Q2 2020 Clarus Corp Earnings Call

[music].

Joining us today, our claris corporations, President John Wall break.

Chief administrative officer, and CFO Aaron Kuni.

And the company's external director of Investor Relations Codis law.

Following their remarks, well open the call for your questions before we go further I would like to turn the call over to Mr. slaw as he writes the Companys Safe Harbor investment.

First <unk> safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1990 Fives that provides important cautions regarding forward looking statements Cody. Please go ahead.

Thanks, Corey. Please note that during this 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 company cautions you that forward looking statements are not guarantees and the actual results could differ materially from those expressed or implied in the forward looking statements.

Potential risks and uncertainties that could cause actual results.

Operations or financial condition of the company could 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 the consumer demand on the company's products general economic conditions, and other factors affecting consumer confidence preferences and behavior.

Disruption in volatility in the global currency capital and credit markets.

The financial strength of the company's customers companys ability to implement its business strategy the ability of the company to execute integrate acquisitions.

The impact that global climate change trends, they have on the company and suppliers and customers.

The company's exposure to product liability or product warranty excuse me product warranty claims and other loss contingencies.

Corruptions another impacts to the company's business as a result of the covert 19 global pandemic government actions and restrictive measures implemented in response.

Stability of the company's manufacturing facilities in suppliers as well as consumer demand for our products in light of disease epidemics and health related concerns such as the coated 19 global pandemic changes in government regulation legislation or public opinion relating to the manufacturing sales votes in ammunition virus.

Crs segment, and the physician and use of firearms and ammunition by our customers the company's ability to protect patents trademarks and other intellectual property rights any breaches over interruptions in our information systems fluctuations in the price availability and quality of raw materials and contracted products as well as foreign currency fluctuations.

Visibility to utilize its net operating loss carry forwards changes in tax laws and liabilities tariffs legal regulatory political and economic risks and the company's ability to declare dividends.

More information on potential factors that could affect the Companys 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 eight K. All forward looking statements included in this call our base.

Upon information available to the company as the date of this call.

And speak only as the date here of the company assumes no obligation to update any forward looking statements to reflect events or circumstances. After the date of this call.

I'd like to remind everyone. This call will be available for replay through August 24th starting at eight 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 Claris Corp. Dot com any redistribution retransmission or rebroadcast of this call in any way without the expressed written consent of Claris Corp is strictly prohibited.

Now I'd like to turn the call over to the President of Claris, John Walbrecht John.

Thank you Cody and good afternoon, everyone.

Despite a challenging consumer environment amidst a global pandemic the strength of our well diversified brand portfolio and a multichannel distribution platform was apparent in our second quarter results. We believe that superfan brands show their long term strengths and core consumer demand even more so in difficult.

Times when the year ends we believe we will see the strength of our brands proven through increased market share.

Let me step back and address the plan we enacted at the onset of Cobot 19 in March of earlier this year.

At the onset of the virus, we device to plan to focus on three things first our people the present preservation of brand equity and then the maximization of liquidity, which together, we believe would make us emerge as an even stronger company.

The first pillar of the plan was the safety of our people. We have maintained our work at home stance for all office employees with minimal minimal disruption to our operations.

For those employees at Sierra and others in distribution, where work has been deemed essentially significant health checks as well as precautionary measures were implemented to protect their wellbeing and our ongoing.

The second pillar, what's the preservation of brand equity for Claris brand equity amongst the core consumer is our life blood.

We supported our retailers during the quarter by continuing to ship products to those in need while keeping the integrity of our pricing.

This included products to support our partners E commerce businesses or avenues like curbside pickup. Most importantly, we continue to maintain and protect the integrity of our map pricing policy with each of our retail partners, thus limiting the amount of off price promotions of our brand.

Complementing our retail partners, we continue to drive strong sales in our direct to consumer business, which includes both online and our retail store sales.

With sales up 7% overall and growth of 25% on black Diamond equipment Dotcom.

We continue to experience in is improved activation and our E Commerce channel due to more efficient prospecting and re targeting in order to drive higher levels of site traffic, we prioritize full price selling.

With a focus on storytelling to capture the consumers interest during this increase time at home and online.

Ultimately the strongest case me made for our ability to preserve brand equity was the 140 basis point expansion in gross margin during the second quarter.

We expect our well performing E commerce business, along with third party sites of our wholesale partners do carry more weighed in 2020 as the percentage of our total sales offsetting some of the weakness that will be felt at traditional retail.

Finally, we prioritize our liquidity and ended the second quarter in a solid position.

I don't walk through the shortly but at June Thirtyth, We had 21.5 million in cash was an access to 50.4 million on a revolving line of credit and a leverage ratio of 0.6 X.

Now I'd like to address the specific brand performance in the quarter.

For Black Diamond the impact of covert 19, largely caused our retail partners to temporarily close their doors during the second quarter freezing pre season and replenishment orders.

However, demand improved each month in the quarter, particularly in regions that have shown marked progress in the recovery like Europe. In fact, we came into the quarter expecting our results to be down 80% in April 60% in may and 40% in June.

We were able to see each month by approximately 10 percentage points.

We also showed positive momentum and resilience with various essential key accounts and strength in our direct to consumer channel.

We continue to experience improved activation with our online sales due to more effective consumer prospecting and re targeting in order to drive higher levels of traffic and visit to our website.

We're also encouraged by the amount of press and earned media media. The brand continues to garner in June alone. We had more than 325 earned media PR placements and over 600 million impressions and we want to over product over 10 product Awards.

June product highlights include the BD storm line stretched shell in Forbes the impact crash pad in MSN dotcom and the BD icon in popular mechanics.

Year to date earned impressions or 2.2 billion was 72 product award both up from last year, and our apparel categories as having its strongest year ever in terms of interest and product recognition from the media.

In our CRM business domestic gross continued to accelerate add in all channels with growth of 36%.

This was driven by multiple demand factors like social and civil uncertainties and the upcoming U.S. elections, partially offsetting this strong growth was the prolonged softness we experienced internationally.

Which decreased 55%.

It's important to note. The these international markets had retail ordinances that prevented their opening unlike the U.S., where most have been deemed essential.

And our international markets, obviously don't have the unique demand driver is currently being experienced in the United States.

Since the end of the second quarter sales trends in both Sierra and Black Diamond have continued to build momentum.

Black Diamond's expected to benefit from partner retail doors began to open and our ability to fulfill orders remain unaffected. This is a crucial point. The fact that 86% of BD sales are non perishable equipment that is deemed isn't necessity to our activity based consumer is a unique asset during these.

Uncertain times.

In particular, we are excited by the early indications of what we believe could be a strong back country snow season, especially as it relates to snow safety product due to the prolong social distancing constraints, we expect the increase in that country participation that we saw off towards the end of the past season will continue as our activity.

Based consumers look to get outside.

For Sierra domestic trends of only strengthened including the reception of our recently launched ammo.

Initiative, where we have seen growth of more than 300% through the first seven months of 2020.

We've also started to see signs of recovery in our international market.

Importantly, we have the capacity to sell what is anticipated to be very strong second half of the year due to the focus over the last two years on improved efficiency and increasing capacity in fact over this time capacity has increased by approximately 30%.

Just last week, we also made an important higher for our Europe business appointing key enlow as president he brings to this year on more than 25 years of executive leadership, serving in rules in the commercial military and law enforcement markets. Most recently in low served as a general manager for Steiner optics prior.

After his role there he served as the CEO of the U.S. Olympic and Paralympic shooting teams as well as prior roles with Remington ammunition and Barnes bullets.

Given his experience we expect key to continue to lead the brands strong growth path facilitating strong relationships with our customers overseeing the product expansions such as our ammo initiative and building overall brand awareness welcome aboard Keith It's great to have you on the Polaris team.

Assessing our inspection expectations for 2020, we believe we're still well on track to achieve the goals laid out last quarter.

These include liquidity improvements cost savings measures and key sales assumptions, which all underscore the optionality that we have sought to create and our brands to adapt to a China changing consumer landscape.

Furthermore, while continues to be difficult to know when normalized business returns, we do expect consumers to remain loyal to authentic brands that stay true to the core.

We believe this sets us up well for the future as we continue to focus on our innovate and accelerate playbook. This playbook includes seeking to further strengthen our brands positions by investing in product innovation sales and marketing and pursuing new long term revenue opportunities.

Our diverse portfolio of products across geographies and channels is another strength, we view as unmatched within the market.

Our offerings spans three single product categories and there is no single one that accounts for more than 15% of our sales.

This provides provides a balance of sales across both the fall and winter spring and summer sports season.

And our brands are truly global with nearly 50% of our sales generated over 50 countries outside the us.

