Q2 2021 Clarus Corp Earnings Call
[music].
Good afternoon, everyone and thank you for your participating on today's conference call to discuss the cars Corporation spy on results for the second quarter ended June 30, 'twenty 'twenty 1.
Joining us today are Clarus Corporation's President John Baldrick, Executive Vice President and CFO, Anne Cooney Intercompany Fitzgerald director of Investor Relations Cody <unk>.
Sure.
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 reads the Companys Safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward looking statements Cody. Please go ahead.
Yeah.
Thanks Blayne on please.
Please note that during this call. The company May use words, such as appears anticipates believes plans expects.
In terms of future and similar expressions, which constitute forward looking statements within the meaning of the safe Harbor provisions.
Private Securities Litigation Reform Act from 1995.
Forward looking statements are made based on the company's expectations and beliefs concerning future events impacting the company and therefore involve a number of risks and uncertainties.
The company cautions you that before these statements are not guarantees and that actual results could differ materially from those expressed or implied in the Florida keys statements potential risks and uncertainties that could cause the actual results of operations or financial condition on the company to differ materially from those expressed or implied by forward looking statements used in this call.
<unk> include but are not limited to the overall level of consumer demand on the company's products general economic conditions, and other factors affecting consumer confidence preferences and behavior.
Disruption and volatility in the global currency capital and credit markets, the financial strength of the company's customers the company's ability to implement its business strategy the ability of the company to execute and integrate acquisitions.
The impact of the global climate change trends may have on the company and its suppliers and customers company's exposure to product liability or product warranty claims and other loss contingencies.
The disruptions and other impacts to the company's business.
As a result.
COVID-19, pandemic and government actions and Shakers measurement measures implemented in response.
The ability of the company's manufacturing facilities and suppliers as well as consumer demand for our products in light of disease epidemics and health related concerns such as the COVID-19 pandemic changes in governmental regulation legislation or public opinion relating to the manufacture and sale of bullets and ammunition by our share of segment.
The possession and use of firearms and ammunition by customers the company's ability to protect to protect patents trademarks from other intellectual property rights the ability of our information technology systems on information security systems operate effectively including as a result of security breaches viruses hackers malware NAV.
Disasters vendor business interruptions or other causes our ability to properly maintain protect repair upgrade our information technology systems or information security systems or problems with our transitioning to upgrade or replacement systems <unk>.
The impact of adverse publicity about the company and its brands, including without limitation through social media or in connection with brand damaging event public perception.
Fluctuations in the price availability and quality of raw materials and contracted products as well as foreign currency fluctuations.
The ability to utilize its net operating loss carryforwards changes in tax laws and liabilities tariffs legal regulatory.
Tori political and economic risks and the company's ability to maintain a quarterly dividend.
Any material differences in the actual financial results on the right, Iraq acquisitions, compared with expectations, including the impact from the acquisition on the company's future earnings per share.
More information on potential factors that could cause the company's financial results is included from time to time on the company's public reports filed with the Securities and Exchange Commission, including the company's annual report on form 10-K quarterly reports on form 10-Q, and current reports on form 8-K All force.
Looking statements included in this call based upon the information available to the company as of the date of this call and speak only as the day. He loved 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. On this call will be available free to play through August 16.
Starting at 8 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 Clarus Corp Dot com.
Any redistribution retransmission or rebroadcast of this call on anyway without the expressed written consent of Clarus Corporation is strictly prohibited.
I would like to turn the call over the Clarus is president John Walbrook John.
Thank you Cody and good afternoon, everyone.
It is great to be addressing you all today.
We're very proud of about another outstanding quarter, driven by continued growth across our portfolio of Super fan brands as well as with favorable growth trends in the outdoor industry overall.
We reported sales of approximately 73 million up 144% versus last year, and adjusted EBITDA of $11.7 million.
Compared to a loss of $1.3 million in Q2 of 'twenty 'twenty, both metrics were a record for any second quarter in our history.
We also saw continued increases in gross margin reported at 280 basis point year over year improvement to 38, 2%.
These results are a testament to the balance of the brand's continued operational excellence and strong supplier partnerships.
On the supply front.
We have leveraged our super fan brand recognition to strengthen our relationships with our key retail partners and our global suppliers. We continue to see evidence that suppliers prioritize the formation of long lasting and productive partnership with brands that are best poised for long term performance.
And we believe our brands fit this mold.
Did you give me an example in our black Diamond business, we prioritize pilot availability and several of our core products during the quarter.
This allows us to isolate the needs of our supply chain on the components that really moved the needle, which allowed us to increase sales and satisfy our retail partners and ultimately our consumers.
It's created a nimble and deliberate actions like these that have allowed us to stay ahead of our supply chain challenges our peers and the broader industry are facing I want to thank our entire team for the hard work without them. These results and our performance over the past few quarters should we surely would not be possible.
In addition to our strong results during the second quarter, we entered into a.
Definitive agreement to acquire Reinhold rack premier aftermarket automotive roof rack and accessories superfan brands.
Brian a rack will continue to operate on a standalone basis as a wholly owned subsidiary of Clarus and welcomes.
And fifth.
