Attached files
| file | filename |
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| 8-K - Clarus Corp | v184083_8k.htm |
| EX-99.2 - Clarus Corp | v184083_ex99-2.htm |
| EX-99.1 - Clarus Corp | v184083_ex99-1.htm |
Exhibit
99.3
Investor/Analyst
Conference Call Transcript
May
10, 2010 8:30 AM Eastern Daylight Time
Fair
Disclosure
In
accordance with Regulation FD, or Fair Disclosure, this transcript is available
on Clarus’ website, www.claruscorp.com, and www.sec.gov. Any redistribution,
retransmission or rebroadcast of this call in any way without the express
written consent of Clarus Corporation is strictly prohibited. Please note that
on this call certain information presented contains forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. A
full recitation of our Safe Harbor language will follow our
presentation.
Opening
Comments – Warren Kanders
Good
morning, my name is Warren Kanders, I am Executive Chairman of Clarus and I want
to thank you for joining us today to talk about the future of Clarus Corporation
and the culmination of our asset redeployment strategy. After a
thorough process of sourcing and reviewing potential redeployment opportunities,
I am excited to announce the signing of definitive agreements to acquire, in two
separate transactions, Black Diamond Equipment and Gregory Mountain
Products. We believe these brands create a unique platform to build a
large, global, diversified company in the outdoor equipment and lifestyle
markets both organically and through targeted acquisitions. With me today is
Peter Metcalf, Co-Founder, President and Chief Executive Officer of Black
Diamond, and Rob Schiller, Vice Chairman of Gregory. Many of you know
Rob as my partner in building Armor Holdings.
I would
like to start by talking about Clarus and our strategy to drive value for
shareholders, including an overview of the transactions. Peter will then talk
about Black Diamond’s business. Rob will provide an overview of
Gregory Mountain Products and I will close by discussing what the new, combined
Company looks like and the vision we share for the future, though we will not be
taking questions after this call. We anticipate scheduling an investor call
after the closing of the transactions (which we expect to be prior to the end of
the second quarter of this calendar year) and Clarus will file historical and
pro forma financial information in a Form 8-K following the closing of the
transactions.
As many
of you know, the current Board of Directors at Clarus was elected in May 2002 to
pursue an asset redeployment strategy. In December 2002, we sold
substantially all of the operating assets of Clarus’ legacy e-commerce software
business, but we retained the public company structure, our cash resources, and
net operating loss carryforwards. It was our goal to redeploy these assets into
an operating business or businesses that would serve as a platform company for
future growth.
We set a
high bar for the companies we considered, and I am very pleased to report that
the new Company created through these transactions meets all of the criteria
which guided our analysis throughout this process. The criteria are as
follows:
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An
industry-leading management team with a leading market
position,
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Page 2
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An
established company with a history of strong operating and financial
results and substantial free cash flow
generation,
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Organic
growth opportunities with favorable macro trends underlying the
business,
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Significant
domestic revenue coupled with broad geographic
reach,
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Solid
market barriers to entry, and
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Viable
opportunities for targeted acquisitions and industry
consolidation.
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I would
also like to note that Clarus has received financial advisory services regarding
the transactions from the investment bank Rothschild Inc., and Rothschild
rendered an opinion regarding the Black Diamond acquisition. Because
Gregory is being sold by entities owned and controlled by Rob and me, the Board
of Directors of Clarus formed a special committee to review and approve the
Gregory transaction. Ladenburg Thalmann & Co. Inc. acted as financial
advisor to a special committee in connection with the Gregory transaction and
rendered a fairness opinion to the committee. The special committee was
represented by an independent legal counsel, Richards, Layton &
Finger.
Going
forward, I will continue as Executive Chairman and I am pleased to note that Rob
Schiller will become Executive Vice Chairman and a Director of the Company. Rob
previously served as President, Chief Operating Officer and a Director of Armor
Holdings. Peter Metcalf will be appointed President and Chief Executive Officer
and a Director of the Company. Mr. Robert Peay, Chief Financial
Officer of Black Diamond, will continue to serve in that role with the Company
following the closing of the transactions.