In addition, while apparel and footwear, our key strategic initiatives, where we believe substantial growth opportunities exist is important to note that they currently represent 14% of our business. The remaining 86% is equipment that is non perishable and viewed as necessity for our activity.

Base consumers. These products are not driven by seasonal fads instead, they are rooted in best in class design engineering testing and functional feature sets and able to user to have his or her bets stays in the mountain.

We will continue to invest in a robust direct to consumer sales engine to help grow the brand in key markets and in the digital space, where consumer targeting advertising and storytelling and quickly bring relevant scale to our book of business like ours.

Lastly, we will continue to leverage the strength of our balance sheet as we evaluate long term growth opportunities.

As we have previously discussed our primary focus is to maximize the organic growth and profitability of our brands.

We strongly believe this will provide the highest level levels of return on invested capital.

We also take the strategic and disciplined approach to our capital allocation, we regularly evaluate opportunities to acquire similar superfan brands to complement our portfolio.

And where we can deploy our unique innovate and accelerate brand strategy.

Ultimately, we believe our diversified brand portfolio global distribution platform and fast growing direct channel is well positioned for the future.

With that I'd now I'll now turn the call over to earn Cooney, our Chief Financial Officer, who will provide the additional commentary on our performance in the second quarter as well as reiterate our game plan for the rest of the year Aaron.

Thank you John and good afternoon, everyone for the second quarter of 2020 total sales were $30 million by brand Black Diamond sales were down 47% in fear of sales were up 7%.

The decrease in Black Diamond was solely due to the coded 19 related retail demand produced during the quarter, we experienced the trough in year over year sales declines in April with sequential improvements in May and June currently we're running at about 10% down from July of last year, which is a big improvement.

John touched on the factors that are driving this strong strong brand equity a product with much shelf instability or fashion risk our ability to fulfill orders.

Strong E commerce business that is tailored to todays consumers needs.

The 7% increases here was due to due to a 36% increase in or domestic channel due to sustained improvements in the demand environment for bullets, John covered our international markets remain soft decreasing 55% due to the absence of stockpiling buying trends being experienced domestically.

And the prolong closure of retail stores.

Consolidated gross margin in the second quarter increased 140 basis points to 35.4% compared to 34% in the year ago quarter due to favorable channel and product mix. In addition, compared to last year Wolfort, both foreign policy changes in the new Taros each had a negative impact on.

Gross margins of 30 basis points. Excluding these two impacts gross margin was 36%.

Overall, our sales and gross profit in the second quarter were negatively impacted by unfavorable foreign currency changes on the transactional basis by $139000.

30% over.

Of our global sales being denominated in foreign currencies, we attempt to manage our foreign currency risk on a continuous basis through natural hedges and foreign currency hedge contracts in our reported sales and gross profit our hedges offset approximately $294000 and foreign currency exposure in the second quarter.

At Sierra approximately 45% of our product Pos consist of materials such as copper in wed we seek to actively managed the impact that commodity costs I wonder business, specifically on gross margins with their vendor partners.

We believe that we have a sound process in place that enables us to mitigate this risk for a period of six to nine months out.

Approximately 80% of our remaining 2020 consumption is locked in a predetermined rates.

The remaining 20% is benefiting from today's still fairly attractive commodity pricing.

Another point on gross margin specific specifically surrounding the impact from the trade war our cost of goods sold were negatively impacted by approximately $93000 in the second quarter, our efforts to mitigate the negative tariff impacts continued to be on plan as we continue to decrease the amount of black diamond product source out of China.

38% to now 27%.

Selling general and administrative expenses in the second quarter decreased 16% to $40 million to $14.5 million compared to $17.2 million in a year ago quarter, reflecting the cost saving initiatives implemented in response to coded 19.

On the collections front, we have evaluating our accounts receivable on an account by account basis and do not believe we have much exposure, which is a testament to the durability of our account base and or industry.

But our Q2 eschewing they include the conservative Conservative increase of $600000 in our allowance for doubtful accounts to roughly $1.5 million, which compares to historical write offs of around 200000 boes per year.

Net loss from the second quarter was $2.7 million or loss of nine cents per diluted share compared to a net loss of $700000 or a loss of two cents per diluted share in the year ago quarter. The decrease included $1.4 million of noncash charges or 200000 doll.

And $200000 and transaction costs compared to $2.2 million of noncash charges and minimal transaction in restructuring costs from the same year ago quarter.

Adjusted net loss.

The second quarter was $1.2 million or loss of four cents per diluted share compared to net income of $1.5 million were five cents per diluted share in the same year ago quarter.

Adjusted EBITDA on the second quarter was a loss of $1.3 million compared to.

Income of $1.6 million in the same year ago quarter.

The decline was primarily due to the aforementioned cobot 19, driven demand freeze for black diamond products during the quarter.

Let me shift to or liquidity.

At June Thirtyth, 2020, cashing cash equivalents totaled $21.5 million compared to $12.8 million last quarter and $2 million one year ago.

During the second quarter, we generated free cash flow defined as net cash provided by operating activities less capex of $10.2 million compared to $3 million in the second quarter last year total debt was $30.5 million and we have remaining access to roughly $50.4 million on our revolving coming.

And.

Our leverage ratio as of June Thirtyth.

Was.

0.6 times versus a covenant requirement of 3.0 times, we're comfortable servicing our debt requirements at are attractive rate of LIBOR, plus 150 to 225 basis points.

Based on recruit projections, we expect to be well within our leverage in fixed charge coverage ratio requirements and in full compliance with our proved debt covenants for the remainder of the year.

We ended the quarter with inventory down roughly $900000 from the end of 2019, which was better than expectations given the clips like nature of the pandemic.

We have adjusted the flow goes in line with expected future demand and continue to maintain strong relationships with their supply chain partners, where we can dynamically manage our inventory levels with demand.

As such we expect inventory will decline in Q3 in Q4, and we feel comfortable about where we're heading on the sheer aside the business continues to bring significant output and greater efficiencies. So we remain in a strong position there.

Now turning to updates on or mitigation efforts from a financial perspective.

We continue to be focused on strong liquidity, the health of our balance sheet and generating maximum operating cash flow.

There are no adjustments to our expectations.

And operating expenses will be reduced by an estimated $9 million in 2020. This has accelerated bigger shift towards more of a digital presence sharpen our focus on key product product categories improved operational efficiencies and driven a tighter connection with our distribution and supply partners.

These cost reductions are expected to recalibrate or excuse me, primarily within black diamond to levels, we experienced for that business, which exiting 2017.

It is also important to call out that this recalibration aligns with sales as well so for black Diamond. The 2017 in 2018 were $160.3 million and $176.7 million respectively.

We postponed approximately $2 million of nonessential capital expenditures of the $5 million scheduled for 2020 until business conditions stabilize finally, we temporarily replaced the company's quarterly cash dividend with the stock dividend. We continue to expect these disciplined actions will result in over $30 million of cash per.

Provision in 2020.

While we can while we continue to believe clearance is well positioned both strategically and financially to navigate the co. Good.

Pandemic as demonstrated by our Q2 results. The current uncertainty created by thereby risk management visibility to a recovery path is limited.

There are many factors outside of our control like when people return to work and what they're buying behaviors will reflect which makes it difficult to provide specifics on or 2020 outlook.

I would like to comment on.

The business conditions in our priorities for the rest of the year.

As mentioned earlier, the demand environment in or share businesses continued to improve significantly we would expect this heightened demand to continue for the remainder of the year unlikely into 2021, both in our domestic remarks in OEM businesses as our domestic partners restock their inventory as well as within our ammo initiative.

We have also began to see a bit of a recovery in our international businesses.

For Black Diamond as more of our regional retailers continue to see their operations improve in consumers become more comfortable trafficking in those locations. Our sales are expected to follow.

But we built nice optionality in our own direct business and the ability to fulfill when our customers need us most which should provide some resilience to any prolonged staff, who mandates or regional by Respites.

As for the rest of 2020 strategic decisions will be prioritized around maximizing the organic growth and profitability of our brands. We strongly believe this will provide the highest levels or return on invested capital.

But we will prior prioritize our strong balance sheet liquidity and the preservation of shareholder capital first and foremost.

Before turning the call back.

To the uplift for Kuni I would like to recognize the performance and commitment of our great team at clearance and results continued to be with those around the world suffering from the virus operator, we're now ready for community.

Thank you.

At this time, if he would like to ask a question you may go so by pressing Star then the number one on your telephone keypad. If your question has been answered then you wish to remix yourself from the Q.

Press the pound key.

Well pause for just a moment composite Q and a roster.

Good My first question comes from the.

