Clarus Corp (CLAR) 2015 Q2 法說會逐字稿

Please stand by, we are about to begin. Good afternoon everyone, and thank you for participating in today's conference call to discuss Black Diamond, Incorporated's financial results for the second quarter ended June 30, 2015. Joining us today are Black Diamond's CEO, Mr. Peter Metcalf; the Company's CFO, Mr. Aaron Kuehne; and the Company's Investor Relations Advisor, Mr. Cody Slach.

Before we go further, I would like to turn the call over to Mr. Slach, as he reads the Company 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, Melissa. 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 loss 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 carryforwards, 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 Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. All forward-looking statements included in this call are based upon information available to the Company as of the date of this 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 call.

I would like to remind everyone that this call will be available for replay through May 25, 2015 (sic), starting at 8.00 PM 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 blackdiamond-inc.com. Any redistribution, retransmission, or rebroadcast of this call in any way without the express written consent of Black Diamond is strictly prohibited.

Now I would like to the call over to the CEO of Black Diamond, Mr. Peter Metcalf. Peter?

Thank you, Cody, and good afternoon, everyone. The second quarter reflects the Company's initiatives to grow sales and gross margin, while controlling expenses and improving cash flow. We are pleased by 7% organic sales growth on a constant currency basis, despite continued headwinds in parts of Europe and Asia, and a 360 basis point currency neutral gross margin expansion.

We completed the quarter with $44.3 million in cash, generating $4.2 million in free cash flow in the first half of 2015. Today's results are being driven by POC's successful road bike product line, and the addition of women's sportswear for spring 2015, making for a more complete seasonal collection of Black Diamond apparel.

Our Black Diamond equipment business also continues to gain market share, driven by double digit sales growth, both in the quarter and year-to-date in North America, our largest market. We expect momentum in this market, along with our fast-growing POC brand, and solid double digit gains in both POC and BD's direct-to-consumer channels, to drive record sales in 2015.

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

Thanks, Peter, and good afternoon, everyone. Sales in the second quarter of 2015 increased to $35.1 million, compared to $34.4 million in the same year-ago quarter. The increase was driven by growth in Black Diamond apparel, and the continued rollout of POC cycling products, including its new spring 2015 Raceday line, and expanded assortment of eyewear.

Due to net weakening of foreign currencies against the US dollar, on a consolidated level, second-quarter sales were negatively impacted by approximately 500 basis points, or $1.7 million. Again, on a constant currency basis, Q2 sales increased 7%. Consolidated gross margin in the second quarter increased 80 basis points, to 36.7%, compared to 35.9% in the same period last year. This was in spite of a 280 basis point headwind from foreign currency.

So on a constant currency basis, gross margin would have been a healthy 39.5%, an increase of 360 basis points. The improvement was due to a favorable mix of higher margin products in channel mix, and reflects the margin-enhancing initiatives contained in our strategic pivot on the back of the sale of Gregory Mountain Products.

Second quarter SG&A, which excludes restructuring, merger and integration, and transaction costs, was essentially unchanged at $18.1 million. However, during the quarter, we recognized approximately $700,000 in termination benefits provided to the Company's former president, Ms. Zeena Freeman. Excluding these costs, SG&A was down due to actions outlined in our strategic pivot, the realignment of redundant operating platform resources following the sale of Gregory, as well as general optimization efforts across the organization.

During Q2, we incurred restructuring charges of $1.4 million, related to the continued realignment of resources, including the repatriation of manufacturing activities from Asia to the US. We also incurred $689,000 in transaction costs related to the exploration of strategic alternatives.

Adjusted net income from continuing operations increased significantly to $200,000, or income of $0.01 per diluted share in the second quarter of 2015, compared to an adjusted net loss from continuing operations of $3.7 million, or a loss of $0.11 per diluted share in the second quarter of 2014. At June 30, 2015, cash and available-for-sale marketable securities totaled $44.3 million, compared to $40.9 million at December 31, 2014.

Year-to-date free cash flow totaled $4.2 million, compared to a $9.1 million cash outflow during the same period last year. Positive changes in free cash flow are driven by a $14.8 million decrease in working capital, all while carrying approximately $10 million of incremental inventory that is necessary for our pivot initiatives.

As we indicated last quarter, we are purposely carrying higher levels of inventory through the first three quarters of 2015, to avoid disruption associated with the transition of our manufacturing activities from Asia to the US, as well as the early build-out of JetForce inventory in advance of moving that activity to a tier 1 supplier in 2016. All of these activities are ahead of our internal schedules, and we expect the business to return to standard levels of inventory, and the Company's free cash flow to benefit, during the first quarter of 2016.

Total debt was $22 million at June 30, 2015, which includes $19.2 million of 5% subordinated notes due in 2017, and $2.6 million in a foreign seasonal working capital credit facility for POC, compared to $22.4 million at December 31, 2014. Our outlook for the year ending December 31, 2015 remains unchanged. We anticipate sales to increase 11% on a constant currency basis. Also 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 in the past, I will make some comments about our performance by region, and then dive into our key growth initiatives.