The
Company expects to further expand the Board of Directors to include Mr. Philip
Duff and Mr. Michael Henning. Mr. Duff was an original investor in
and currently serves as a Director of Black Diamond. From 1994 to 1997, Mr. Duff
served as the Chief Financial Officer of Morgan Stanley. Mr. Henning
served in various capacities with Ernst & Young from 1961 to 2000, including
Deputy Chairman from 1999 to 2000 and Vice Chairman of Tax Services from 1991 to
1993. The Company anticipates that Mr. Henning will chair the Board’s Audit
Committee.
We have
been interested in the outdoor industry for a long time, largely because we
believe the trends toward wellness, environmentalism, and participation in
high-performance, lifestyle-defining sports are providing meaningful tailwinds
that benefit well-positioned companies in this space. Black Diamond
and Gregory are among them, and provide an excellent entry point into this
market with their respective brand positions and distribution scope to allow for
significant organic growth opportunities as well as the leverage points needed
to make future acquisitions work.
As soon
as practicable following the closing of the transactions, Clarus expects to
relocate its headquarters to the current headquarters of Black Diamond in Salt
Lake City, Utah, transition the Company to a national stock market listing, and
seek shareholder approval to adopt “Black Diamond Equipment” as the Company’s
new name. Before we get into the detail about the business, I would like to
share a few basics about the transactions.
The
aggregate purchase consideration for both acquisitions is approximately $135
million, or $90 million for Black Diamond, subject to adjustments, and $45
million for Gregory, subject to adjustments. The consideration for Black Diamond
consists of cash. The consideration for Gregory consists of approximately 50%
Clarus common stock issued at $6.00 per share and approximately 50% in a
seven-year 5% subordinated note. Peter Metcalf and certain other
shareholders of Black Diamond are expressing their confidence in the future of
the new Company by using a portion of their merger consideration to purchase
Clarus stock at $6.00 per share. The interests of the Company’s Directors and
officers will be aligned with those of our shareholders, because, after the
closing of the transactions, they will own approximately 35% of the
Company.
Page 3
For the
year ended December 31, 2009, on an unaudited basis, Black Diamond and Gregory
together produced combined revenues of approximately $113 million, which is even
more remarkable because even in the current economic climate, both companies
have continued to grow their businesses through the last several years. The
Company expects its revenues for calendar year 2010 on a combined basis to show
continued growth.
The
transactions are structured to maintain a strong balance sheet with ample
liquidity to grow the business organically as well as through selected
acquisitions. In connection with the closing of the transactions, the Company
expects that it will more likely than not be able to realize a significant
portion of its approximately $88.9 million deferred tax asset and therefore will
release the related portion of its valuation allowance. As of March 31, 2010,
Clarus’ net operating loss carryforwards were approximately $231
million.
Over the
course of their 53 year history, Black Diamond has had only two leaders… Peter
Metcalf co-founded Black Diamond to carry on the tradition of its predecessor
company, Chouinard Equipment, which was founded in 1957. For nearly
30 years, Peter has grown Black Diamond and its predecessor from a business with
under $1 million in annual revenue to one with approximately $86 million in
calendar year 2009, a compound annual revenue growth rate of over 16%, which is
nothing short of outstanding. We are proud and thrilled to be able to partner
with someone of Peter’s background, integrity, passion and skills, and with
that, I will turn the call over to Peter Metcalf, the Co-Founder, President and
Chief Executive Officer of Black Diamond.
Peter
Metcalf
Thank
you, Warren, and hello to everyone who is joining us. Before I
address the investment community, I would like to say a few words to the Black
Diamond employees, customers, partners, and consumers that are listening
today. Thank you and congratulations.
This is
an exciting day for Black Diamond. When we founded this company, we wanted to
build great products to maximize the enjoyment and safety of the sports we love
so much. More, we wanted to build a company that reflected, respected, and
championed our lifestyle and values as climbers & off-piste skiers. Though
you never arrive at your destination, we are proud of what we have accomplished
and the style in which we achieved it. Together, we have built a very special,
global company and I would like to take this moment to sincerely thank all of
the employees, friends, customers, vendors, and consumers that have helped us
along the way.
At Black
Diamond, our goal is to make the best climbing and backcountry skiing equipment
in the world. Our mission is to profitably design, manufacture, and bring
innovative and technical products of high quality, high performance and
exemplary durability to our customers. With respect to climbing, our products
include carabiners, protection devices, belay and rappel equipment, helmets,
ropes, and ice-climbing gear. We are also a market leader in
backcountry gear, gloves, trekking poles, and tents. More recently,
we are coming on very strong in a number of important ski equipment categories
including skis, bindings, boots, poles, and safety equipment.