Line, Randy Konik from Jefferies.

Please go ahead.

Hey, Thanks, guys can you hear me.

Yes, we cannot say good Yervoy, Hey, John Hey, Bang on.

I wanted to ask view, maybe elaborate a little bit more on the wholesale trend we talked about no significant sequential improvement from the down yet that unit down I guess and what are the Nielsen perspective on what are you hearing from the wholesale accounts in terms of any visibility they have their inventory.

Very viable et cetera, just curious how things are going there.

I will start so.

Similar to how we saw April may and June being down so did retailers and you know often its referred to is the cliff within our own than active that the cliff just stopped as people close their doors.

During that time, though they may have either continued with an E com business or in some cases like valley I and others, maybe even moved to a curbside pickup they worked off their current inventory either in their warehouses or in their stores for quite some time and then just slowly filled in.

Then where demand was in excess of what they currently owned and that's you know we saw the positive and as people move to outdoor as we saw that and you know social distancing became outdoor ism.

And as we as that as we said in our Port we did better than the 80 60 40.

In each of those months now all the doors. The essential has continued to drive through that made sense over our email accounts that could stay open during that time and they showed significant either maintaining during that time or even in some cases growth.

Now that the other specialty an outdoor accounts have now come back on the full doors, we're seeing that positive momentum more as we enter the third quarter than we saw in the second quarter.

And it just happened to be that July 4th and back you know everybody hit in summer was at the end of the Q2 window.

That's super helpful. And then I guess lastly, our maybe could transitioning to Sierra.

Yes, it was kind of starting to accelerate and different reasons.

We're all we on the ability to kind of meet that demand on the Ami ammo side in terms of.

Pardon the business, what will give us some perspective, there on production and how you can mean.

Seems to be ever increasing.

Celebrating demand for on the animal.

Yes. So obviously, we initiated last fall with game changer as net and it was specific more premium Hunt then at Shotshell, we launched prairie enemy.

As we came into spring, we launched a new collection called sport.

Master and it was really focused on nine millimeters and other handgun.

More for the outdoors consumer and we've now expanded into additional Swift outdoor Master guide Master and some other pieces.

I would love to tell you yet are you saw you heard and report that are ammo sales through the first half of the year was up more than 300% that pace has increased and accelerating beyond that.

I would love to tell you that we could meet all the demand that the market requires the reality is it's not unique to was or anybody right now that if you visit any stores. The shelves in regards to nine millimeters two to three sporty cows 45, three Eightys list goes on six like remarks are empty.

We are excited as as Aaron mentioned, we are increasing our capacity both on bullets up 30, plus percent and on ammo and doing our very best to maximize every opportunity on that but we will tell you that when we do ship it to retail we have 100% sell through in less than seven.

Days, so the demand in the marketplace is at an all time high when the market is rushing to try and meet capacity for that demand.

Very helpful. Thanks, guys.

Your next question comes from the line.

Jim Duffy from Stifel.

Let's go ahead Sir.

Thanks, Hello, guys.

Hey, castings for me.

Good to hear from you guys.

John can you share some perspective on what you're seeing from end market demand across your three principal categories for the Black Diamond brand Klein Mountain and ski.

Specifically with climb I'm wondering how much is Jim related and what the impact has been there and then within ski is there a way to characterize how much of the businesses resort skiing, driven and Eric can you talk about retailers are planning inventory receipts for the ski season.

Yes. So if you think about the time business in over the last few years, you've been in lot of the conferences with US I think everybody wanted we wanted and everybody focused on the opportunity potentially of what climbing gyms, we're doing on behalf of the climb industry.

And though climbing gyms were exploding most climate most climbing brands were first and foremost outdoor driven and they were trying to make the transition to being more climbing gen centric, but but the other side of that is that you know theres only a few items of equipment that really aligned for the gym climber that.

Fuse, maybe harness a rope shock whatever.

Interesting during this time period again, social distancing and all the rules when the specialty outdoor shutdown soda gym climbing gyms included.

But people went more outdoors and what we've been found as those who may have been pretty prior only climbing gym consumers actually in lieu of Wouldnt know climbing started to go outdoors and so we've actually seen a good run on climbing gear.

What we like to see it grow at the pace. It was previously yes is it there yet no into Q2, it wasn't but as we get into later in the year, we're seeing that momentum continued to build.

And I think the summer just came a little later this year than normal in that country backcountry, probably represents 5% of the ski industry may be in total.

And most gears recognize skiing as resorts scheme.

At the end of last year Wynn resorts close down there was a spike in a growth in that country scheme, because resorts have not found a way to kind of announce exactly how they're going to handle social distancing at the lifts on the mountains in the lodges at the restaurant you name it.

There's already been a lot of excitement expectation around back country skiing.

And in we're seeing that in increased demand early earlier than normal for snow safety skins skis the like.

I think as the season comes on we are going to see that chase.

We're anticipating that in building towards that opportunity.

I don't anticipate the bat country scheme will become the opposite you know and become 80, 590% of scheme, but I do think it'll see a strong surgeon and BD will benefit from that in the second half of the year.

Okay, Great and then as it relates to those.

Shops that may be carrier more towards the resort.

How are the clinical.

Our business I recognize you're overlap with them isn't as much as is good, especially south more back country, an orientation, yeah period, I think that a lot of those shops are are quickly trying to chase. This trend and look for you know, making that transition from being only front side resorts shop.

Ups.

To now bringing in more backcountry ski skin snow safety equipment.

Yeah, but I think a lot of it will be will be instantaneous demand driven when the season starts.

Okay, and then last one to me I wanted to ask about your digital business.

25% growth more modest then we're hearing from some others. We're hearing some report high double digits or even triple digit growth.

The other view as to why your digital wasn't stronger with stores closed.

Perspective is it fair there would be helpful. Yeah. So one of the things we talked about is one of our pillars. The first was about the employee safety, but number two was brand equity.

And I can tell you that was a major focus for as long term in this mix and I believe you will see the strength of that continue to play out not only in the rest in the second half a 2020, but well into 2021 and beyond and that is that at this during that the.

Q2, a lot of brands went very very very aggressive at discounting D to C and I have no question you could look up your email during that window and see whether it was Nike and Adidas and under armour two other brands in the outdoor space with major discount call outs to to.

Now.

We chose not to support retailers or ourselves to become aggressive and break map pricing and Matt Mezz. Just meant that we were going to promote our brands at normal suggested retail pricing.

And maintain growth on that long term, believing that the value of the brand will survive on that and I believe being that if you go three or 456 months of being off price. All the time on your brand that becomes the new valuation of your products in the marketplace in the eyes of the consumer and when you choose.

As to go back up it will change very quickly the other ways. We believe that that was critical to was and will also supported our retailers to be long term partners and know that we were not at the chance.

Going to immediately compete against our retailers and and use price as the as the leverage point.

Very good. Thank you I appreciate the perspective.

Yep.

Yes.

Your next question comes from the line as Matt Koranda.

From Roth capital.

Go ahead Sir.

Hey, guys. Thanks.

Just on Sierra if I heard it right. It sounded like you guys said.

So utilization up maybe 30% more recently.

It sounds like Europe was a bit of a drag until maybe June July.

But can we infer.

Sort of in the back half the right sort of framework for the growth rate should be in that kind of 30% range or should we be still factoring in a headwind from Europe.

And the business.

I think obviously, we would like to be optimistic and say that everything we're experiencing the last is going to translate globally.

I can tell you that we've seen positive momentum from the international business, but I don't think that I would say that it has the same momentum that we're seeing in North America.

In North America is being driven by you know a couple of.

You know unique drivers right now of what's going on in our in our social environment.

I think we will see improvement internationally and I think we'll see continued to see through both 2020 and well into 2021 demand in both the domestic wholesale consumer side as well as the domestic OEM continue to you know meet whereas that today and maybe some so you know we'll see.

We hope international strong, but we're not willing to say that it's going to catch up to where the demand in the north American market is for a lot of reasons.

Sure totally understood that makes sense and mainly what I was because I was getting at is we should not necessarily be factoring a huge headwind for that portion of the business going forward, it's not as much of a drag anymore I guess relative to Sawyer no I mean, I don't I wouldn't say its I don't think it's going to be a huge headwind, but I also don't think it's going to tailwind that.

Eric and market.

So with our Okay and then just curious if added a little.

Oh gosh, if it did we would have a difficult time, because as we set our capacity is really prime that this 30% increase its not primed to 200% increase.

Right understood. Okay, and then it was curious if you could talk about maybe at the implications for pricing and that business as well just given that we've been hearing you know quite a bit of tightness and capacity across the board, but maybe you could it could speak to the pricing environment, both and kind of the retail channel as well.