Constitute a third reporting segment headquartered in Sydney, Australia, and founded in 1992, Brian Iraq is an iconic brand that embodies clarus in superfan ethos, Brian Iraq has leading market share for its core products from Australia, and New Zealand with growing presence globally, particularly on the.
U S and his death known for its Superior award, winning North South roof rack designs with best in class solutions that make stated debt make space for adventure.
Customers rely on Rhino rack to transform their vehicles for work play and overland adventure.
<unk> is well established opportunities to market through a combination of long standing distributors.
Retailer relationships OEM partners third party e-commerce sites, and a growing direct to consumer presence.
Brian Iraq is true brand and 1 that we view as perfectly aligned with our superfan brands acquisition strategy.
Centered sounding Rhino rack has built a durable business with leading brand and market position.
A customer centric focus.
On the affinity for protecting and funding an important cause related to the rhinoceros conservation.
While we continue to prioritize.
With the first half of 2021 off to a great start we believe Clarus is certainly a more resilient and profitable business than we have ever been.
We are excited about the second half of the year and the momentum our brands carry as we enter the fall and winter seasons.
As such we are raising our full year outlook on our.
Look forward to continuing to drive shareholder value.
Aaron will cover our second quarter financial results and the outlook in more detail shortly but first I want to review the key drivers that supported our outstanding Q2 results.
At Black Diamond favorable consumer trends in the outdoor market, particularly compared to the depth of the pandemic, we experienced in Q2 last year.
Net inventory normalization at retail drove 122% year over year increases in sales for that quarter.
Iraq inventory normalization create the ability for us to accelerate market share gains, particularly within our national accounts, such as Rei an MVC.
By category Mountain was up 182%.
Line was up 90% and ski was up 111%.
Hard goods growth of 120% was driven by double digit and triple digit growth across the product portfolio in particular riding timing shoes harnesses key pulls in lumps.
Our footwear and apparel businesses, which are included in the business categories, just discussed we're up 252% and 132% respectively.
While we continue to prioritize inventory allocations to our wholesale partners to seek to ensure they are believed to have a strong finish to the spring and summer season, our direct to consumer channel accelerated from Q1.
We defined our direct to consumer channel as both our e-commerce business as well as our growing retail brand community centers.
After Relaunching the brand Black Diamond website in January we continued to refine our activation efforts within e-commerce, focusing on paid digital campaigns centered around social media versus pure search and building the top funnel of insurance.
We can tell our brand story simultaneously across various mediums like digital as well as brick and mortar we find the connection with our consumers elevated and elongated.
As in the inventory imbalances normalize and as we develop more refined data driven tools, along with expanding our retail footprints. We believe our direct to consumer channel will become the most brand accretive touch point for our Super fans are new Volvo location has already proven this.
We opened a new black Diamond retail store in Boulder, Colorado last month, bringing our total retail footprint to 7 adjusted.
And just 1 week or bolt on location is on track to be 1 of our top retail locations a.
Our retail store has allowed us to amplify our community centric approach to the consumer engagement.
This includes brand awareness and product education in Mega net mountain towns across the World Many of which will house our community center retail locations we have.
Found that this level of engagement.
As another.
Key drivers from our strong sales growth and increasing brand awareness, particularly in key product categories, we have chosen to maximize product availability.
Now moving to our Crs segment.
We continue to experience unprecedented demand for both our Sierra and barge brands as we generated sales of approximately $28 million up 190% from the prior year quarter.
This performance reflects broad based sales growth across both bullets and ammunition.
The continuation of external demand drivers, such as social and civil arm certainties as well as increased participation in outdoor hunting and indoor shooting ranges as continued to drive strong demand for both bullets and ammunition domestically.
In addition to the underlying market tailwind, we are experiencing success by treating each business has its own discreet and standalone brands.
This allows for rapid alignment with our retail partners.
Promotes an ease of doing business with mentality that is driving our market share gains and enables an agile go to market strategy focused on the innovate and accelerate.
<unk>.
We have also used our strong balance sheet to take more control over our supply chain, which has allowed us to have less constraints on product availability, particularly in our core categories.
With this backdrop in mind, we have also kicked off a 3 year planning cycle for each of our businesses within Black Diamond we are taking the community centric approach and ensuring that we implore 8.
<unk> customer back innovation mindset.
Focusing on Resourcing on the brand defining product categories with large addressable markets, while solidifying and optimizing the core.
We are also focused on going deeper within our existing distribution.
Other insurance in our partnership mentality.
We believe this will enable us to accelerate our direct to consumer business without creating unnecessary channel conflict.
As we focus on building community centers within these outdoor Americas similar to what I recently recently opened the bolt on location and soon to open locations in Jackson hole Bend in Burlington, Vermont.
For Sierra and bombs or go forward focus is on employing our innovate and accelerate playbook as we look to commercialize nearly 2 years of R&D innovations that we have paused during this heightened demand environment.
This will be it.
Accompanied by further capacity enhancement activities in support of our ammunition in Michigan.
We believe this approach will further reinforce our position in the marketplace as the leading provider of specialty premium bullets and ammunition.
At Rhino rack, we intend to expand Rhino racks product demonstration in North America, which we believe can become the largest geographic region over time.
And as we grow and its core Australia, and New Zealand market and seek to capitalize on our existing network of key distributors and dealers to develop sales in the rest of the world.