Page 4
We have
always had a very strong commitment to innovation, research and
development. We are constantly seeking to evolve our
products. Innovation is a driving force in our sports and we have
sometimes worked for years in order to design and introduce truly revolutionary
products, such as in the case of our Freeride ski boots which we brought to
market in 2008. We started from scratch in the ski boot business.
After having a vision for Black Diamond boots, we took two years to research the
unmet needs of skiers, design the product, tirelessly test and re-test it and
establish worldwide distribution. We have met with success beyond our
expectations—a testament to our passion for our customers, the sport and its
product. Similarly, last year we introduced two via ferrata protection kits with
safety technologies previously unavailable to climbers. We know our
customers because we are a company of climbers, hikers and skiers—it’s who we
are. We value and protect the intellectual property we create and currently we
hold over 60 patents for a variety of technologies across our product
lines.
As we
move forward and expand both our brand and our business into new categories
within both equipment and apparel, we will maintain this commitment to
innovation and product development.
We have
won many awards over the years, including more Vendor of the Year awards than
any other outdoor brand or company. We have also won best product and
best category vendor awards from industry magazines such as Outside, Backpacker,
Powder, Ski, Skiing, Climbing, and Rock & Ice, among others.
In terms
of our physical infrastructure, Black Diamond is based in Salt Lake City with
over 375 employees worldwide. Besides our expansive headquarters facility, we
have a 22,000 sq. ft. BD-owned manufacturing facility in Salt Lake in addition
to a wholesale distribution center. Our European offices, led by Christian
Jaeggi, are located outside of Basel, Switzerland and we have a distribution
facility close by in Germany. In 2006, we established operations in
southeast China with a Black Diamond built and managed facility, including a
state of the art 100,000 sq. ft. manufacturing and distribution space with
attached offices that are operated and staffed by Black Diamond employees. BD
Asia is currently led by Ryan Gellert. Notably, the manufacturing standards we
apply to Black Diamond Asia are identical to those that we apply to our Salt
Lake City workshop. Both our manufacturing operations are ISO 9001
certified by European-based auditors.
We have
highly diversified account bases, selling products into over 1,500 doors through
over 1,000 individual accounts. Our largest accounts are REI,
Backcountry and EMS, three excellent outdoor retailers, but the bulk of the
business is done through independent retailers. In addition to our account base
in North America and Europe, we have 24 distributors in Asia and the South
Pacific, one distributor in Africa and four in South America.
It has
been a long and fulfilling dream of mine to lead the creation of something
lasting within the industry. I see today as a milestone toward fulfilling that
dream. This deal will help us not only preserve the organization and the culture
that we have built, but it gives us a stronger foundation with greater resources
and new opportunities. We will continue to be a market leader and to
infuse our company with the passion we have for the sports we
serve. We will also continue to value the contributions of each and
every employee and share our success with them. Black Diamond has
always been and always will be a special place to work.
Authenticity
is a word that gets thrown around a lot. For it to actually mean something,
which it does at Black Diamond, we live and breathe the sports we represent and
reflect that in our business practices. We approach business like we do
climbing. As you can appreciate, there is precious little room for
error in either. When we climb, we learn to make careful choices, act as a team,
proceed purposefully, realistically assess risk, and ensure that we are
protected against it. At the same time, we know how to maintain focus and, when
necessary, to act decisively and aggressively to make progress. We constantly
adapt to the route in front of us. That we approach our business the same way is
no accident.
Page 5
We also
have, particularly given the voice we have in the industry, a responsibility to
advocate for our sports and for the environmental causes related to
them. Just a few weeks ago, we were proud to host Congressman Jim
Matheson for his announcement of the first significant piece of legislation to
expand wilderness and enhance watershed protection over more than 26,000 acres
of the Wasatch mountains here above Salt Lake City, Utah. Our culture
has embraced the idea of corporate social responsibility a long time ago and we
take it very seriously.
Thank you
again to our many listeners. These transactions will open routes to growth on a
much larger scale than has been previously available to us. Today, we
have a strong international operation but we will become a truly leading global
company in the future. I am confident that we will continue to help
write the history of not only alpinism, as we have been doing for the last
several decades, but we can now extend our brand, vision and our mission to a
wider world of active outdoor lifestyles.