I am channel.

So at this moment, our wholesale pricing is fixed relatively fixed for 2020, and we typically don't.

You know.

See saw the pricing during the season based on this week more demand last week less demand whatever.

I think that the market as it gets tighter yeah retailers may shift and add additional margin on the products because the demand is more than the supply.

We probably will not look at price increases at this moment, but potentially later in the year as we manage what's going on with commodity prices and other things I will tell you that more important do as Matt in all of this and it's the opening statement I said in our piece is that Super fan brands first develop.

The best product in the industry once understood. Its demanded and then really maximize that emotional connection through both performance as well as storytelling to the consumer we're seeing that work really well and where that really transpires is in market share gain and our answer will be at the end of this.

Here and pricing is just one component of that is that we will see market share gains and we we're careful to not.

Descent.

Just to create negativity on this increasing market share by getting greedy for small percentages of price increases.

Okay got it that's helpful. John and just to be clear when you say markets or gains you're talking more and the IMO category that that appears that Oh.

Well bullets and ammo.

Right and that aggregate you have to make this balance between you know do I keep getting strong double digit growth in market share or new I try and in over profit on that at the expense of double digit market share growth and there's a teeter totter, there and managing that well you know it.

Is critical.

Got it and then maybe last one from me on the margin front I guess, if we look at the consolidated gross profit margin for the business very strong and it seems to suggest I got that underlying margins that there were probably the driver, but could you guys kind of maybe disentangle.

It is unfair for us a I never get the Q eventually here, but it would be helpful. There kind of get your thoughts on that.

You bet. So this is earned at so at the gross margin level Black Diamond was pretty much flat with that of the prior year. Despite some of the.

Headwinds that we've been seeing you know just with with lower levels of throughput some the.

Supply chain Valley Leakages of what we call them, taking place during the quarter, whereas as you pointed out.

On the 140 basis point increase at the consolidated level was really driven by the improvements that we saw within this year.

Okay perfect not somebody you guys. Thank you.

Your next question comes from the line as Laurent Vasilescu.

With Exane Paean BNP Paribas.

Sorry your line is open.

Thank you good afternoon gentlemen, thank you for taking my question I wanted to follow up on the July only down 10% apparent I understand there's no guidance, but high level, how should we assume should we assume sequential month over month improvement in the third quarter and any high level commentary about the fourth quarter and puts and takes.

We've heard some some brands talk about sequential improvement in the fourth quarter over the third quarter.

I love to get your take on that as well.

So as we as we think about you know the results that are taking place within black Diamond. It in July specifically and the commentary provided around being down about 10% compared to the prior year, that's consistent with how we're thinking about the rest of the year as well.

As mentioned in the commentary provided you know we've been looking out the black Diamond business being is akin to what we saw in 2000. Some team in 2018 from a revenue standpoint.

Now that can obviously change depending on how.

Hello, how that how the retail environment continues to evolve and this was the consumer behavior, but as of right now that's how we're we're looking at the rest of the year and.

We do see that there could continue to be some sequential improvements in Q4, Q4, primarily driven due to channel mix, especially with our direct to consumer efforts, but thats.

That's not something that we're really factoring in or baking in right now at the moment.

I think the market love to see optimism right now, but in fairness to this.

Managing through a global pandemic has been everything but consistent.

Very helpful. Thank you. Thank you John I guarantee for that.

And I think it was mentioned that ammo is up over 300% over seven months.

Obviously, the new initiatives can you conceptualize just as a percentage of over sales.

How much it contributes and where do you think that makes goes over the next few years.

Yeah, I think when we initiated it we were looking at ammo being approximately 2% of our sales in initial plan in 2020, it's probably trending right now at five to six and growing.

We anticipate that it will continue well into the third and fourth quarter and it really comes down to you know capacity in loading on that mix.

You know and they may in time Spike more we think it's a strong initiative for US right now we continue to keep the gas down on it.

As we said you know this.

As as planning and lock came together, we developed at new ammo initiatives, while at the same time demand do you now increasing and allowed us to be opportunistic to launch these ammo initiatives as well as achieved the market share opportunities we were looking at.

And so it's accelerated faster than we wanted and we see more of that opportunity and gain market share that'll places well into 2021 and beyond.

Very helpful. And then my last questions on margins.

Aaron you had really strong mix benefit from on the gross margin side should we assume.

That there that continues in the back half and then I think on the last call. It was called out about $9 million of savings.

On the S.G. line I, just curious to know how much you see this quarter and and should we still see line line or just because the business may have improved.

There is opportunities to reinvest.

And in the business.

Yes, I was released to the margin side of things, we do anticipate that will continue see the improvements coming from share the way that we saw in Q2.

That is a function of the get continuous improvement initiatives that we put into place deficiencies that we're running within the you know manufacturing activities as well as the mix in terms of product offerings.

So that is something that we we are anticipating to continued see happen as it relates to the.

The cost saving side of things.

We were able to realize and when we talked about the $9 million was compared to what we were anticipating in 2020.

And we were able to realize benefits of about three and half a million dollars come to compare to what we were expecting in Q2.

In terms of saving from so we continue to be right on right in line with plan. Despite some of the headwinds that we've experienced in terms of increasing our allowance for doubtful accounts, we've been able to find additional savings outside of even that to be able to keep us in track with that 9 million dollar savings that we've outlined and that's something that we're still comfortable in achieving.

Great. Thank you very much and best of luck.

Appreciate it.

Your next.

He'd like to ask a question. Please press Star then the number one on your telephone keypad. Your next question comes from the line that Brian Myers from like straight cash capital markets Saar. Please go ahead.

Hey, guys. Thanks for taking my question and so well intra commentary on the ammunition business are you seeing any sort of issues, but that sourcing raw materials at that point.

I wouldn't say, it's the raw materials I think it's the component portions of it.

And I think this is where the benefit of working with our current OEM partners and loading with them as has become a strategic initiative and and frankly a blessing.

You know if your loading with federal and federal is making the primers then you don't have a shortage on primers.

Nice versa I, you know pariahs I think it's it I think we're managing well through that I think the only you know Miss I would say is just you know nobody anticipated the acceleration in those categories at the rate that they accelerated and I think we.

We you know if this was a normal year and we posted 300% plus growth in ammo everybody would would celebrate and go Holy Cow you guys would fricking genius is why did you, leaving gamble that big.

I don't think anybody expected it to be that and that we would be chasing the second half you know every day, it's a it's a initiative.

All right. That's helpful. And then just one more for me can you give an update on your own retail locations. What you guys are seeing there.

Yeah. So obviously, we get a win win Kobe It hit we.

Manage that within our own retail and saw our own retail close until early may its been positive in may and June and coming back.

We have currently four stores at this point, we did close the Alaska store frankly, just because Alaska has been hit so hard in terms of tourism and and you know passes to go mountain climbing and do you know outdoor activities in that marketplace.

We will be opening a store on main Street Park AV and Park City later this month.

And we'll.

Probably a couple more doors this fall.

We are being very cognizant about maintaining inventory at the retail level, while prioritizing our wholesale business first and foremost.

And money to make sure that at the wholesale side. We can have very strong fulfillment you know shipping on time and strong fulfillment, but we are very positive about our retail initiative and how it has linked and supported our D to C. E Com strategy and we'll continue that you know not only in 2020.

2021, just be you know very smart and selective of the locations and the numbers each year that we roll out.

Great. Thank you.

You have a follow up question from Matt Koranda of Roth Capital. Please go ahead Sir.

Matt I got it thanks for that give or take a bulk as I. Appreciate it just up quick one for you on the allowance for doubtful accounts just wanted to get your take I mean, it looks like collections look fine and Dsos look fine, but just wanted to get a little bit more color on sort of the underlying drivers there it.

Thank you.

Yes, it's very specific to certain accounts within the Canadian region that have either announced or either have announced the filing or the intent to file for bankruptcy.

It's very isolated to certain accounts within the Canadian region, and so for that reason, we increased the allowance to to accommodate for that but on a on a broad based level.

The collections continue be pretty solid.

We continue to be you know.

Solider, Okay, as well and that's also something that we continuously improve each and every week.

Okay perfect. Thanks, guys appreciate it Aaron likes to be cautious [laughter].

Fair enough. Thank you.

At this time. This concludes our question and answer session I would now like to turn the call back over to Mr., Bob right for closing remarks.

Thanks, Corey we'd like to thank everyone for listening to today's call and look forward to speaking with you again will when we report our third quarter 2020 result in November thanks for joining us.

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

[music].

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Good afternoon, everyone and thank you for participating in todays conference call today.

I just got Hertz Corporation.

