Good afternoon, everyone, and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the second quarter ended June 30, 2020.

Joining us today are Clarus Corporation's President, John Walbrecht; Chief Administrative Officer and CFO, Aaron Kuehne; and the company's external 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 investment first – safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please go ahead..

Thanks, 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.

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 the 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 and volatility in the global currency, capital and credit markets; 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 that global climate change trends may have on the company and its suppliers and customers; the company's exposure to product liability or product warranty claims and other loss contingencies; disruptions and other impacts to the company's business as a result of the COVID-19 global pandemic and government actions and restrictive measures implemented in response; stability 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 global pandemic; changes in governmental regulation, legislation or public opinion relating to the manufacture and sale of bullets and ammunition 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, tariffs, 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 Securities and Exchange Commission, including the company's annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

All forward-looking statements included in this call are based upon information available to the company as of the date of this call and speak only as the date hereof. The company assumes no obligation to update any forward-looking statements to reflect events or circumstances after the date of this call.

I'd like to remind everyone this call will be available for replay through August 24, starting at 8:00 PM Eastern tonight. A webcast replay will also be available via the link provided in today's press release as well as on the company's website at claruscorp.com.

Any redistribution, retransmission or rebroadcast of this call in any way without the express written consent of Clarus Corp is strictly prohibited. Now I'd like to turn the call over to the President of Clarus, 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 super-fan brands show their long-term strength 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 COVID-19 in March of earlier this year.

At the onset of the virus, we devised a plan to focus on three things. First, our people, the preservation of brand equity, and then the maximization of liquidity, which together we believe would make us emerge as an ever 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 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 was the preservation of brand equity. For Clarus, brand equity amongst the core consumer is our lifeblood. 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 blackdiamondequipment.com.

We continue to experience improved activation in our e-commerce channel due to more efficient prospecting and retargeting in order to drive higher levels of site traffic. We prioritized full price selling with a focus on storytelling to capture the consumer's interest during this increased 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 to 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 prioritized our liquidity and ended the second quarter in a solid position.

Aaron will walk through this shortly. But at June 30, we had $21.5 million in cash with an access to $50.4 million on a revolving line of credit and the leverage ratio of 0.6x. Now I'd like to address the specific brand performance in the quarter.

For Black Diamond, the impact of COVID-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 exceed 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 retargeting in order to drive higher levels of traffic and visit to our website. We are also encouraged by the amount of press and earned 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 won over product – over 10 product awards. June’s product PR highlights include the BD StormLine Stretch Shell in Forbes, the Impact Crash Pad in msn.com, and the BD Icon in Popular Mechanics.

Year-to-date, earned impressions are 2.2 billion with 72 product awards both up from last year. And our apparel categories, it's having its strongest year ever in terms of interest and product recognition from the media. In our Sierra business, domestic gross continue to accelerate at – 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 that 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 is expected to benefit from partner retail doors began to open, and our ability to fulfill orders remained unaffected. This is a crucial point.

The fact that 86% of BD sales are non-perishable equipment that is deemed as 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 backcountry snow season, especially as it relates to snow safety product.

Due to the prolonged social distancing constraints, we expect that the increase in backcountry participation that we saw 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 have also started to see signs of recovery in our international market.

Importantly, we have the capacity to fulfill what is anticipated to be a 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 hire for our Sierra business appointing Keith Enlow as President. Keith brings to Sierra more than 25 years of executive leadership, serving in roles in the commercial, military and law enforcement markets. Most recently Enlow serviced as the 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 prior roles with Remington Ammunition and Barnes Bullets.

Given his experience, we expect Keith 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 is great to have you on the Clarus team.

Assessing our expectations for 2020, we believe we're still well on track to achieve the goals laid out last quarter. These include liquidity improvements, costs savings measures, and key sales assumptions, which underscore the optionality that we have sought to create in our brands to adapt to a changing consumer landscape.

Furthermore, while continues to be difficult to know when normalized business returns, we do expect consumers to remain loyal, to our 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 has unmatched within the market. Our offerings span 30 single product categories, and there is no single one that accounts for more than 15% of our sales. This provides a balance of sales across both the fall and winter, spring and summer sports seasons.

