Q4 2021 Clarus Corp Earnings Call

Okay.

Good afternoon, everyone.

And thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the fourth quarter and full year ended December 31st 2021.

Joining us today are Clarus Corporation's President John Wall, Bryant Executive Vice President and C. L O Eric Cooney CFO , Mike Yates and the company's external director of Investor Relations Cody flow. Following their remarks, we'll open the call for your questions before we go further I would now like to turn the call over to.

Mr Slaw as you've read the Companys Safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1995 that provides important cost.

Cautions regarding forward looking statements Cody. Please go ahead.

Thanks Chrystal.

Before we begin I'd like to remind everyone that during today's call, we will be making several forward looking statements and we make these statements under the safe Harbor provisions of the private Securities Litigation Reform Act.

These forward looking statements reflect our best estimates and assumptions based on our understanding of information known to US today. These forward looking statements are subject to the risks and uncertainties that faced Clarus Corp, and the industries in which we operate more information on potential factors that could affect the company's financial results.

Is included from time to time in the company's public reports filed with.

With the Securities and Exchange Commission I'd like to remind everyone. This call will be available for replay through March 21st starting at eight P. M Eastern Tonight a.

A webcast replay will also be available via the link provided in today's press release as well as in the company's website at Clarus Corp Dot com.

Now I'd like to turn the call over to Claris as President John Wall Brecht John .

Thank you Cody and good afternoon, everyone.

Before we get to our traditional commentary we get claris are mindful of the geopolitical crisis, that's taking place between Russia, and Ukraine and stand in solidarity with the people Ukraine, Our Hearts go out to them at this time.

And part of this unwavering support.

We have stopped all exports to Russia, and we will be suspending all business with the country.

We are also actively working to send aid to the acute crazy and people in the form of certain key product items from our various businesses that will assist their efforts in this crisis, we hope and pray that the conflict when quickly and that piece will prevail.

Now turning to our most recent business results.

We are reporting another record quarter of performance in a year filled with record setting sales and adjusted EBITDA.

We're incredibly proud of our entire team who make our vision a reality each day, and especially with the global backdrop around COVID-19 and the supply chain concerns.

We continue to be nimble and decisive at the brand level, which is critical in achieving this level of performance.

As we turn the calendar on 2021 I'd like to provide some perspective on the strategy. We set five years ago and how this has positioned us in the market today, and where we will go in the future.

The question, we are often asked is.

How do we get to this point.

The answer is that we seek to create market through our understanding of superfan brands Theyre unique DNA and what drives their success we.

We take a super fan brand execute our innovate and accelerate strategy and then focus on creating sustainable growth by taking market share with a disciplined go to market strategy.

Sorted by both commercial and operational excellence.

In 2016, I had the great opportunity to join Claris to help create something exciting as well as disruptive in the outdoor industry.

At that time, we owned black Diamond equipment, which was and continues to be the world's number one climbing brand.

Starting in 2017, we initiated our innovate and accelerate strategy developing more than 100, new products for season for the next four years.

We relaunched apparel with a focus on technology and innovation, creating a pearl likely one R&D.

R&D heavy equipment categories.

And we also launched successfully into footwear over the past five years <unk> has won more than 371 industry Awards.

All categories grew.

Moving now to our focus on product innovation.

We accelerated our sales meeting industry, winning Tradeshow booth hiring the best sales team and expanding our distribution reach.

Accelerating our marketing for athletes and Influencer content amazing photography, and strong public relations.

We accelerated our digital first strategy growing our Instagram Facebook and Youtube followings by more than 10 X.

In 2021 last time and had an impressive total of over 5 billion impressions across all product categories.

In particular apparel grew at a higher rate recording a 58% year over year increase in earned consumer impressions BD.

<unk> closed out 2021 with a strong December earning 21 tier one placement and over 598 million impressions. Once again, the apparel category dominated our coverage with its focus on key products like gloves, and our vision down hybrid jacket.

Today BD is the premium badass image brand of the outdoor industry and the Super fan brand for climbing back country skiing trail running and hiking.

We are the reference brand for equipment.

Driving industry, leading growth, resulting in market share gains across all categories channels and geographies.

An important piece of our growth plan is our M&A strategy we.

We have demonstrated a disciplined approach to acquisitions.

Focusing on brands, where we are quickly able to deploy our innovate and accelerate strategy.

We target superfan brands it may give us a foothold in a new product group or customer channel as we seek to diversify further within the enthusiast outdoor and consumer markets.

Here was the first brand acquired under our Super fans acquisition strategy in 2017.

Established in 1947, CRA as the reference brand of premium accuracy bullets with 90% of all long distance competitions, one with fewer masking the euro as the destination of bullet Smith.

Starting in 2018, we turn Sierra into an innovation house hiring the best product engineers in the industry.

We took the last pure play both company and in 2019, whilst it into an award winning ammo brand.

For some perspective bullets represent 2% of the industry, whereas ammo represents 98% of the consumer industry selling for four to six times the price of the individual bullet.

Since the launch in 2019, we've taken ammo sales from zero to now representing over 30% of <unk> sales.

We have a strong pipeline of innovation anticipated for 2022 and beyond in both bullets and ammunition.

Our top.

On top of restarting the innovation engine, we have an industry, leading sales team and successfully expanded our distribution into the top retailers.

We accelerated marketing initiatives by launching this year are performing shooting team.

Introducing the industry's most demanded reloading manual and.

And expanded our digital first strategy through our new website.

<unk> video content.

In 2021, we launched all new packaging for both bullets and ammunition, creating a disruptive statement unique to the market. Our customers have responded and we have doubled sales while significantly increasing our EBITDA margin.

With the success of Sierra and <unk>.

Yeah.

We typically see in our playbook in action, we acquired another brand over the last 18 months, we embarked on our strategic initiatives to deploy nearly $275 million of capital.

<unk> is an extraordinary transformation for claris, we purchased bonds in October of 2020, representing another Great example of our brand acquisition strategy.

March was established in 1932 and is known as the most effective all copper hunting bullet.

This brand has the heritage and innovation of a superfan brand, but was treated as a low end manufacturer of bullets under its prior ownership when.

When we acquired the business.

It was doing about $20 million in revenue.

We set out to reestablish more as the innovator of copper technology, the Ferrari of the broad industry. So to speak the leader of terminal impact or tour.

Comparable at an animal other green alternatives and the fastest growing trend in big game hunting due to their 100% weight retention. We recognize this is on a clear path to launching new technologies and expanding category into all hunting ammunition.

Barnes is a $45 million business with a strong pipeline of more innovation.

And just a painted in both bullets and ammunition.

Immediately after requiring barn, we focus on accelerating sales.

Targeted in the OEM and the wholesale distribution market, adding a strong sales team and quickly expanding our distribution to the top 100 retailers.

We launched new booth at the recent sharp Joe in some foreign international shows which featured our all new copper ammo collection.

Now that we have reestablished Barnes and its core channel, we will be accelerating our marketing through our digital first strategy launching a new website and a national advertising campaign, we are calling Utah proud.

We have begun an aggressive social media strategy through Instagram, Facebook and Youtube partnering with the most influential Huntsville, Levered East followed writers and industry leading partners.

Again, another proof of an old demand superfan brands and its ability to raise prices every year, while still growing.

Market share over the past 12 months, we successfully relaunched born as the reference brand for Big game hunting reconnected with their very strong Drybulk community.

And doubled sales.

Expanding EBITDA margins.

We have the inspirational goal of doubling sales again in the next three years.

Rhino rack became our next targeted superfan brands when two years ago, we saw the growing demand from our consumers to get outdoors and take our product farther from home.

Tumors are getting off the payments and headed to brown roads and need to wrap all of their gear with them.

Under the banner of making space for adventure, which has a strong following within the growing overland community right.

