Good afternoon, everyone. Thank you for participating in today’s conference call to discuss the Clarus Corporation’s final results for the Second Quarter Ended June 30, 2021.

Joining us today are Clarus Corporation President, John Walbrecht; Executive Vice President and CFO, Aaron Kuehne and the company’s External Director of Investor Relations, Cody Slach. Following their remarks, we will 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..

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 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 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 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; the ability of our information technology systems or information security systems to operate effectively, including as a result of security breaches, viruses, hackers, malware, natural disasters, vendor business interruptions or other causes; our ability to properly maintain, protect, repair or upgrade our information technology systems or information security systems or problems with our transitioning to upgrade or replacement systems; the impact of adverse publicity about the company and/or its brands, including without limitation, through social media or in connection with brand-damaging events and/or public perception; 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 carry-forwards; changes in tax laws and liabilities, tariffs, legal, regulatory, political and economic risks; and the company’s ability to maintain a quarterly dividend; any material differences in the actual financial results of the Rhino-Rack acquisition as compared with expectations, including the impact of 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 in the company’s public reports filed with the Securities & 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 of 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 16 starting at 8:00 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 claruscorp.com.

Any redistribution, retransmission or rebroadcast of this call in any way without the express written consent of Clarus Corporation is strictly prohibited. Now, I would like to turn the call over to Clarus’ President, John Walbrecht.

John?.

Thank you, Cody and good afternoon everyone. It is great to be addressing you all today. We are very proud about another outstanding quarter, driven by continued growth across our portfolio of super-fan brands as well as the favorable trends in the outdoor industry overall.

We reported sales of approximately $73 million, up 144% versus last year; and an adjusted EBITDA of $11.7 million compared to a loss of $1.3 million in Q2 of 2020. Both metrics were a record for any second quarter in our history. We also saw continued increases in gross margin, reporting a 280 basis point year-over-year improvement to 38.2%.

These results are a testament to the value of the brands, continued operational excellence and strong supplier partnerships. On the supplier 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 partnerships with brands that are best poised for long-term performance. And we believe our brands fit this mold. To give you an example, in our Black Diamond business, we prioritized product availability in 7 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 creative, 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 their hard work. Without them, these results and our performance over the past few quarters surely would not be possible.

In addition to our strong results, during the second quarter, we entered into a definitive agreement to acquire Rhino-Rack, a premier aftermarket automotive roof rack and accessories super-fan brand. Rhino-Rack will continue to operate on a stand-alone basis as a wholly-owned subsidiary of Clarus and will constitute a third reporting segment.

Headquartered in Sydney, Australia and founded in 1992, Rhino-Rack is an iconic brand that embodies Clarus’ super-fan ethos.

Rhino-Rack has leading market share for its core products in Australia and New Zealand, with growing presence globally, particularly U.S., and is best known for its superior award-winning north/south roof rack designs with best-in-class solutions that make space for adventure.

Customers rely on Rhino-Rack to transform their vehicles for work, play and overland adventuring. Rhino-Rack has 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.

Rhino-Rack is truly a unique brand and one that we view as perfectly aligned with our super-fan brand acquisition strategy. Since its founding, Rhino-Rack has built a durable business with leading brand and market positioning, a customer-centric focus and 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 that 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 and 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, and inventory normalization at retail drove 122% year-over-year increases in sales for that quarter.

In fact, inventory normalization created the ability for us to accelerate market share gains, particularly within our national accounts such as REI and MEC. By category, mountain was up 182%, climb 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 lighting, climbing shoes, harnesses, T-poles and gloves. Our footwear and apparel businesses, which are included in the business categories just discussed, were up 252% and 132% respectively.

While we continue to prioritize inventory allocations to our wholesale partners to seek to ensure their ability to have a strong finish to the spring and summer season, our direct-to-consumer channel accelerated from Q1. We define our direct-to-consumer channel as both our e-commerce business as well as our growing retail brand community centers.