And our brands are truly global with nearly 50% of our sales generated in over 50 countries outside the U.S. In addition, while apparel and footwear are key strategic initiatives, where we believe substantial growth opportunities exist, it’s 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 fads instead they're rooted in best-in-class design, engineering, testing and functional feature sets that enable the user to have his or her best days 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 a 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 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 super-fan brands to compliment 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'll now turn the call over to Aaron Kuehne, 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% and Sierra sales were up 7%. The decrease in Black Diamond was solely due to the COVID-19 related retail demand freeze during the quarter.

We experienced the trough in year-over-year sales declined 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 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 today's consumers needs.

The 7% increase in Sierra was due to a 36% increase in our domestic channel due to sustained improvements in the demand environment for bullets. As John covered, our international markets remain soft, decreasing 55% due to the absence of stockpiling buying trends being expressed 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 due to favorable channel and product mix.

In addition, compared to last year both foreign currency changes and the new tariffs 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 a transactional basis by $139,000.

With 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 $294,000 of foreign currency exposure in the second quarter.

At Sierra, approximately 45% of our product costs consist of materials such as copper and led. We seek to actively manage the impact that commodity costs have on our 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 at predetermined rates. The remaining 20% is benefiting from today's still fairly attractive commodity pricing.

Another point on gross margin specifically surrounding the impact from the trade war; our cost of goods sold were negatively impacted by approximately $93,000 in the second quarter.

Our efforts to mitigate the negative tariff impacts continue to be on plan as we continue to decrease the amount of Black Diamond product sourced out of China from 38% to now 27%.

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

On the collections front, we have evaluated 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 our industry.

But our Q2 SG&A includes a conservative increase of $600,000 in our allowance for doubtful accounts to roughly $1.5 million, which compares to historical write-offs of around $200,000 per year.

Net loss in the second quarter was $2.7 million or a loss of $0.09 per diluted share compared to a net loss of $700,000 or a loss of $0.02 per diluted share in the year ago quarter.

The decrease included $1.4 million of non-cash charges or $200,000 – and $200,000 in transaction costs compared to $2.2 million of non-cash charges and minimal transaction and restructuring cost in the same year ago quarter.

Adjusted net loss in the second quarter was $1.2 million or loss of $0.04 per diluted share compared to net income of $1.5 million or $0.05 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 COVID-19 driven demand freeze for Black Diamond products during the quarter. Let me shift to our liquidity, at June 30, 2020 cash and 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 30, was 0.6 times versus a covenant requirement of 3.0 times. We are comfortable in servicing our debt requirements at our attractive rate of LIBOR plus 150 basis points to 225 basis points.

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

We ended the quarter with the inventory down roughly $900,000 from the end of 2019, which was better than our expectations given the cliff-like nature of the pandemic.

We have adjusted the flow of goods in line with expected future demand and continue to maintain strong relationships with our supply chain partners, where we can dynamically manage our inventory levels with demand. As such we expect inventory will decline in Q3 and Q4, and we feel comfortable about where we're heading.

On the Sierra side, the business continues to experience significant output and great efficiencies, so we remain in a strong position there. Now turning to updates on our 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. Client operating expenses will be reduced by an estimated $9 million in 2020. This has accelerated our shift towards more of a digital presence, sharpen our focus on key product categories, improved operational efficiencies and driven a tighter connection with our distribution and supply partners.

These cost reductions are expected to recalibrate our SG&A primarily within Black Diamond to levels we experienced for that business exiting 2017. It is also important to call out that this recalibration aligns with sales as well. Sales for Black Diamond in 2017 and 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 condition 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 $13 million of cash preservation in 2020.

While we continue to believe Clarus is well-positioned both strategically and financially to navigate the COVID pandemic as demonstrated by our Q2 results. The current uncertainty created by the virus means that visibility to our recovery path is limited.

There are many factors outside of our control, like when people return to work and what their buying behaviors will reflect, which makes it difficult to provide specifics on our 2020 outlook. But I would like to comment on current business conditions and our priorities for the rest of the year.

