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 30, 2023. Joining us today are Claris Corporation's Executive Chairman, Warren Kanders, CFO, Mike Yates, and the company's External Director of Investor Relations, Cody Slaw. Following the 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, the data meaning of the Private Securities Litigation Reform Act of 1995, that provides important cautions regarding forward-looking statements. Cody, please go ahead.

Thanks. Before we begin, I would 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 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 November 7th, 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 in 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 third quarter of 2023. I am joined today by our Chief Financial Officer, Mike Yates. I will start the call by addressing the overall business and corporate strategy. Mike will then provide specific comments on the performance of our three segments, and a detailed financial review. Given the non-binding indication of interest I previously submitted to acquire the company's precision sports segment and our special committee's ongoing review, I believe it's prudent for Mike to handle today's Q&A session. Now jumping to our performance, our brands largely experienced another challenging quarter given persistent macroeconomic headwinds that have constrained consumer demand and the continued inventory overhang at retail and distributors. This was especially pronounced in our precision sports segment, where customer stockpiling with markdown inventory earlier this year impacted sales velocity in the third quarter. This was partially offset by a snapback quarter in our adventure segment, which I will discuss shortly. As an organization, however, we did not stand idle. During the quarter, we made significant strides in the strategic review of our brands, developing compelling long-term growth plans, rebuilding our teams, and taking steps to recalibrate each business to operate most efficiently in the post-COVID era. We are undoing some of the choices made by prior management teams, so to a certain extent, we needed to press the reset button in order to pursue rebuilding our reputation, as a customer-centric enterprise. I am confident that the teams in place are fully capable of driving the turnaround. Both of our leaders at Outdoor and Adventure have specific past experiences as operators for private equity-backed businesses, where they were responsible for structurally correcting and rightsizing iconic global heritage brands in preparation for their regrowth phase. We see the same characteristics with our brands. but the early steps require patience as the strategic initiatives are in motion. With our pivot away from a corporate cost structure nearly complete, each of the segment leaders now have full P&L ownership and are tasked with driving the success of their respective business units. As we build for the long term, I am pleased with our ability to progress the cash flow initiatives that we can control in this challenging market. We continue to seek opportunities to reduce our inventory levels without eroding overall gross margin. This includes improving the age of our inventory at outdoor while prioritizing the investment in new products underlying potentially compelling new business opportunities. As mentioned, Adventure turned the corner in Q3, reporting 9% sales growth and generating an adjusted EBITDA margin over 13%. From an operational standpoint, we completely reshaped the adventure organization, forming new leadership globally, engaging strategically with key accounts, and developing a clear three-year product horizon, which was well received. This includes the launch of our new Rhino-Rack Pioneer 6 product, our premium tray portfolio leader, which we began delivering in October. This product carries an average gross profit margin that is 1,200 basis points superior to the last generation product. This was supported with additional launches in our crossbar business with the introduction of both the RX100 and RX200 for our OEM partnership with Ford and their Everest product. In our recovery products, we launched the Maxtrax light board through an exclusive 500-door release with a key retail partner in Australia. Furthermore, we are excited about the acquisition of Australia-based TREAD Outdoors, which we acquired subsequent to quarter end. TREAD is a fast-growing outdoor adventure brand, best in class, innovative recovery products across off-road, 4x4 automotive touring, camping, and caravans. TREAD will continue to operate independently as a wholly-owned subsidiary. and will be part of our adventure segment. The Tread outdoor brand is designed and built for the seriously adventurous and embodies Clarice's philosophy to identify brands that are passionately supported by customers and consumers who live and breathe the lifestyle. This transaction highlights our continued focus on identifying sought after brands within the adventure segment that are expected to both enhance our offering to existing retail customers and expand our reach into new and larger channels. In our outdoor segment, revenue trends improved sequentially from the low of Q2 to down only 3% in the third quarter compared to prior year third quarter. North America is stabilizing but remains challenging as retailers continue to manage inventory and keep open to buys tight. Europe was a drag on the overall result as the region felt some of the inventory and macroeconomic challenges that our North American business faced in the fourth quarter of last year and the first half of this year. We expect this softness to persist in Europe in the coming quarters. Gross margins continued to be compressed as we right-sized inventory and cleared slower-moving products. We also continued to pursue various cost reduction initiatives and operational improvements in the quarter. We drove efficiencies in our R&D, marketing, sales, and discretionary areas, while also strategically investing in key areas to get the brand growing from the core again. As such, we hired a new vice president of North American sales and simplified the structure of the team while adding new directors for specialty and key accounts. In apparel, an important growth driver for Black Diamond, we hired a new business unit director, strengthened the design team, and implemented a more rigorous athlete-driven product development process. Importantly, we signed a multi-year agreement to be the official outfitter of Rainier Mountaineering, one of America's premier guide services with over 70 guides around the world from Rainier to Denali to Nacogongwa and the Himalayas. Under this partnership, Rainier Mountaineering will be a close partner in bringing innovation and extensive field testing to our alpine mountaineering apparel and hard goods. We have also bolstered our roster of legendary climbers, skiers, and mountain athletes with the addition of Angela House, president of the American Mountain Guides Association, Adrienne Ballinger, high altitude climber and skier, and founder of Agile Glow Expeditions, and Topo Mina and Carla Perez, big mountain alpinists and guides based in South America. Given our operational progress in outdoor this year, we expect to begin 2024 on a much firmer footing as we pursue growth from our core while seeking to develop new revenue streams and categories, channels, and geographies. Zooming out on our consolidated brands and setting our sights on the fourth quarter and beyond, Our priorities remain firmly set on the stabilization of sales and margins, additional organizational reshaping and cost reductions, and resetting our brands to a new baseline as we enter 2024. We are confident in our belief that this strategy is grounded in the maximization of shareholder value creation. But before passing the call over to Mike, I'd like to update shareholders on a couple of matters. First, we are planning to host an investor day in late January. We will have myself, Mike, and our segment leaders, Neil and Matt, available to share their strategies and growth plans. And finally, although we do not make a practice of commenting on pending litigation, we are pleased with the progress of the lawsuit against Hab Trading LLC and its principle for disgorgement of short swing profits under Section 16B of the securities laws. Fact discovery has for the most part concluded and expert reports are due to be exchanged shortly in late November with rebuttal reports due by late December. The depositions of the experts will be taken by mid-January 2024 and the parties will submit a joint status letter to the court by late January 2024. At that point, the court will issue a schedule for summary judgment and if the motion is denied, set a trial date. With that, thank you for being with us today, and I will turn the call over to Mike.