After re-launching the brand Black Diamond website in January, we continue 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 entrants.

If 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 inventory imbalances normalize and as we develop more refined data-driven tools along with expanding our retail footprint, we believe our direct-to-consumer channel will become the most brand-accretive touch point for our super-fans. Our new Boulder 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. In just 1 week, our Boulder location is on track to be one of our top retail locations. 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 – meta-mountain towns across the world, many of which will house our communities in our retail locations.

We have found that this level of engagement as another key drivers to our strong sales growth and increasing brand awareness, particularly in key product categories where we have chosen to maximize product availability.

Now moving to our Sierra segment, we continue to experience unprecedented demand for both our Sierra and Barnes 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 uncertainties as well as increased participation in outdoor hunting and indoor shooting ranges has continued to drive this strong demand for both bullets and ammunition domestically.

In addition to the underlying market tailwinds, we are experiencing success by treating each business as its own discrete and stand-alone brand.

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 mindset.

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 a community-centric approach in ensuring that we employ a customer-backed 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, further entrenching 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 markets similar to what I recently opened the Boulder location and soon-to-open locations in Jackson Hole, Bend and Burlington, Vermont.

For Sierra and Barnes, our 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 accompanied by further capacity enhancement activities in support of our ammunition initiative.

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-Rack’s product penetration in North America, which we believe can become the largest geographic region over time, organically grow in its core Australia and New Zealand markets 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 than we are now getting to work as one unified team. Rhino-Rack also presents a valuable beachhead strategy to scale further in the overland and vehicle accessory category.

Before passing it on to Aaron, I would 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.

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 super-fan brands and a disciplined team and strategy leading to continued success.

With that, I will now turn the call over to Aaron Kuehne, our Chief Financial Officer, who will provide additional commentary on our performance in the second quarter and details on our increased 2021 outlook.

Aaron?.

Thank you, John and good afternoon everyone. For the second quarter of 2021, total sales increased 144% to $73.3 million. By segment, Black Diamond sales improved 122% to $44.9 million. And sales in the Sierra segment increased 190% to $28.4 million.

Excluding Barnes, which we acquired in early October 2020, our second quarter sales in Sierra alone were up 71% organically. In connection with our recent acquisition of Rhino-Rack on July 1, I want to note that Rhino-Rack will concentrate a third reporting segment. We will report the new segment’s sales on future earnings calls.

Given the comparative year-ago period 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 Sierra sales were – and Sierra sales, excluding Barnes, 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, sales channels and categories, given the continued recovery within the outdoor space.

As John mentioned, inventory rationalization at our national accounts drove a substantial increase in our year-over-year Q2 performance with these partners, and 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 Sierra brand was due to continued robust domestic demand for green box, OEM and our ammo initiative. Roughly $5.2 million of this increase was driven by growth in Sierra’s ammunition business. Originally, we set a goal of achieving 10% of Sierra sales through ammunition.

We are currently tracking around 30% for the quarter. Barnes continues to exceed our expectations, contributing $11.7 million of sales in the second quarter with domestic black box, OEM and ammo leading pro forma sales growth of 93%.

This growth was also driven by our ability to fulfill more orders as we increased 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 Barnes is a great example of how we acquired a super-fan brand and took a disciplined approach in deploying our innovate and accelerate strategy, in turn, generate 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 on our 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.

Additionally, we actively manage our costs with our vendor partners because we understand the impact that 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 risk for a period of 6 to 9 months out.

Selling, general and administrative expenses in the second quarter were $20.7 million compared to $14.5 million in the same year-ago quarter, primarily due to the significant increase in sales; the inclusion of Barnes, which contributed $1.5 million; and an increase in stock-based compensation of $1.2 million due to the increase in 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 $0.06 per diluted share compared to a net loss of $2.7 million or a loss of $0.09 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 $0.20 per diluted share compared to an adjusted net loss of $1.2 million or a loss of $0.04 per diluted share in the second quarter of 2020. Adjusted EBITDA in the second quarter increased to a record $11.7 million compared to a loss of $1.3 million in the same year-ago quarter.