I
look forward to speaking with all of you again and to meeting many of you in
person once the transactions are closed and we truly begin this next great
ascent for our company.
I would
like to now turn the call over to Rob Schiller, Gregory’s Vice
Chairman.
Rob
Schiller
Thank
you, Peter. Good morning everyone. These transactions
should, for Gregory Mountain Products, feel like coming full
circle.
Gregory
is a leading designer and manufacturer of technical, authentic backpacking and
mountaineering heritage products and accessories. Wayne Gregory founded the
Company in 1977 armed with little more than a sewing machine and a desire to
bring a sense of discovery, adventure and balance to his products. We
believe that the transactions are a continuation of both Gregory’s and Black
Diamond’s missions. As an illustration of that, I heard a story that
Peter remembers writing a letter to Wayne Gregory more than 30 years ago as an
eager but broke young climber asking Gregory to sponsor Peter’s first ascent in
Alaska. Wayne was moved enough by the appeal to send Peter his first Gregory
pack, free of charge.
In 1984,
Gregory was acquired by Bianchi International. In December 2004,
Armor Holdings acquired Bianchi and the plan then was the same as the plan
today: to use Gregory as a growth platform to build a global public company in
the outdoor lifestyle industry. That strategy, overcome by events when Armor
Holdings was sold to BAE Systems, plc in July 2007, was reconstituted in April
2008 when Warren and I and the Gregory management team acquired Gregory in April
of 2008 from BAE Systems. We were essentially setting it free and enabling it to
reclaim its roots as an independently-minded outdoor company.
Combining
with Black Diamond is another step in that direction. The companies
have complementary product lines and distribution and the cultural fit between
the organizations is nearly ideal. The team at Gregory, Wayne Gregory
especially, is very excited.
Page 6
Gregory
is headquartered in Sacramento, California and has approximately 100 employees
worldwide. We operate a 41,000 square foot manufacturing facility in Calexico,
California. Gregory serves the backpacking, mountaineering, hiking, climbing,
travel and lifestyle markets. In North America and Europe, Gregory is
a technical brand distributed through leading outdoor specialty retail chains,
including REI and EMS, and other specialty outdoor retailers. In the
US, the brand is in over 500 doors. Globally, that number rises to
approximately 900. In Japan and other Asian markets, which represent
more than half of the total sales, in addition to being a leading provider of
technical backpacking products, the business has expanded to high-end daypacks,
briefcases and satchels. The Company also supplies two Gregory-only
retail stores in Tokyo, Japan and Seoul, Korea.
Similar
to Black Diamond, Gregory is intensely focused on great products. These range
from the Denali Pro, one of the most advanced expedition packs available today,
and a full line of technical packs to a strong lifestyle assortment which
includes day packs, messenger bags, and duffles. Recent awards
include recognition for Gear of the Year by Outside magazine for the Targhee,
the first winter backcountry-specific pack that integrates a board and ski
carrying system directly into the pack suspension. We were also
pleased to receive an award for Best Adventure Gear from National Geographic for
the Miwok, our latest daypack.
We are
excited to combine our operations with Black Diamond and expect that to have
strong operational, strategic and financial benefits. The Company
believes that the integration and combination of Black Diamond and Gregory will
produce incremental profit primarily from revenue synergies created through
leveraging each business’ distribution network to grow various product
categories and brands in geographies and end markets in which they currently are
not sold, as well as from cost savings. Approximately 50% of the Company’s sales
are expected to be in North America, approximately 30% in Europe, and
approximately 20% in Asia, Africa, the Middle East and South America. The
combined revenue stream is diversified by product as well as by
geography.
From our
Armor days, Warren and I have a lot of experience acquiring and successfully
integrating businesses. When we began, Armor Holdings was an $11
million annual revenue company. We made smart, well-timed
acquisitions at good prices and invested in those businesses. We
provided them capital, helped them manage risk, and built a common
infrastructure to support them. We invested heavily in technology and
in our people. As some of you may know, Armor’s sales grew to approximately $3.5
billion in 2007 and we created tremendous value for everyone involved through a
sale to BAE Systems in July 2007.