After owning the business for just over 1 month, we are even more compelled by these opportunities and we are now getting to work as 1 unified team.
Brian on rack also presents a valuable beachhead strategy to scale further in the overland and vehicle accessory category.
Before passing it on to Aaron I'd.
I'd like to state that we continue to remain cognizant of health recommendations, especially as it relates to conditions within retail and supply chain environments that we operate in chat.
Challenges remain but we believe that we are well equipped to provide sustained long term growth to our shareholders. As we have a great portfolio of superfan brands and a disciplined team and strategy leading to continued success.
With that I'll now turn the call over to Eric Cooney, our Chief Financial Officer.
Who will provide additional commentary on our performance in the second quarter and details on our increased 2021 outlook Darrin.
Thank you John and good afternoon, everyone.
For the second quarter of 2021, total sales increased 144% to $73.3 million.
Segment, Black Diamond sales improved 122% to.
The $44.9 million and sells on the Crs segment increased to 190% to $28.4 million, excluding Barnes, which we acquired in early October 2020, our second quarter sales on Sierra alone were up 71% organically.
In connection with our recent acquisition of Ryan Iraq on July 1 I want to note that rental rack will constitute a third reporting segment. We will report the new segment sells on future earnings calls.
Given the given the comparative year ago periods reflects the depth of the COVID-19 pandemic I would also like to share how our second quarter sales compared to the same quarter in 2019.
Black Diamond sales in Q2, 2021 were up 19% and see ourselves were in CR.
Sales, excluding barns were up 83% versus Q2.2019.
Not only does this exercise provide a more normalized growth rate, but we believe it demonstrates the staying power and longer term demand trends of both of these great businesses.
The Q2.2021 performance within Black Diamond was driven by growth across all geographies and sales channels and categories. Given the continued recovery within the outdoor space.
As John mentioned inventory rationalization that our national accounts drove a substantial increase in our year over year future Q2 performance with these partners in our specialty business also experienced healthy growth.
We continue to believe.
This is being driven by the fact that we were the best positioned to fulfill inventory in the current volatile supply chain environment with a core brand that has maintained on price.
The $7 million or 71% year over year increase in share brand in the Sierra brand was due to continued robust domestic demand for green box OEM.
Tableau initiatives rough.
Roughly $5.2 million of this increase was driven by growth in Crs ammunition business.
Originally we set a goal of achieving 10% of share sales through ammunition.
We are currently tracking around 30% per quarter.
Barnes continues to exceed our expectations contributing $11.7 million of sales in the second quarter with domestic black box, OEM and animal, leaving pro forma sales growth of 93%.
This growth was also driven by our ability to fulfill more orders as we increase output levels for new and improved processes.
This is our third quarter reporting Barnes revenues and it's also the third quarter of consecutive revenue growth.
We believe that <unk> is a great example of how we acquired a superfan brands and took a disciplined approach in deploying our innovate and accelerate strategy in turn generating sustained revenues and earnings.
Consolidated gross margin in the second quarter improved 280 basis points to 38, 2% compared to 35, 4% in the year ago quarter.
Improvements in channel and product mix as well as foreign exchange benefits more than offset unfavorable impacts under supply chain and logistics due to the COVID-19 pandemic.
During the quarter, we experienced a 100 basis point margin tailwind from foreign exchange.
As a reminder, with approximately 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.
Recently, we actively manage our costs with our vendor partners, because we understand the impact of commodity costs, such as copper and lead have on our business specifically on gross margins through active and deliberate management, we expect to be able to mitigate to mitigate risk for a period of 6 to 9 months out.
Selling general and administrative expenses in the second quarter were $20.7 million compared.
Compared to $45 million on the same year ago quarter, primarily due primarily due to the significant increase in sales day.
<unk> of Barnes, which contributed $1.5 million.
And an increase in stock based compensation of $1.2 million due.
Due to the increase of the company's share price, we remain extremely pleased with our expense management within both segments.
Net income in the second quarter increased to $1.8 million or <unk> <unk> per diluted share compared to a net loss of $2.7 million or a loss of <unk> <unk> per diluted share in the year ago quarter.
The improvement is largely attributed to our profitable sales growth.
Adjusted net income in the second quarter increased to $6.8 million or <unk> 20 per diluted share compared to an adjusted net loss of $1.2 million were loss of <unk> <unk> per diluted share in the second quarter of 2020.
Adjusted EBITDA in the second quarter increased to a record $11.7 million from <unk>.
<unk> to a loss of $1.3 million on the same year ago quarter.
Now I'll share to our asset efficiency on liquidity.
Inventory levels were at $82.7 million up 18% from where we ended last quarter and roughly 21% higher than our last year, our last year end.
We continue to work with our supply chain partners to dynamically manage our inventory levels to seek to meet demand.
As John mentioned, we are using our strong balance sheet to increase product availability in order to help keep pace with the elevated demand.
For context, where carry an additional $10 million of inventory on black Diamond and in an effort to offset the current elongated process of moving inventory from our supply chain partners to our warehouses.
Although it has resulted in higher levels of working capital. We are confident that our strategy of increasing the size of our pipeline will better position us to satisfy demand with higher levels of fulfillment in a timelier manner.