Our consolidated North American business continued to realize solid double digit growth, driven by both Black Diamond and POC. In fact, year-to-date this region is up over 20%, which far exceeds the growth of the industry. This is driven by POC's road line, as well as strong growth in core Black Diamond climbing and mountain gear, as retailers focus their purchases and bought deep with key brand partners in foundational equipment businesses like climbing, lighting, and trekking poles.

Operationally, this region benefited from a restructured sales organization, as well. We promoted Glenn Ritter to Vice President of Sales and Supply Chain, to improve global wholesale sales and inventory planning. Keith Christiansen returned to us from [Petzold] as the Director of Sales for North America, and we promoted several longtime employees into key sales management and dealer service/customer service roles.

Europe continues to be a challenging market due to economic uncertainty, foreign currency headwinds, and generally soft consumer spending. Despite these challenges, this region benefited from BD's spring 2015 apparel, and the delivery of POC's road cycling line.

Eastern Europe, Scandinavia, and the UK represent the strongest regions within this market. Year-to-date, this region has grown mid-single digits, while we would characterize the overall European market as being flat to down. Given the macroeconomic environment in the region, we are pleased with our results in this region, and we remain optimistic about the market long term, particularly Central Europe.

Outside of Europe, our international business continues to be challenged by softness in Japan, Russia, and to a lesser extent, Korea. As we mentioned at the end of 2014, BD has a strong presence in Japan, and the country is experiencing both consolidation and stabilization after a three-year growth spurt.

Hence, 2015 is about aligning inventories with net flat demand. Korea too is going through a somewhat similar, but less acute version of what is happening in Japan. Finally, Russia's retail sector has been badly buffeted by a combination of economic sanctions and the sudden and rapid decline of the ruble, making all of dollar-denominated goods substantially more expensive right at a time that consumer spending was rapidly declining.

We remain pleased to see our strategic pivot continuing to manifest itself not only in sales growth, but also in margin expansion, cost reduction, and cash generation. The repatriation of certain manufacturing activities from China to the US is materially complete. We expect this strategy to provide working capital improvement as well as competitive benefit, through a faster refresh cycle, and greater speed to market.

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, continues to take market share. After substantial investment and surpassing our one-year anniversary, we are very pleased with POC's rollout of its road cycling line, including a launch of Raceday, which performed very well at retail, and generated strong ASAP orders.

POC also benefited from strong direct-to-consumer sales, especially within the wheels product. These results were offset by foreign exchange headwinds, especially in Europe. Nevertheless, Q2 is becoming more important for the brand because of our growth in cycling, giving the uptick in ASAP business that we have experienced.

At the end of the second quarter, we launched the Team Cannondale helmet, an ICE product, which we shipped in late June for in-store sale date of July 3, in order to capitalize in the start of the Tour de France. Selling this product also drove ASAP business for other POC products that I just referenced.

With regard to AVIP in Raceday, we were sold out of the majority of cycling products for the first half of this year, and recorded a significant growth in POC spring 2015 cycling revenue. Driven by both increasing the number of SKUs and production quantities of AVIP line, as well as an increase to the number of global doors carrying the line. We introduced 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, quote, Raceday. Raceday has approximately 34 new styles, including helmets, and 135 new SKUs. As we anticipated, these initiatives have more than doubled POC's road product sales in just one year since the launch.

POC's road line has garnered a huge amount of media attention in and around this year's Tour de France, the world's largest sporting event. Last year, we partnered with the now Cannondale Garmin racing team to be their official helmet and sunglass sponsor, and we couldn't be more pleased with POC's brand exposure over the course of this relationship. Furthermore, we just wrapped up our fall 2015 preseason selling program, and POC's gear and equipment bookings were very strong, further driving the brand's momentum.

The new Auric helmet for park and pipe users has had tremendous selling with great protection, ventilation, and comfort. The complementary Fovea goggles have been extremely well embraced, with our most attractive-priced goggle at $140. With this launch, we're following our strategy to increase goggle to helmet sales 1 to 1 in units.

We've also boosted our glove [story], and earned our first glove award at ISPO, with the Super Palm Comp glove. The US ski team is wearing our POC gloves for the first time, and our Julia Mancuso signature version is selling well.

Looking to spring 2016, we expect to continue to build upon the road category, by adding to the AVIP and Raceday collections, while launching a new line called Gran Fondo. Features of this line include more approachable fits that appeal to the cycler enthusiast as opposed to an elite cycling athlete. Fondo is giving us the ability to sell to a wider audience, while still having a premium quality and reiterating our brand positioning. With the media and brand momentum I just discussed, we believe the time for a more universal line is now.

We also launched two brand new helmets, [Tactel] and [Caroon]. The Tactel mountain bike helmet is developed for all mountain and trail riders, and has increased levels of ventilation and protection compared to the ever successful Trabec helmet. The Caroon downhill mountain bike is a new generation of downhill helmets with a new and unique composite shell material, offering a lower weight and better resilience than traditional high-end carbon shells. We also launched the [Resistance] series of mountain bike clothing, where customized solutions offering protection against impacts, friction, abrasion, and penetration have been integrated into the garments.

