Good afternoon, everyone, and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the third quarter ended September 30, 2019. Joining us today are Clarus Corporation's President, John Walbrecht; the 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 statements 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, Paul. Please note that during this call, the company may use words such as appears, anticipates, beliefs, plans, expects, intends, future and similar expressions which constitutes forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are made based on the company's expectations and beliefs concerning future events impacting the company and, therefore, involve a number of risks and uncertainties. The company cautions you that forward-looking statements are not guarantees, and that actual results could differ materially from those expressed or implied in the forward-looking statements. Potential risks and uncertainties that could cause the actual results of operations or financial condition of the company to differ materially from those expressed or implied by forward-looking statements used in this call include, but are not limited to, the overall level of consumer demand on the company's products; general economic conditions and other factors affecting consumer confidence, preferences and behavior; disruption and volatility in the global 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 company's exposure to product liability or warranty claims and other loss contingencies; the stability of the company's manufacturing facilities and suppliers; changes in governmental regulation, legislation or public opinion relating to the manufacture and sale of bullets 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…

Thank you, Cody, and good afternoon, everyone. It's a pleasure to be joining you. Our third quarter continued to be driven by the momentum in our Black Diamond brand with sales up 14% and adjusted EBITDA increasing 13%. On a year-to-date basis, our Black Diamond brand sales have grown 13% while adjusted EBITDA is up 43%. We believe this continues to demonstrate that our innovate and accelerate growth strategy, accompanied by strong financial discipline and operational focus, provides for substantial value creation and a playbook that we can replicate with other super-fan brands. We experienced growth in every geography, every sales channel and every category. This was led by 61% growth in ski on strong demand across our backcountry portfolio of products, like our new JetForce 2.0 as well as beacons and snowpacks. As we continue to refine our focus on the activity-based consumer, we see multiple avenues for growth. One of them is backcountry, where we see increasing participation and a consumer appreciation for innovation, performance alongside snow safety. Apparel also continues to be meaningful, contribute to our growth, up 23% in the third quarter, driven by men's and women's sportswear, technical outerwear and logo wear. Apparel remains one of our fastest-growing categories, and we believe there is a significant runway for continued long-term growth, so much so that we continue to believe that we can become a $100 million sales opportunity over time. Signifying our commitment to long-term growth in this business, we just appointed Steve McMahon as General Manager of Apparel & Footwear. His past experiences include leading product and merchandising at Adidas, Nike, Under Armour, Skullcandy and Merrell. Steve is an avid skier, has a passion for the outdoors and a love of building innovative and differentiated products, and we are thrilled to have him on…

Thank you, John, and good afternoon, everyone. For the third quarter of 2019, sales increased 8% to $60.2 million compared to $55.7 million in the same year ago quarter. And on a constant currency basis, sales were up 10%. This was driven by 14% growth in Black Diamond. We saw strong performance across all categories, geographies and channels. This was offset by a 24% decline in Sierra, which was comparing to a third quarter last year that experienced 35% year-over-year growth. The decrease was due to continued headwinds in the bullet and ammunition marketplace, which were felt most prominently in our domestic OEM and international green box businesses. In the domestic market, military and law enforcement orders have been soft, while our international green box business has been impacted by lower demand in the African and the Australian markets. Consolidated gross margin was 34.1% compared to 35.7% in the year ago quarter. The decline was primarily due to foreign exchange headwinds from the strengthening U.S. dollar, the impact from recent tariffs as well as channel and product mix. Foreign exchange headwinds reduced year-over-year gross margin by approximately 80 basis points in the third quarter of 2019 and the impact from tariffs was 60 basis point headwind. Overall, our sales and gross profit in the third quarter were negatively impacted by an unfavorable foreign currency -- by unfavorable foreign currency changes on a transactional basis by $0.8 million. The primary cost of our inventory is denominated in U.S. dollars while 29% of our global sales are denominated in foreign currencies, primarily the euro, Canadian dollar, Norwegian kroner and Swiss franc. We attempt to manage our foreign currency risk on a continuous basis through natural hedges and foreign currency hedge contracts. But these hedges will never be a perfect offset to the…