As mentioned earlier, the demand environment in our Sierra business has continued to improve significantly. We would expect this heightened demand to continue for the remainder of the year and likely into 2021, both in our domestic green box and OEM businesses as our domestic partners restock their inventory as well as within our ammo initiative.

We have also begun to see a bit of a recovery in our international businesses. For Black Diamond, as more of our retailers continue to see their operations improve and consumers become more comfortable trafficking in those locations, our sales are expected to follow.

But we've 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, stay at home mandates or regional virus spikes.

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 of return on invested capital, but we will prioritize our strong balance sheet, liquidity and the preservation of shareholder capital first and foremost.

Before turning the call back to the operator for Q&A, I would like to recognize the performance and commitment of our great team at Clarus. And our thoughts continue to be with those around the world, suffering from the virus. Operator, we are now ready for Q&A..

Thank you. [Operator Instructions] Your first question comes from the line of Randy Konik from Jefferies. Please go ahead..

Good afternoon, guys. Thanks, guys.

Can you hear me?.

Yes, we can, Randy. Good to hear your voice..

Hey, John. Same here. Same here. I guess, Aaron, I wanted to ask you – maybe elaborate a little bit more on the wholesale trend. You talked about significant sequential improvement from the down near 50 to down, I guess, 10.

What are the – maybe give us some perspective on just what are you hearing from the wholesale accounts in terms of any visibility to have their inventory levels, et cetera? Just curious how things are going there to start..

Okay. So similar to how we saw April, May and June being down, so did retailers. And often, it's referred to as the cliff 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-comm business or in some cases, like REI and others maybe even move to a curbside pickup, they worked off the current inventories either in their warehouses or in their stores for quite some time. And then just slowly filled in where demand was in excess of what they currently owned.

And that's – we saw the positive. And as people move to outdoors, we saw that. And social distancing became outdoor-ism. And as we said in our report, we did better than the 80, 60, 40 in each of those months. Now all the doors – the essentials continue to drive through that. And the essential for 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 and outdoor accounts have now come back on to 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 4 and back – everybody hit in summer was at the end of the Q2 window..

That was super helpful. And then I guess, lastly, maybe to transition to Sierra for a second.

With the business kind of starting to accelerate for different reasons, where are we on the ability to kind of meet the demand on the ammo side in terms of that part of the business? Give us some perspective there on production and how you can meet what seems to be increasing – accelerating demand for on the ammo..

Yes. So obviously, we initiated last fall with GameChanger and it was specific more premium hunt. Then at SHOT Show, we launched Prairie Enemy.

As we came into spring, we launched a new collection called Sports Master, and it was really focused on 9 millimeters and other handgun more of the outdoors consumer, and we've now expanded into additional with Outdoor Master, Guide Master and some other pieces.

I would love to tell you, you saw – you heard in the report that our 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 us or anybody right now that if you visit any stores, the shelves in regards to 9 millimeters, .223s, .40 cals, .45, .380s, list goes on, .653 are empty.

We are – 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 of Jim Duffy from Stifel. Please go ahead, sir..

Thanks. Hello, guys..

Hi, Jim..

Couple of questions 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, climb, mountain and ski. Specifically with climb, I'm wondering how much is gym related and what the impact has been there.

And then within ski, is there a way to characterize how much of the business is resort-skiing driven? And can you talk about how retailers are planning inventory receipts for the ski season?.

Yes. So if you think about the client business, and over the last two years, you've been at a lot of the conferences with us, I think everybody wanted. We wanted and everybody focused on the opportunity potentially of what climbing gyms were doing on behalf of the climb industry.

And though climbing gyms were exploding, most climbing brands were, first and foremost, outdoor driven. And they were trying to make the transition to being more climbing gym centric. But the other side of that is that there's only a few items of equipment that really align for the gym climber, that is shoes, maybe harness, a rope, chalk, whatever.

Interesting during this time period, again social distancing and all the rules, when the specialty outdoor shutdown, so did gyms, climbing gyms included. But people went more outdoors. And what we even found is those who may have been prior only climbing gym consumers actually in lieu of no climbing started to go outdoors.

