Good afternoon, everyone, and thank you for participating in today's conference call to discuss Clarus Corporation Financial Results for the Second Quarter ended June 30th, 2018. Joining us today are Clarus Corporation's President, John Walbrecht; Chief Administrative Officer and CFO, Aaron Kuehne; and the company's Internal Director of Investor Relations, Cody Slach. Following their remarks, we'll open the call for your questions. Before we go further, I would like to turn the call over to Mr. Slach as he reads the company's Safe Harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please go ahead.

Thank you. 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. The company cautions you that forward-looking statements are not guarantees, and that actual results could differ materially from those expressed or implied in the forward-looking statements. Potential risks and uncertainties that could cause the actual results of operations or financial condition of the company to differ materially from those expressed or implied by forward-looking statements used in this call include, but are not limited to, the overall level of consumer demand on the company's products; general economic conditions and other factors affecting consumer confidence, preferences and behavior; disruption and volatility in the global capital and credit markets; the financial strength of the company's customers; the company's ability to implement its business strategy; the ability of the company to execute and integrate acquisitions; the company's exposure to product liability or product warranty claims and other loss contingencies; the stability of the company's manufacturing facilities and suppliers; changes in governmental regulation, legislation or public opinion relating to the manufacture and sale of bullets by our Sierra segment; 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 of or interruptions in our information systems; fluctuations in the price availability and quality of raw materials and contracted products, as well as foreign currency fluctuations; the company's ability to utilize its net operating loss carryforwards; changes in tax laws and liabilities, legal, regulatory, political and economic risks; and the company's ability to declare a dividend. More information on potential factors that could affect the company's financial results is included from time-to-time in the company's public reports filed with the SEC, including the company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. All forward-looking statements included in this call are based upon information available to the company as of the date of this call and speak only as the date hereof. The company assumes no obligation to update any forward-looking statements to reflect events or circumstances after the date of this call. I'd like to remind everyone this call will be available for replay through August 21st, starting at 8:00 P.M. Eastern tonight. Webcast replay will also be available via the link provided in today's press release as well as on the company's website at claruscorp.com. Any redistribution, retransmission or rebroadcast of this call in any way without the expressed written consent of Clarus Corporation is strictly prohibited. Now, I would like to turn the call over to the President of Clarus, John Walbrecht. John?

Thank you, Cody and good afternoon everyone. It's an exciting time it to be joining you. The record results of our second quarter signaled the momentum in our brands and reinforced that our strategy is gaining strength. Key metrics that confirm these performance include 50% overall revenue growth for Clarus; 14% sales growth for Black Diamond; and a 32% pro forma growth in Sierra Bullets as well as significantly improved year-over-year gross margin, adjusted EBITDA and free cash flow. Within Black Diamond's performance, apparel was up 89%, driven by continued strong demand in our new rainwear as well as our climb bottoms, sportswear and logo programs. We grew our Climb category 6%, slightly below our recent double-digit sales growth trend as a wet late winter impacted our spring climbing business. However, this weather pattern, along with early deliveries for several key accounts helped drive 11% growth in our ski business and highlights the benefits of our diversification across the 30 different product categories. Our Mountain business was up 15% due to continued growth in trekking poles and building momentum in our glove and pack lines, both of which are focused strategic initiatives that we have begun investing in 18 months ago, but are now showing well in our results today. The 32% pro forma growth we expected in our Sierra business was the result of being more disciplined with our manufacturing activities and executing a go-to-market strategy that leveraged our key partner relationships. Following the disciplined path to what we've successfully deployed at Black Diamond over the past 18 months, we are similarly starting to see gains in sales, margin, and fulfillment rates. I'll have more to say about our outlook for the Sierra business after Aaron's remarks. Now, on to the comments by region for Black Diamond. Sales in…