Now turning to Black Diamond. We continue to make positive strides, executing upon our four strategic pillars: building brand awareness, driving emerging channels, market, and category expansion.

As discussed last quarter, to commemorate Tommy Caldwell and Kevin Jorgeson's first free ascent to the Dawn Wall on El Capitan, we partnered with REI to place a branded display in five of their flagship stores. For the next 60 days, all five stores experienced strong double digit sales in the wake of this branding initiative. This is a major step in reinforcing Black Diamond's brand presence in this key retail partner, and the double digit lift in sell-through within these stores is causing REI to think about expanding this sort of program.

We will have similar in-store marketing program partnerships with other key retailers. For example, we have a shop-in-shop installation in Tucson, Arizona's Summit Hut scheduled for September. We have branded [gym] partnerships with The Cliffs Climbing in Long Island City slated for this fall. And the BD TV film tour is scheduled for six film tour stops in the US, and two in Canada this October and November.

BD TV is a branded [contin] channel for the Black Diamond brand to showcase stores that are authentic, engaging, and representative of the cultures of climbing and back-country skiing. The launch will occur in conjunction with events and parties at key BD retail partners around North America, like Evo in Portland, and Escape Route in Whistler.

Speaking of brand awareness, we have increased year-over-year social media follower and engagement growth through the second quarter. Nearly all forms of social media grew in solid double digits with Instagram follower growth up nearly 300%, and engagement growth up nearly 70%. The spring launch of our global [athlete] program to support social media and content creation is also driving brand awareness, and a key contributor to our social media growth.

In partnership with Access Fund, we kicked off the 2015 ROCK Project tour, with successful sold-out stops 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 the responsible habits and behaviors when they make the transition outside. We have received a tremendous amount of mainstream and social media attention from this initiative. 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.

Our emerging direct-to-consumer channel continues to be our fastest growing business globally. First-half growth is strong double digits, with apparel growing triple digits. In fact, apparel is the fastest-growing portion of the [BDC] channel.

During the quarter, we made the decision to recall our JetForce product. Recalls are not extraordinary in our industry, and from time to time certain products may fail to adhere to the strict quality standards we instill at Black Diamond. The recall involved a potential glitch that we discovered in the product software, that all-in cost us approximately $141,000.

In the future, as a result of planned product upgrades and our new relationship with a tier 1 supplier in 2016, we expect further firmware updates of this nature to be handled by the consumer in the field. We've received positive consumer reaction to our proactive and proportionary handling of the recall, and we remain equally bullish on our opportunity in this market for years to come.

Q2 apparel sales were up substantially across all channels and geographies, led by spring technical outerwear, and women's rock climbing sportswear, as well as the profitable movement of some discontinued merchandise. Some of the key pieces of the women's line that helped drive the growth include the Sister Superior Tank, Alpine Start Hoodie, and the Levitation Capris, which is a piece that provides reliable comfort in the gym, at the boulders, or under the harness. We have and will continue to invest in gym-to-crag, semi-technical apparel, and remain well-positioned in this up-and-coming category.

Looking forward to fall 2015, we are relaunching our ski category, with a focus on back-country skiing and snow safety. Other highlights include first full season of JetForce delivery, the second full season of carbon skis, the first apparel ski collection, and the launch of BD TVs brand-new content channel.

Looking to spring 2016, we just concluded the trade show season in Europe and the United States for Black Diamond. Highlights of these events include: the launch of our gym-to-crag initiative, which is focused and developed in our brand as the next generation climber, and the launch of our spring collections of athletic apparel. We highlighted innovative new Ultralight Camelots, which are 25% lighter than the prior generation in design, as well as developed and manufactured here at our Salt Lake City facility.

I should note that we expect our spring 2016 climbing equipment to be the first complete season of product manufactured or assembled completely in our SLC facility, as a result of our decision to repatriate out of China. We also expect new lighting for spring 2016 to be a key sales driver, with improved performance and beautiful new designs.

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 and Company to lead the exploration of a full range of strategic alternatives, including a sale of the entire Company, and the potential sales of the Company's Black Diamond equipment, inclusive of PIEPS and POC brands, in two separate transactions. At this point it is too early to discuss the details of any of the Company's alternatives, other than to say that one possible outcome is the sale of some of the Company's assets to monetize a small portion of the Company's NOL, and a redeployment of the proceeds to unrelated and diversifying investments.

We currently plan to complete our strategic review process by the time the Company reports its third-quarter results in early November 2015. We do not intend to comment further regarding the strategic review process, unless we are told a specific transaction is approved by our Board of Directors or shareholders. The strategic review process [included], 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 past two earnings calls, and due to the confidential nature of the activities that we are currently involved in, we're 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 community of users. At this time I would like to turn the call over to our operator, Melissa.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.