Clarus Corp (CLAR) 2014 Q4 法說會逐字稿

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Black Diamond, Inc. financial results for the fourth quarter and full-year ended December 31, 2014. Joining us today are Black Diamond, Inc. CEO, Mr. Peter Metcalf; the Company's CFO, Mr. Aaron Kuehne; and the Company's Director of Investor Relations, Mr. Cody's Slach.

Before we go further I would like to turn the call over to Mr. Slach 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.

Thanks, Jamie. Please note that during this conference 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 conference call include, but are not limited to, the overall level of consumer spending on the Company's products; general economic conditions and other factors affecting consumer confidence; disruption and volatility in the global capital and credit markets; the financial strength of the Company's customers; the Company's ability to implement its growth strategy, including its ability to organically grow each of its historical product lines, its new apparel line and its recently acquired businesses; the results of the Company's review of strategic alternatives; the Company's ability to successfully integrate and grow acquisitions; the Company's exposure to product liability or product warranty claims and other lost contingencies; the stability of the Company's manufacturing facilities and foreign suppliers; the Company's ability to protect patents, trademarks and other intellectual property rights; fluctuations in the price availability and quality of raw materials and contracted products; foreign currency fluctuations; the Company's ability to utilize its net operating loss carry forwards; and legal regulatory political and economic risks and international markets.

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 Securities and Exchange Commission, including the Company's annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. All forward-looking statements included in this conference call are based upon information available to the Company as of the date of this conference call and speak only as of the date hereof. The Company assumes no obligation to update any forward-looking statement to reflect events or circumstances after the date of this conference call.

I would like to remind everyone that this call will be available for replay through March 30, starting at 8:00 p.m. Eastern tonight. A webcast replay will also be of the available via the link provided in today's press release as well as on the Company's website at www.blackdiamond-inc.com. Any redistribution, retransmission or rebroadcast of this call in any way without the express written consent of Black Diamond, Inc. is strictly prohibited.

Now I would like to turn the call over to the Chief Executive Officer of Black Diamond, Mr. Peter Metcalf. Peter?

Thank you, Cody, and good afternoon, everyone. At the close of the market today we issued a press release announcing our financial results for the fourth quarter and full-year ended December 31, 2014. We're pleased to note that we reported results that came within the ranges of both our second half and full-year 2014 revenue and gross margin guidance. Since initiating our strategic pivot in late 2013, we have executed against nearly all of its objectives including the sale of Gregory, the focus on our core and fastest-growing brands and the development of a series of initiatives to improve margins and profitability.

Strong fourth-quarter results reflect this execution with 13% constant currency sales growth, a 160 basis point improvement in gross margin and a 37% increase in adjusted EBITDA. Black Diamond Apparel and POC continue to drive our growth. We also announced today that the Company engaged the financial advisory firms Rothschild and Baird to lead the [expiration] of a full range of strategic alternatives for each of the Company's brands: Black Diamond, POC and PIEPS.

Before I comment further, Aaron Kuehne, our CFO, will discuss our financial results for the fourth quarter. Aaron?

Thank you, Peter, and good afternoon, everyone. The reported results we issued in today's press release are from continuing operations, excluding the results of Gregory mountain products, both for the 3 months and 12 month periods ended December 31, we divested Gregory on July 23, 2014. Sales in the fourth quarter of 2014 increased 10% to $59.4 million compared to the same year ago quarter. The increase was primarily due to the continued growth of Black Diamond Apparel and an increase of POC's preseason bookings as well as reorders of in-season fall/winter to products. Specifically, POC had a strong fourth quarter and even stronger 2014 driven by growth in every region, especially in North America. POC continues to grow at a consistent rate of growth, albeit on a higher revenue base.

Due to net weakening of foreign currencies against the US dollar on a consolidated level, fourth-quarter sales were negatively impacted by approximately 300 basis points, or $1.8 million. On a constant currency basis, Q4 sales increased 13%. Consolidated gross margin in the fourth quarter increased 160 basis points to 39% compared to 37.4% in the same period last year. The improvement was primarily due to both a favorable mix of higher-margin products and a higher-margin channel mix partially offset by 175 basis point impact from foreign exchange. So on a constant currency basis, gross margin would have been a healthy 40.8%, a 335 basis point improvement.

Fourth-quarter SG&A, which excludes restructuring, merger and integration and transaction costs, was $21.9 million compared to $20.2 million in the year ago quarter. The increase reflects continued investments in our strategic initiatives such as the transition of certain POC distributors into the Company's in-house operations and the continued rollout of POC's new road cycling collection.