<unk> is the undisputed leader in platform ranks in Australia, and the image brand of the Outback.

With sales in key Toyota sports in Suvs and trucks outgrowing passenger cars by more than two to one we believe that Rhino rack is well positioned to capitalize on this trend relative to its competition.

We remain confident that our innovate and accelerate strategy can unlock a huge potential both in Australia and more importantly in North America.

First run Iraq already has a leading market share in platform ranks second.

Ryan Iraq Foundation in product innovation, winning two Red Dot design award in 2021 for the pioneer to rack and distill it with a robust pipeline of innovation planned for 2022 and beyond including the new recon platform ramp for <unk>.

Up truck bed, we've launched the team up in 2021 in November .

We will be accelerating our innovations in both rack and overland in accessories, the hottest growing category.

Our sales growth initiatives for 2022 include targeting the OEM market.

The automotive aftermarket and the ever expanding outdoor retailer market in.

In fact, we have already had an appointment with the top north American outdoor retailers for 2020 to launch later this year.

We will be accelerating our marketing launching in north American visited website, new overlapping trade booths, new trading consumer catalogs and launching an aggressive make space for adventure AD campaign, we will be accelerating our participation in events and gear abused through our black tubs, two brown roads public really.

<unk> campaign.

The next 24 months using the same playbook that we have been so successful with in our last two acquisitions.

We are confident we can successfully launch Rhino is the brand of reference for the hyper growing category of overland in North America.

Our most recent acquisition was Max Shrek the market leader in vehicle recovery and extraction boards for the overland and off road market.

We closed the acquisition on December one and have been busy integrating the business into our adventure segment.

The acquisition was immediately accretive matrix was founded based on the need for a system that makes vehicle recovery and extraction as safe simple one person tasks that does not require towing.

Today Mac track should consider the creator of the vehicle recovery Board.

We are already well underway in using <unk> to help expand capacity and speed up new product development as well as build our high growth adventure segment.

Like Rhino, Iraq, we see substantial opportunity to expand in North American market.

In fact, we launched our first go to market offering at shot show and the retailers feedback was very strong.

So here we are today with five Super fan brands that are all benefiting from the innovate and accelerate strategy and strong market tailwind.

We've grown from roughly $150 million in sales that was losing approximately $3 million a year in adjusted EBITDA in 2016 to a record result in 2021 of $375 8 million in sales and 61 and a half million in adjusted EBITDA.

The transformational change I just walked through guide your vision for the future.

This growth has required us to also invest heavily in our people and while all deserve recognition I'd like to highlight a comfortable key senior hires and promotions.

First we announced that Eric Cooney was promoted from GDP and CFO to the new role of Executive Vice President and Chief operating officer in his new role and we will have the responsibility for claris and operating model.

Business integration and optimization as well as our operational support functions.

I'd like to reiterate the partnership approach that between that exists between our executive leadership team.

It is not one of higher coal nature, instead detail by having our own respective roles and responsibilities, which enables enables us to move quickly and evaluate and execute on the various opportunities for growth and value creation.

As a result, we have appointed Mike <unk> as our new CFO , Mike joins us with nearly 35 years of financial management.

Ex executive leadership accounting and M&A experience. Most recently from the IDEXX Corporation and S&P five 500 diversified engineered product company.

And I'd actually held multiple accounting and financial executive leadership positions, including most recently, serving as the Chief accounting officer, a role, which he held since 2010.

In this role Mike will not only oversee global finance function, but also lead our investor relations.

We are focused on expanding our investor base.

Leasing in our interaction with current as well as future shareholders and broadening our communication.

This includes an upcoming Investor day, the details of which will be forthcoming.

He will also be focused on helping to better outline our efforts involving corporate social responsibility and ESG.

It is important to highlight that the people and culture of claris are rooted in the idea that the style in which goals are accomplished is as important as achieving them at all and disciplines as much of our business as it does to our outdoor activities.

That's why we have pared and innovative approach to building equipment with a unique approach to running our company one that champions conservation and the access to the outdoors, while minimizing our environmental footprint.

With the expansion of our leadership team, we have taken a major step to further seek to scale, our diversified brand globally and accelerate growth both organically and through additional acquisitions.

So with that I'd like to welcome Mike to his first earnings call Congratulations Mike.

Great. Thank you John .

To be here today, I'm thrilled to be sharing such strong results on my first call as the CFO for Clarus Corporation.

Before I get into the numbers I want to share that we have renamed our segments to align more with our strategic objectives for the company.

Going forward, we will refer to our black Diamond brand as well as our pizza and climb on brands as the outdoor segment.

Our Sierra.

Our Sierra in barns brands will be referred to as precision sports segment and our newly formed adventure segment, which is focused on the overland and market will consist of our two most recent acquisition Rhino rack and Max track.

These name changes have no impact on the previously disclosed financial information and no recast of the results is necessary it's purely nomenclature.

With that said I'd love to jump into the results.

Sales in the fourth quarter increased 56% to a record $118 2 million compared to $75 9 million in the same year ago quarter. The increase includes revenue contributions of $23 8 million from Rhino rack and acquisition completed on July one 2021 and $1 seven.

From the Max Trax acquisition that was completed on December one 2021 fourth quarter sales increased 16% on a pro forma basis compared to the same quarter a year ago.

Fourth quarter sales for our new outdoor segment were 17% up to $65 1 million hard goods at Black Diamond were up 16% in the quarter and we continue to see strong growth in our apparel initiative, which grew 22% in the fourth quarter apparel is our fastest growing category.

In our apparel is equipment positioning continues to resonate well with our consumers as part of our strategy to innovate and accelerate our apparel offering I'm proud to say that and addition to having the best in class materials and advancement.

90% of our apparel styles meet or exceed sustainability goals in the outdoor industry.

Precision sports sales were $27 6 million in the fourth quarter compared to $20 1 million in the fourth quarter of 2020 or 37% increase.

The Eric contributed sales of $15 8 million for the fourth quarter, which is a 17% increase compared to the prior year. The increase was driven primarily by strong domestic demand for ammo in fact, our ammo business was up 206% compared to the year ago quarter and ammo now accounts for over 30 person.

Sure. She era's total sales to put this in some perspective, our original goal was to achieve 10% of share of sales through ammunition.

Barn sales increased 79% in the quarter to $11 7 million.

This was led by an increase across all channels, which includes black box ammo and OEM. As a reminder, we acquired Barnes on October 2nd 2020. Since then we've reported five straight quarters of revenue growth, while expanding gross margins and improving EBITDA, we remain focused on ramping <unk>.

<unk> by making strategic investments in equipment and processes to seek to fill the expected continued demand in the market.

During the fourth quarter. We also closed on our strategic decision to purchase the barns headquarters in Mona, Utah for $9 $5 million. This underscores our commitment to expand capacity capacity and be better positioned to serve our customers.

Ryan Iraq contributed $23 8 million of sales in Q4, which was a strong result, given the COVID-19 lockdowns in the brands home market of Australia during the quarter. During the first quarter of 2022, we have continued to see constraints constraints in the region, but now unprecedented flooding occurring in Australia.

But I'd like to thank the Rhino rack team for managing these challenges.

In the U S. We are expanding our rhino rack sales and marketing efforts and I'm pleased to say that it's already showing great results in the fourth quarter to quarter Rhino rack grew sales in North America by 25% compared to the prior year on a pro forma basis.

Extraction acquisition that was completed on December one 2021 also contributed $1 7 million of sales in Q4.

Moving onto gross margins consolidated gross margins in the fourth quarter increased to 36, 1% compared to 35, 5% in the year ago period, and it was up 120 basis points to 37, two when stripping out the $1 3 million fair value inventory step up charge associated with Ryan.

Iraq and Max tracks acquisitions in the quarter improvements in the channel and product mix along with the operational efficiencies drove the bulk of this margin performance.

