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 ended June 30th, 2023. Joining us today are Claris Corporation's executive chairman, Warren Kanders, COO, Aaron Cuney, and CFO, Mike Gates, and the company's external director of investor relations, Cody Slaw. Following their remarks, we'll open your call for 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.

Thank you. 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 and information known to us today. These forward-looking statements are subject to potential risks and uncertainties that could cause the actual results of operations or financial condition of Claris Corporation to differ materially from those expressed or implied by the forward-looking statements. More information on potential factors that could affect the company's operating and 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 7th of 2024, starting at 7 p.m. Eastern Time 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' Executive Chairman, Warren Kanders. Warren?

Thank you, Cody. Good afternoon, and thank you all for joining Claris' earnings call to review our results for the second quarter of 2023. I am joined by our Chief Operating Officer, Aaron Cooney, and Chief Financial Officer, Mike Yates. I will start by addressing the overall business and corporate strategy. Aaron will provide an update on each of our segments, and Mike will walk through our financial performance for the quarter. Our second quarter results were negatively impacted by the continued challenging macroeconomic environment and related headwinds. We are seeing destocking take place, particularly in North America. The overall promotional environment coupled with retailers tightening their inventory positions. and open to buy dollars weighed on our performance. We took effective countermeasures during the quarter, generating free cash flow of $12.3 million versus $2.3 million during the same period last year. I am pleased that each segment was cash flow positive during the quarter as we right-sized the businesses to match expected demand for the year. Since the beginning of the year, we have undertaken a strategic review of all of our businesses, including our management structure. During last quarter's call, we highlighted the inflection point in our organizational evolution and the strategic shift to seek to decentralize and focus on individual segment performance. As part of this strategy, we have made a number of significant changes to date, which we expect to contribute to long-term value creation. We continue to evaluate all of our businesses and their strategic initiatives to maximize value. We believe that the sum of the parts of our three segments exceeds today's market valuation. We continue to evaluate our corporate structure and inclusive of the changes we have already made, we have a series of initiatives in place that we expect will reduce our normalized corporate overhead by $1.5 million compared to that of 2022. While we are experiencing a challenging retail landscape, the changes we have made through the first half of this year and the further cost outs and savings initiatives we expect to make in the next six months are foundational to our growth strategies. Our management teams continue to seek to simplify their businesses and invest more dollars into commercializing new products and improving sales channel management. We have worked with our retail partners carefully to help drive sell-through while working with our supply chain partners to dynamically manage the flow of inventory in order to seek to reduce inventory levels while ensuring on-time deliveries and higher levels of fulfillment. We are excited by the ongoing work of our three segment leaders. Specifically on outdoor and adventure, we now have two new leaders We're laying the foundation for anticipated future growth and improved profitability. Our focus for the balance of the year will be in ensuring that the starting point for next year is optimized organizationally and clean from a balance sheet perspective. Later on in the year, we will be introducing our segment leadership team and their vision for long-range plans. Despite the headwinds outlined, we continue to see monthly sequential improvement during the quarter. In outdoor, we saw increasing sales each month, driven by a strong push in direct-to-consumer, aiding our inventory work down. While we saw some margin degradation due to off-price and promotional activity, we still increased our outdoor gross margins by 440 basis points to 37.5%. achieving our plan to generate cash and further normalize inventory. I am pleased with the continued performance on our adventure segment. During the second quarter, we saw continued stabilization in the market for our adventure products, resulting in improved gross margins of 370 basis points to 42.4% for the adventure segment. We continue to see normalized sales levels in Australia, which we expect to increase in the seasonally stronger second half as we introduce exciting new products. Adventures U.S. business experienced strong growth month over month during the quarter, improving sales by 63% over the first quarter of 2023. Consistent with how others have reported in the channel, our precision segment experienced sales declines of 27%, while holding EBITDA margins at 26%. We have taken cost outs to match our expected production and sales levels, which we believe will drive higher margins in the second half. Further, we took important strategic steps to seek to stabilize our component supply chain, which we expect will enhance our ability to build programs for our partners going into 2024. To summarize, we believe that we have reached the trough in our outdoor and adventure segments, and the quick actions we have taken to right-size those segments should set us up for more profitable growth in future periods. While Precision's experience has slowed down through market dynamics in the normal summer slump, we believe that hunt season and the looming election cycle into 2024 should catalyze demand. With that, thank you for being with us today. and I will turn the call over to Aaron.