Thanks, Aaron. Now we've highlighted our results, I'd like the transition to our upcoming product introductions. But, first, I'd like to highlight a strategic announcement we made at the end of the last quarter. In September, we announced the creation of performance sports division to accelerate the development of sports-enhancing products like skin care, supplements, nutrition and other personal health products for our performance-driven athletes. This newly created division is a strategic focus we've made clear with the acquisition of SKINourishment, and the hiring of Taylor West to lead it reinforces our intentions to compete in skin care and other personal health related categories. Under this new division, we will seek to develop other skincare products, such as sunscreen as well as sport-enhancing supplements, nutrition and other products using natural, organic or alternative ingredients. We believe we are uniquely capable to do so, given our global brand ambassador team and this -- our commitment to innovation and a strong focus on sales and marketing. And in Taylor, we are confident we have the right professional to lead the new division. He brings to Clarus over a decade of consumer brand and product marketing experience in various management roles. Most recently, he served as the Vice President of Marketing and e-commerce for KT Tape, where he led several strategic pivots across the country's digital media channels, resulting in significant sales growth for the company's e-commerce site and Amazon presence. Prior to that, he was the VP of Marketing for a premium breakfast food maker, Kodiak Cakes, and also previously served in multiple senior marketing roles for various brands at General Mills. Beyond this important highlight, we are looking on various initiatives to build long-term businesses that are accretive for our shareholders and look forward to discussing further updates on our year-end…

[Operator Instructions]. And our first question will come from Randy Konik of Jefferies.

Really helpful call there, script. I just want a couple of questions. So first, I guess, a lot of excitement around the Olympics next year. You gave us some good perspective on the -- almost like free brand advertising to get with your athletes. So are you thinking about anything unique or different to kind of exploit or kind of take advantage of the excitement around the sport entering Olympics next year? Just kind of interested on your strategy there as we approach next year. That's my first question.

Yes. Randy, this is John. 100%. I want to be careful and not give away all my ideas and thoughts to the world, but leave it to say, everybody knows who Apolo Ohno is, though most people don't know anything about short-track skate. We believe that the Olympics will do two things that will benefit BD. One, many of our athletes will go from unheard of to household names. And already obviously between athletes like Adam Ondra as well as our climbing athletes in Korea, Japan other markets, we're seeing lots of success. Secondly, I think it will give a great launching off point as it did for Spyder in 2002 Olympics in Salt Lake games for the brand itself to get recognition on a global stage. And so, obviously, how we grassroot the marketing around the events, our athletes engage in the actual activity themselves, we will find ways to authentically build brand awareness during, up to, during and after the Olympics. But the real kicker comes after the Olympics when people are more aware of the climbing sport and more excited about it and the brands associated with it. And that's where we'll see the response from it.

Really helpful. And then I guess following up on that, to think more medium, long term here. I guess this is more for Aaron then. You gave some perspective on the things you're working on from a systems perspective and strategies around to continue to kind of improve your both fulfillment and replenishment. And if we can kind of -- we see the trajectory of BD extremely exciting and positive. Obviously, demand is going to continue to accelerate here. How are you guys? What are the more specifics around the systems or strategies are taking on to kind of improve those fulfillment metrics and replenishment metrics going forward?

So more from a system standpoint or more from the tactics. One of the things that we're extremely pleased by is that we were able to upgrade our North American ERP system this summer without any hiccups and coming well-below budget. Huge kudos to that team, and also just the indication that we have within the organization as it relates to always looking for ways to -- find new ways and better ways of doing business. One of the things that we've also implemented are certain continuous improvement initiatives throughout the organization more focused around the way that we commercialize our product, being quicker to market, seeing enhanced gross margins coming from each new product introduction or innovation, but also working very closely with our key strategic vendors or supply chain partners as it relates to how we bring inventory in and where. We're also looking at the different logistic regions that we currently operate. We have a team that's dedicated to that and looking at new ways or fresher ways to be able to increase the speed to market, primarily focused on the European and the international business that we have, where a lot of the inventory currently comes in through different channels, primarily that of our Salt Lake City warehouse, and then also through a 3PL in Asia. But we're looking at different ways at how we can just increase the overall effectiveness and speed up that process. But it really comes down to the way that we think about the line plans, the commercialization process, but also how we interact with our supply chains to, once again, increase the speed and the success and the performance of our vendors, but also the way that we're able to address the various needs from a gross margin perspective and also an overall fulfillment. And that's what you've also seen as a result -- sorry, that's where you've also seen the increases in inventory levels at the beginning of each season. This is something that we started to pick up on a while back and have been pivoting towards of bringing in a little bit more inventory at the beginning of each season, using our balance sheet to be able to support that and then bling it off during the course of the season. We found that, that provides us with higher levels of success rates as it relates to fulfillment and also an enhanced ability to chase replenishment or ASAP orders.

The next question is from Dave King of Roth Capital.