Thank you, John and good afternoon everyone. Sales in the second quarter of 2018 increased 50% to $45.9 million compared to $30.7 million in the same year ago quarter. And on a constant currency basis, sales were up 47%. Along with the strong category and regional growth dynamics John mentioned in his opening remarks, the increase was due to our acquisition of Sierra Bullets on August 21, 2017, which added $10.9 million to our sales in the second quarter. If we had owned Sierra in the year ago quarter, pro forma sales growth was 18% and included in this figure is 32% year-over-year growth in Sierra. Excluding the Sierra acquisition, Black Diamond sales were up a healthy 14%. Gross margin in the second quarter increased 510 basis points to 34.6% compared to 29.5% in the year ago quarter. The increase was primarily due to a favorable mix of higher margin products, including strong apparel growth, and distribution channels, the stabilization of our sourcing strategy, and a more normalized levels of discontinued merchandise as we expected. Selling, general, and administrative expenses in the second quarter increased to $15.8 million compared to $12.9 million in the year ago quarter. As John introduced in his opening, the increase was expected due to the strategic investments we are making to drive innovation and growth in both Sierra and Black Diamond, partially offset by the prudent management of cost in other areas of the business. Our strategy to ensure we deliver innovative and unique products to our customers requires these necessary costs to ultimately manifest themselves into future increases in revenue and profitability, much like we reported today. Net loss in the second quarter improved to $0.8 million or a loss of $0.03 per diluted share compared to a net loss of $3.7 million or…

Thanks Aaron. Before moving to our strategic outlook, I'd like to recap our second quarter results. The parts of our business that we have told our investors to measure our progress are not only on track, but are rapidly building momentum. Sales were up across all major categories, geographies, and channels. Our gross margin continues to improve considerably and this improvement has also translated into growth in adjusted EBITDA and free cash flow. We strategically invested in sales and marketing campaigns. We have driven enhanced consumer awareness. We're approaching the one-year anniversary of owning Sierra Bullets, and the early execution of our brand-enhancing playbook is showing the intended results. And our cash flow profile and strengthening balance sheet have us well positioned for other acquisition opportunities. So, with that as context, now on to the discussion for the remainder of 2018 and other relevant events. Fall 2018. Our Fall 2018 season will feature the introduction of more than 50 new products across our three major categories. This is on top of more than 40 new products introduced for spring 2018, resulting in approximately 100 new products launched in total 2018. In time, we continued our innovations with ice, launching the industry's lightest ultralight ice screw; the new -- and the new reactor ice tool. We introduced new innovations in chalk, which were evidenced by the launch of our Pure Gold, a chalk additive that increases moisture absorption by more than 10 times. We also expect the new developments in bouldering pads and bouldering accessories, along new colors in rock shoe collection, will continue to build momentum in the ever-growing bouldering category. It is important to recap that spring 2018 was the worldwide launch of BD rock shoes, a new category expansion that so far has exceeded our initial expectations and…

Thank you. [Operator Instructions] And we'll take our first question from Dave King with ROTH Capital. Please go ahead.

Thanks. Good afternoon guys.

How are you Dave?

Good. I guess, first on the 32% growth at Sierra. It sounds like you were able to do that even without much in the way of the new product innovation taking hold, at least for last week. Can you talk about what's driving that? Do you think that's more share gain than end market? And if so, is that just the marketing? Or is there something else that's helping to benefit you? And then, how would you characterize the growth between OEMs and consumer? Thanks.

Okay. So, to answer the first part of that question, as we said, we're following the same playbook that we have done at Black Diamond, which is, first, start to innovate and start to share those innovations. Secondly, better sales and marketing or what we would call go-to-market focuses, a combination of visiting all the top key accounts as well as our OEM partners and building with them. The addition of Outtech, increased and better-focused marketing, both to our -- to all of our categories of compete, hunt, protect, and defend. And then, I would say the biggest driver is what we call our ease-to-do-business with strategy, which is better on-time delivery, better fulfillment of the top and most important businesses, and ease to do business with and being share of mind. And that sums up to where the market is today. We are stealing market share and that we believe is a vote of confidence in the existing portfolio of products and what we're doing, but also in the future of what we're showing them and bringing to market even as of late last week. And to your second question--

OEMs versus consumer?

Yes. We're still gaining with OEMs and green box. So, I don't know if we've seen a difference. I think that from an OEM perspective, they probably may see longer into the future of new product innovations because they work with them more in tandem before we take them to market for the consumer. In regards to green box and our wholesale retailers, I think that's a function of us better marketing; better ease to do business with, better fulfillment, on-time, the like. And I will keep pushing to that. Subsequently, also, we're seeing continued strong demand in our international business and that scenario that we have put an increased emphasis on over the last six months.

Okay. It's all great to hear. And then, switching gears to the Black Diamond side. The 14% growth there sounds like apparel several categories, but apparel drove -- sounds like it drove a lot of that. Was that indeed the largest driver? And then, to what extent did new shoes contribute and sort of how do you see that shaking out as we go forward?