However, we did experience logistics challenges associated with the need to expedite some of our products product specifically it relates to the air freighting of our product.

Which was a 100 basis point drag on the Q4 margin rate.

Selling general and administrative expenses in the fourth quarter was $32 6 million compared to $20 9 million in the same year ago quarter. Due primary primarily to the inclusion of Brian Iraq, and Max tracks, which contributed $7 6 million of expense and an increase in stock based compensation of $1 $7 million in the quarter.

The remainder of the increase was driven by investments in our go to market and fulfillment activity <unk> and support the increased demand net.

Net income in the fourth quarter was $14 million or 36 cents per diluted share compared to a net income of $7 1 million or <unk> 22 cents per diluted share in the year ago quarter. Adjusted net income in the fourth quarter increased to $17 4 million or 45 cents per diluted share compared to an adjusted net income of 11.

One 2 million or 34 cents per diluted share and a year ago quarter adjusted EBITDA in the fourth quarter increased to a record $20 million or an adjusted EBITDA margin of 16, 9% compared to $11 billion or a margin of 14, 5% in the fourth quarter of 2020.

It is resolved like these over the past five years that have enabled us to deploy over $350 million of capital in acquisitions, starting with Sierra bullets. In 2017 census time, we have also realized $109 million of tax benefits associated with the NOL carry forwards in 2010 Clarus.

Had $225 million of Nols that were set to expire at the end of 2022, but we now expect to realize the remaining $39 2 million that existed from 2010 in 2022 prior to them expiring. This is quite a testament to the organization's accomplishments and making accretive acquisitions.

<unk>, while driving significant cash tax savings and value creation for our shareholders.

Now I'll shift over to asset efficiency and liquidity.

Inventory levels were $129 4 million up 9% from where we ended last quarter and compared to $68 4 million in the fourth quarter last year keep in mind that inventory in the most recent fourth quarter includes $27 million of incremental Rhino rack and Max Frac inventory that obviously wasn't it.

Reflected in the comparative 2000 Twenty's figure. It also includes incremental inventory investments of roughly 34 million across our brands to mitigate supply chain constraints.

Believes that our 2021 results prove this strategy has been working.

At December 31, 2021, cash and cash equivalents were $19 5 million compared to $17 8 million as of December 31, 2020 for the full fiscal year 'twenty 'twenty. One we had free cash flow defined as net cash utilized provided by operating activities less capex of negative 17.

<unk> 7 million compared to $24 million in the prior year. This decline is due to the following items an increase in working capital specifically related to the incremental $34 million of inventory investments I just discussed and also as a result of a nine and a half million dollar purchase for the barns bullet headquarters.

And approximately $12 million in cash transaction expenses related to the 2021 acquisition.

Going forward into 2022 we expect free cash flows to rebound as product moves out and the cadence of our inventory purchases normalized.

December 31, 2021 total debt was 141 5 million, putting us in a net debt position of $122 1 million net debt leverage was two times on a trailing 12 month adjusted EBITDA basis, which is right at the low end of the two to three times targeted leverage goals that we shared last quarter.

In connection with future M&A activity, we expect that we may extend our leverage a bit higher but when we do we will always seek to have a clear plan to how we can bring it back within the targeted range over the course of a 12 month period, we are owners and operators that are committed to being shareholder friendly and responsible.

How we run the business and manage leverage.

Moving to our expectations for the full year 2022, I am pleased to share that we expect consolidated 2022 sales to grow 25% to $417 million compared to.

The 2021. This includes the negative impact associated with FX, which are expected to be about $7 million headwind on top on the topline for 2022 compared to the prior year.

By segment, we expect sales for the outdoor segment in 2020, 'twenty two to increase high single digits to approximately $237 5 million in sales from our precision sports segment is expected to grow into low single digits to approximately $112 $5 million. We also expect sales for our adventure segment to contribute approximately.

$120 million in 2022 spins.

Specifically for the first quarter of 2022, we expect consolidate stated sales of around $111 million.

On a consolidated basis, we expect adjusted EBITDA in 2022 to grow approximately 27% to $78 million. In addition, we expect capex of approximately $9 million and free cash flow is expected to be in the range between 50 and $60 million in 2020 to.

Consistent with how we managed our guidance in 2020 , one we continue to be prudent with our outlook as we head into 2022, we recognize that external dynamics like the unprecedented supply chain challenges and evolving geopolitical situation in eastern Europe are and will continue to present new challenges on a regular.

Accordingly, we have outlined what we believe to be a reasonable outlook and one that we will seek to exceed two our scrappy approach and accelerating each of our Super fan brands.

I'd now like to hand, the call over to Aaron Our executive Vice President and Chief operating officer to discuss Clarus with strategies and operations.

Thanks, Mike and great job. Good afternoon, everyone. It's a pleasure to be addressing you today in my new role one than I had been.

One that I had been unofficial leading over the past 18 months.

And wonder, which I'm excited to dedicate 100% of my time.

As John and Mike have told you we are reporting great results, which set the stage for where we plan to take our brands in the future.

Now that we have scaled significantly it is critically important to maximize the individual brand performance, while continuing to evaluate strategic M&A.

I'm excited by our Superfan brand portfolio and I am empowered to drive our operating model for the benefit of all of our stakeholders.

Today I will address four areas that are important as we think about 2022 and beyond first our supply chain.

An update on M&A and the integration of our brands.

Third our flexible capital structure and force the key operational initiatives, we are driving in each of our brands for 2022.

First supply chains as Mike mentioned, we continue to outperform on our supply chains across each of our brands geographies and channels. We drive results through our continued focus on connecting directly with our community of users through a digital first approach.

A high degree of operational excellence, the flex the flexing up our balance sheet to create additional optionality and our devotion to maintaining and easy to do business with mentality with our retail and vendor partners.

To provide a bit more context, we continue to seek to leverage the recognition of our superfan brands to strengthen our relationships with both our retail and vendor partners.

In our outdoor segment, we continued to solidify product availability and our sacred seven core product categories.

Our apparel footwear light poles gloves packs and snow safety. This focus has allowed us to isolate the needs of our supply chain on the components that moved the needle maximize product availability all the while supporting our key pillars of growth.

The team has done an amazing job in developing an extremely strong order book for that are both spring 'twenty, two and fall 'twenty two.

One that exceeds our current guide for this segment in a substantial way.

In fact, we were purchasing inventory in line with our demand plans of $270 million to support these higher levels of bookings. However, we are handicapping. This order book and our 2022 sales guidance as a result of the supply chain and logistic challenges we continue to face.

As an example.

A few weeks ago, one of our key logistics providers was victim to a cyber attack, resulting in their global network being compromised. This is slow down our ability to move and receive inventory as had previously been planned.

Another one is that of the geopolitical crisis between out of Russia, and Ukraine, and our commitment to stand in solidarity with Ukraine by suspending all business within Russia.

We are also experiencing shortages in electronic components in particular microprocessors required for our snow safety product.

Through our well diversified approach. However, we have been able to manage those challenges recognizing it create some temporary noise to work through.

In our precision sports segment, we purchase raw materials directly from the source, where possible and sort of critical raw materials like copper and lead better than our competition.

Our overall scrap units and can do attitude are critical to our execution and this goes to show that we have the right team in place across our brands to execute in such a dynamic environment.

We continue to see that in good times and in Bad times Super fan brands remained resilient.

Our brands are gaining market share across all of our leading categories and bookings remained strong across our portfolio as we head into 2022.

Although we are tenacious and disciplined in our approach. This doesn't mean that we are immune from the various external headwinds currently being experienced as we work as we work towards building increased capacity and product availability to support our longer term targets of $200 million for precision sports segment.