The results we reported today on it.
Testament to the execution of this strategy.
Within CRM Barnes, we've purposely increased our base line to inventory levels by an additional $6 million focusing on raw material and component availability.
This has enabled us to protect your supply chains and corresponding production of core items, while opportunistically hedging the concert rising commodity.
Such benefits are partially reflected in our reported gross margins.
At June 32021.
Cash and cash equivalents were $6.8 million compared to $17.8 million.
As of December 31, 2020.
During the second quarter, we generated free cash flow defined as net cash utilized or provided by operating activities less capex of $1 billion.
Compared to generating $10.2 million from the same year ago quarter.
The lower comparative free cash flow. Despite strong net income was partially driven by our continued investments in key inventory items to seek deals later source from commodity pressures scarcity concerns and to satisfy strong consumer demand.
32021, total debt was $27.1 million and we had remaining access to roughly $49.9 million on our revolving line of credit.
Please note our balance sheet as of June 30 does not reflect the purchase price of the <unk> acquisition for approximately $145 million and approximately $2.3 million shares of common stock for a total cost of approximately $205 million. We closed the acquisition on the day after close.
First.
In connection with the <unk> acquisition on July 1st we Upsized, our credit facility to provide us with increased flexibility and capacity to close on the acquisition.
Under the terms of the Upsized credit agreement we.
The access to the increased revolving credit facility of $100 million and it increased $125 million term loan.
The facility also includes an uncommitted accordion feature of $50 million for a total borrowing capacity of up to $275 million.
The facility bears interest at either an adjusted LIBOR rate or an alternative base rate plus and the plus.
Plus an applicable margin ranging from 150.
Basis points to 262, 5 basis points per annum and matures on May 3.2024.
Beyond the immediate use for the purchase of <unk>, which will leave us a pro forma leverage of around 3 times. We believe that this facility has us well positioned to further deploy our innovate and accelerate strategy to maximize the brand's growth potential as well as build upon the sustained momentum that we have seen this year across our other <unk>.
<unk>.
Overall.
On the strength, we have built across our brand portfolio is being supported by a strategic and disciplined capital allocation policy and we are extremely pleased with the direction of our businesses, which inherently provides us with additional growth opportunities for us to evaluate both organically and through M&A we.
We are comfortable servicing our debt requirements at Bay.
On our current projections, we expect to be well within our leverage and fixed charge coverage ratio requirements and in full compliance with our current debt covenants for the remainder of the year.
With our recent acquisition of <unk> and our strong second quarter results. We are pleased to announce that we are raising our full year financial outlook.
We are now expecting consolidated 2021 zone.
To grow 56% to $350 million compared to 2020.
This is an increase from the guidance, we shared last quarter of $295 million.
It is not our intention to provide segment level guidance each quarter moving forward. We felt it was important to provide this context as we layer in rent.
As we layer in the rental business and expected near term growth trajectory.
By segment, we now expect 2021, black Diamond sells to increased 26% to $215 million up from $205 million on our prior outlook.
Sure ourselves, which includes Barnes to increased 80% to $95 million up from $90 million prior.
Compared to 2020.
We expect sales from Rhino rack to contribute approximately $40 million to the second half of 2021.
On a consolidated basis, we now expect adjusted EBITDA in 2021 that drove approximately 132% to $52 million compared to 2020, we previously guided to $38 million.
We expect revenue to contribute approximately $6 million to our consolidated adjusted EBITDA outlook.
And then in addition, we expect capital expenditures of approximately $8.5 million.
Lastly.
While we have previously shared an outlook on free cash flow. The current situation around inventory availability is creating a more dynamic environment and our business.
I noted previously we have and will continue to use our strong balance sheet to proactively manage our supply chain and most importantly be better positioned to deliver product for our retail partners and consumers.
We believe having the option to be flexible on how we manage our balance sheet on cash flows through the remainder of the year's most prudent and continued value creation.
As a reminder, each of our businesses are self sustaining profitable and cash flow positive we.
We do not expect this to change we are committed to managing this responsibly and will maintain compliance with our covenants.
Across our organization.
We remain grateful for our team's focus and dedication to executing on our strategic priorities and generating the highest possible returns on invested capital.
We remain proud of our strong operational and financial foundation that we've built over the years, we have proven again that our accelerated playbooks to their commitment to super serve brands is important to our success and allows us to prosper no matter the external market environment.
Operator, we are now ready for Q&A.
Okay.
Thank you Sir as a reminder to ask a question. Please press star 1 on your telephone.
Draw your question press the pound key.
Please standby, while we compile the Q&A roster.
And our first question will come from Anna <unk> of Jefferies. Please proceed.
Hi, good afternoon, Thanks for taking my question.
First I mean, clearly demand has outstripped supply over the past few quarters could you maybe provide some perspective on where channel inventories stand today and how long we should expect this tailwind from replenishment to continue.
Yeah.
Thanks, Dan.
I think the logistics issues combined with the Covid issues in other parts of the World will still play havoc well past 2021, I'm anticipating that.
It will at least impact the first quarter or 2 of 2022.
And may go longer as back to school and holiday all kicks in in 2022.
We believe we will continue to gain market share will be very aggressive about our supply chain and our management logistics is the biggest challenge.