Now, I will shift to our asset efficiency and liquidity. Inventory levels were at $82.7 million, up 18% from where we ended last quarter and roughly 21% higher than 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, we are carrying an additional $10 million of inventory at Black Diamond 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 and a timelier manner. The results we reported today are a testament to the execution of this strategy.

Within Sierra and Barnes, we have purposely increased our baseline inventory levels by an additional $6 million, focusing on raw material and component availability. This has enabled us to protect our supply chains and corresponding production of core items while opportunistically hedging the cost of rising commodities.

Such benefits are partially reflected in our reported gross margins. At June 30, 2021, 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 million compared to generating $10.2 million in 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 to insulate ourselves from commodity pressures, scarcity concerns and to satisfy strong consumer demand. At June 30, 2021, 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 Rhino-Rack 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 a day after close on July 1. In connection with the Rhino-Rack acquisition, on July 1, 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 have access to an increased revolving credit facility of $100 million and an 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 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 Rhino-Rack, which will leave us at pro forma leverage of around 3x, 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 brands.

Overall, 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 are comfortable servicing our debt requirements. And 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 current debt covenants for the remainder of the year.

With our recent acquisition of Rhino-Rack 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 sales to grow 56% to $350 million compared to 2020. This is an increase from the guidance we shared last quarter of $295 million.

While 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 the Rhino-Rack business in expected near-term growth trajectory.

By segment, we now expect 2021 Black Diamond sales to increase 26% to $215 million, up from $205 million in our prior outlook; and Sierra sales which includes Barnes to increase 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 to grow approximately 132% to $52 million compared to 2020. We have previously guided to $38 million. We expect Rhino-Rack to contribute approximately $6 million to our consolidated adjusted EBITDA outlook. 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 in our business.

As 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 in how we manage our balance sheet and cash flows for the remainder of the year is the most prudent in continued value creation. As a reminder, each of our businesses are self-sustaining, profitable and cash flow positive. 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 have built over the years. We have proven again that our innovate and accelerate playbook and our commitment to super-fan 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..

Thank you, sir. [Operator Instructions] And our first question will come from Anna Glaessgen 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?.

Yes. Thanks, Anna. I think the logistics issues combined with the COVID issues in other parts of the world will still play as it has in the past. 2021, I’m anticipating that it will at least impact the first quarter or two of 2022 and may go longer as back-to-school and holiday all kicks into 2022. We believe we will continue to gain market share.

We will be very aggressive about our supply chain and our management. Logistics is the biggest challenge, whether it’s port closures or just movements in the rates of getting things around the world. Our goal ultimately is on-time delivery, 100% fulfillment and ease of doing business with.

The demand continues to surge, which only complicates the ability of logistics and supply chains to keep up. I think that we’re probably hoping to see some normalization by spring of ‘23..

Great. Thanks.

And now turning to Rhino-Rack, congrats on the recently announced partnership with Polaris, how 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, hasn’t had or been as distributed?.

Yes. I mean obviously, we love this brand. We – it checked all the boxes of the super-fan brand, leading market share in its home market in history of innovation and just not a lot of brand awareness of go-to-market, and that was the real opportunity here.

The great thing about the Rhino-Rack business is that we’re able to focus on multiple tiers of distribution, one being that of OEMs and partnering with players like Polaris or Ford or Toyota or Jeep or whomever to develop rack systems, specifically for their new launch products.

Then there is the aftermarket automotive business, which is where Rhino-Rack 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 overlanding.

And we think that, that over the next 3 to 4 years is the fastest-growing category of the rack business. And if you’ve seen what others have posted, the demand similar to that of BD or even with Sierra and 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 that the Polaris partnership alongside our retail partnerships will allow us to accelerate this business..

Great, thanks..