Through new product introductions increased capacity, expanding our distribution globally and maintaining our focus on building the best bullets in the world. We are confident in our longer term vision for this segment.

Now number two that of M&A and integration efforts.

As John highlighted an important piece to our growth plan is our M&A strategy. Our M&A engine took flight over the last 18 months and while we continue to be highly focused on the integration. We're also still actively seeking other super fan brands within our outdoor and adventure segments, we see.

Both the outdoor and adventure segments, having strong characteristics for growth.

Ported by large total addressable markets.

For our outdoor segment, whose Tam is over $20 billion, we will continue to evaluate the superfan brands that facilitate a way of life in the outdoors through strong product positioning and deep connections with the end consumer.

For our adventure segment. According to FEMA the U S. Tam for utility accessories, which includes racks and related accessories is over $3 $7 billion alone.

With these markets.

In the fold, we will continue to evaluate product leading brands that bring true solutions to the overlapping and.

And vehicle accessory category overall.

Overlapping isn't incredibly popular space right now as an increasing number of people want to go outdoors.

Getting from Black cops to Brown roads for context more than 33000 people attended overland Expo West in 2021 versus 22000 people in 2019.

As a reminder, we're looking for businesses with sustainable financial profiles that are immediately accretive. The qualitative features we look forward in a super fan brand, our leading market share in at least one product a history of innovation, 100% brand awareness among the core user and their ability to accelerate.

The go to market strategy.

Wanted to hit a requirements focus on sales gross margin and EBITDA performance over a three year basis as well as the ability to convert EBITDA to free cash flow at a high rate.

Now for an update on the integration of our recently acquired brands given our scale has been imperative to hire the right people across the organization to maximize the organic growth opportunities available to each of our superfan brands.

A key hire that helps us in the in this regard includes the hiring of Greg HEICO back to the new role of general manager of rental Rec USA. He has over 30 years of leadership operations and sales and marketing experience working in the branded aftermarket power sports and outdoor markets he will be responsible.

Well for expanding the presence of Claire's is rent a wreck and Max Schreck brands in North America.

Now I'd like to discuss number three which is our capital structure.

Overall, the strength of our brand portfolio continues to be supported by a strategic and disciplined capital allocation policy.

We are extremely pleased with the direction of our businesses, which we believe inherently provides us with additional growth opportunities for us to evaluate both organically and through M&A.

As we have historically shown we will continue to seek to utilize our balance sheet as the first and foremost way to growth. We are a business with increasing levels of EBITDA and strong recurring free cash flow.

We are owner operators that are committed to being shareholder friendly and responsible in how we run the business, including the amount of leverage that we take on.

We believe there is an optimal balance here with leveraged a range between two to three times.

As Mike mentioned at year end, we are sitting at two times leverage with the continued deleveraging.

Focus as we evaluate other acquisitions.

We also have great relationships with our banking partners, who are extremely supportive of our initiatives. In fact, we are in the process of seeking to increase our current credit facility to provide even more dry powder as we evaluate the various opportunities for growth.

More to come in this regard. However, this further highlights the partnerships that we foster and disciplined by which we run our business.

Now I'd like to turn to the last item, which is the number four of key initiatives.

I'd like to end my prepared remarks on the operational goals for each of our brands that support our 2022 financial outlook.

Our operating model is heavily focus on the strategic planning and deployment process executing on our innovate and accelerate strategy and creating sustainable growth by taking market share with a disciplined go to market strategy supported by both commercial and operational excellence.

As part of this it is imperative that we have the right people in the right place doing the right thing.

We are streamlining our human resource efforts within each of our brands around people culture and results.

Through a dedicated organizational development role within Claris.

We've had this role for the past 14 months developing processes and systems to enable increased bandwidth and tools around recruiting leadership development and pay for performance.

We've seen the benefits of such a dedicated role as we.

Embraced it and develop the Super fan brand DNA within each of our businesses and align our respective teams with the overarching values of claris being that of <unk>.

<unk> oriented and performance driven.

Black Diamond our goals are to accelerate brand growth being enhanced go to market process supported by four areas of our business for our products. We will continue to focus on the sacred seven.

And our supply chain, we are laser focused on product availability and gross margin enhancing activities.

Sales, we expect to draw a direct to consumer business, while still nurturing our key accounts and within marketing we will remain focused on the digital first strategy.

At Sierra.

Our goals are to continue to increase capacity across our offering and improved fill rates as well as onboard new skilled tool centers, while maintaining efficiency.

We expect to increase our ammunition lines to guide to include guide Master Defense Master and Superman King We will continue to enhance our strong retail relationships will grow and key customer relationships on the OEM and commercial side.

At Barnes our 2022 goals include driving sales of the New Board picked Jamul, which we launched at shot show in January improved fill rates build some relationships built strong retail partnerships and accelerate Barnes marketing, particularly in Utah and the Rocky Mountains.

At run a rack or Goldman North America are to accelerate revenue through increased market share we expect to achieve this by expanding our reach.

Through a variety of distribution channels and to enhance our own DTC channel by targeting our focus vehicles with core products and the overlapping space.

Our goals are goals in Australia, and New Zealand are to gain further market share by improving service and supply of our war of our world class products by targeting our focused vehicles with core products and the overlapping space.

It is worth noting that we continue to run our brands as Standalone businesses as we scale, we can evaluate different options to enable these brands to work more closely together with increased size and importance to our overall customer base, we see multiple opportunities to expand distribution to own our own channels.

And to deepen relationships with vendors.

Allowing us to share best practices and processes across brands from a commercialization and continuous improvement standpoint.

We believe that scale is adding value to all of our businesses by the end of 2022, we expect to have accounts that are buying all of our brands. It is important to note. Though however that this wasn't the strategy. It is simply the outcome of the fact that we have premier superfan brands in the outdoor space.

As you can tell we are certainly excited by what we've shared today and even more for what we believe the future holds the outdoors the outdoor as a trend we have highlighted in prior calls is exploding and does not appear to be slowing down.

Outdoor ism creates the need for micro adventures, which demand equipment for these activities.

We believe we are in an enviable position to deliver the broadening range of products for these adventures.

Our innovate and accelerate strategy has already proven industry, leading growth within black Diamond.

Ara barns, and we expect to do the same for Rhino record Max Fracs, we have built a business with unique super fan brands that are self sustaining and generate increasing profits and cash flows. We are committed to continue to execute on our strategic priorities that will yield the highest possible return on invested capital.

We are confident under strategy and our ability to continue to consistently drive shareholder value and one of the fastest growing industries with that being said operator, we are now ready for questions and answers.

Yeah.

Thank you Sir as a reminder to ask a question you will need to press Star and then wanting your telephone to withdraw.

Your question. Please press the pound key.

And our first question comes from Jim Duffy from Stifel. Your line is open.

Thank you good afternoon, guys and congratulations on a great year, Mike welcome.

I wanted to I wanted to start by asking about inventories and supply of materials to help keep up with demand.

Through the K it looks like you've taken a more aggressive posture in raw materials can you speak about.

How the mixed stands across the three different segments and any.

Choke points, you have with respect to supply of raw materials that could present challenges for you.

Yeah, you bet. So this is Aaron Jim and good afternoon to you.

As we think about the inventory position as you highlight we were pretty aggressive in terms of our positioning and also the solidification of our supply chain is primarily related to key components for the different business units.

First and foremost for that our black Diamond we were more focused on building up finished good inventory considering the elongated timelines that are being expressed from a logistics standpoint, where traditionally we would see.

Transit times going from Southeast Asia to Salt Lake City of call it.

45 days in the Europe 60 days, we are now see transit times of about 120 days to 150 days, respectively for those different geographical regions. As a result of that the way that you overcome that as to either.

Frankly, miss out on the sell or to increase the pipeline of inventory that you have floating on the water and that's with position that we've been able to take no in my view, it's really important to keep note here that our product doesn't rod on the buying and that our product is durable and lasting and through our lion plans.

