, and China, as well as sales teams worldwide. Susan has also held leadership roles at Danaher and Schneider Electric, where she's pleased to have nominated Susan to our board and believe that her focus on innovation, scaling operations, and her people development skills will be a great asset to our board. With that, I'll now turn the call over to Aaron Cooney, our Chief Financial Officer, who will provide some additional commentary on our performance in the first quarter and more details on our increased 2021 outlook.