With the sale of Gregory complete during the third quarter of 2014, we immediately began the process of realigning redundant operating platform resources that did not transfer to Samsonite in the sale. We have eliminated overhead and rationalized the business to support our remaining core brands: Black Diamond, POC and PIEPS. During Q4 we incurred restructuring charges of $1 million related to termination costs and severance. During 2014 we incurred $3.6 million in restructuring charges and we estimate that we will incur approximately $4.5 million to $5 million of total cash and non-cash restructuring costs related to fixed asset write-offs, employee related costs and facility exit costs associated with our strategic pivot with approximately $1 million to $1.5 million of restructuring charges carrying over into 2015. This is an increase of $500,000 from our original estimate as we have identified additional opportunities to optimize the organization and increase the speed at which the associated savings are realized.

The Gregory sale monetized approximately $48.3 million of our NOL balance, shielding approximately $16.9 million of cash taxes, leaving an NOL balance of approximately $167 million. Adjusted EBITDA in the fourth quarter of 2014 increased 37% to $3.4 million compared to $2.5 million in the year ago quarter. Adjusted net income from continuing operations increased 36% to $3.1 million, or $0.09 per diluted share, in the fourth quarter of 2014 compared to adjusted net income from continuing operations of $2.3 million, or $0.07 per diluted share, in the fourth-quarter of 2013.

Turning to the 12 month period ended December 31, 2014, sales increased 15% to $193.1 million compared to the same year ago period and 16% on a constant currency basis. The increase was across all brands and geographies, primarily driven by the continued growth of Black Diamond Apparel, including the launch of Black Diamond Apparel women's collection, the launch of POC's road cycling collection and an increase in the quantity of new and existing mountain, climb and snow products sold. For the 12 months ended December 31, 2014, consolidated gross margin increased 160 basis points to 38.8% compared to an adjusted gross margin of 37.2% in the same period last year. The improvement was primarily due to both a favorable mix of higher margin products and higher margin channel mix, partially offset by a 50 basis point impact from foreign exchange. So on a constant currency basis, gross margin would have been 39.3%, a 210 basis point improvement.

SG&A in 2014, which excludes restructuring, merger and integration and transaction costs, was $81.1 million compared to $74.5 million a year ago. The increase reflects continued investments in our strategic initiatives such as Black Diamond Apparel, the transition of certain POC distributors into the Company's in-house operations and the launch of POC's new road cycling collection. For the 12 months ended December 31, 2014, adjusted EBITDA increased $4.5 million to $2.9 million compared to an adjusted EBITDA loss of $1.6 million in the prior year. Adjusted net income from continuing operations increased $3.6 million to $822,000, or $0.03 per diluted share, during 2014 compared to an adjusted net loss from continuing operations of $2.8 million, or $0.09 per diluted share, in the prior year.

At December 31, cash and available-for-sale marketable securities totaled $40.9 million and we had zero borrowings outstanding on our $20 million revolving line of credit with Zions Bank. Total debt stood at $22.4 million, which includes $18.5 million of 5% subordinated notes due 2017 and $3.9 million in a foreign seasonal working capital credit facility for POC. As a reminder, on July 23 we completed the sale of Gregory to Samsonite for approximately $84.1 million, recognizing a pretax gain on the sale of $39.5 million. We used a portion of these proceeds to fully pay down our Zions line of credit and paid off our $9 million Zions term loan in full.

Now turning to our outlook for the year ending December 31, 2015, we anticipate sales of approximately $208 million, which would represent an increase of 8% from our 2014 sales, an increase of 11% on a constant currency basis. On a constant currency basis, we are forecasting consolidated gross margins for FY15 to be approximately 40%.

This concludes my prepared remarks. Now I'll turn the call back over to Peter. Peter?

Thank you, Aaron. As I mentioned in my opening remarks, at the end of 2013 we embarked on a significant strategic pivot. I will highlight now the progress we've made on that strategic pivot.

With the exception of the repatriation of certain manufacturing activities to the US, which we expect to materially complete by July 2015, the strategic steps to the pivot have been completed. To reiterate, the pivot hinged on three areas. First, we acknowledge that Black Diamond and POC are our fastest growing brands and worthy of investment to accelerate organic growth. Secondly, to position the Company from a rapid growth in July 2014, we completed the sale of Gregory, realizing $84.1 million in cash, or 2.3 times projected 2014 revenue.