Whether it's port closures or just movement in the rates of getting things around the world.
Our goal ultimately is on time, delivering 100% fulfillment and easy to do business with.
The demand continues to surge, which only complicate the ability to have logistics and supply chain to keep up.
I think that we're probably hoping to see some normalization by spring of 'twenty 3.
Great. Thanks, and now turning to Brian Congrats on the recent Li announced partnership with Polaris.
Should we be thinking about the potential for this partnership and partnerships like this to accelerate the brand's penetration in North America, which as you touched on historically it Hasnt had alright, then ask distributed.
Yes, I mean, obviously, we love this brand.
It checked all the boxes of the superfan brands.
Leading market share in its home market and history of innovation and just not a lot of brand awareness and go to market and that was the real opportunity here.
The great thing about the <unk> businesses that we're able to focus on multiple tiers of distribution, 1 being that of Oems and partnering with players like Polaris or Ford or Toyota or R. G per whomever get developed.
System, specifically for their new large launch products. Then there is the aftermarket automotive business, which is where <unk> has really played in the United States over the last few years.
And then we see a huge opportunity in this outdoor segment that is growing which is a combination of micro adventures meets overland being.
And we think that that on.
For the next 3 to 4 years is the fastest growing category of direct business and have you seen what others have posted the demand similar to that of BD or even with share on Barnes the demand by the consumer far exceeds the supply right now and so we're still chasing on that but yes, we definitely think debt the polar.
His partnership alongside our retail partnerships.
We will allow us to accelerate this business.
Great. Thanks.
Your next question is from Matt Koranda from Roth capital.
Please proceed.
Hey, guys. Thanks for taking the questions.
Wanted to start out with BD.
And it looks like just the implied back half guidance for revenue there.
She has a slight pickup even seasonally relative to prior years and wanted to see if you could maybe discuss.
Some of the applications.
For margins there.
And then also if you could threat and it would be interesting to see.
I know you guys have a pretty strong strategy going and building inventories. So that you have availability for your customers, but did you.
In any headwind to revenue on the back half of the year given the supply chain is relatively tight and it is still difficult to get certain components.
Yes, Matt This is Eric great to speak with you entering the last part of the question first NAV.
Actually and consistent with how we've guided this entire year, we continue to be fairly conservative in terms of how we should we guide or forecast the year, considering the different dynamics that exists and so the answer is yes, we continue to be.
Cautious in terms of how we think about the rest of the year based off of what's taking place within the various supply chain on the logistical Elon engagements that are taking place.
We do feel confident about where we're positioned currently.
For the back half, we have a strong order bookings.
The black Diamond business in particular.
As John mentioned during the script.
Tourism continues to be a favorable tailwind for us and something that we're very well positioned to be able to take advantage of that.
On the job and it really comes down to the product availability, but piece off of the different initiatives that we put into place earlier. This year, we do feel like we're continuing to better position ourselves to each and every day to be able to satisfy demand recognizing that it is taking a little bit longer than what we had originally anticipated.
As it relates to the margin profile of BD, we do expect that they will continue to progress and improve as mentioned before we do feel that we have a clear path to being able to scale. This business appropriately both from an increase in gross margin, but also the adjusted EBITDA levels.
Naturally because of what's taken place within.
Once the logistics side of things, we do see some leakage there and we're very focused on on mitigating and eliminating that leakage. We do have a few levers that we'll be looking at and imploring, especially as we head into spring 2022.
The guidance that we'd also provided from a from an EBITDA perspective balls from flex.
On.
Some of the debt.
The noise that could exist in the back half associated with bringing that inventory to the various warehouses.
Okay. That's helpful and then just turning to Sierra Barnes.
Notice.
If I look at the implied back half revenue guidance. It does imply a bit of a step down relative to the first half and with the understanding that obviously the first half has been sort of.
At record highs for ammunition on bullets.
Industry.
But wanted to get your thoughts on sort of why the step down just given that it seems like channel inventories still pretty light.
On demand Hasnt really let up all that much so any any color there would be helpful as well.
Yes, so consistent with what we just discussed related to PD 1 of the things that we wanted to also do on the CRM barn side of this because.
That, albeit the mystic that continues to experience some of the.
Similar supply challenges that we that we just discussed but also that we've highlighted previously on so consistent with past practice. We have also been a little bit tempered in terms of how we think about that business coming together and being able to materialize the demand thats out there to your point, we have not seen the slowdown in the overall marketplace for the demand, especially for our 2 businesses.
I think the team has done an extremely thorough.
Great job of positioning that Brandon.
Extremely proactive in reaching out to the different retail partners in establishing ourselves as 1 of the premier providers of ammunition and specialty bullets, but it comes back down to how quickly.
How quickly can we satisfy that also how reliable will the supply chain being the guidance once again reflects.
That tempered view on on that ability.
I think we would all know that there is more than enough demand in center fire rifle bullets, and ammunition, specifically going into unseasoned, but on.
Obviously, 1 of the biggest constraints in the industry. So far has been that a brass in the center by our category and so we will be at scrappy and as aggressive as we can but we also.
We've always had that mentality.
Meeting or exceeding expectations.
Fair enough and if I could just quickly complete the trifecta in terms of segments I guess on radar rack.