And our demand planning cycle, we don't believe that we're overexposing ourselves to that of obsolescence or the need to promote that product from a discontinued merchandise standpoint, but instead, it's our committed focus to our retail partners into our end consumers to provide the highest global fulfillment possible now.

Now what you'll see on the raw materials side of things is really associated with that of our precision sports segment.

As we.

I've highlighted before one of the key constraints or is that a raw material availability, whether it be copper lead propellant.

Reimers showcases et cetera, and so through the utilization of our balance sheet, where we're extremely opportunistic and 2021 to securitize substantial levels of component inventory that would enable us to securitize not only our output, but also to satisfy.

End market demand in particular, we've taken a pretty aggressive approach as it relates to that of copper and lead to the point, where we have enough copper in hand, we're committed to to the losses through the first nine months of 2022.

This is also important and in line with our strategy in terms of how we manage our.

Our.

Our exposure to commodities as we know the marketplace is a bit volatile at the moment, but these commitments in these purchases that have taken place are well below the current rates of current commodity pricing, which should also been to continue to benefit us and also enable us to appropriately raised prices and accommodate.

The different pressures throughout the course of the year and then on the <unk> side of things. We also focused on ensuring that.

They had sufficient inventory.

It was more about not only increasing inventory levels because of the demand that we're seeing but really about ensuring that we have the right product in the right place at the right time as we've highlighted North America is a key strategic.

Pillar of ours in terms of growth and where we believe that we can really accelerate the rhino wreck and Max Schreck businesses and as a result of that we need as a start to shift the center of gravity away from an Australian centric holding pattern. When it came to product availability to start to rebalance that across the different global across the different.

Regions within the globe.

That was an area of focus of ours in particular, the last three to four months of 2021.

And really started to set ourselves up for.

A better positioned and more accelerated growth as we head into 'twenty.

Into 2022, and particular in that in that of North America.

Great. Thanks for that are and I want to ask follow up questions that are probably coming your way as well I was hoping you could speak to capacity utilization in the precision sports business and the capacity opportunity with the acquisition of the Barnes headquarters and then following up on your last comment just the.

Where you stand with respect to capacity the scale of the North American business for Rhino rack is the manufacturing infrastructure in place it sounds like you've been working on some supply.

Closer to the marketplace.

Yes, so let's start with the precision of the sports segment as a reminder, when we bought <unk>.

It was producing close to $185 million, each as or units or bullets.

We finished 2021, producing close to 320 million each of us are bullets through that through that facility.

Also when we bought bonds in December of 2020, it was doing close to $65 million. Each is in about 25 or so million rounds of ammunition. We finished the year doing close to 85 to 90 million each is.

Our units of bullets, and also increase our capacity for animal loading to close to 35 million to $40 million.

Part of our prepared remarks is winding out this long term target of $200 million, which we believe that combined business can accomplish over the coming years. As a result, we are very focused on increasing capacity within both locations and to your point the acquisition of.

The Barnes facility was a key component of that because now it not only gives us gives us the ability to commit to that location and to those employees. But also we now have the flexibility to continue to expand our overarching footprint not only did we acquired the facility itself, but we also acquired 30 plus acres.

Of land, but the building sits on that and that gives us a lot of flicks a lot of flexibility and room for growth that we know won't.

On the rent a wreck piece to your point a lot of the supply chain is still coming out of the existing supply chain that existed at the time of purchase and so that's still very focused from an Australian and southeast Asia perspective, our focus has really been on how we transition inventory levels to the U S and really ensuring that we can service our top two.

5% to 30 accounts with the key items that are really focused on the top 10 to 15 vehicles that we see as being the growth drivers here in the U S. As a result of that we've been very focused on just getting once again the right inventory in the right place at the right time as we think about 2022, our focus will really be about increasing systems and processes.

We can provide best in class service as well as.

Tools to our sales folks and also to our retail customers such as <unk> and other tools that will enable them to.

Really embraced and enjoyed this whole idea of being easy to do business with as we go through the course of 2022, we'll also look at where we can source things more local and also start to increase our capacity or our capabilities related to supply chain, but also keeping type operations here in North America, but that's more of a step two process <unk>.

To where we are today.

The other blessing on this Jim is that is that these are counter seasonal which was never really the intention is times comes it's a blessing and.

And we follow it Erinn, saying you don't have the right product at the right time and the right market.

As the summer months and in Australia. It becomes the new summer months in overland in for North America, and a chance for us to Reaccelerate.

Rebalancing of inventory opportunities.

I see.

Thank you guys appreciate all the color.

You bet.

Thank you.

Next question comes from Alex Perry from Bank of America. Your line is now open.

Yeah, Hi, thank you.

Hey, Oh, I I'm excited to be here covering the story here, but and welcome Mike Hum, but yeah. Congrats on a strong quarter and thanks for taking my question here I guess.

Just first going back to the precision sports can you, maybe just sort of give us some more color what's embedded within the sort of low single digit guide there is the biggest limiting factor for growth.

Above that range capacity still and then maybe remind us on sort of how channel inventory level folks there and.

Sort of the restocking efforts going on there. Thanks.

Yeah.

As we enter 'twenty, one we saw demand.

Literally out supply of the industry participants ourselves included but also the retailers. So obviously everybody you changed it and as Aaron said it started first with raw materials that we can control and in.

Copper, but then obviously led to the other ones ambulation became the real driver for the expansion in 'twenty, one specifically for CRM Barnes again as Todd.

We targeted 10% became 30 for Sierra and then Barnes, we accelerated our business and it was chasing the ammo to 'twenty five 'twenty 8 million rounds of ammo in 'twenty, one with a goal.

<unk> of 35 to 45 and in 'twenty two.

The biggest constraint that we don't own and he's built a capacity constraint to us is that a brass our shell cases, right and that has been eliminating factor and really why the whole industry has been in check the last 12 to 18 months.

Today inventory is improving in the retailer format, but not across the board.

Running in waves as expected it will change against things like nine millimeter in Q3 first and yet the size of the industry, that's particularly focused on by Barnes and even tier with game changer is still far in excess less than what the demand is and the demand continues to drive.

Within this year, we're going to see lots of ways to be honest in the inventory levels as well as people chasing different types of round and then we're going to see geopolitical issues like that that just took place in eastern Europe .

Lection and other issues that are going to constantly you know churn the water on this okay.

And to be honest with you probably won't see.

Capacity lined up in our industry in order for all the players CRM Barnes included to be able to deliver on time and have a 100% fulfillment and be able to meet the consumer demand on the shelves and probably following the 2020 for election process. So that gives you a little bit of where we are.

See the market.

We continue to see strong demand, though it shifts.

Holly.

And we think it's going to be this way for at least the next 18 plus months.

That's really helpful. And then maybe shifting gears a bit I think you called out strong growth in the outdoor segment being partially driven by the expansion of retail partnerships can.

Can you give us a little more color. There are you, adding additional wholesale distribution or is that sort of going deeper with existing retailers.

Yeah, I think what youre going to find in North America as a whole.

Obviously COVID-19 had very few blessing associated with it and we don't see this other than the explosion of outdoors and there's people decided.

Escape and go to the mountains in what we call Black Thompson Brown Road, who really does.

Well, even a outdoor XOMA and this new activity based consumer have created additional tailwind for climbing back country skiing trail running hiking and every anybody who's been on a trailhead in Alaska.

The year has seen that.

So when you talk about you know that market and what is done in the U S. First and foremost we seen the explosion of outdoors on become.

Two no fashion and I use that loosely and that now can find outdoor brands like Patagonia, the north face see all Raven in Nordstrom, right, where five years ago outdoor wasn't the driver to that but to your point, where we see expansion as specialty continues to be.