So, to answer your first question, apparel represents about 10% of our business. It is the fastest-growing category. Obviously, mountain's our number one category, and it was up better than 15%. So, that obviously drags on it, and pulls it forward. We'll continue to see strong apparel growth, and that is one of our big initiatives. And then to your statement of footwear, footwear continues to exceed our expectations. We are chasing it rapidly. We continue to innovate in that product, add to that team, and we think there is a huge future in footwear for BD, rock shoes being an initiative of that.

Perfect. And then, lastly for me, I'll step back. On the upsides credit agreement, should we take that to mean you're looking to be -- or get more aggressive in the current environment in terms of M&A? And if so, what sort of things are you looking for? And then, more importantly, how are the bid asks currently?

I think we're always -- and either Aaron and I can answer this. I think we're always looking at the market to see if there are super fan brands that fit our perspective of the marketplace. I think both Sierra and BD represent that well, that they are super fan brands that have significant opportunities to continue to be innovators in product. We will continue to look at the market and where that opportunity comes, we're going to definitely continue to focus most on the outdoor market, in that space, and that's a driver for us. And then, obviously, we can't control what people are asking for brands in the marketplace, but we're a believer that we think we bring something unique to these brands. And I think that's most evident when we see how rapidly the performance of Sierra has exceeded expectations since our purchase of it back in August of 2017.

Great. Thanks for taking my questions. Nice quarter and good luck for the rest of the year.

Thank you.

We will now take our next question from Jim Duffy with Stifel.

Thank you. Good afternoon. A couple of questions for me. First on the Sierra business, a great quarter. Based on the way you guys characterized the strength of Sierra in the second quarter, it seems the drivers would be sustainable and in place for future quarters. Should we expect continued strong growth rates like we saw in the second quarter from Sierra into 2019?

I think we're always optimistic, but I think at the same time, we're prudent. There is -- obviously, it's a market share game, and therefore, it depends on what our competition does in the second half of the year, and then, how the categories overall does in the second half of the year. We're going to continue to be disruptive with innovation as well as marketing as we can, and I think we have optimistic views of our strategy. But I think we also have to be prudent and conservative in how we anticipate that will continue to roll out.

Fair enough. As I look to the second half guide and the implied numbers, it does seem to presume a deceleration. Is there a shift in timing of shipments or something to pull forward into second quarter that we should contemplate when thinking about that?

No, I think, like I said, unfortunately, in some cases, we entered -- our brand has played in multiple seasons. And so if we have, given an example, if we have a phenomenal winter season, then that can have an even more positive impact. Last year, as you know, we didn't have a strong winter program and so it relied on other categories to buoyant that mix. I think we continue to execute as best we can against the brand strategy. And at the same time plan conservatively, realizing that it's all about stealing market share, innovating product, bringing products to market rapidly and being easy to do business with. That, I think -- hopefully, we will continue to meet or exceed expectations.

Great. And then, Aaron, the margin's feeling strong. That suggests you've been successfully able to overcome commodity pressure. Can you speak for a moment about some of the ways you've been able to offset the commodity pressure, particularly in the Sierra business?

You bet. So, on the Sierra business, we've been able to do it through, one, certain hedging activities, so we've been opportunistic in layering in certain -- and going on buying copper and lead at certain pricing that's been favorable versus how we expected it to be for the year. But then, it also really comes down to the efficiency that we're realizing within the manufacturing activities. We've been working very closely with the team, primarily their head of operations in just systematizing and just improving overall efficiencies within the manufacturing activities and it started to manifest itself in Q2. So, it's really coming just -- it's coming down to how we've been running the business, but also how the -- how we've been looking to -- or how we've been able to mitigate some of the pressures just through layering in certain purchases of copper and lead.

Very good. And then the last one for me, you've -- the objective for the 10% adjusted EBITDA margin. As we kind of roll the calendar forward here, can you give a better view as to what type of revenue base you would need to achieve that?

This is something that, obviously, we'll continue to address as the rest of the year plays out and we finalize our plans for 2019. It is definitely a target that we continue to hold on to and that we're comfortable with looking out into the future achieving very soon. But we're going to save some additional commentary on that when we address 2019's outlook, et cetera.

Very good. Thank you guys.

Appreciate it.

Thank you. We'll now take the next question from Michael Kawamoto with D.A. Davidson.

Hey guys. Thanks for taking my question.

Hey Michael.

Hey. So, you guys talked about this Deploy, with some unique innovations and partnerships with the YKK's zippers in Toray, Japan. Are you planning on maybe using some of that technology or the things you learned to apply to future offerings in apparel? And then, can you just share a little bit about what you've learned based on your discussions with retailers this season at the Outdoor Retailer Show? Thanks.

