Clarus Corp (CLAR) 2015 Q1 法說會逐字稿

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Black Diamond Inc.'s, financial results for the first quarter ended March 31, 2015. Today's call is being recorded. Joining us today are Black Diamond Inc.'s, CEO, Mr. Peter Metcalf, the Company's CFO, Mr. Aaron Kuehne, and the Company's Director of Investor Relations, Mr. Cody 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, Lauren. 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 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 it's ability to organically grow each of its historical product lines, its new apparel line, and its recently acquired businesses; the result 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 in contracted products; foreign currency fluctuations; the Company's ability to utilize its net operating loss carry forwards and legal, regulatory, political, and economic risks in 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 report on 10-K, quarterly reports on 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 the date hereof. The Company assumes no obligation to update any forward-looking statements to reflect events or circumstances after the date of this conference call.

I would like to remind everybody that the call will be available for replay through May 25, 2015, starting at 8:00 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 blackdiamoninc.com. Any redistribution, retransmission, or rebroadcast of this call in any way without the expressed written consent of Black Diamond Inc. is strictly prohibited.

With that, I would like to turn the call over to the CEO of Black Diamond, Peter Metcalf. Peter?

Thank you, Cody, and good afternoon, everyone. Following a strong finish to 2014, our first quarter was highlighted by another quarter of double-digit sales growth, expanded gross margin, and lower operating cost. In fact, the first quarter marks the fourth consecutive quarter of double-digit currency neutral sales growth and third straight quarter of gross margin expansion. Black Diamond also grew in all of our major geographies.

Growth rates continue to be driven by growth of Black Diamond apparel and the continued rollout of POC cycling products, including its new spring 2015 Race Day line and expanded assortment of eye wear. Excluding the impact of foreign exchange, sales grew 18%.

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

Thanks, Peter, and good afternoon, everyone. Sales in the first quarter of 2015 increased 13% to $50.3 million compared to the same year-ago quarter. The increase was driven by increases across all product categories and geographic regions which included growth of Black Diamond apparel and the continued rollout of POC cycling product and expanded selection of eye wear. We also experienced steady growth from our BD and PIEPS hard good business despite economic challenges in Japan, Russia, and foreign currency headwinds in Europe in Canada.

Due to net weakening of foreign currencies against the US dollar on a consolidated level, first quarter sales were negatively impacted by approximately 500 basis points or $2.2 million. On a constant currency basis, Q1 sales increased 18%. Consolidated gross margin in the first quarter increased 30 basis points to 37.8% compared to 37.5% in the same period last year in spite of a 260 basis point headwind from foreign currency. So, on a constant currency basis gross margin would have been a healthy 40.4%, an increase of almost 3%. The improvement was due to a favorable mix of higher margin products, a higher margin channel mix, and reflects the margin-enhancing initiatives contained in the Company's strategic pivot on the back of the sale of Gregory Mountain Products.

First quarter SG&A, which excludes restructuring, merger and integration, and transaction costs decreased 8% to $19.2 million compared to $20.8 million in the year-ago quarter. This decrease is also attributable to actions outlined in our strategic pivot and the realignment of redundant operating platform resources following the sale of Gregory Mountain Products as well as general optimization efforts across the organization.

During Q1, we incurred restructuring charges of $470,000, most of this related to severance benefits associated with the continued realignment of resources, including the repatriation of manufacturing activities from Asia to the US. We expect approximately $500,000 to $1 million of restructuring charges remain in 2015 as we continue to seek to optimize the organization and increase the speed at which the associated savings are realized. We also incurred $300,000 in transaction costs related to the exploration of strategic alternatives. Adjusted net income from continuing operations increased significantly to $1 million or $0.03 per diluted share in the first quarter of 2015 compared to an adjusted net loss from continuing operations of $2.6 million or a loss if $0.08 per diluted share in the first quarter of 2014.

Moving to the balance sheet. At March 31, cash and available-for-sale marketable securities totaled $36.8 million and we had zero borrowings outstanding under $30 million revolving line of credit with Zions Bank. Total debt stood at $22 million which includes $18.9 million of 5% subordinated notes due in 2017 and $3 million in a foreign seasonal working capital credit facility for POC. We are purposely carrying higher levels of inventory through the first three quarters of 2015 to avoid disruption associated with the transition of manufacturing activity from Asia to the US in the early build out of JetForce inventory in advance of moving the activity to a tier 1 supplier in 2016. As a result, our inventory levels in the first quarter were higher by approximately $6.1 million. All of these activities or ahead of our internal schedules and we expect to convert the business to return to standard levels of inventory during the fourth quarter.