Aggressive both in a direct to consumer model as well as expansion of retail stores.

We've seen outdoors and expanding and impact all the key accounts and so you see accounts like Rei, who are growing 15% to 20 doors a year new expansion as well as you see retailers like Dick's Sporting goods Academy Sports bass Pro Cabela's feel Sportsman's warehouse you name it.

Expanding their door distribution in fact, you know Dickson announced in and has successfully rolling out the new public land retail format and all of that.

It only adds more doors to the market and expand those retailers into the mix, but really more importantly, where the room rates eroded that invites a lot more inclusion to a much wider.

New consumer base to outdoors them and that's really what loaded it's not that.

Core climber climbed more or finally, starting timing during COVID-19 . He was always doing it. It's the number of new participants involved in each and every one of these sports that really drove this and then the retailer just following the trend.

That's incredibly helpful and best of luck going forward.

Thanks.

Thank you. Our next question comes from Randy <unk> from Jefferies. Your line is open.

Hey, guys good afternoon, and good evening.

Thanks for taking my questions I guess I wanted to unpack the the adventure segment, a little bit you gave us the guide.

For the revenue.

2022 can you give us some perspective on how that looks on a.

For full year assume that the businesses are owned on a full year of 2020, what that growth rate looks like.

Year over year for 2022, just curious.

Yes, so Randy great to have you and always a pleasure to speak with you. So when we look at the adventure segment.

Keep in mind. This is consistent with what Mike highlighted in the prepared remarks in terms of how we're providing the guide just considering the different headwinds that are being experience. We wanted to make sure that we're responsible in our approach. When you think about the guide, though on a year over year basis from a pro forma standpoint, you're looking at high single to low double digit growth.

Right now this is a category that we believe long term should be.

Higher than that and we actually have a clear path for growth to be able to accomplish those types of targets even in 2022, but the limiting factor is.

We're doing with biblical floods in Australia, right, now and and elongated supply chains coming into the U S and.

There's just there's a few headwinds that we wanted to be aware of and reflect in our guide.

And something that naturally through our scrappy approach will continue to push through in and look to achieve so we're extremely bullish on this segment.

Highlight the addressable market is pretty massive theres a lot of opportunity for growth both organically and also through M&A.

But we're just being a bit tempered right now in terms of our guide just because of some of these external headwinds that are being experienced not because we believe that the opportunity for that segment is is less and less than what I. Just stated I think Randy you should watch for it now over the last.

Multiple quarters, our goal is to go out.

Be very clear and transparent about all the headwinds that we anticipate will arise in this category, whether by channel or by geography, or political nature, you name it be upfront about it.

You know temper our guide based on the worst case scenario then as we can be scrappy as Hal and do everything we can do over achieved that but realizing that at the bare minimum. If these headwinds continue we feel very confident about our our guide but then we also believe that with some.

Some locked in a lot of hard work and scrapping is that we will exceed expectations and that's been our confidence and consistency over the last few years.

No that's super helpful.

Sure that the growth rate would also be much higher assuming you were able to get all that distribution synergy for sure or the.

So I wanted to maybe cause air and you can kind of and we're seeing that in the U S market, where we can be a little faster, we're not still having COVID-19 lockdown that we are in Australia, nor have the biblical floods at least not yet.

In this market and so you know where April Fortunately to see that acceleration a little quicker in those markets than we are in the home market, though we still see significant upside and market share opportunities for growth in Australia, and New Zealand.

Yeah. So I wanted to ask about this comment yeah. That's super helpful and Aaron you made a comment that you would hope that I believe you said something to the effect of by the end of 2022, you would hope to have you all brands under the portfolio kind of being sold across your distribution pipes. So maybe kind of walk through and talk through how you think about.

Out.

Bordering your effort and timing around using that distribution scale and synergy opportunity.

Cross your account base and how you know how you kind of think about kind of executing that and how you kind of think about that providing you guys with much more kind of impact that those accounts, because you're just bigger and have more products and services. If you will of products and brands to kind of to kind of meet their customers' needs kind of walk us through your strategy there.

Yes, so John and I will tag team this but so first.

And just to clarify what I was highlighting is that theres, a real opportunity because of the Super fan brand nature of each of our brands. Once again. This is not a defined strategy as we've been pretty open about we don't view our strategy through the lenses synergize nation, but instead it through the lens of innovate and accelerate and embracing and understanding to you.

Neat characteristics of the DNA that exist with the niche superfan brands, but also all about taking market share through foundational pillars that we've been able to outline and one of them as being just extremely.

Extremely easy to do business with now with that being said because of the nature of these brands and the product that we offer we are seeing that there is strong demand and request from some of our key accounts that span all segments that have asked for us to be able to provide this product to them now with within Renner.

Specifically, we're going to first and foremost focus on the automotive aftermarket because one of the things that we have been able to learn and identify over the last couple of months.

The rental rate ran resonates extremely well with the end consumer is just that our level of service or the whole concept of being easy to do business with frankly has not been where it needs to be.

So it plays right in line with the overarching strategy in the areas of focus that we implore. The other piece, though is as we continue to look into what's going on in the marketplace as well as what some of these key outdoor accounts are looking at overland in activity overall lending is real and they want to participate in it and.

Because of the relationships that we've been able to develop and the reputation that we've developed because of the foundational pillars are elements by which we run the business with they have approached us asking that we would support their efforts with this and providing them with not only run a rack, but also <unk> product and so we do believe by the end of the year.

There will be an opportunity where you'll see it all.

All product categories from our different segments within certain key accounts because of the way that we run the business, but also because of the the gravitational pull that exists with the superfan brands I think it's really important R&D on this when you think you know whether it's the ability to look around corners, which is one of my favorite new comments on this.

We're just lucky that we're playing in the outdoor world. The synergies are really the consumers' behavior that are driving the superfan brands and so one of my favorite experiences right before the holiday was extended in a parking lot in Texas with a big retailer with the GM of retail and change them what do you think.

Tentage is of vehicles in your parking lot better pickup trucks, Toyota or Suvs and the lapping was 70, 80% I think Greg you had a 3% fitment rate on those vehicles you'd be doing three or $400 million a year and then the right went wow.

You're right the exact same consumer and he's already here I can either services or even go to the automotive aftermarket, but the consumers already made those choice they've already picked the activity, which I sell them and they are driving a vehicle that fit the activity base.

Their choices now I just need to combine the two.

Yeah, It's super helpful. Thanks, guys.

Thanks, Randy appreciate it.

Thank you. Our next question comes from Matt Koranda from Roth Capital. Your line is open.

Hey, guys good afternoon.

That's to Mike and Aaron as well.

Just wanted to cover a bit more about the outlook for precision sport.

And just wondering if you could speak to sort of ammo versus bullet mix and a $113 million revenue outlook for the year and then just any price growth that's embedded in that low single digit outlook or is that pure volume.

Yeah, you bet. So this is Aaron.

So as highlighted within precision sport, we expect that our ammo will continue to represent at least 30% of our business now Sierra as we highlighted is plus 30% in Barnes tends to trend a little bit more towards the mlp's, but we are continuing to see also.

Quite a bit of a lot of growth opportunities within the component bullet side of things and it may be worth just unpacking that a little bit first of all it's important to realize that over the last 18 to 24 months every bond has been over indexing the domestic market and also really focus on the Mlps now we believe that we have.

Unique points of differentiation when it comes to our AMOLED, both within that a share and also about a barn, we've talked about these characteristics before in terms of whether it be precision and accuracy are also terminal performance. These are key characteristics that the end consumer really requires and draws after when it comes to.

The choice of enamel cartridge the other piece of those that we prior to.

Taken prior to 2002 thousand 22021, we had a strong presence from an international side and also the providing of bullets for OEM customers that demand has not stopped and that's also another opportunity as we look to increase as we look to increase capacity that will also look to continue to explore.