And so we have actually seen a good run on climbing gear. Would we like to see it grow at the pace it was previously? Yes. Is it there yet? No. In the Q2, it wasn't. But as we get into later in the year, we're seeing that momentum continue to build. And I think the summer just came a little later this year than normal.

In back country, back country probably represents 5% of the ski industry maybe in total. And most skiers recognize skiing as resort skiing. At the end of last year, when resorts closed down, there was a spike in a growth in back country skiing.

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 restaurants, you name it. There's already been a lot of excitement, expectation around backcountry skiing.

And 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 that, that backcountry skiing will become the opposite and become 85%, 90% of skiing, but I do think it will see a strong surge and BD will benefit from that in the second half of the year..

Okay, great. And then as it relates to those shops that maybe cater more towards the resort skiing, how are they planning their business? I recognize you overlap with them, it isn't as much as it is specialty South more back country and orientation. Just curious, like….

Yes. I think that a lot of those shops are quickly trying to chase this trend and look for making that transition from being only front side resort shops to now bringing in more back country ski, skin, snow safety equipment. But I think a lot of it 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 than we're hearing from some others, we're hearing some report high double digits or even triple-digit growth. Do you have a view as to why your digital wasn't stronger was stores closed? Any perspective you can share there would be helpful..

Yes. So one other 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 us 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 of 2020, but well into 2021 and beyond. And that is that at this – during the Q2, a lot of brands went very, very, very aggressive at discounting D2C.

And I have no question you could look up your e-mail during that window and see whether it was Nike and Adidas and Under Armour, two other brands in the outdoor space with major discount callouts to buy now. We chose not to support retailers or ourselves to become aggressive and break MAP pricing.

And MAP 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 our belief being that if you go three or four, five, six months, 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 us, and we 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 use price as the leverage point..

Very good. Thank you, I appreciate the perspective..

Yes..

Your next question comes from the line of 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. And 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 in that portion of the business?.

I think, obviously, we would like to be optimistic and say that everything we're experiencing in 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.

And North America is being driven by a couple of unique drivers right now of what's going on in our social environment. I think we will see improvement internationally.

And I think we'll see – continue 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 meet where it's at today and maybe some. So we'll see.

We hope international is 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 – the question 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 what you're in..

No. I mean, I don't – I wouldn't say it's – 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 North American market..

Totally fair. Okay. And then I was curious if you can talk a little bit about – go ahead, John..

If it did, we would have a difficult time because as we said our capacity is really primed at this 30% increase. It's not primed to 200% increase..

Right. Understood, okay. And then I was curious if you could talk about maybe the implications for pricing in that business as well, just given that we've been hearing quite a bit of tightness in capacity across the board. But maybe you could speak to the pricing environment, both in kind of the retail channel as well as the OEM channel..

So at this moment, our pricing is fixed, relatively fixed for 2020, and we typically don’t seesaw[ph] all 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, 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 to us, Matt, in all of this, and it's the opening statement I said in our piece, is that super-fan brands first developed the best product in the industry, once understood, it's 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 year, and pricing is just one component of that, is that we will see market share gains, and we are careful to not 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 market share gains, you're talking more in the ammo category.

Is that a fair statement?.

Both. Bullets and ammo, right. And that – you have to make this balance between, do I keep getting strong double growth in market share? Or do I try 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 is critical..

Got it. And then, may be last one for 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 guess, that underlying margins at Sierra were probably the driver.

But could you guys kind of maybe disentangle BD and Sierra for us? I know we'll get the queue eventually here, but it would be helpful to kind of get your thoughts on that..

So this is Aaron. 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 just with lower levels of throughputs on the supply chain valley leakages of what we call them, taking place during the quarter.

Whereas as you pointed out the 140 basis point increase at the consolidated level was really driven by the improvements that we saw within the Sierra..

Okay, perfect. I'll join back in queue guys, thank you..

Your next question comes from the line of Laurent Vasilescu with Exane BNP Paribas. Sir, your line is open..

Thank you. Good afternoon, gentlemen. Thank you for taking my questions. I wanted to follow-up on the July, only down 10%.

Aaron, 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 comments are about the fourth quarter and puts and takes. We've heard some brands talk about sequential improvement in the fourth quarter over the third quarter.