Your next question is from Matt Koranda of ROTH Capital. Please proceed..

Hi, 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 is a slight pickup even seasonally relative to prior years.

I wanted to see if you could maybe discuss some of the implications for margins there? And then also, if you could thread in, it’d be interesting to see – I know you guys have a pretty strong strategy going and building inventory so that you have availability for your customers.

But did you build in any headwind to revenue in the back half of the year, given the supply chain is relatively tight and it’s still difficult to get certain components?.

Yes, Matt, this is Aaron. Great to speak with you. Answering the last part of the question first, naturally and consistent with how we’ve guided this entire year, we continue to be fairly conservative in terms of how we guide or forecast the year, considering the different dynamics that exist.

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 chains and the logistical elongations that are taking place. We do feel confident about where we’re positioned currently.

For the back half, we have a strong order booking for the Black Diamond business in particular. As John mentioned during the script, outdoor continues to be a favorable tailwind for us and something that we’re very well positioned to be able to take advantage of and it really comes down to the product availability.

But based off of the different initiatives that we put into place earlier this year, we do feel like we’re continuing to better position ourselves 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 it to 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 at the adjusted EBITDA levels.

Naturally because of what’s taking place within the logistics side of things, we do see some leakage there, and we’re very focused on mitigating and eliminating that leakage. We do have a few levers that we will be looking at and imploring, especially as we head into spring 2022.

And so there – the guide that we’ve also provided from an EBITDA perspective also reflects some of 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, I noticed just 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 and bullets in the industry.

But I wanted to get your thoughts on sort of why the step down, just given that it seems like channel inventory is still pretty light and demand hasn’t really led up all that much? So any color there would be helpful as well?.

Yes. So consistent with what we just discussed related to BD, one of the things that we wanted to also do on the Sierra-Barnes side is because that – albeit domestic, that continues to experience some of the similar supply challenges that we just discussed, but also that we’ve highlighted previously.

And so consistent with past practice, we’ve also been a little bit tempered in terms of how we think about that business coming together and being able to materialize the demand that’s out there. To your point, we have not seen a slowdown in the overall marketplace for the demand especially for our two businesses.

I think the team has done an extremely a great job of positioning that brand and extremely proactive in reaching out to the different retail partners in establishing ourselves as one of the premier providers of ammunition and specialty bullets, but it comes back down to how quickly can we satisfy, but also how reliable will the supply chains be.

And the guide once again reflects that tempered view on that ability..

Yes. I think we would all know that there is more than enough demand in centerfire rifle bullets and ammunition, specifically going into hunt season. But obviously, one of the biggest constraints in the industry so far has been there is a blast in the centerfire category.

And so we will be as scrappy and as aggressive as we can, but we also – we’ve always had a mentality of meeting or exceeding expectations..

Fair enough. And if I could just quickly complete the trifecta in terms of segments, I guess, on Rhino-Rack. Was a little surprised, I guess, given that it looks like the run rate on Rhino-Rack should be – I mean I don’t have any real idea for seasonality.

But if you just kind of take the $90 million in trailing 12-month revenue and quarterize it, you get to sort of a $22 million to $23 million run rate.

But wanted to see if you could maybe just speak to seasonality in Rhino-Rack in the second half and just sort of what the constraints may be to revenue on that front, just given the $40 million in revenue guidance for the back half of the year here..

Yes. Similar to the way that we handled this also with the acquisition of Barnes last fall, one 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.

One of the things that has recently come up as well, though, is that of COVID, especially in the Australian marketplace. We’re seeing extremely strong progression within the U.S. and also New Zealand markets where its core business currently exists.

But there is a little bit of conservatism baked 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 right in line with how we think about – how we bring on these businesses. We want to give ourselves a little bit of headroom as we work through the integration topic.

As John mentioned as well, we are very well positioned to be able to accelerate this business, especially here domestically in the U.S.