Gregory was, at that time, our slowest growing and, in our opinion, least valuable major brand. The sale simplified our business model, allowed us to take costs out of our operating platform, significantly strengthened our balance sheet and enabled us to utilize a meaningful portion of our NOL. The sale also left us with what we believe to be some of the fastest-growing and most well respected brands in the outdoor space.

Thirdly, the pivot planned a series of reorganization steps designed to, one, reduce supply chain complexity; two, improve growth in operating margins; three, optimize hard good SKUs by approximately 25% compared to 2014; four, reduce the size of the global operating platform; five, consolidating manufacturing in Salt Lake City, specifically for climbing hardware; six, centralizing warehouse space in Europe to the Netherlands; and seven, shifting to an OEM model for ski production.

When complete, we expect these efforts to result in overall cost optimization to our existing business of approximately $10 million by the end of 2015 with full-year savings realized in 2016. We also expect this strategy will provide significant working capital and competitive benefits for your enhanced [order flow] rate and speed to market. Significant year-over-year improvement in our Q3 and Q4 gross margin, [ended up at] 30s and low 40s, appear to be early indications of success.

Now to supplement Aaron's comments about the quarter, I thought it would be helpful to provide recent industry data published by the Outdoor Industry Association as helpful context for our reported results. Warm weather, a shift in early-season spending and stiff math pricing policies impacted outdoor industry sales. In fact, outdoor product sales declined approximately 8% to $2.2 billion in December 2014 with double-digit declines in outdoor footwear and apparel, easily offsetting a small gain in outdoor hard good sales. Driving this environment was the consumer holding out until the last minute to purchase any outdoor related gifts after taking advantage of early promotions that pulled sales into early November. For the combined November-December period, outdoor product sales as a whole dipped 1.5% to $3.5 billion.

As a consolidated enterprise, we were certainly exposed to these macro industry dynamics, including poor weather in Europe and the spillover effect to our seasonal winter product. We also experienced slower-than-anticipated ASAP orders in North America due to the lack of winter weather in many parts of the West as well as similar shift in buying behavior over the past several months, especially from the independent specialty retailers. Despite these dynamics, we believe that our brands are outperforming the industry and taking market share, which is a testament to the value of our brands and the diversity of our business across geographies, seasons and product categories.

I'd like to speak in more depth about our brands, some of our accomplishments and the [gross] drivers. Beginning with Black Diamond, which, incidentally, just celebrated its 25th anniversary, to my memory never has there been a time in our history where climbing has been vaulted into the public eye with a level of frequency over the last several months. I'm referring to the three well-publicized climbing events that many of you have seen in the mainstream media where climbers were all adorned with BD gear.

The first of such events was the nationally publicized Dawn Wall climb by BD athletes Tommy Caldwell and Kevin Jorgenson. On January 14, 2015, both athletes completed what is arguably the most difficult ascent in the history of rock climbing. The duo remained on the wall for 19 days climbing 3,000 vertical feet via razor thin granite holes and shifting cracks. Their prize was the first free-ascent of El Capitan's Dawn Wall. With cell service throughout their climb and the team of photographers and filmmakers tagging along, the pair generated a global media buzz rarely seen in the climbing world. With BD athletes this determined, images this good and a backdrop of one of America's favorite locations, the ingredients added up to history on the Dawn Wall and in Yosemite. It was very gratifying to see Black Diamond products with them so visibly at every point of the way.

Second was BD athlete Will Gadd and Sarah Hueniken's well-publicized and first known ascent of Niagara Falls ice. Again, Will was well equipped with BD climbing gear as their amazing feat was picked up by mainstream media like People Magazine, USA Today, CNN and the Globe and Mail.

The third event was climbing film, Meru, winning the US Documentary Audience Award at this year's Sundance Film Festival. Meru is a film starring Conrad Anker, Jimmy Chin and Renan Ozturk. All three athletes represented the BD brand as the film shares the story of a quest for one of Alpinism's great prizes. Propelled by an excellent score and unflinching commentary, the film goes deep into a world of Alpinism that is austere and alien to most people yet breaks it down to celebrate of the struggles and triumphs of the human spirit.

Beyond the media publicity, BD product also attracted fourth-quarter attention. Our fourth quarter marked the introduction of our JetForce product on a global basis. The limited launch was completely sold out. We believe the product, which was made available across each of our BD POC and PIEPS brands, represents a breakthrough technology with real performance benefits that we're proud to have designed, developed and engineered by our colleagues within Black Diamond and PIEPS. The product won two ISPO Gold Awards in 2014.