I'd love to get your take on that as well..

So as we think about 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, we’ve been looking at the Black Diamond business being a kin to what we saw in 2017 and 2018 from a revenue standpoint, now that can obviously change depending on how the retail environment continues to evolve and as well as the consumer behavior.

But as of right now, that's how we're looking at the rest of the year. And we do see that there could continue to be some sequential improvements in Q4 primarily driven due to channel mix especially with our direct-to-consumer efforts, but 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. And thank you Aaron for that. And I think it was mentioned that ammo is up over 300% over seven months. Obviously it's a new initiative.

Can you contextualize, just as a percentage of overall sales of Sierra, how much it contributes and where do you think that mix goes over the next few years?.

Yes, I think when we initiated it, we were looking at ammo being approximately 2% of our sales in initial planning of 2020. It's probably trending right now at 5% to 6% and growing. We anticipate that it'll continue well into the third and fourth quarter, and it really comes down to capacity and loading on that mix.

And it may, in times 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 as planning and luck came together we developed new ammo initiatives, while at the same time demand increasing and allowed us to be opportunistic to launch these ammo initiatives as well as achieve the market share opportunities we were looking at.

And so it accelerated faster than we wanted and we see more of that opportunity and gaining market share that will places well into 2021 and beyond..

Very helpful.

And then my last question is on margins Aaron, you had a really strong mix benefit on the gross margin side, should we assume 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 SG&A line, I am just curious to know how much you saved this quarter and should we still assume $9 million or just because the business may have improved, there is opportunities to reinvest in the business..

Yes.

So as it relates to the margin side of things, we do anticipate that we'll continue to see the improvements coming from Sierra, the way that we saw it in Q2, that is a function of the continuous improvement initiatives that we put into place, the efficiencies that we're running within the manufacturing activities as well as the mix in terms of product offerings.

And so that is something that we are anticipating to continue to see happen.

As it relates to the cost saving side of things, we were able to realize, and when we talked about the $9 million that was compared to what we were anticipating in 2020 and we were able to realize benefits of about $3.5 million compared to what we were expecting in Q2 in terms of savings.

And so we continue to be 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 savings that we've outlined in that something that we're still comfortable in achieving..

Great. Thank you very much. And best of luck..

Appreciate it..

[Operator Instructions] Your next question comes from the line of Ryan Meyers from Lake Street Capital Markets. Sir, please go ahead..

Hey guys. Thanks for taking my questions. This is sort of a commentary on the ammunition business.

Are you seeing any sort of issues such as sourcing 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 become a strategic initiative and frankly a blessing.

If you're loading with federal and federal is making the primers, then you don't have a shortage on primers and vice versa. For us, I think we're managing well through that. I think that the only miss I would say is just, nobody anticipated the acceleration in those categories at the rate that they accelerated.

And I think we – if this was a normal year and we posted 300% plus growth in ammo, everybody would celebrate and go, holy cow, you guys were freaking geniuses, 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 an initiative..

All right. That's helpful.

And then just one more from me, can you give an update on your own retail locations and what you guys are seeing there?.

Yes. So obviously, when COVID hit we managed that within our own retail and saw our own retail close until early May. It's been positive in May and June and coming back, we have currently four stores at this point.

We did closed the Alaska store frankly just because Alaska has been hit so hard in terms of tourism and passes to go mountain climbing and do outdoor activities in that marketplace. We will be opening up a store on Main Street Park Ave and Park City later this month and we'll have probably a couple of 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 very strong fulfillment, shipping on time and strong fulfillment.

But we are very positive about our retail initiative and how it has linked and supported our D2C e-com strategy. And we'll continue that 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?.

Hey guys. Thanks for – thank you for taking the call guys. I appreciate it. Just have a 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 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 accommodate for that, but on a broad-base level the collections continue to be pretty solid.

The agents continue to be solid are okay as well and that's also something that we continue to see improve each and every week..

Okay, perfect. Thanks guys. Appreciate it..

Aaron likes to be cautious..

Fair enough. Thank you guys.

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

Thanks, Cory. We'd like to thank everyone for listening to today's call and look-forward to speaking with you again 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..