Financial results for the second quarter ended June 32020.

Joining us today, our claris corporations, President John walk right.

She said administrative officer and CFO Aaron County.

And the company's I stole director of Investor Relations Cody spot.

Following their remarks, well open the call for your questions before we go further I would like to turn the call. It works you mistress law as he writes the Companys Safe Harbor investment.

First <unk> safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1990 Fives that provides important cautions regarding forward looking statements Cody. Please go ahead.

Thanks, Corey. Please note that during this 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 1990.

Five 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 comedy cautions you that forward looking statements are not guarantees in the actual results could differ materially from those expressed or implied in the forward looking statements.

Potential risks and uncertainties that could cause 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 the consumer demand on the company's products.

General economic conditions, and other factors affecting consumer confidence preferences and behavior.

Disruption in volatility in the global currency capital credit markets.

Financial strength of the company's customers companys ability to implement its business strategy the ability of the company to execute integrate acquisitions.

The impact that global color climate change trends, they have on the company and suppliers and customers.

The company's exposure to product liability or product warranty excuse me product warranty claims and other loss contingencies.

Disruptions and other impacts to the company's business as a result of the cobot 19 global pandemic government actions and restrictive measures implemented in response.

Stability, the company's manufacturing facilities, the suppliers as well as consumer demand for our products in light of disease epidemics and health related concerns such as the Koby 19 global pandemic changes in government regulation legislation or public opinion relating to the manufacture and sale votes in ammunition by RCR said.

And the possession and use of firearms and ammunition by our customers the company's ability to protect patents trademarks and other intellectual property rights any breaches over interruptions in our information systems fluctuations in the price availability and quality of raw materials and contracted products as well as foreign currency fluctuations.

Company's ability to utilize its net operating loss carry forwards changes in tax laws and liabilities tariffs legal regulatory political and economic risks and the company's ability to declare dividends.

More information on potential factors that could affect the Companys 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 eight K. All forward looking statements included in this call our base.

The upon information available to the company as the date of this call.

And speak only as of the date here of the company assumes no obligation to update any forward looking statements to reflect events or circumstances. After the date of this call.

I'd like to remind everyone. This call will be available for replay through August 24th starting at eight 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 Claris Corp. Dot com any redistribution retransmission or rebroadcast of this call in any way without the expressed written consent of Claris Corp is strictly prohibited.

Now I'd like to turn the call over to the President of Claris, John Walbrecht John.

Thank you Cody and good afternoon, everyone.

Despite a challenging consumer environment amidst a global pandemic the strength of our well diversified brand portfolio and a multichannel distribution platform was apparent in our second quarter results. We believe that superfan brands show their long term strengths and core consumer demand even more so in difficult.

Times when the year ends we believe we will see the strength of our brands proven through increased market share.

Let me step back and address the plan we enacted at the onset of Cobot 19 in March of earlier this year.

At the onset of the virus, we device to plan to focus on three things first our people the president preservation of brand equity and then the maximization of liquidity, which together, we believe would make us emerge as an even stronger company.

The first pillar of the plan was the safety of our people. We have maintained our work at home stance for all office employees with minimal minimal disruption to our operations.

Those employees at Sierra and others in distribution, where work has been deemed essentially significant health checks as well as precautionary measures were implemented to protect their well being and our ongoing.

The second pillar, what's the preservation of brand equity for Claris brand equity amongst the core consumer is our life blood.

We supported our retailers during the quarter by continuing to ship products to those in need while keeping the integrity of our pricing.

This included products to support our partners E commerce businesses or avenues like curbside pickup.

Most importantly, we continue to maintain and protect the integrity of our map pricing policy with each of our retail partners, thus limiting the amount of off price promotions of our brand.

Complementing our retail partners, we continue to drive strong sales in our direct to consumer business, which includes both online and our retail store sales.

Sales up 7% overall and growth of 25% on black Diamond equipment Dotcom.

We continue to experience and improved activation and our E Commerce channel due to more efficient prospecting and re targeting in order to drive higher levels of site traffic, we prioritize full price selling.

The focus on storytelling to capture the consumers interest during this increase time at home and online.

Ultimately the strongest case to be made for our ability to preserve brand equity was the 140 basis point expansion in gross margin during the second quarter.

We expect our well performing E commerce business, along with third party sites of our wholesale partners do carry more weight in 2020 as the percentage of our total sales offsetting some of the weakness that will be felt at traditional retail.

Finally, we prioritize our liquidity and ended the second quarter in a solid position.

I don't know walk through the shortly but at June Thirtyth, we had 21.5 million in cash with an access to 50.4 million on a revolving line of credit and a leverage ratio of 0.6 tax.

Now I'd like to address the specific brand performance in the quarter.

For Black Diamond the impact of covert 19, largely caused our retail partners to temporarily close their doors during the second quarter freezing pre season and replenishment orders.

However, demand improved each month in the quarter, particularly in regions that have shown marked progress in the recovery like Europe. In fact, we came into the quarter expecting our results to be down 80% in April 60% in may and 40% in June.

We were able to see each month by approximately 10 percentage points.

We also showed positive momentum and resilience with various essential key accounts and strength in our direct to consumer channel.

We continue to experience improved activation with our online sales due to more effective consumer prospecting and re targeting in order to drive higher levels of traffic and visit to our website.

We're also encouraged by the amount of press and earned media media. The brand continues to garner in June alone. We had more than 325 earned media PR placements and over 600 million impressions and we want to over profit over 10 product Awards.

June product highlights include the BD storm line stretched shell in Forbes the impact crash pad.

MSN dotcom and the BD icon in popular mechanics.

Year to date and impressions or 2.2 billion was 72 product award both up from last year, and our apparel categories as having its strongest year ever in terms of interest and product recognition from the media.

In our CRM business domestic gross continue to accelerate add in all channels with growth of 36%.

This was driven by multiple demand factors like social and civil uncertainty and the upcoming U.S. elections, partially offsetting this strong growth was the prolonged softness we experienced internationally, which decreased 55%.

It's important to note. The these international markets had retail ordinances that prevented their opening unlike the U.S., where most have been deemed essential.

And our international markets, obviously don't have the unique demand drivers currently being experienced in the United States.

Since the end of the second quarter sales trends in both Sierra and Black Diamond have continued to build momentum.

Black Diamond's expected to benefit from partner retail doors began to open and our ability to fulfill orders remain unaffected. This is a crucial point. The fact that 86% of BD sales are non perishable equipment that is deemed isn't necessity to our activity based consumer is a unique asset during these.

Uncertain times.

In particular, we are excited by the early indications of what we believe could be a strong back country snow season, especially as it relates to snow safety product due to the prolong social distancing constraints, we expect that the increase in that country participation that we saw off towards the end of the past season will continue as our activity.

Based consumers look to get outside.

For Sierra domestic trends have only strengthened including the reception of our recently launched ammo.

Initiative, where we have seen growth of more than 300% through the first seven months of 2020.

We've also started to see signs of recovery in our international market.

Importantly, we have the capacity to sell what is anticipated to be very strong second half of the year due to the focus over the last two years on improved efficiency and increasing capacity in fact over this time capacity has increased by approximately 30%.

Just last week, we also made an important higher for RCR business appointing key in low as president.

Brings this year on more than 25 years of executive leadership, serving in roles in the commercial military and law enforcement markets. Most recently in low served as a general manager for Steiner optics prior to his role there. He served as the CEO of the U.S. Olympic and Paralympic shooting teams as well as pro.

Firewalls with Remington ammunition and Barnes bullets.

Even as experience, we expect key to continue to lead the brand strong growth path facilitating strong relationships with our customers overseeing the product expansions such as our ammo initiative and building overall brand awareness welcome aboard Keith It's great to have you on the Polaris team.

That's you know inspection expectations for 2020, we believe we're still well on track to achieve the goals laid out last quarter.

These include liquidity improvements cost savings measures and key sales assumptions, which all underscore the optionality that we have sought to create and our brands to adapt to a China changing consumer landscape.

Furthermore, while continues to be difficult to know when normalized business returns, we do expect consumers to remain loyal to authentic brands that stay true to the core.

I believe this sets us up well for the future as we continue to focus on our innovate and accelerate playbook. This playbook include seeking to further strengthen our brands positions by investing in product innovation sales and marketing and pursuing new long term revenue opportunities.

Our diverse portfolio of products across geographies and channels is another strength, we view as unmatched within the market.

Our operating spend 30 single product categories and there is no single one that accounts for more than 15% of our sales.

This provides provides a balance of sales across both the fall and winter spring and summer sports season.

And our brands are truly global with nearly 50% of our sales generated over 50 countries outside the us.

