Clarus Corporation

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Claris Corporation financial results for the second quarter ended June 30th, 2022. Joining us today are Claris Corporation President John Walbrecht and CFO Mike Yates and the company's external director of investor relations, Cody Swall. 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 safe harbor statements within the meaning of the Private Security Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please go ahead.

Thanks. Before we begin, I'd like to remind everyone that during today's call, we will be making several forward-looking statements, and we make these statements under the safe harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements reflect our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to the risks and uncertainties that face Claris Corp and the industries in which we operate. 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. I'd like to remind everyone this call will be available for replay through August 1st, starting at 7 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. Now I'd like to turn the call over to Claris' president, John Walbrecht. John?

Thank you, Cody, and good afternoon, everyone. I want to first thank all of our employees for their tenacity and dedication this year. The challenges that our world has faced certainly did not get any easier in the second quarter. But as promised, our portfolio of superfan brands continue to lead growth in each of their categories. At Claris, we have intentionally developed a strategy to target brands that can create markets through our innovate and accelerate efforts, serving the ever-loyal activity-based consumer who has historically shown resilient buying behavior during economic downturns. Our purpose is to innovate the very best products so our consumers can have their very best days in the mountains. Despite seeing a bumpy road ahead, we are in no way putting our foot on the brake. Instead, we are committed to activating the go-to-market activities within each of our brands. Through a disciplined approach to the new product introductions, continuous improvement activities within our supply chain and operations, and increasing the number of touchpoints with retail partners and consumers, We believe we are well positioned for continued market share gains. Our second quarter results continue to showcase the value of superfan brands and their superfan communities. So let's summarize a few key highlights. One, we experienced demand and growth across all three segments, outdoor, precision sports, and adventure, as the activity-based consumer continued to chase outdoorism as their escape. Future bookings for both fall 22 and spring 23 continue to show strong demand across all categories and all segments. Two, we invested in our world-class teams, incorporating a best-in-class operating model and activating our superfan brands through our innovate and accelerate strategy. A key element of our operating model is ensuring we are over-indexing on growth initiatives, engaging with our consumers, eliminating value leakages, and reducing complexity. Although we are in the early days of organizing ourselves around these objectives, we are already seeing the benefits of such efforts further driving towards our targeted growth and profitability goals. Third, we continue to scale our business, expanding the number of touchpoints with both our retail partners and end consumers while enhancing the capabilities and capacity of our operations. Fourth, investments in our direct-to-consumer businesses, both in e-commerce and retail, are generating strong growth and, more importantly, a positive response from our superfans. In fact, EDC posted 30% growth in the second quarter. Fifth, price increases implemented in both the 2021 and 2022 years are sickening, allowing us to achieve improved margins despite value leakages caused by foreign exchange rate fluctuations, increased logistics costs, and higher amounts of air freight utilized due to the supply chain challenges. We are confident in the gross margin enhancing strategies being activated and that such value leakages currently faced are transitory in nature. As such, we expect to see improved results in future quarters. Sixth, as we head into the second half of the year, We are focusing on driving continuous improvement initiatives around gross margin enhancing activities, as well as efficiently scaling our SG&A. Seventh, we have used our blank balance sheet wisely, focusing on inventory planning and capacity expansions across all our brands. We believe this will pay off in future quarters as current demand continues to transfer into market share gains. And finally, we will continue to exhibit strict discipline with our capital allocations as it relates to organic growth and future M&A opportunities, as well as our newly announced stock repurchase program. Now I will dive into some more detailed comments on these three segments. First, outdoor. The demand in the outdoor segment remains strong. Black Diamond proved again its industry-leading momentum creating more than 2.2 billion impressions and driving growth across all categories, most importantly in apparel, headlamps, trekking poles, and core climbing equipment. These categories are entry pathways to the Black Diamond brand, given their approachability to the everyday consumer, as well as their large total addressable markets. Throughout the pandemic and through spring 2022, We have been prioritizing product innovations and fulfillment in these key categories, and the consumer