Our growth strategy for JetForce is, like all of our other products, to have innovation drive market adoptance and we expect to be a leader in the global airbag market over time. Using the approximately 120,000 beacons sold globally as a good proxy for the potential airbag market size, we believe JetForce's addressable market to be substantial. Just as important, the successful launch supports our capabilities to innovate and collaborate across brands and positions us for additional snow safety product introductions.

Another example of brand synergies and idea collaboration is in the addition of the new patent-pending PIEPS Pocket to our ski pant line. The technology allows the user to carry their avalanche beacon on their thigh versus the previous chest-center position. This eliminates the cumbersome shoulder strap harness, makes it easier to access in an emergency and reduces interference with smartphones, which are frequently carried in chest pockets. In 2015 our Mission pant, outfitted with the PIEPS Pocket won an ISPO Gold Award.

2015 marks the recommitment to our ski business with a complete relaunch of our product positioning based upon user segmentation that allows retailers and customers to more easily understand and purchase our collections of product. As such, our upcoming ski products will be marketed through full equipment and apparel collections branded and tailored to free ride, touring and ski mountaineering. Exiting the trade show circuit and fall 2015 booking seasons, we were especially pleased at the reception to our carbon touring skis.

Our fourth quarter encompassed the second fall retail selling season of our men's Black Diamond Apparel line and the [Nuragura] selling season of our women's apparel collection, which focuses on outerwear. The line was sold in approximately 800 retail doors worldwide and marks the introduction of more significant commercial categories such as complete down collection featuring innovative new down blended insulation from PrimaLoft, a completely waterproof, breathable outerwear collection featuring GORE-TEX and cohesive embedded hardware, and a comprehensive collection of technical women's product. Like JetForce, cohesive embedded technology also took home an ISPO Gold Award.

The down and shell categories continue to be our best sellers and in both categories we brought meaningful insight to the product and unique new technologies to the user, consistent with our commitment to innovation in comfort and protection. To drive sell-through, in-store marketing for our Spring 2015 line encompasses apparel windows in a few key retailers Successful examples of Fall 2014 installations include premier specialty retailers across the globe including [Houston Munich], which sees foot traffic of approximately 1 million people per year, [Sportslager] in Oslo, SnowSports in Chamonix -- the capital of the European snow sports -- and Half Moon Outfitters in South Carolina. We also expect to provide tools (inaudible) apparel banners, apparel tech [tank] kits, apparel body forms, apparel hangers and a significant quantity of product that we give to the key shop staff.

We've created five digital catalogs featuring apparel on our website and promoted through social media. We also have retail co-opts at www.REI.com, www.zappos.com, www.locally.com and other select specialty retailers. Looking towards Spring 2015, North America and Europe is planning to be 60/40 men's/women's and the average shop per door is booked substantially over Spring 2014. In both geographies, we have solid double-digit growth in bookings for spring 2015.

Our marketing team at BD has been fully renovated in 2014 with several key hires and is structured to deliver excellence to our three key strategies: building brand awareness, supporting in-store sell through and protecting core credibility. During the fourth quarter, we launched The Human Factor digital campaign in partnership with Powder Magazine, which provided a fresh look through multimedia storytelling about how our behavior plays a role in human triggered avalanches. We experienced excellent results from a highly engaged audience, measured via our substantial amount of new website traffic. In addition to the strong visibility of BD and The Human Factor related online advertisements, we ran two native content pieces with Outside Magazine Online and three full-page [creatives] in print. We also ran a full-page print creative in Powder Magazine.

In our first quarter of 2015, we launched a comprehensive social campaign under the hashtag #liveclimbrepeat. We experienced strong preliminary results measured via increased followers and engagement across all social media channels including Instagram and Facebook. In partnership with the three major avalanche forecasting centers, we also launched new avalanche forecasting apps, which are crucial resources for back country skiers. BD is also the official equipment sponsor of the Ouray Ice Festival, the largest, most important ice climbing event in North America. The six city ROCK project tour, in partnership with the Access Fund, is taking place this week in San Francisco. This is an important event that focuses on the transitional [gym-to-crag] climber, the fastest-growing climbing demographic.

To celebrate the Dawn Wall climb, we created for REI a series of installations at five of their flagship stores, which serves as an important brand visibility with our key retail partner. We also have several new branded in-store projects with core specialty retailers in the works demonstrating our strategy for our increasing brand awareness through brand storytelling in the retail environment. To further reinforce our in-store marketing capabilities, we are extremely happy to announce the arrival of Matt Burbach as Senior Retail Marketing Manager. Matt is joining us from The North Face where he was driving the brand's in-store branded shopping experiences and visual merchandising for the past 10 years.