Our outlook for the year ending December 31, 2015, remains unchanged. 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?

Take you, Aaron. Once again, our first quarter marked a solid start to the year with strong performance across all brands in major markets. Our consolidated North American business realized solid double-digit growth rates driven by both Black Diamond and POC while our Asian, rest of the world, and European markets also performed well. Europe, which is been a challenging market of late due to the economic uncertainty, foreign currency, and seasonable weather, was benefited by the preseason shipment of our spring 2015 apparel line, the delivery of POC's road cycling line, and the strong demand for PIEPS as a result of some late-season snow in certain markets. We remain optimistic about this market long term, particularly central Europe, despite caring higher than normal inventory, drier winter conditions, and generally soft consumer spending.

The resiliency and diversity of our brand has helped deliver these results, particularly in Europe, yet it's worth reiterating that we managed business two six-month seasons. So, the culmination of our spring-summer selling season at the end of Q2 will be more appropriate barometer of our financial performance. We remain pleased to see our strategic pivot continuing to manifest itself not only in sales growth, but also in margin expansion and cost reduction with the exception of the repatriation of certain manufacturing activities from China to the US which we expect to be materially complete by July 2015.

The strategic steps of the pivot have been completed. When complete we expect these efforts to result in overall cost optimization to our existing business of approximately $10 million annually with the full-year savings realized in 2016. We also expect this strategy will provide significant working capital improvements and competitive benefits through a faster refresh cycle and greater speed to market. The significant year-over-year improvements in gross margin and lower first-quarter operating expenses appears to be an early indication of success.

Now, I would like to speak in more depth about our brands, some of our accomplishments, and the growth drivers. Starting with POC. Our fastest growing brand, POC, is garnering exciting level of brand awareness and continuing to take share in both of its competitive marketplaces, snow and bike. We are very pleased with POC's rollout of its road cycling line, including the launch of Race Day and an expanded eye wear offering. The company has also benefited from a strong ASAP businesses for snow product in the first quarter driven by favorable weather conditions in the north east. These results were offset by foreign exchange headwinds, especially in Europe.

With regard to AVIP and Race Day, we are sold out of the majority of cycling products for the first half of this year. Fortunately, unlike seasonal winter goods that have a short selling window, we expect to satisfy some of this additional demand later in the year. We anticipate significant growth in POC spring 2015 cycling revenue predicated upon both increasing the number of SKUs and production quantities of the AVIP line as well as an increase in the number of global doors carrying the line. We expect to introduce 14 new styles and 43 new SKUs at approximately double the door count in 2015.

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

Turning to Black Diamond. BD has made great strides executing upon four key strategic pillars. They are: building brand awareness, driving emerging channels, driving emerging markets, and driving category expansion.

Driving brand awareness at BD is centered around digital marketing, PR, and media. We rolled out our first-ever comprehensive digital marketing campaigns with a story about BD global athlete, Daniel Young, with the goal of growing brand awareness with extended core audience; that is training-oriented consumers, general outdoor enthusiasts, and new climbers. The full campaign featuring several other engaging stories will continue through the spring and provides us with a way to connect with this key demographic.

Preliminary results show 36% follower growth on Instagram, our key social media channel since the campaign launch. Engagement rate nearly doubled to 6.1% in the same time period. We've also seen a 50% increase in traffic to www.blackdiamondequipment.com from our social channels, a strong indication that the campaign is building brand awareness and driving our direct consumer business.

On the public relations front, Black Diamond received numerous awards and accolades for our spring 2015 products as well as products due to launch in fall 2015. To name a few, our Snaggletooth clamp on won Gear Junkies Best of Show Award, our Mission pants were an ISPO Gold winner, and our sprinter head lamp won Editor's Choice Award and Trail Runner. In addition to our robust media plan, which focuses on key publication in the outdoor space, like Back Country, Backpacker, Rock and Ice, we worked with [Powder] Magazine to create a media-rich native content series that examines how skiers decisions and actions play a role in the human-triggered avalanches. This piece resonated strongly with core back country skiers.