Was a little surprised I guess given that it looks like the run rate on on run Iraq should be I mean, I don't have any real ideal for seasonality, but if you just kind of dumb latex.
The $90 million on trailing 12 or trailing 12 month revenue in quarter is that you get to sort of a 22% to $23 million run rate.
But wanted to see if you could maybe just speak to seasonality on run Iraq in the second half and just sort of what the constraints might be to revenue on that front, just given the reported volume and revenue guidance for the back half of the year here.
Similar to the way that we handle this also with the acquisition of Barnes last fall 1 of the things that we're very focused on is ensuring that we integrate that we go through the integration side of things extremely well and that we position ourselves for long term success.
1 of the things that has recently come up as well those that are COVID-19, especially in the Australian marketplace. We're seeing extremely strong progression within the U S. And also New Zealand markets, where it's where it's Cort business currently exists, but there is a little bit of conservatism baked into the into the guide to factor in what we're currently seeing within.
The core market of Australia.
But coming back to once again, it's it's right in line with how we think about how we bring on these businesses. We wanted to give ourselves a little bit of headroom as we worked through the integration topic as John mentioned as well we are very well positioned we will accelerate this business, especially here domestically in the U S.
But similar to what we've discussed on as well.
Make sure we get the supply chain in place on the right way that we get the inventory where it needs to be some weekend with confidence and credibility go out and look to accelerate this business with the different retail partners that we have.
I think it's really important amount of how aggressive we are on plan. The 1 thing we can't control right now is the impacts of Covid.
Australia, which was a little bit of surprise on the locked out there some of the impacts from Covid that are impacted markets like Vietnam, or Indonesia recently, and then obviously.
And that from the earlier question Jeffrey.
Jefferies.
When do we think this noise in the logistics channels are going to clear.
The honest guidance.
Not assumed.
Now that doesn't mean, we can't find ways to win and put points on the board.
You have to be aggressive you have to be smart you will get some some headwinds in this space that youre not aware off they'll be accepted a port to close.
And so we're just always the view is look.
Ignite every single headwind that we could face.
What is the plan we know we can hit men fight like Hell to overcome every headwind and if we achieve.
3 or 4 of them fantastic, if we have a quarter like Q2, and we achieved 60% to 70% of them even better.
Alright fair enough guys nice job on.
Leave it there.
Sure.
Your next question is from Lauren <unk> of Exane BNP Paribas. Please proceed.
Hey, everyone. This is actually Aubrey on Fuller on can you guys hear me okay.
Yes, we can thank you.
Great. Thanks for taking our questions wanted to start first on on Rhino rack.
Can you talk about what the revenue growth trajectory has been there.
And long term, how big of a business do you think it can be overtime.
And along those lines are there adjacencies that you think you can go into in terms of product extensions.
Yes, so you obviously understand on our playbook.
Typically range typically.
We've been a high single low double digit type of growth model, obviously with outdoors.
Going into last window Covid theres been some surge we definitely think that this has got a long term opportunity.
On Rhino today is let's call it ballpark $100 million business the competition in the space.
700 to a $1 billion sales for the 2 big market share leaders somewhere between $100 million and $700 million is probably the right number.
To your point I think what's really different about Ryan no risks versus our competition is in August is not based off of horizontal bar structure, but more of this north south pioneer rack and what that really opens up.
<unk> call on to resolve the potential accessories, and adjacencies that will align with Rhino racks.
Once you have this lack system <unk> system in and of itself is just the started on the legos.
And what can you put on that rack system from obviously, what the market needs. Today is everything assembly from SKU rat to carnival boxes to bike racks, but really more beyond that rooftop tents boxes coolers light speakers scenario.
They make those on what can you do with the top of the vehicle, but didn't even think wider than that more than a vehicle what about on a trailer what about in the trailing edge 1 in the back up on vehicles.
Or are all the ways that you can wrap something and create.
Making space for adventure the theme of it really open up and so that's where we see the biggest opportunities.
The North American market is competition and then just the ability to look at at wider opportunities of Lego wisdom as we're calling on it relative to these racks.
Got it thank you and then.
Going back to the topic of the integration of Iran. Iraq, just given that.
It's going to operate as a standalone.
How extensive are lengthy as that integration process, obviously, COVID-19 notwithstanding but.
Typically how should we think about.
How long are involved of an integration we should expect.
Yes.
Good.
Because it was standalone, we don't anticipate seeing a lot of system type topics, but more to around the planning on the go to market process and so the way that we've been thinking about is working towards a 6 month integration cycle.
We're hoping to be able to accelerate that up but at the same time, we want to make sure that we're extremely thoughtful and well positioned to really accelerate the go to market activities.
Activities or cycle.
Courted by the basic Formula that we've been really been following over the last several years not only on the innovate and accelerate playbook, but it's really about being easy to do business with on time deliveries high levels of fulfillment.
New product introductions and product Adjacencies, and then accelerating it also through expanded or enhanced brand awareness through various marketing activities and so that's something that we're currently working through with the Piedmont and zone.
It's something that we expect to have finalized within the next 6 months.
I think the other side of a different year.
It helps on net.