So I guess, first on the guidance, would you say, Aaron, what you're now expecting from a gross margin perspective, and then how much the reduction there is driven by Sierra versus some of the tariffs and FX pressures you talked about? And then, I guess, as a follow-up to that, given all that we know today about Sierra, FX, tariffs and then the commodity costs you alluded to, how should we be thinking initially at least about next year's overall gross margins?

You bet. So as you know, we typically guide just to revenue and EBITDA levels. We are seeing some continued pressure on the gross margin piece associated with FX and with tariffs. However, when we think about the updated guidance provided, it is primarily or solely driven by the softness that we're seeing out at the Sierra business. As communicated during our prepared remarks, the Black Diamond business continues to perform extremely well. It's still on track to hit its targets for the year despite some of these headwinds. It's just that with the addition of these headwinds, it's just too much to offset the Sierra softness that we're currently seeing. And so that's why we're coming out with the updated outlook. As we think towards 2020, we'll provide greater insights as we provide our Q4 earnings and our outlook for 2020. But tariffs is a factor that we're continuing to work through. Our goal is to always see improvements within the gross margin line item. We believe that we have different initiatives across the board that enable us to see or realize those types of improvements. This is just adding another dynamic or another variable that we're currently working through. And I'm extremely proud with the team of how we've been able to progress and make certain improvements along the way, but it still continues to be a pretty good headwind that is currently offsetting some of the improvements that we have scheduled for 2020, primarily associated with the transitioning of our manufacturing activities from Salt Lake to an OEM partner.

And obviously, David, our view is that these are temporary and that you can't react fast enough. Though in time, long term, you can react either by moving -- as we said in the prepared remarks, either by moving your facilities to other locations to elude the tariff or your mix or the opportunity of price increases or you name it. And so it just made for a headwind in 2019. It may spill over a little into 2020, but we are rapidly doing everything and necessary to transition this away from this cost.

Understood. Okay. That helps. And then maybe digging into Sierra a bit. I think you guys talked a little bit about what's happening from an end market perspective, I think you talked about domestic, military and international consumers driving some of weakness. But I think one of the OEMs I feel like just talked about a vastly improving commercial business or at least improving off of where things had been. And then you're starting to hear more and more about these military, law enforcement wins for some of these OEMs, are you guys seeing any of that? And just are there any green shoots, if you will, in terms of the market? Just where do we stand in terms of this sort of gun and then ammo cycle more importantly?

I think two things on there. We have always said that this was a very cyclical business. And I think joking with you, in the past, you've even said that this year, we'll take stomach punches and next year, we'll look like geniuses for doing the exact same thing that we've always done. The market is cyclical. It will come back. It has started to come back in rumors. And I say rumors because a lot of our OEM partners have been sitting on inventories. Nobody is all in demand one for one. They get a request. They then need to build ammo. Then they call us for a bullet and that all happens simultaneously. And so we always say that this probably has a 30- to 60-day trail. And vice versa, when it starts to build off of them, we have a 30- to 60-day trail on the back end. We do anticipate that with the politics that we've heard of and all the rhetorics taking place that not only will you see a demand in law enforcement and military, but we also believe that going into 2020, in the second half of the year, specifically getting in areas like 223s, 5.56s, 9 millimeters, you name it, there will be some stockpiling that will start because of either background checks or just the changes in laws in regards to those weapons. And this happens -- it happened again in '11, '12, '13. We see this trend. And when we bought it in August of '17, we knew we were on the start of a downtrend of this. But as we said in the prepared remarks, we really believe that Sierra is a super-fan brand. And over the last 18 months, sticking with innovation and acceleration has helped us to gain market share. And the tide will come back. And our goal is, at that point, making these investments and these accelerations will only be to our benefit. And like I said, 12 months from now, hopefully, you'll be calling us geniuses for doing the same thing we're doing today.

Our next question will come from Jim Duffy of Stifel.

A couple questions on Sierra. I just want to dig in on that. So john, what are the sightlines to return to growth there? I know you're expecting a bounce next year, but in what quarter would you expect to see that? How do you see the cycle playing forward in 2020? Can that last more than a couple of quarters? What's kind of like the underlying run rate of the business thereafter?

I think we're always conservative on this. So my view is that this takes a quarter or 2 to start to ramp back up. Having not owned it previously, I don't know how fast that response is. I can look at the past numbers and see it. I do believe this time that, potentially, we can be stronger and longer because I don't believe this is going to end in a neutral game when it comes to the change in laws. I don't think this is one thing where there's going to be just rhetoric and move. I think that for the right reasons, there are going to be instilled changes in either background checks, laws, the outlawing of certain weapons or whatever. And so it will perpetuate this a little longer. I don't think we're ever going to have a stalemate, where neither side chooses to move and just waits for elections. I think both are going to have to compromise and come together, in which case I think it actually elongates this model.