But similar to what we’ve discussed as well, we need to make sure we get those supply chains in place in the right way that we get the inventory where it needs to be so that we can 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, no matter how aggressive we are on these plans the one thing we can’t control right now is the impacts of COVID in Australia, which was a little bit of a surprise in the lockdowns there. Some of the impacts of COVID had an impact in markets like Vietnam or Indonesia recently.

And then obviously, as asked in the earlier question by Anna at Jefferies, when do we think this noise in the logistics channel is going to clear, I’ll be honest, guys, not soon. Now it doesn’t mean we can’t find ways to win and put points on the board. But you have to be aggressive, you have to be smart.

You will get some headwinds in this space that you’re not aware of. Nobody expected a port to close. And so we’re just – always the view is, look, recognize every single headwind that we could face, what is the plan we know we can hit, then fight like hell to overcome every headwind.

And if we achieve three or four of them, fantastic, if we have a quarter like Q2 and we achieve 60% to 70% of them, even better..

Great. Fair enough guys. Nice job and I will leave it there..

Appreciate it..

Your next question is from Laurent Vasilescu from Exane BNP Paribas. Please proceed..

Hi everyone. This is actually Aubrey on for Laurent.

Do you guys hear me okay?.

Yes, we can. Thank you..

Great. Thanks for taking our question. I want to start first 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 over time? And along those lines, are there adjacencies that you think you can go into in terms of product extensions?.

Yes. So you obviously understand our playbook. Typically, Rhino-Rack has typically been a high single, low double-digit type of growth model. Obviously, with outdoorism growing in the last window of COVID, there has been some surge. We definitely think that this has got a long-term opportunity.

Rhino today is, let’s call it, ballpark $100 million business. The competition in the space is $700 million to $1 billion in sales for the two 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 Rhino-Rack’s versus our competition is that ours is not based off a horizontal bar structure, but more of this north/south pioneer rack.

And what that really opens up, as you call on to resolve the potential accessories and adjacencies that align with Rhino-Rack, once you have this rack system, the rack system in and of itself is just the start of the legos.

And what can you put on that rack system from – obviously what the markets do today is everything simply from ski racks to cargo boxes to bike racks. But really more beyond that, rooftop tent boxes, coolers, light, speakers, stereo, you name it, goes 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 treillage, what in the back of a vehicle. Like where are all the ways that you can rack something and create – making space for adventure, the theme of it really open up.

And so that’s where we see the biggest opportunities. A, the North American market and its competition and then just the ability to look at wider opportunities of legoism, as we are calling it, relative to these racks..

Got it. Thank you.

And then going back to the topic of the integration of Rhino-Rack, just given that it’s going to operate as a standalone, how expensive or lengthy is that integration process? Obviously, COVID notwithstanding, but typically, how should we think about how long or involved of an integration we should expect?.

Yes. Because it was standalone, we don’t anticipate seeing a lot of system-type topics, but more it’s around the planning and the go-to-market process. And so the way that we have been thinking about it is working towards a six-month integration cycle. We are hoping to be able to accelerate that up.

But at the same time, we want to make sure that we are extremely thoughtful and well positioned to really accelerate the go-to-market activities or cycle, supported by the basic formula that we have really been following over the last several years, not only as an 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 or product adjacencies and then accelerating it also through expanded or enhanced brand awareness through the various marketing activities.

And so that’s something that we are currently working through with the team on. And it’s something that we expect to have finalized within the next 6 months..

I think the other side that’s different here – the other side that it helps on this is that though it’s a standalone business, they do a phenomenal job in the Australia and New Zealand markets, right. And so obviously, our goal is to go over there and try and change that model. They proved that model out well over the last few years.

Our hope is to take what is the Rhino-Rack range and assimilate it 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 one more on the rest of the business. Were there any revenue shifts between the second quarter and third quarter in either direction? I know last quarter, you called out that potentially there could be some shifting on the BD side maybe from 2Q into 3Q.