To commemorate Tommy Caldwell and Kevin Jorgenson's first free ascent of the Dawn Wall in El Capitan, we partnered with REI to place a branded display in five of their flagship stores. This is a major step in reinforcing Black Diamond's brand presence in this key retail partner and the double-digit list and sell through within the stores is causing REI to think about expanding the program.

Moving now to emerging channels. Our direct-to-consumer sales continued healthy double-digit growth driven by our work through to move friction from the buying process via website optimization. A few highlights include an updated [rescan] site presentation tailored for mobile viewing, new on-site type-as-you-search functionality, and the launch of PayPal. Together, we estimate these features have increased the conversion of casual visitors to buyers and, as I mentioned, our social media initiatives are continuing to build overall traffic at a healthy rate.

In emerging markets, although our first quarter experienced substantial headwinds in the challenged Russian and Japanese markets, the rest of Asia as well as the Australia and New Zealand markets, all delivered robust double-digit growth. Apparel in these channels grew at over 100% and we are gratified by reports of solid early sell through. With our transition out of BD's Chinese manufacturing facility, we have arranged the [Shenghen] 3PL provider to keep delivering product for our full 2015 season as a way to support our rapidly growing Asia and Australian business.

In addition, the fourth quarter 2014 marked the introduction of our JetForce product on a global basis, further underscoring our presence in this snow safety market. The limited launch was completely sold out. Just as important, the successful launch supports our capabilities to innovate and collaborate across brands and positions us for additional snow safety product introductions, including JetForce next winter season. Using the approximately 120,000 beacons sold globally as a good proxy for the potential airbag market size, we expect to be a leader in the global airbag market over time.

And finally, driving category expansion. Our PIEPS brand had a very strong first quarter. (Inaudible) Alpine Touring can have an extended season if the weather cooperates and PIEPS certainly benefited from the late-season snow in some of our European markets. PIEPS brings forth innovative technology in a snow safety marketplace that we can integrate into existing categories such as apparel. I'm referring to the new patent pending PIEPS Pocket that is integrated into 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 from smartphones which are frequently carried in chest pockets. As I mentioned, our Mission pant, outfitted with a PIEPS Pocket, won the 2015 ISPO Gold Award.

Apparel. Speaking of apparel, our first quarter benefited from much improved on-time delivery and availability of spring 2015 apparel, especially in Europe. As a result, we experienced nearly triple digit year-over-year growth. This is also the first quarter that benefited from the launch of women spring sportswear which includes pieces like the Sister Superior Tank, Alpine Start Hoody, and the Levitation Capris which is a piece that provides a reliable comfort in the gym, at the boulders, or under the harness.

From a marketing perspective and partnership with the Access Fund, we kicked off the 2015 Rock Project Tour with successful sold-out stocks in San Francisco, Salt Lake City, and New York City. Rock Project is designed to educate and inspire the growing populations of gym to crag climbers, the fastest growing climbing demographic to embrace responsible habits and behaviors when they make the transition outside. We also believe women are focal to this trend and our women's spring line caters nicely to both outdoor and indoor climbing environments and everything in between. Future 2015 Rock Project Tour stops include Seattle, Denver, and Atlanta.

I would like to conclude my remarks by commenting on our March 16 announcement that Black Diamond engaged the financial advisory firms Rothschild Inc., and Robert W. Baird & Co. to lead the expiration of a full range of strategic alternatives including the sale of the company's Black Diamond equipment, including PIEPS and POC brands in two separate transactions. The Company has received a number of non binding indications of interest with respect to each of these brands. We anticipate that the results of the strategic review process will be known during the third quarter of 2015 and we do not intend to comment further regarding the strategic review process unless or until a specific transaction is approved by a board of directors or shareholders, the strategic review process is concluded, or it is otherwise determined that further disclosure is appropriate or required by law.

The Company provides no assurance that the strategic review process will result in any completed transaction. Consistent with our March 16 conference call, and due to the confidential nature of the activities that we're currently involved in, we are not going to entertain any questions following our prepared remarks this afternoon. We remain committed to our mission and dedicated to serving our customers and our community users. At this time, I would like to turn the call over to Lauren.

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