Okay. So, the first, I'm definitely -- we believe that what BD does best is innovate equipment. And even in apparel, that's really been our strategy. I don't see it as a Hugo Boss-Esque merchandise line at this point. Our goal is to develop the best equipment, albeit it may be apparel in the outdoor industry. We really focused on faster, lighter and stronger products. And in every situation, the driver to the products is the why. Why would we introduce this? Is it lighter than our competition? Is it faster, more breathable than our competition? Is it stronger than our competition? And if we really can build something around it, it will be the trifecta, and Deploy is one of those items that hit that home run. We will definitely continue to use that development, those materials, those partners to expand that into multi-seasonal type products as well as other categories that use fabric and materials that may not be apparel. And then, for us, when we started this new chapter at BD, and I would go back to just at the beginning of 2017, our real belief was getting BD back to where we -- the market wanted -- expected BD to perform as a brand for them. And as we've said, they [technical difficulty] about our innovations, stronger about our sales and marketing strategies, specifically to our accounts in the specialty market, and then, easier to do business with, that the retailers are recognizing that. And so the comment is that BD now back is kind of what we're trying to push towards. And our belief that if we continue to meet or exceed our consumers' expectations and retailers' expectations, building confidence, consistency with our retailers, that they'll continue to buy into our vision and strategy. And that seems to be working, and that's what we're hearing back from them at Outdoor Retailer. And I think those who saw the booth at Outdoor Retailer saw that in the reaction from the consumers and the retailers, and the excitement around the number as well as the types of new product innovations that we launched.

Got it, that's helpful. Thanks. And then, just second, you recently opened a store in Alaska. Can we just get an update on how that's been trending and maybe the potential opportunities you see to open more doors going forward?

Alaska was a market that we believe is very BD-centric. It is a market that many of our athletes and our consumers travel through in order to hit the mountains or the experiences in Alaska. We felt it necessary that BD be present, and it is -- clearly, Alaska is a market for climb, ski, mountain, trail running, you name it. In a market that the consumer aligns very much with the ethos of our brand. Retail is a component to what BD does. It is not our major focus. For 2018, anchorage was an opportunity where we aligned well with the consumer in the marketplace. There will be potentially others in the future. But it -- right now, our drive is focusing on product innovation and successfully meeting and exceeding the expectations of our retailers.

Awesome. Thanks for the color and good luck for the rest of the year.

Thank you guys.

Thank you. [Operator Instructions] We'll take our next question from Chris Krueger with Lake Street Capital Markets.

Good afternoon guys.

Hi Chris.

Hi. Just a couple of questions. You had really good strong growth for both Sierra and Black Diamond in the second quarter. Was there anything like kind of one-time-ish, like a sell-in to a new chain? Or any sort of thing that like, maybe, pulled sales forward a bit? Or is it just -- just have to be that strong of a quarter?

I think it was all about execution. We did not have any unplanned surprises in our mix or any outliers that drove the results. This is as we try to say, is just a dedicated, executed strategy that initiated 18 months ago, which is typically how long it takes new products to grow through the process as well as just some of the financial disciplines that Aaron and his team has instilled that allowed you to see it growth translated to EBITDA, to margins, to free cash flow, and while at the same time, finding efficiencies our leverage on our SG&A. And it just finally the -- it's all coming together as we hoped and kind of alluded to.

Okay, very good. I don't know if you provide this type of metric, but do you have like a percent of BD sales that comes from new categories or new products, stuff that's been introduced, maybe in the past two years or whatever the number might -- or timeframe might be?

We don't typically because of each category being different. And sometimes, a new product, it is literally a new product to a category. You rock shoes as you saw. Sometimes, it is a refresh of an existing product. Something like the Camalot C4 that was there to replace the existing C4. To be honest, with you, we look at it as the whole collective from a brand perspective, other than just what we give you by categories. Obviously, we build them up as a new product initiative with an ROI or expectation, but then, it really drives by what's happening at the time in the marketplace.

All right, make sense. That's all I got. Thanks.

Thank you.

Thank you. At this time, this concludes our question-and-answer session. I would now like to turn the call over to Mr. Walbrecht for closing remarks.

Thank you. We'd like to thank everyone for listening to today's call and we look forward to speaking to you when we report on the third quarter results. Thanks again for joining us and supporting Black Diamond and Clarus. Appreciate it.

Thank you. That does conclude today's conference. Thank you all for your participation. You may now disconnect.