And just in general, you have been seeing a lot of noise, given the supply chain disruptions. Is there anything that you would call out there? Thank you..

Yes. So, on the Black Diamond side, 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 Sierra and Barnes side, it didn’t shift. It’s just almost unachievable, right? The order book is so strong and you do everything you can to maximize not only bullet production, but ammo roadies at our max capacity and our efficiency, but the order book far exceeds our ability to keep up..

Your next question is from Ryan Sundby of William Blair. Please proceed..

Hi. Thanks for taking my question and congrats on the quarter, guys. Aaron, I think you said Sierra 30% of their sales tracking this quarter. Clearly, it’s well ahead of the 10% goal.

Was there any specific about this quarter, maybe just given the lack of inventory on the shelf by competition that helped to accelerate that number and then does that make you kind of rethink that 10% target? Could that be higher as you move forward?.

This is Walbrecht. I will try and answer it. We missed a little bit, but I will 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 shake inventory in the market, 100%. Did we – were we able to fulfill everything that people wanted, no.

Were our inventory levels at the end of Q2 at the store levels ready for fall ‘21, 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 months to 12 months. But our long-term view, and we have often said this, is that rising tides rise all ships. But these challenging times that we are 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, gain more market share. And we believe that 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 specifically for Sierra and the ammunition initiative there, I think the target was roughly….

I am sorry, I missed you..

No, no. But – yes..

We started with a goal of 10% for Sierra straight out, and that was – are we seeing a lot faster than that, 100%. It’s now running at about 30%. Do we think it could be even higher than that if we did make it, yes. We are not vertically integrated yet at Sierra, obviously.

Part of the strategy with Sierra or what we have acquiring Barnes was to partially do that. However, Barnes did sell everything they could load right now. So, we will continue to work with our very best partners to try and load as much of this ammo as we possibly can. The demand is significant.

And I think what we have proved out and what will become the leader of this side is that the value chain portion of the loaded ammunition starts first and foremost with the premium bullets. And that’s – especially as you go into certain of these growing categories like hunt, we become even more valuable.

And so chasing, loading ammo in hunt for Sierra or even in pistol has really stretched us, and it has exceeded our expectations. Do we think it’s going away, no. Has it changed our strategy, do we think there is more opportunity for ammo within these brands, 100%.

But I believe that, frankly, if we didn’t make ammo right now, could we sell every single bullet we made to OEM, yes. So, there is more opportunity, and we will continue to increase our production while expanding our loading..

Got it. Yes, that’s perfect. And great to hear that mix is bigger than you thought. John, I feel like that you have kind of stressed the community-centric approach to consumer engagement a little bit more this quarter. I feel like also your stores are kind of coming online now or at least have been open maybe for a year or so.

Do you think you are hitting an inflection there in terms of that 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 was this massive outdoorism and people really starting even more tailwind into the sports of climbing, backcountry skiing, trail running, hiking, you name it.

We are an 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 one – a leader in the voice of access to the outdoors where all these works take place, but also to really be a builder of the community from an educational and experience perspective and to lead on that.

And specifically, as we watched heavily, and this is where this came from, as we watch what took place during the winter, and this onerous responsibility to make sure that we coach, train and educate people on that country safety and specifically around Alpine snow safety.

And we think that these mountain towns are going to continue to become the meccas for outdoors. They are going to continue to grow. They are popping up in towns. Towns are seeing growth that people never heard off. And we think that opens up more and more activation with our super-fans..

That’s great to hear. Thanks..

Your next question is from Linda Bolton-Weiser of D.A. Davidson. Please proceed..

Hi. Thank you. So, I believe that you had taken some price increases in May.

Can you kind of update us on that, the magnitude of those increases and how they are being received by customers? And did the price increases have a positive effect on second quarter results?.

We don’t really publish on that on a wide spectrum, what we did. Typically, the price increases that we did were in standard with the industry and really around the commodity pricing discussions that were taking place in the industry. We have maintained our prices now for the third quarter and fourth quarter in those markets.