<unk> Standalone business, they do a phenomenal job in the Australia, and New Zealand markets right and so obviously our goal is the goal there and try and change that model. They prove that model out well over the last few years. Our hope is to take what is the Rhino rep radian and assimilated into the north.
American market.
Closer at home and I think that's where we really want to make sure. We do this right.
Before we accelerate this.
Excellent and then if I could just ask 1 more.
On the rest of the business were there any revenue shifts between the second and third quarter.
Other direction on our last quarter, you called out debt potentially there could be some shifting on the on the BD side, maybe from <unk> into <unk> and just in general you're seeing a lot of.
Noise given supply chain disruptions. So is there anything that you'd call out there. Thank you.
Yes, that's on the Black Diamond side, we saw we saw a shift of revenue from Q2 to Q3 of at least $6 million to $8 million.
Great. Thank you.
And obviously on the CRM.
Yes.
Almost on achievable right.
Okay. So strong and you do everything you can to maximize not only bullet production, but ammo lovely.
At our Max capacity on our efficiency, but the order book for.
Far exceeds our ability to to keep up.
Your next question is from Ryan Sundby William Blair. Please proceed.
Hey, Thanks for taking my question and congrats on the quarter guys.
Erin I think you said share of.
First thing on the sell through channel this quarter clearly that's well ahead of the 10% goal.
Was there any specific about this quarter, maybe just given the lack of inventory on the shelf price competition that.
That helped accelerate that number and then does that make you kind of rethink that debt, 10% target could that be higher going forward.
Yeah. This is walbrook on.
I'll try and answer if we miss a little bit on and I'll try and answer it and then you may want to rephrase. The question with US. So we can do the best on it.
Do we continue to chase inventory in the market at a 100% debt.
We will be able to fulfill everything that people want to know.
Our inventory levels at the end of Q2 at the store levels for fall 'twenty 1 no.
Are we outperforming our competition as best we can yes.
Do we continue to face headwinds relative to logistics costs in order to accelerate and meet that fulfillment, yes, and so that obviously has an impact in our business short term and short term is probably going to play into the market for the next at least 6 to 12 months, but our long term view and we are on.
And said this is a rising tide raises all ships, but these challenging times that we're in now we actually gained market share even faster and so our goal is to continue to be the best partner, we can for our retailers gained more market share and we believe debt long term. This will continue to create scale and growth scale.
And margins and therefore flow through did I answer that.
Yes, John I guess, just so simply for for Sarah Seara in the ammunition.
And this shift there I think the target was.
Net.
No no.
But yes.
We started with a goal of 10% on.
For Sierra straightened out and that was on.
Are we seeing a lot faster than 100%. It's now running at about 30% do we think it could be even higher than that if we didn't make yes.
We're not vertically integrated yet.
Year, obviously part of the strategy with with the era of what we have acquired a large was partially due that however, borrowers could sell everything they can load right now.
So we will continue to work with our various partners to try and load as much in this ammo as we possibly can.
On the demand.
Is significant and I think what we've proved out in what will become the leader on this side.
<unk> chain portion of the loaded ammunition starts first and foremost with the premium bullets and Thats, especially as you go into certain that these growing categories like honey, we've become even more valuable and so chasing loading ammo in force.
Sierra or even in pistol has.
Has really stretched us and it has exceeded our expectations. Due we think that's going away no hasnt changed our strategy to think theres more opportunity per ammo within these brands are 100%.
Elite that frankly, we didn't make gamble right now could we sell every single bullet we made to OEM, yes.
So it just hurts more opportunity in <unk>.
Continued to increase our production while expanding our loading.
Got it great great to hear that mix is bigger than you thought.
John I feel like.
You have kind of stressed the community centric approach to consumer engagement and we will get more of this quarter.
I feel like.
Your stores are kind of coming on line now or at least had been opened maybe for a year or so.
Do you think youre hitting an inflection there in terms of net direct involvement with the consumer and what that means for either the brand or development going forward.
I think what we saw in 2020 and 21 plus this massive outdoor is on and people really start on even more tailwind into the sports are climbing back country skiing trail running hiking you name it.
Hi equipment, driven house and therefore, we believe that in these communities that we not only have an opportunity, but really we have a responsibility to be won a leader in the voice of access to the outdoors, where all these the sports take price, but also to really be a builder of the commute.
From an educational and experience perspective.
The lead on that and specifically.
Specifically as we watched heavily and this is where this came from as we watch what took place during the winter and this 1 has a responsibility to make sure that we coach train and educate people on that country's safety.
Specifically around alpine snow safety.
And we think the debt. These mountain towns are going to continue to become the matters for outdoor does that going to continue to grow.
They are popping up in towns towns Youre seeing growth that people never hurt us and.
And we think that opens up more and more activation with our super fans.
That's great to hear thanks Shannon.
<unk>.
Okay.
Your next question is from Linda Bolton Weiser SBA Davidson. Please proceed.
Hi, Thank you.
I believe that you had taken from price increases in May.
Can you kind of update us on that the magnitude of those increases on how they're being received by.
By customers and did the price increases have a positive effect on second quarter results.
Yes.
We don't really publish on that on a wide spectrum of what we did typically the price price increase in debt. We did in standard with the industry and really around the commodity pricing discussions that were taken away from the industry.