Or take market share within and so.

Overall expected ammo will continue to be in the range of call it 30% to 40% of our business, but we will also continue to look to increase capacity overall, not only to round out our entire <unk> offering but also to continue to support our customers that are focused on the green box of black box side of things, but also the OEM business.

Got it and just maybe the labor.

Rice.

Question, but.

It sounds like probably more volume growth I would assume just given the capacity commentary that you just made there but go ahead.

Yeah, and we were also able to pass on pricing as highlighted in the prepared remarks. We believe that this is a true manifestation of superfan brands, where you were able to increase price, but also gain market share and overall at the clearest level, we were able to increase pricing call it 6% or so all in across the different business units for that of 2022.

So there is a benefit to be had there.

But for US. It's also about just taking market share and that's increasing units along the way as well.

And that is why I asked that question, Matt I think it's important to realize.

Every year, we look at price as a function of the product innovation relative sphere in Barnes.

And now with Madden traction right now and then of course every season with Black Diamond, we revisit price both through new products through the innovation cycle or just through the constant market share and an introduction of the new season products and the cost pieces and so we're always mindful of that.

But it's just one tool in the goal as Eric said to really how do we ensure that we make the very best products. So that our consumers can have their best days out in their chosen activity and then ultimately about stealing market share.

Great.

Thanks for that John and then.

So my other question was on the outdoor segment.

And the conservatism I guess that you guys have called out that is embedded in the outlook. So I may have misheard you, but I thought are in your prepared remarks, you said something about the order book and the $270 million range.

But the outlook to 38, so just wanted to see if we could get a little bit more color on the approach to it.

Our conservative approach and how you factored in maybe some of the more recent developments in Europe and to the BD outlook Yeah.

So you are spot on with the with what the commentary around the order book being $270 million.

This really once again is a testament to the entire team the way that we've continued to accelerate and position the black Diamond brand within the marketplace on a global basis now one of the things that we're looking at is that we are seeing.

Just headwinds when it comes to logistics and supply chain side of things as an example, as mentioned we experienced some issues with our third party certainly with the with one of our freight forwarders candidly that's impacted our business by anywhere from a half a month to a full month of receipts.

And that's something that we're working through in terms of how we just overcome that and that's why it's also reflected in our guide for Q1 as well. The other thing is we are seeing some component shortages such as microprocessors or other electronics, but also some delays as it relates to even aluminum.

For that and were trekking pole business and so.

It's not to give us an out but it is to highlight that the demand is there that the team. This is once again huge kudos to the entire team for the amount of work that they continue to put into into the business and the way that they continue to execute but we are seeing some noise in the in the supply chain and logistics side of things that just causes.

To be a little bit more tempered in terms of our guide recognizing that theres a lot of opportunity for us to be able to.

To exceed in a substantial way depending on how the supply chain logistics side of things take shape.

Very helpful.

I will jump back in queue. Thanks, guys.

Thanks.

Thank you.

Question comes from Laurent <unk> from BNP Paribas Exane. Your line is open.

Good afternoon, Eric Mike Congrats on your new roles and it's strong and if I can say the word scrappy finish to the year.

Thank you so much.

For the word.

I like that word.

So Joe.

Yeah.

Sorry, I forgot it I think I appreciate your comments around.

The Russia, Ukraine situation obviously.

The market dynamics at play here.

I don't know if you could you quantify how big your Russia business, Ukraine business, and maybe just because and obviously where the market is going.

Your eastern European business, because I know, 40% of your overall business comes from from abroad.

Hey, Ron its Mike sure Hey, our our exposure directly into Russia isn't that significant its about $750000 a year.

That's.

It is.

It's a smaller number but it's a.

Value driven decision on our part and just the right thing to do and John and Aaron I talked about this so that led to that decision to suspend operations.

Customers in Russia.

And to your question on Eastern Europe , Obviously, we play in eastern Europe more around around Slovenia Lochia Poland.

It is a portion of our of our European and our <unk> business.

But I think without without talking specifically about prioritization and allocation, obviously as Aaron said.

His focus and primary focus in 2022 is the first out of North America, followed by Europe , and as you know.

Just turned in the question and answer session. Obviously, we have a demand book, we're not able to supply all that demand and so part of this is just about making smart allocation, where you put that inventory because you're not going to get all of that inventory.

Okay very helpful and then.

I think Mike you pick you mentioned.

Gross margin adjusted basis were up 120 bps of which I think that includes about 100 basis points.

Incremental airfreight, so all said.

220, just curious to know how much how much was that.

Driven by.

The acquisitions and.

And how do we think about.

First quarter and full year gross margin in the context of just.

Air freight freight overall, it's just being such a headwind for everybody.

Well, we haven't guided gross margins right, we just talked about for the first quarter for the year.

Market is still pretty fluid as Aaron.

Alluded to from a supply chain standpoint so.

Are we still incurring those types of costs, yes. So I think that's important to understand we don't that could probably be a headwind for the next six months actually so.

We are targeting improved gross margins, we've put through the price.

Aaron mentioned, a 6% price increase.

Net the way that we're looking at that on a price cost basis on a net basis, we expect margins to benefit in 2022 by about 100 basis points, but there's a there's a long way to go and a lot of challenges out there.

As we've alluded to over the last dollar so that's kind of how we're.

It is how we're looking at 2022 going forward from a margin standpoint.

Very helpful. Mike and last question, Aaron I think you mentioned.

Leverage targets that you could potentially go a little bit higher.

The right acquisition. So two part question here, one how much higher would you go.

Like what's the Max.

I think you mentioned you may potentially rise in your credit agreement, but just how much higher would you go and then would it be.

Which segment would you would it be would it be logical to assume it would be in the adventure segment. If you made another acquisition.

Hey, Laura it's Mike again.

I think we were specific in our prepared remarks, we'd be looking to do M&A in the outdoor space or the adventure space.

Could we take our leverage up to $3 75.

Yes, alright, but we wouldn't look to go a whole lot past that and as we said in our prepared remarks, we'd bring we'd have a plan in place to mitigate that and bring that back into that targeted range over the next 12 months in a pretty pretty disciplined fashion to get it back into that two to three targeted range.

Okay fair enough.

I think that I think the thing to also highlight there is just we continue to demonstrate our disciplined in how we think about our capital allocation policy and how we manage leverage and it's important and also note that our banking relationships have highlighted or have shown their willingness to help her stretch through the way.

The credit agreements are structured now once again, it also becomes a bit circumstantial depending on the actual type of acquisition and what it all means what we do commit to everyone is that we will continue to be very disciplined we will be thoughtful and that will always have a clear path as to how we maintain or remain within that range.

Because we believe that on a long term basis.

It's a very healthy range and also considering the way that the business is progressing from both an EBITDA, but also a free cash flow perspective is not something that we would anticipate.

Getting over the tips of our skis on if you will.

I mean, obviously reloads.

Following each additional acquisition an opportunity the sooner we deleverage the business and get back in that range and prove out the discipline that the sooner the next opportunity.

Great. Thank you all.

Thank you.

Thank you. Our next question comes from Linda Bolton Weiser from D. A Davidson your line is open.

Hi.

You could kind of talk a little bit about.

A few quarters ago, you were talking about having to balance being able to supply your DTC efforts versus your wholesale retail customers.

Is that something that is still an issue or are you able to kind of supply each channel.

About as much constrained because you did previously.

So that is something that we're currently working through.

As highlighted in prior quarters. As you noted this was a topic of concern just because we werent seeing the deliveries or the flow of goods. According to the to the lead times that we've lined out despite our best efforts in terms of increasing the pipelines and trying to accommodate that for that as we look to spring 'twenty two product and also the rest of the year we do.

Leave that we will be in a better position to not only provide a high level fulfillment.