response has been strong. Overall, for Q2, outdoor experienced better than 20% growth when adjusted for the FX headwinds. During Q2, we continued to face supply chain and logistics challenges and other delays caused by COVID-19 related shutdowns in Southeast Asia, resulting in roughly 10 million in demand It had already been produced but was stuck in transit. We finally call this backorder demand. Roughly half of this demand was in our key product categories, and we expect to convert this into inline and full-price revenue in future quarters. With strong consumer activity in climbing, backcountry skiing, trail running, and hiking, our global order book for Black Diamond has sustained its momentum. We continue to purchase inventory in line with our demand plans. However, we are handicapped in the order book in our 2022 sales guidance because of the supply chain and logistics challenges we continue to face, as well as the headwinds experienced from foreign currency, which Mike will discuss further. Second, moving into precision sports. Our precision sports segment delivered another record sales quarter, once again proving that premium positioning and product innovations paved the way for continued market share gains. Demand remained high in the quarter, especially for centerfire bullets. We are proud to have built the enviable position of being able to deliver a premium, unique product demanded by the special forces, law enforcement, reloaders, competitive shooters, and hunters. If and when the market slows down, we have a deep pipeline of new product innovations ready to launch to our superfans and OEM partners. As demand continues to exceed supply for both Sierra and Barnes, we continue to increase capacity in both bullets and loading of ammo, driving towards an end-of-year bullet production run rate target of 350 million bullets at Sierra and 120 million at Barnes, and an ammo loading capacity of 50 million rounds. We believe it is accurate to lump our precision sports brands into the broader ammunition market, given our unique product and brand positioning, our leading specialty market share, our premium prices, enthusiasts in consumers, and growing demands by our various channels worldwide. Again, it is our demand across very diverse geographies and channels that allows us to shift quickly when one channel slows or when supply chain limit other opportunities. For the rest of 2022 and into 2023, we see our strong demand continuing. Over the past two months, our leadership has had the chance to meet our top 30 precision sports accounts, and these interactions only confirm our continued long-term demand expectations for both bullets and even more ammo. Looking forward, we will continue to innovate new products, increase our capacity, source the best components, and strengthen our on-time deliveries and fulfillment goals to ensure our ease of doing business with nature with our key partners. Finally, the adventure segment. Within our adventure segment, it has been a very exciting first half of the year. We're implementing our operating model and expanding our supply chains, strengthening our teams globally, and starting to activate our innovate and accelerate strategy for 2023 and beyond. The global auto industry is anticipating strong demand growth for vehicles across Toyota, Jeep, Ford, Dodge, and Chevy, as well as Polaris, and we believe this will continue to accelerate the overlanding market. Q2 marked the second quarter of Rhino Rack's introduction into North America, and reception remained strong as pro forma sales were up 31% in North America. Maxtrax also had strong growth in North America as we raced to increase inventory allocations to meet the demand for our recovery boards. This is notable for two reasons. First, the overlanding market was challenged in the quarter due to high gas prices and supply chain issues, that impacted delivery of new vehicles. This included key vehicle introductions like the new Ford Ranger and Bronco, the new Toyota Range, and the new Jeep Gladiator. As a reminder, new vehicles enhance our ability to drive new product introductions, so we believe our sales would have been even greater in a normal supply environment. And second, driving sales in North America was a key thesis of our M&A strategy for both brands. We believe the North American market is roughly 10 times the size for our two brands, home markets of Australia and New Zealand, but is also approximately 10 years behind the curve. Our conclusion, huge long-term opportunity is expected. Speaking of Australia and New Zealand, Q2 represents the seasonal slow period in these markets because it's now their winter. We use this time to focus on new product innovation and shifting our inventory to our North American market. Looking to the back half of 2022, we are focused on expanding distribution, building consumer awareness, and launching our 2023 products to the global market at the SEMA show this November. In addition, we will be preparing to take over the North American distributor role for our Maxtrax brand on January 1st. This strategic move will allow us to accelerate the brand in our backyard market. Overall, our superfan brand consumers were resilient despite numerous headwinds in the first half of this year. This resiliency is a key attribute to our activity-based consumer. When combined with our ability to drive innovation across our brands and our strong balance sheet, we believe we are opposed poised for another record year in 2022. I'll now pass it over to Mike to talk about our financial results in more detail. Thanks, Mike.