In addition, while apparel and footwear, our key strategic initiatives, where we believe substantial growth opportunities exist is important to note that they currently represent 14% of our business. The remaining 86% is equipment that is non perishable and viewed as necessity for our activity.

Based consumers. These products are not driven by seasonal fats instead, they are rooted in best in class design engineering testing and functional feature sets and able to user to have his or her bets stays in the mountain.

We will continue to invest in a robust direct to consumer sales engine to help grow the brand in key markets and in the digital space, where consumer targeting advertising and storytelling can quickly bring relevant scale to our business like ours.

Lastly, we will continue to leverage the strength of our balance sheet as we evaluate long term growth opportunities.

As we have previously discussed our primary focus is to maximize your organic growth and profitability of our brands.

We strongly believe this will provide the highest level over levels of return on invested capital.

We also take the strategic and disciplined approach to our capital allocation, we regularly evaluate opportunities to acquire similar superfan brands to complement our portfolio.

And where we can deploy our unique innovate and accelerate brand strategy.

Ultimately, we believe our diversified brand portfolio global distribution platform and fast growing direct channel is well positioned for the future.

With that I'd now I'll now turn the call over to Aaron Cooney, Our Chief Financial Officer, who will provide the additional commentary on our performance in the second quarter as well as reiterate our game plan for the rest of the year Aaron.

Thank you John and good afternoon, everyone for the second quarter of 2020 total sales were $30 million.

Brand Black Diamond sales were down 47% in fear of sales were up 7%.

The decrease of Black Diamond was solely due to the co bid 19 related retail demand produced during the quarter, we experienced the drop in year over year sales declines in April with sequential improvements in May and June.

Currently we're running at about 10% down from July of last year, which is a big improvement.

John touched on the factors that are driving this strong strong brand equity a product with less shelf instability or fashion risk our ability to fulfill orders and a strong E commerce business that is tailored to todays consumers needs.

The 7% increases here was due to due to a 36% increase in our domestic channel due to sustained improvements in the demand environment for bullets.

Non covered our international markets remain soft decreasing 55% due to the absence of stockpiling buying trends being experienced domestically and the prolonged closure of retail stores.

Consolidated gross margin in the second quarter increased 140 basis points to 35.4% compared to 34% in the year ago quarter due to favorable channel and product mix. In addition, compared to last year well for both foreign currency changes in the new terrace, each had a negative impact.

Gross margins of 30 basis points.

Including these two impacts gross margin was 36%.

Overall, our sales and gross profit in the second quarter were negatively impacted by unfavorable foreign currency changes on the transactional basis by $139000.

30%.

Of our global sales being denominated in foreign currencies, we attempt to manage our foreign currency risk on a continuous basis through natural hedges and foreign currency hedge contracts in our reported sales and gross profit our hedges offset approximately $294000 and foreign currency exposure in the second quarter.

At Sierra approximately 45% of our product costs consistent materials, such as copper unwed, we seek to actively manage the impact that commodity cost I wonder business, specifically on gross margins with our vendor partners.

We believe that we have a sound process in place that enables us to mitigate this risk for a period of six to nine months out.

Approximately 80% of our remaining 2020 consumption is locked in a predetermined rates.

The remaining 20% is benefiting from today still fairly attractive commodity pricing.

Another point on gross margin specific specifically surrounding the impact from the trade war our cost of goods sold were negatively impacted by approximately $93000 in the second quarter, our efforts to mitigate the negative tariff impacts continued to be on plan as we continue to decrease the amount of black diamond product source out of China.

38% to now 27%.

Selling general and administrative expenses in the second quarter decreased 16% to $40 million to $40.5 million compared to $17.2 million in the year ago quarter, reflecting the cost saving initiatives implemented in response to code at 19.

On the collections front, we have evaluated our accounts receivable on an account by account basis do not believe we have much exposure, which is a testament to the durability of our account base and registry.

But our Q2 Essien. They include the conservative Conservative increase of $600000 in our allowance for doubtful accounts to roughly $1.5 million, which compares to historical write offs of around $200000 per year.

Net loss in the second quarter was $2.7 million or a loss of nine cents per diluted share compared to a net loss of $700000 or a loss of two cents per diluted share in the year ago quarter.

The decrease included $1.4 million, a noncash charges or 200000 doll and $200000 and transaction costs compared to $2.2 million of noncash charges and minimal transaction in restructuring costs and the same year ago quarter.

Adjusted net loss.

In the second quarter was $1.2 million or loss of four cents per diluted share.

Compared to net income of $1.5 million were five cents per diluted share in the same year ago quarter.

Adjusted EBITDA in the second quarter was a loss of $1.3 million compared to.

Income of $1.6 million in the same year ago quarter.

The decline was primarily due to the aforementioned cobot 19, driven demand free for black diamond products during the quarter.

Let me shift to or liquidity.

At June Thirtyth, 2020, cashing cash equivalents totaled $21.5 million compared to $12.8 million last quarter and $2 million one year ago.

During the second quarter, we generated free cash flow defined as net cash provided by operating activities less capex of $10.2 million compared to $3 million in the second quarter last year.

Total debt was $30.5 million and we have remaining access to roughly $50.4 million on our revolving commitment.

Our leverage ratio as of June Thirtyth.

Yes.

0.6 times versus the covenant requirement of 3.0 times.

We are comfortable servicing our debt requirements at are attractive rate of LIBOR, plus 150 to 225 basis points.

Based on our projections, we expect to be well within our leverage in fixed charge coverage ratio requirements and in full compliance with our proved debt covenants for the remainder of the year.

We ended the quarter with inventory down roughly $900000 from the end of 2019, which was better than your expectations given it looks like nature of the pandemic.

We have adjusted the float goods in line with expected future demand and continue to maintain strong relationships with their supply chain partners, where we can dynamically manage our inventory levels with demand.

As such we expect inventory will decline in Q3 in Q4, and we feel comfortable about where we're heading on the fear aside the business continues to experience significant output and greater efficiencies. So we remain in a strong position there.

Now turning to updates on or mitigation efforts from a financial perspective.

We continue to be focused on strong liquidity, the health of our balance sheet and generating maximum operating cash flow.

There are no adjustments to our expectations.

Operating expenses will be reduced by an estimated $9 million in 2020. This has accelerated to go shift towards more of a digital presence sharpening our focus on key product product categories improved operational efficiencies and driven a tighter connection with our distribution and supply partners.

These cost reductions are expected to recalibrate or excuse me, primarily within black diamond to levels, we experienced for that business is exiting 2017.

It is also important to call out that this week calibration aligns with sales as well so for black Diamond. The 2017 in 2018 were $160.3 million and $176.7 million respectively.

We postponed approximately $2 million of nonessential capital expenditures of the $5 million scheduled for 2020 until business conditions stabilize.

Finally, we temporarily replaced the company's quarterly cash dividend, what the stock dividend. We continue to expect these disciplined actions will result in over $30 million of cash preservation in 2020.

While we can while we continue to believe Clarence is well positioned both strategically and financially to navigate the kogut.

Endemic as demonstrated by our Q2 results the per uncertainty created by thereby risk management visibility to a recovery path is limited.

There are many factors outside of our control like when people return to work and what they're buying behaviors will reflect which makes it difficult to provide specifics on or 2020 outlook.

I would like to comment on.

The business conditions in our priorities for the rest of the year.

As mentioned earlier, the demand environment in or share businesses continue to improve significantly we would expect this heightened demand to continue for the remainder of the you're unlikely into 2021, both in or domestic green box and the OEM businesses as our domestic partners restock their inventory as well as within or ammo initiative.

We've also begun to see a bit of a recovery in our international businesses.

For Black Diamond as more of our regional retailers continue to see their operations improve in consumers become more comfortable trafficking in those locations. Our sales are expected to follow.

But we built nice optionality in our own direct business and the ability to fulfill when our customers need us most which should provide some resilience to any prolong stay at home mandates or regional by Respites.

As for the rest of 2020 strategic decisions will be prioritized around maximizing the organic growth and profitability of our brands. We strongly believe this will provide the highest levels return on invested capital.

But we will prior prioritize our strong balance sheet liquidity and the preservation of shareholder capital first and foremost.

Before turning the call back.

To the uplift for Kuni.

I would like to recognize the performance and commitment of our great team at clearance and our thoughts continued to be with those around the world suffering from the virus operator, we're now ready for acuity.

Thank you.

At this time, if he would like to.

Good question you may do so by pressing Star then the number one on your telephone keypad. If your question has been answered done you wish to remix yourself from the Q.

Press the pound key.

Well pause for just a moment composite Q and a roster.

Yes.