And I don’t – frankly, what drives our results in Q2 is really the overarching demand for the products, both in bullets and ammo. Pricing was literally just an even-steven with what’s taking place in commodities..

Okay. Thanks. And then you talked about the 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 more 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 that did have a negative impact of about 50 basis points on consolidated margins..

And obviously, more on the Black Diamond type deal on the domestic production of Sierra and Barnes..

Okay. And then can I just ask you, 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.

How confident are you that they have plans in place to continue to grow organically in the near-term pretty strongly in the whole market of Australia and New Zealand?.

Yes. So obviously, when we pick super-fans, and this is really critical to the criteria, one, leading market share, where – as we have stated, they are the dominant brands in Australia and New Zealand. Two, a history of innovation, which they have proved out many times, including of their recent Red Dot design awards.

But we really look at that as what does the pipeline look like for new innovations and there is a very strong pipeline there. Next is go-to-market and we believe that they have done a phenomenal job partnering on certain aspects of the OEM and the aftermarket.

But like they have looked at other markets, I think there is some outdoors opportunity within Australia and 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 and it’s 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 brand.

So, we don’t expect the same – though we expect growth and anticipate that it will continue to gain market share, we don’t anticipate that it will be faster growth than we will find in other parts of the world.

And then obviously, the other opportunity, which we will bring to them as part of this, is what are the extensions and expansions in accessories or other opportunities, addressable markets that are adjacent to the racks that we can help them expand into..

Okay, great. That’s it for me. Thank you..

Your next question is from Mark Smith of Lake Street Capital Markets. Please proceed..

Hi guys.

First one to hit the Sierra Barnes ammo, bullet business, can you just – can you quantify at all or talk about the backlog, maybe the magnitude and how large that is in the timeframe specifically in that business to refill channel inventory?.

All I can tell you is that there is 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, my reality is that we are still dealing with not enough hunt ammo or bullets for fall ‘21.

And we will hope maybe to get to that ceiling in fall hunt season ‘22..

Okay. And then looking broadly throughout the outdoor industry, retail consumer demand, have you seen any slowing at all or is there continue to be some acceleration and if you can speak domestically as well as internationally..

We have not seen any slowing at all, not at the specialty level or at the multi-door level accounts. We – if the season shifts, we actually anticipate that we will see surge #2 come winter this year, and we will be chasing the fall activities as well as the winter sports.

I think Europe, as it comes – more rationalizes out of COVID, will continue to accelerate. And we are actually seeing positive momentum now coming out of the IGD market, which we haven’t seen for 12 months..

Perfect.

And then just the last one 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 and D2C in your retail stores, how you manage growing those businesses while also managing the relationship with current retail partners?.

Yes. So obviously, first and foremost, we have always stated this. It’s on-time delivery, good fulfillment, easy-to-do business with. You are not – you can’t have low fulfillment and difficulty to do business with because you prioritize your D2C model. So, it’s really important that we prioritize our specialty and our wholesale market before D2C.

Now we believe that D2C will continue to grow with time because the consumer continues to go through this either community-centric to the flagship stores where they want to be educated on the product themselves rather than just buy them or through D2C 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 D2C. Part of that is product itself, and part of that is just the awareness of the brands. We still struggle with the Black Diamond versus BD syndrome.

You have either never heard of Black Diamond, or BD is your favorite brand in the whole world. And that will come with time on this. The flagship stores have proved to be really strong because they become a meta both for the super-fan, but also the consumer who has never seen our brand. And we see both of those as we expand our retail distribution.

And I think it’s an awareness issue on both fronts..

Excellent. Thank you, guys..

At this time, this concludes our question-and-answer session. I would now like to turn the call back to Mr. Walbrecht 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 and come back at that time. All the best..

Ladies and gentlemen, this does conclude today’s conference. You may now disconnect. Thank you for your participation..