We have maintained their price is now for the third and fourth quarter in those markets.
I don't frankly.
What drives our results in Q2 was really the overarching demand for the products, both <unk> and Bulletin ammo.
Pricing was literally just debt.
And EBIT, Steven with what's taking place in commodities.
Okay. Thanks, and then.
Yeah.
You talked about.
Impact there was a negative impact on gross margin, even though your gross margin was up strongly due to logistics and component.
Inflation and things like that is there any way you can quantify the impact and break it down like was it lower the freight and shipping and logistics or was it more like the materials and components that were.
The bigger impact on the margin.
It was more related to the logistics and supply chain side of things and.
And that did have a negative impact of about 50 basis points on the consolidated margins.
And obviously more on the block.
On the domestic productions of Crs.
Okay.
And then.
Can I just ask you.
Sure.
In terms of Rhino rack I mean, obviously I would expect you to move as quickly as you can after integration to expand distribution in the U S.
But Australia and New Zealand will remain really important markets.
Thompson and argue that they have plans in place to continue to grow organically in the near term pretty strongly in the home market of Australia, and New Zealand.
Yeah. So obviously you have on.
We picked super fans and this is really critical to the criteria.
1 leading market share where edge and U S.
We have stated they are the dominant brand in Australia, and New Zealand to our history of innovation, which they have proved out many times inclusive of their recent Red Dot design awards, but we really looked at that is that what's the pipeline look like for new innovations and Theres, a very strong pipeline there.
Next we go to market and we believe that they've done a phenomenal job partnering on certain aspects of the OEM and the aftermarket but likely looked at other markets. I think there is some outdoor has some opportunity within Australia, New Zealand and the market is still obviously growing there.
And I think between accelerating the pipeline they have helping them with the go to market ideology in there and then just the growing demand that this trend has on its not slowing down we feel confident on Australia, and New Zealand, albeit realizing that there is a ceiling at some point because they are the dominant market share.
Our brands. So we don't expect the same though we expect growth and anticipate that it will continue to gain market share.
We anticipate that it will be faster growth and we will find other parts of the world.
And then obviously the other option, which we will bring to them.
As part of this is what are the extensions and expansions and accessories or other other opportunities addressable markets that are adjacent to the rack that we can help them expand into.
Okay, Great. That's it from me thank you.
Your next question is from Mark Smith of <unk>.
<unk> capital markets. Please proceed.
Hi, guys first 1 to hit the CRA bonds ammo bullet business can you just can you quantify at all or talk about the backlog, maybe the magnitude and how large that is and the timeframe specifically in that business to refill the channel inventory.
All I can tell you is that there is more.
Months right. If we look at this today I would tell you that I don't think this market is going to see a slowdown for the next at least 12 months, if not longer and by that but reality is that we're still dealing with not enough now.
On ammo or bullets for fall 'twenty, 1 and we.
We will hope maybe to get to that ceiling in the fall hunting season in 'twenty 2.
Okay.
Then looking broadly throughout the outdoor industry retail consumer demand have you seen any slowing at all.
Or is it continue to be some acceleration and if you can speak domestically as well as internationally.
Yes.
We have not seen any slowing at all.
Not at the specialty level or at the multi door level accounts.
We the season shift we actually anticipate that we will see.
Serge number to come winter this year.
And we.
We will be chasing the fall activities as well as the winter sports.
I think Europe as it comes.
More rationalized without Covid will continue to accelerate and we're actually seeing positive momentum now.
Coming out of the IGT market, which we haven't seen for 12 months.
Yeah.
Perfect and then just the last 1 from me.
Can you quantify at all e-commerce or your direct to consumer channels and then just longer term as you look at the profitability and growth.
Good to see and your retail stores, how you manage growing those businesses, while also managing the relationship with retail partners.
Yes, so obviously first and foremost.
<unk> already stated this its on time delivery good fulfillment easy to do business with you or not you can have low fulfillment and difficulty to do business with because you prioritize your D to C model. So it is really important debt, we prioritize our specialty and our wholesale market before D to C. Now we bill.
Leave that to me will.
We need to grow with it.
With time, because the consumer continues to go through this either community centric to the flagship stores, where they wanted to be educated on the products themselves rather than just buy them.
Or if you would need to see as you create more and more opportunities for them to have exposure to the product.
I believe at BD, we have a long runway of continuing to grow our wholesale distribution business, while also growing our D to C.
Part of that is is product itself and part of that is just the awareness of the brand.
We still struggle with the black Diamond versus <unk> syndrome, you've either never heard of black Diamond or Bds Your favorite brand in the whole world.
And that will come with time on this the flagship stores. It proved to be really strong because they'd become on backed up both for the Super fan, but also the consumer who has never seen our brand.
We see both of those as we expand our retail distribution.
And I think it's.
It's a we're in this issue on both fronts.
Excellent. Thank you guys.
Okay.
At this time. This concludes our question and answer session I would now like to turn the call back can you share walbridge for closing remarks.
Thank you everyone. We appreciate you participating today, we look forward to.
Speaking with you again, when we conclude our third quarter results.
Come back yet that time, all the best.
Yeah.
Ladies and gentlemen, this does conclude today's conference.
May now disconnect. Thank.
Thank you for your participation.
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