For each of our retail partners, but also a high level fulfillment for our end consumers through our own through our own DTC channels.

Our direct to consumer business as a primary area of focus we realize the importance of that and we have.

Longer term targets as it relates to where we want that business to be while also not taking away from what it means to service our wholesale accounts and so the onerous is really on the operational team and on the supply chain team to make sure that we have the right product in the right place at the right time, so that we can provide the best representation of the brand to the entire.

<unk> base and customer base, regardless of what regardless of channel and so we do believe though as we head into <unk>.

The tail end of the first half and in particular the back half that we should be in a better position to be able to fulfill the.

The demand that exist across the different channels.

Okay.

And then I'm just curious.

And the shipments from Asia in terms of your Ocean freight.

Do you contract for that like ahead of time for like several months or a year or do you kind of buy on the open market.

It's more on the open market, they're called open book, they're called bookings and typically end up.

Booking those vessels 30 days in advance or so and so.

So both in terms of lead times, but also the cost the cost associated with.

With.

The broader market has seen in terms of increased oceanic freight rates.

Once again, we're not immune to it so we're taking very proactive measures in terms of how we think about where products are sourced the way that we build up those pipelines and where that inventory goes how we price it.

And then also how we think about alternative ways of getting that product into the different into the different nodes and one of the great ones on Linda the team has done well to get in front of the curve right. If you know exactly where that curve ball is going to be at exactly the right moment, because you've gotten in front of it the chance.

The hidden that have gone way up and so.

Planning, hence the operational role in AK focus is really on that getting in front of that because if we can plan this out.

By earlier and be more accurate and move it earlier than we can get in front of this curve in that.

The downside is you've seen an increase in our inventory, but the positive is it's allowed us to try and accelerate and keep up with the outdoors and demand in the fulfillment for our top retailers.

Okay. Thank you very much.

Thank you Linda.

Thank you. Our next question comes from Mark Smith from Lake Street Capital. Your line is open.

Hi, guys I'll, just keep it at one here.

Look at the adventure business with on the revenue guidance can you just talk about how much you expect in domestic sales.

Yeah, that's about 25 or so percent. So when we bought the business. It was call it 20% and we do expect that the domestic side of things or the U S market will grow faster than that of the international side of things and so we do anticipate seeing that mix shift from 20% to 25%.

Excellent. Thank you and then as we as we accelerate that obviously.

Obviously and you've heard from us before.

We believe that Australia, New Zealand market ought to be similar.

Similar equal to that of the North American market in time, and so obviously without slowing down the Australia, New Zealand market continued to meet and exceed the demand requirements.

In the North American market.

For Matt.

We get a chance to look at third market, whether it be South America, Europe or others.

Yeah.

Thank you.

Our next question comes from Ryan Sundby from William Blair. Your line is open.

Yeah, Hey, Congrats Dan and Mike and thanks for all the detailed information today guys.

Okay.

With the adventure segment, when you bought run Iraq, you touched on new product introductions and category expansion growth drivers beyond the obvious geographic opportunity here I guess, maybe just start with category expansion could you maybe walk us through the decision process there to buy something like Max track versus maybe trying to enter.

Corey like that under the Rhino brand.

Yeah. So obviously, we always look at two ways to grow the brand. One is continue to gain market share in the products that you already have a leading market share and obviously, that's a function of a super fan brand and then the addition is looking at the next logical adjacency and saying Hey, do we have an opportunity given our brand strength.

To go into that marketplace.

The biggest one opportunity in what we call the oberland and accessories, because once you have the rack and we believe we have the best <unk> technology in the market and the opportunity expand that then it's about all the things you can put on the rack and.

Walking through this and again, Aaron and I are looking at the catalogs of Rhino rack when we bought the business and produced the first effectively fall 'twenty, one catalog and we've looked through page. After page, we would see the orange Mac tracks on the rack consistently then I went to FEMA and what ratio and.

<unk> been in the show an hour before I called Air and intend to do there are literally orange math checks on every rack before I, even got to the booths like this clearly is the Super fan brand of this space now we'd already been in discussions with Brad and the group at that point and that just reassure what we knew but you know you gotta be careful is and then what we believe.

You've got to be careful trying to supersede the superfan brand who is the dominant market share leader in this space. If you have the opportunity. Fortunately, we did to go and acquire that because we think a matrix the super Super fan brand of that space with the leading market share it's gotta be 75, 8%.

And the huge opportunity to expand that.

In other areas, we will look at where there are not dominant players, but this is trying to go and supersede Nike in basketball.

May be a shorter path and that's kind of where we saw it clearly was an important part of it you are going to get stopped its not a question of if it's when.

And it was the leader, but we also saw it in the brand and of itself until the final that we will create overland and accessories within the Rhino rack brand, we also see extending and expanding the innovation and product.

Jason Please within the Macs tracks brand right and we've seen them in separate two one is about rack and overland and the others about recovery and though they may seem similar to the end use on the moment in the time the rack doesn't help you get unstuck.

Okay great.

That's great.

And then I guess just from a geographic standpoint, it sounds like Youre already starting to see some changes in North America.

I guess I'm a little unclear.

If you build distribution how quickly can you scale production to meet those plans.

Are there any sells windows that you need ahead or are you able to kind of AD placements throughout the year, Yeah, you bring up a really great point.

No.

Well I would the NBA equal the world of Super fan brands, but we didn't really call them that yet obviously, but we thought of it from makeup on all of the product go out and sell the heck out of it and then marketing what we have learned.

And became a critical understanding either specifically claris and our operating model is that first you have to make innovative product number two you better have a supply chain that can not only produce that product, but shifted deliberate fulfillment on time and be easy to do business with then go out and sell it didn't go up.

Marketed.

We see huge opportunities for Rhino rack business, we see current strong product in the pipeline of the existing lines that hasnt been maximized in the first distribution the automotive side, let alone the OEM or the outdoor side, the second and literally became the big focus and again part of the reason for Aaron's.

Promotion and bigger role is that of the operations that is because at the end of the day, if we cannot produce it and deliver it and logistically get it to the right, whereas at the right time, all the rest of it falls out the window, you don't need a salesman alright.

Alright, and so that's literally been the focus the first six months.

Now as we do that and gain credibility through on time delivery and fulfillment with our key retailers and then when you come back to them with innovation and opportunity to expand that brand either deeper in the product category that you have or an adjacency that are now they're open to it but as we all saw during the procedure.

As we reported in the last 12 months, if I went to somebody said Hey, let me tell you about the new innovation. So we havent butcher Emerald they take time out when am I going to get the order book that you've had for the last 12 months that I haven't seen.

Don't worry about innovation can worry about shipping then we'll talk about innovation and so there is a true cadence to the operational model here. We believe we can grow this business significantly over the next 12 to 18 months with the current ranges by just delivering supporting fulfilling the automotive side.

Let alone the expansion within the outdoor side, while that also gives us the time to ensure that all the innovations that we're doing at Ryan and Matt tracks are literally industry disruptive when we go into launch those probably in the 23 plus range.

Got it.

Okay helpful and then they'll probably be more micro Erin.

Sequencing standpoint for the year I think historically the business has been.

And then kind of a 45 55 split.

Yes.

We've got to be platforms, now and logistical challenges that you've highlighted.

Any thoughts about kind of how the year shapes out.

Again.

Yeah, it's still consistent with the 45 55 split or so.

Got it great. Thank you.

Thank you at this time. This concludes our question and answer session I would now like to turn the call back over to Mr. Walter for any closing remark.

Thank you chrystal, we'd like to thank everyone for your questions and for listening today on the call and we look forward to speaking with you again, when we report our first quarter 2022 results.

Again, everyone in our president and thoughts are with the people in the Ukraine.

Ladies and gentlemen, this does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.

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