Your first question comes from the line Randy Konik from Jefferies.

Please go ahead.

Hi, Thanks, guys can you hear me.

Yes, we can write good Yervoy, Hey, John Hey, Thanks.

I guess I wanted to ask you maybe elaborate a little bit more on the wholesale trial will be talking about no significant sequential improvement from the down yet that unit down I guess.

What are the Nielsen perspective on what are you hearing it's on the wholesale accounts in terms of any visibility they had.

Their inventory levels et cetera, just curious how things are going in there.

Okay. So.

Similar to how we saw April may and June being down so did retailers and you know often is referred to is that cliff and within our own vernacular that the cliff just stopped as people close their doors.

During that time, though they may have either continued with an E com business or in some cases like already I and others, maybe even moved to a curbside pickup they worked off their current inventory either in their warehouses or in their stores for quite some time and then just slowly filled then.

Where demand was in excess of what they currently owned and that's you know we saw the positive and as people move to outdoor as we saw that and you know social distancing became outdoor is.

And as we as that as we said in our Port we did better than the 80 60 40.

In each of those months now all the doors. The essentials continued to drive through that makes sense over our you know accounts that could stay open during that time and they showed significant either maintaining during that time or even in some cases growth.

Now that the other specialty an outdoor accounts have now come back on the full doors, we're seeing that positive momentum more as we enter the third quarter than we saw the second quarter.

And it just happened to be that July 4th and back you know everybody hitting summer was at the end of the Q2 window.

That's super helpful. And then I guess lastly, our maybe transition to Sierra.

Second.

It will come out starting to accelerate for different reasons.

Well all we on the ability to kind of meet demand on the Ami ammo side in terms on.

Pardon the business what would give us some perspective, there on production and how you can you.

Seems to be ever increasing.

Celebrating demands on the animal.

Yes. So obviously, we initiated last fall with game changer as net and it was specific more premium Hunt and then at Shotshell, We launched prairie enemy.

As we came into spring, we launched a new collection called sport.

Master and it was really focused on nine millimeters another handgun.

More for the outdoors consumer and we've now expanded into additional Swift outdoor Master guide Master and some other pieces.

I would love to tell you you know you saw Yordan report that are ammo sales through the first half of the year was up more than 300% that pace has increased and accelerating beyond that I would love to tell you that we can meet all the demand that the market requires the reality is.

It's not unique to us or anybody right now that if you visit any stores the shelves in regards to nine millimeters two to three sporty cows 45, three Eightys list goes on Sixfive remarks are empty.

We are it's you know as as Aaron mentioned, we are increasing our capacity both on bullets up 30, plus percent and on ammo and doing our very best to maximize every opportunity on that but we will tell you that when we do ship it to retail we have 100% sell through in less than seven days. So.

So the demand in the marketplace is at an all time high when the market is rushing to try and meet capacity for that demand.

Very helpful. Thanks, guys.

Your next question comes from the line.

Jim Duffy from Stifel. Please.

Please go ahead Sir.

Thanks, Hello, guys.

Yes and should make.

Oh, good to hear from you guys.

John can you share some perspective on what you're seeing from end market demand across your three principal categories for the Black Diamond brand corn mountain and ski.

That's typically would climb I'm wondering how much is Jim related and what the impact has been there and then within ski is there a way to characterize how much of the business or resorts skiing, driven and or can you talk about retailers are planning inventory receipts for the ski season.

Yeah. So if you think about the time business and over the last few years, you've been in lot of the conferences with US I think everybody wanted we wanted and everybody focused on the opportunity potentially of what climbing gyms, we're doing on behalf of the climb industry.

And though climbing gyms, where exploding most climate most climbing brands were first and foremost outdoor driven and they were trying to make the transition to be more climbing gym centric, but but the other side of that is that you know theres only a few items of equipment that really aligns with the gym climber that.

Hughes, maybe harness a rope shock whatever.

Interesting during this time period again, social distancing and all the rules when the specialty outdoor shutdown soda gym climbing gyms included.

But people went more outdoors and what we've been found as those who may have been prior only climbing gym consumers actually in lieu of wouldn't know climbing started to go outdoors and so we've actually seen a good run on climbing gear.

What we like to see it grow at the pace. It was previously yes isn't there yet no into Q2, it wasn't but as we get into later in the year, we're seeing that momentum continued to build.

And I think the summer just came a little later this year the normal in that country backcountry, probably represents 5% of the ski industry may be in total.

And most gears recognize skiing as resorts scheme.

At the end of last year Wynn resorts close down there was a spike in a growth in that country scheme, because resorts have not found a way to kind of announce exactly how they're going to handle social distancing at the lifts on the mountains in the lodges at the restaurant you name it.

There's already been a lot of excitement expectation around backcountry skiing.

And in we're seeing that in increased demand early earlier than normal for snow safety skins skis the like.

I think as the season comes on we're going to see that chase.

We're anticipating that and building towards that opportunity.

I don't anticipate the bat country scheme will become.

The opposite you know and become 80, 590% of scheme, but I do think you'll see a strong surgeon and BD will benefit from that in second half of the year.

Okay, Great and then as it relates to those.

Shops that maybe cater more towards the resort.

How are the clinical.

Our business I recognize you're overlap, but that isn't as much as is good, especially south more back country and orientation. Yeah curious what I think that a lot of those shops are are quickly trying to chase this trend and look for making that transition from being the only front side resorts shop.

Ups.

To now bringing in more backcountry ski skin snow safety equipment.

Yeah, but I think a lot of it will be will be instantaneous demand driven when the season starts.

Okay, and then last one to me I wanted to ask about your digital business. The 25% growth more modest then we're hearing from some others. We're hearing some report high double digit to even triple digit growth.

The other view as to why your digital wasn't stronger was stores close.

Respectively. The chair that would be helpful. Yeah. So one of the things we talked about is one of our pillars. The first was about the employee safety, but number two was brand equity.

And I can tell you that was a major focus for as long term in this mix and I believe you will see the strength of that continue to play out not only in the rest in the second half a 2020, but well into 2021 and beyond and that is that at this during that.

Q2, a lot of brands went very very very aggressive at discounting D to C and I have no question you could look up your email during that window and see whether it was Nike and Adidas then under armour two other brands in the outdoor space with major discount call outs to to buy.

Now.

We chose not to support retailers or ourselves to become aggressive and break map pricing and Matt Mezz. Just meant that we were going to promote our brands at normal suggested retail pricing.

And maintain growth on that long term, believing that the value of the brand will survive on that and I believe me in that if you go three or four or five six months of being off price. All the time on your brand that becomes the new valuation of your products in the marketplace in the eyes of the consumer and when you choose.

To go back up it will change very quickly the other ways. We believe that that was critical to was and will also supported our retailers to be long term partners and know that we were not at the chance.

Going to immediately compete against our retailers and and use price as the as the leverage point.

Very good. Thank you I appreciate the perspective.

Yep.

Yes.

Your next question comes from the line as Matt Koranda.

From Roth capital.

Please go ahead Sir.

Hey, guys. Thanks.

Just on Sierra if I heard it right. It sounded like you guys said.

Capacity utilization up maybe 30% more recently it sounds like Europe was a bit of a drag until maybe June July.

But can we infer.

Sort of in the back half the right sort of framework for the growth rates would be in that kind of 30% range or should we be still factoring in a headwind from Europe.

One of the business.

I think obviously, we would like to be optimistic and say that everything we're experiencing the U.S. is going to translate globally.

I can tell you that we've seen positive momentum from the international business, but I don't think that I would say that it has the same momentum that we're seeing in North America.

In North America is being driven by you know a couple of.

You know unique drivers right now.

What's going on in our in our social environment.

I think we will see improvement internationally and I think we'll see continued to see through both 2020 and well into 2021 demand in both the domestic wholesale consumer side as well as the domestic OEM continued to you know meet whereas that today and maybe some so yeah, we'll see.

We hope international strong, but we're not willing to say that it's going to catch up to where the demand in the north American market is for a lot of reasons.

Sure totally understood that makes sense and mainly what I was because I was getting at is we should not necessarily be factoring a huge headwind for that portion of the business going forward, it's not as much of a drag anymore I guess relative to Sawyer no I mean, I don't I wouldn't say its I don't think it's going to be a huge headwind, but I also don't think it's going to tailwind like the northern.

American market.

So with our Okay, and then scares me if added a little bit.

Oh gosh, if they did we would have a difficult time, because as we said our capacity is really prime that this 30% increase its not primed and 200% increase.

Right understood. Okay, and then it was curious if you could talk about maybe they implications for pricing and that business as well just given that we've been hearing you know quite a bit of tightness and capacity across the board, but maybe you could could speak to the pricing environment, both and kind of the retail channel as well.