Omni-channel -- from an omni-channel perspective, 2015 will be focused on three initiatives: brand awareness, emerging channels and emerging markets. As we continue to create great content, our focus is to deliver this across all of these channels. Our collection-based marketing for our BD brand is a perfect story to do so. Another example is the contract -- content we have created on www.blackdiamondequipment.com celebrating the Dawn Wall climb. I invite our listeners to check out this content, which is located within the, quote, Experienced section of our website. Within this section you will also find an organic presentation of inspirational stories, photos and videos from our athletes, employees and partners. The Black Diamond Experience is where we showcase climbing, skiing and hiking adventures from around the world plus event news, advocacy efforts and product and technology highlights.

POC -- turning to our fastest growing brand, POC continues to garner significant brand awareness and is continuing to take share in its competitive marketplaces. As Aaron mentioned, POC had another very strong quarter due in part to reorders of in-season ski helmet product, especially in North America. During 2014, we successfully converted POC's independent distribution [structure] in Canada, France, Holland and Belgium to an independent sales agency structure. This commission-based comp structure puts us in charge of building these important markets by allowing POC to control its own sales and marketing efforts while providing higher wholesale margins that we can use to fund this investment.

Fall 2014 was the first season that completely benefited from these conversions and we saw an increase in our Q4 sales because of it. POC, renowned for its design and aesthetic research and innovation, was the recipient of numerous industry awards including the Ski Industry Association and US Ski Team's DesRoches Award for innovation in marketing and outstanding support and promotion of the US Ski Team and USSA club programs. Additionally, POC won 2015/2016 ISPO Awards in the ski category for the new multi-impact [Ulrik] helmet and Super Palm Comp Gloves.

POC's patented technologies continue to set new standards for construction, material combinations and engineering for personal protection. In late 2014, POC received the Design S Award in Sweden for its AVIP road cycling apparel and Popular Science Magazine named POC a, quote, best of what's new brand award winner for the Skull Orbit Comp HI mixed multi-impact helmet. The brand's 2015 road cycling collection was recognized with brands in-store -- recognized with a Eurobike Award for the cerebral helmet and the Tri Athlete Magazine best safety product award for the Octal AVIP's MIPS multi-impact helmet.

Speaking of the AVIP line, the second quarter of 2014 marked the shipment of the majority of the line and it was sold out on a bookings basis. However, Q3 was also helped by the continued delivery of the line. This momentum helped drive very strong Spring 2015 preseason bookings. In fact, Spring 2015 bookings have put us in a sold-out situation for the majority of cycling products in the first half of the year. Fortunately, unlike seasonal winter goods that have a short selling window, we expect to be able to satisfy some of this additional demand later in the year. This anticipated growth in POC Spring 2015 cycling revenue is predicated upon both increasing the number of SKUs and production quantities of AVIP line as well as increase the number of global doors carrying the line. We expect to introduce 14 new styles in 43 new SKUs at approximately double the door count in 2015.

In addition, we expect to launch our second collection of cycling apparel and gear for Spring 2015, which we have labeled and appropriately positioned as, quote, Race Day. Race Day has approximately 34 new styles, including helmets, and 135 new SKUs. We expect these initiatives double POC's road product sales in just one year.

Project Alpine -- I'd like to conclude my remarks this afternoon by highlighting the Company's decision to pursue strategic alternatives at this time. Our Fall 2013 strategic pivot initiatives are nearly complete and the Company is well-positioned for growth and increasing profitability. The most informative initiative, however, was the sale of Gregory Mountain Products, which was completed in July 2014 at approximately 2.3 times forward revenue. At a time when premium active lifestyle and outdoor brands are selling at historically high levels and there is a scarcity of authentic branded assets available to strategic players, we believe that now is the right time to explore the value of Black Diamond, POC and PIEPS in the market.

As a result of this exercise, we believe the Company is likely to utilize 100% of its remaining NOL balances in connection with this project in our ongoing efforts to unlock value for our shareholders. Because of the Company's decision to pursue strategic alternatives and the confidence and nature of this process, we are not going to entertain any questions following this conference call. We will speak publicly again in late April or early May to report the first quarter of 2015 and hope to largely complete our analysis of strategic alternatives during the second quarter of this year. Whatever the outcome of this process, we remain committed to our mission and dedicated to serving our customers.

So with that, I will now turn this back to Jamie.

Ladies and gentlemen, that does conclude today's teleconference. You may now disconnect your lines at this time. Thank you for your participation. ]