Okay. And then earlier in the call, you outlined a framework for doubling the business. Beyond the cycle, is there a good kind of multiyear revenue objective for this business we should think about?

I think the way we've looked at it is, like you said, today, if you look at our trailing results of 2018, we finished the year somewhere around 220 million bullets. So if you acquired 10% of that in ammunition, given the price difference between the bullet and the cartridge, that 10% would yield about a doubling of the business with similar EBITDA and margin parameters. And then after that, I think it's -- the opportunities to continue to drive forward with ammunition in specific categories of uniqueness that align with the Sierra brand. And I think that's the opportunity. And obviously, that's -- while at the same time, innovating bullets at the same pace that we have done, just innovating bullets and developing ammunition simultaneously.

Understood. And then, Aaron, I wanted to ask on the tariffs a little bit. You had prior thought, $600 million exposure for the year, would you expect to recapture that in 2020 from mitigation efforts? And I know you talked about a total now of $1.2 million tariff expense for '19. That incremental tariff, what's kind of the right way to think about the run rate equivalent to that number on a 12-month basis?

Yes. So you're right. So initially, under List 3, it was $600,000. We were feeling good about...

Oh, $600,000, sorry.

Yes, no problem. We were feeling extremely confident about being able to mitigate at least 75% to 80% of that. It's still a bit too early to get into the details on List 4A and 4B as far as the different mitigation activities that are taking place and where we expect that to be, but we do anticipate that we'll be able to offset at least about 30% of the tariff impact or the tariff situation during the course of 2020. I'll frame that up for us in terms of the overall 2020 impact as we get into that window of time, but it is something that we're aggressively working through. We feel optimistic that this is truly transitory, and it's just going to take another 6 to 9 months or so to be able to get some things finalized and rightsized in the manner they'll mitigate the negative impacts.

I think it's important, Jim, that Aaron has set a very aggressive goal to do everything within the team to literally get this down to a 0 impact long term. So this is not something we're willing to just accept and say it's the new world order. But say, hey, it is transitory. We make changes. We shift, refactorize, reproductize, whatever, in order to eliminate these leakages on the business.

[Operator Instructions]. The next question will come from Mark Smith of Lake Street.

Another question just on Sierra. Can you give us any additional insight into how that kind of core green box retail business is doing versus the OEM business?

Yes. I think -- well, I can only give it from the perspective of Sierra. I think that, like you said, the overall we've seen, a dip in the quarter, of about 24%, more of that driven by the OEM business, which is highly driven, at this point, by military and law enforcement given the partners. In the green box business, our business has been impacted in low single digits. And so we've really driven hard at that, which, at this point, our view is that we know we're gaining market share in the mix. And we'll continue to do so at the Board level and then the ammunition level. And I think we will track that market relatively closely to determine at what point the consumers's buying behavior changes in that space.

Okay. And then we know that it's still small but can you quantify at all the impact of the ammunition business?

Well, like as I said, it's small. It's -- the initiative for us was really targeted on what really becomes the fourth quarter of 2019 because it's, we launched, as you recall, GameChanger. When we launched it, we launched 5 calibers initially into delivery for fall, which is hunt season for bullets or rifle hunting just kicked off this last week in parts of the country and some still to come. Right now, it's just five. By Christmas, we have 8 in the works and soon by SHOT Show, a couple more. So we'll be at the GameChanger at 10, and then we'll be launching Prairie Enemy [ph] and the environment ammunition at SHOT Show as well as some other interventions in and other category. Like I said, ultimately, our goal is to really target on those 80-20 bullet that we think align with the ammunition opportunity, with the goal that, at some point, it should be 10% or more of our bullets into ammo. But it's -- we're going to be very distinct about that process because we make the very best bullets in the world, and we can't do anything in that world to jeopardize that positioning.

Okay. And then last one for me. Can you just talk about your appetite for share repurchases and maybe how active you guys have been since the end of the quarter?

As communicated, this is the fourth priority of our capital allocation process. We'll continue to be opportunistic with it, but there's no set or defined approach or a number that we're looking to do over a certain period of time.

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

Thank you. We'd like to thank everyone for listening to today's call, and we look forward to speaking to you when we report our fourth quarter and our full year results. Thanks, again, for joining us. Goodbye.

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