In general.

So at this moment, our wholesale pricing is fixed relatively fixed for 2020, and we typically don't.

You know.

He saw the pricing during the season based on this rate more demand last week less demand whatever.

I think that the market as it gets tighter yeah retailers may shift and add additional margin on the products because the demand is more than the supply.

We probably will not look at price increases at this moment, but potentially later in the year as we manage what's going on with commodity prices and other things I will tell you that more important do as Matt in all of this and it's the opening statement I said in our piece is that Super fan brands first develop.

The best product in the industry once understood. Its demanded and then really maximize that emotional connection through both performance as well as storytelling to the consumer we're seeing that work really well and where that really transpires in market share gain and our answer will be at the end of this.

Here and pricing is just one component of that is that we will see market share gains and we we're careful to not.

Descent.

Just to create negativity on this increasing market share by getting greedy for small percentages of price increases.

Okay got it that's helpful. John and just to be clear when you say markets are going to you're talking more and the IMO category is that that appears that oh.

Well bullets and ammo.

Right and that is accurate, but you have to make this balance between you know do I keep getting strong double digit growth in market share or new I try and and over profit on that at the expense of double digit market share growth and there's a teeter totter, there and managing that well you know.

It is critical.

Got it and then maybe last one from me on the margin front I guess.

If we look at the consolidated gross profit margin for the business very strong and it seems to suggest I got that underlying margins that there were probably the driver, but could you guys kind of maybe disentangle.

BD unfair for us a I never get the Q eventually here, but it would be helpful that kind of get your thoughts on that.

You bet. So this is earned at so at the gross margin level Black Diamond was pretty much flat without the prior year. Despite some of the.

Headwinds that we've been seeing you know just with with lower levels of throughput some the.

Supply chain Valley Leakages, with what we call them, taking place during the quarter, whereas as you pointed out the on the 140 basis point increase at the consolidated level was really driven by the premise that we saw within this year.

Okay perfect not somebody you guys. Thank you.

Your next question comes from the line as Laurent Vasilescu.

With Exane Paean BNP Paribas sorry, your line is open.

Oh. Thank you good afternoon gentlemen, thank you for taking my question I wanted to follow up on the July only down 10% and I understand there's no guidance, but high level, how should we assume should we assume sequential month over month improvement in the third quarter and any high level commentary about the fourth quarter and puts and takes.

We've heard some some brands talk about sequential improvement in the fourth quarter over the third quarter.

Lets you get your take on that as well.

So as we as we think about you know the results that are taking place within black Diamond in July specifically and the commentary provided around.

Being down about 10% compared to the prior year, that's consistent with how we're thinking about the rest of the year as well.

As mentioned in the commentary provided you know we've been looking out the black Diamond business being tend to what we saw in 2000 some team in 2018.

From a revenue standpoint.

You know now that can obviously change depending on how.

Hello, Hello, how the retail environment continues to evolve and this was the consumer behavior, but as of right now that's how we're we're looking at the rest of the year and.

We do see that there could continue to be some sequential improvements in Q4, Q4, primarily driven due to channel mix, especially with our direct to consumer efforts, but that's.

That's not something that we're really factoring in or baking in right now at the moment.

I think the market loves to see optimism right now, but in fairness to this.

Managing through a global pandemic has been everything but consistent.

Very helpful. Thank you. Thank you John Thank you answer that.

Thank you mentioned that ammo is up over 300% overs seven months, obviously is a new initiatives can you conceptualize just as a percentage of over sales of Sierra how much it contributes and where do you think that makes goes over the next few years.

Yeah, I think when we initiated it we were looking at ammo being approximately 2% of our sales in initial plan in 2020, it's probably trending right now at five to six and growing we anticipate that it will continue well.

Ended the third and fourth quarter and it really comes down to you know capacity in loading on that mix.

You know any may in time Spike more we think it's a strong initiative for US right now we continue to keep the gas down on it.

As we said you know this.

As as planning and lock came together, we developed and new ammo initiatives, while at the same time demand do you now increasing and allowed us to be opportunistic to launch these ammo initiatives as well as achieved the market share opportunities we were looking at.

And so it's accelerated faster than we wanted and we see more of that opportunity and gain market share that'll places well into 2021 and beyond.

Very helpful. And then my last questions on margins.

Aaron.

Really strong mix benefit from on the gross margin side should we assume.

That there that continues in the back half and then I think on the last call. It was called out about $9 million of savings.

On the S.G. line I, just curious to know how much you say this quarter and should we still see line nine or just because the business may have improved.

There's opportunities to reinvest.

And in the business.

Yes, so as it relates to the margin side of things, we do anticipate that will continue seeds improvements coming from share the way that we saw in Q2.

That is a function of the get continuous improvement initiatives that we put into place deficiencies that we're running within the you know manufacturing activities as well as the mix in terms of product offerings.

So that is something that.

We are anticipating to continue to happen as it relates to the.

The cost saving side of things.

We were able to realize and when we talked about that $9 million was compared to what we were anticipating in 2020.

And we were able to realize benefits of about three and half a million dollars come to compare to what we were expecting in Q2.

In terms of savings and so we continue to be right on right in line with plan.

Despite some of the headwinds that we've experienced in terms of increasing our allowance for doubtful accounts, we've been able to find.

Additional savings outside of either not to be able to keep us in track with that 9 million dollar savings, we've outlined and that's something that we're still comfortable in achieving.

Great. Thank you very much and best of luck.

Appreciate it.

Your next.

If he'd like to ask a question. Please press Star then the number one on your telephone keypad. Your next question comes from the line of Brian Myers from like straight cash capital markets.

Sir Please go ahead.

Hey, guys. Thanks for taking my question.

Well into commentary on the ammunition business based in any sort of issue that's insourcing raw materials at this point.

I wouldn't say, it's the raw materials I think it's the component portions of it.

And I think this is where the benefit of working with our current OEM partners and loading with them has has become a strategic initiatives and and frankly a blessing.

No if your loading with federal and federal is making the primers then you don't have a shortage on primers.

And then vice versa, <unk>, you know horizon.

I think it's it I think we're managing well through that I think the only.

Miss I would say is just you know nobody anticipated the acceleration in those categories at the rate that they accelerated and I think we we you know if this was a normal year end, we posted 300% plus growth in ammo everybody would would celebrate and go Holy Cow you guys would.

Rick in genius is why did you even gamble that big.

I don't think anybody expected it to be that and that we would be chasing the second half.

Every day, it's a it's an initiative.

All right. That's helpful. And then just one more for me can you give an update on your own retail locations. What you guys are seeing there.

Yeah. So obviously you know when when Kobin hit we.

Manage that within our own retail and saw around retail close until early may its been positive in may and June and coming back.

We have currently four stores at this point, we did close the Alaska store frankly, just because Alaska has been hit so hard in terms of tourism in and you know passes to go mountain climbing and do you know outdoor activities in that marketplace.

We will be opening a store on main Street Park AV at Park City, you know later this month.

And we'll.

Probably a couple more doors this fall.

We are being very cognizant about maintaining inventory at the retail level, while prioritizing our wholesale business first and foremost.

And wanting to make sure that at the wholesale side. We can have you know very strong fulfillment you know shipping on time and strong fulfillment, but we're very positive about our retail initiative and how it has linked and supported or D to C. E Com strategy and we'll continue that you know not only in 2020, but.

2021, just be very smart and selective of the locations and the numbers each year that we roll out.

Great. Thank you.

You have a follow up question from Matt Koranda of Roth Capital. Please go ahead Sir.

Matt I got it thanks for that give or take a ball guys. I. Appreciate it just up quick one for you on the allowance for doubtful accounts just wanted to get your take I mean, it looks like collections look fine and Dsos look fine, but just wanted to get a little bit more color on sort of the underlying drivers there if you could.

Thank you.

Yes, it's very specific to certain accounts within the Canadian region that have either announced or either have announced the filing or the attempt to file for bankruptcy.

It's very isolated to certain accounts within the Canadian region, and so for that reason, we increased the allowance to to accommodate for that but on a on a broad based level.

The collections continue be pretty solid.

We continue to be you know.

Solider, Okay, as well and that's also something that we continuously improve each and every week.

Okay perfect. Thanks, guys appreciate it Aaron likes to be cautious [laughter].

Fair enough. Thank you.

At this time. This concludes our question and answer session I would now like to turn the call back over to Mr., Bob Bright for closing remarks.

Thanks, Corey we'd like to thank everyone for listening to todays call and look forward to speaking with you again Wolf when we report our third quarter 2020 results in November thanks for joining us.

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