As Warren
will now discuss, we have a strategy to grow by category, by channel, by
geography, and by market, both through continued organic growth and through
acquisition. We look forward to using our experience to execute on
that vision. Thank you…
Closing
– Warren Kanders
Thank
you, Rob.
At Armor
Holdings, among the keys to our success was intense focus on innovation driven
by the needs of our customers. Black Diamond and Gregory are similar
in those two important respects. Each company owns number one brands
in niche market segments and each company produces products that are highly
engineered and technical. This kind of sustained innovation requires
commitment, creates barriers to entry for competitors, and is the hallmark of a
true leader.
Page 7
Another
important similarity to Armor Holdings that we recognize is that when a company
takes on the responsibility for the safety, survival and technical needs of its
customers, it tends to create two things with very little
encouragement. First, there is a great benefit to the
brand. Second, the organization gains a seriousness of purpose that
breeds excellence. We are very excited to see that this has happened
for Black Diamond. We are confident that this will serve the Company
and investors well as we build on the existing operations.
Really,
these transactions represent an inflection point and a milestone for all three
companies. The combined Company we are forming will not only continue to grow on
its own, as Black Diamond and Gregory have demonstrated they can do even in a
very tough market environment, it will also be a platform for growth
through acquisition. We believe that the opportunity to deploy
significant capital over time in this space is excellent. Our acquisition
strategy is not only a path to growth, but will be a collaborative process in
which we will share our own and adopt appropriate new best practices to
strengthen and expand the very successful way this Company does
business.
As
mentioned previously, we anticipate closing both transactions in the second
quarter this calendar year.
I would
like to thank the shareholders of Clarus for the support they have shown us as
we searched for the right opportunity. We have been extremely
diligent and thorough and I believe that we are taking the first steps of a ten
year-plus project and will create a large, global, diversified and well-run
company that is a true force in the outdoor equipment and lifestyle
markets.
Thank you
all for your attention and we look forward to providing a much more specific
update and additional details about the Company once we have closed the
transactions. Thank you.
Forward
Looking Statements
This
conference call includes “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. Clarus may use words such as
“anticipates,” “believes,” “plans,” “expects,” “intends,” “future,” and similar
expressions to identify forward-looking statements. These
forward-looking statements involve a number of risks, uncertainties and
assumptions which are difficult to predict. Clarus cautions you that any
forward-looking statement is not a guarantee of future performance and that
actual results could differ materially from those contained in the
forward-looking statement. Examples of forward-looking statements include, but
are not limited to: (i) statements about the benefits of Clarus’ proposed
acquisitions of Black Diamond and Gregory, including future financial and
operating results that may be realized from the acquisitions; (ii) statements of
plans, objectives and expectations of Clarus or its management or Board of
Directors, including the expected timing of completion of the mergers; (iii)
statements of future economic performance; and (iv) statements of assumptions
underlying such statements and other statements that are not historical
facts. Important factors that could cause actual results to differ
materially from those indicated by such forward-looking statements include, but
are not limited to: (i) the risk that a condition to closing of the mergers may
not be satisfied and the transactions will not be consummated; (ii) the risk
that Clarus could be required to pay material termination fees if the mergers
are not consummated; (iii) the risk that the businesses will not be
integrated successfully; (iv) the risk that the expected financial or operating
results may not be fully realized as expected; (v) material differences in the
actual financial results of the mergers compared with expectations, including
the impact of the mergers on Clarus’ future earnings per share; (vi) disruption
from the mergers; (vii) economic conditions and the impact they may have on
Black Diamond and Gregory and their respective customers or demand for products;
(viii) our ability to implement our acquisition growth strategy or obtain
financing to support such strategy; (ix) the loss of any member of
our senior management or certain other key executives; and (x) our ability to
utilize our net operating loss carry forward. Additional factors that
could cause Clarus’ results to differ materially from those described in the
forward-looking statements can be found in the “Risk Factors” section of Clarus’
filings with the Securities and Exchange Commission, including its latest annual
report on Form 10-K and most recently filed Forms 8-K and 10-Q, which may be
obtained at our web site at www.claruscorp.com or the Securities and Exchange
Commission’s web site at www.sec.gov. All forward-looking statements
included in this conference call are based upon information available to Clarus
as of the date of this conference call, and speak only as the date hereof. We
assume no obligation to update any forward-looking statements to reflect events
or circumstances after the date of this conference call.