Q1 2022 Clarus Corp Earnings Call

May 9, 2022

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This is the operator todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience. Today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.

[music].

Good afternoon, everyone and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the first quarter ended March 31 2022.

Turning us today are Clarus Corporation's President, John <unk>, Executive Vice President and CEO Erin Judy.

CFO , Mike Keith and the company's external director of Investor Relations Cody Slaw.

Following their remarks, we will open the call for your questions.

Before we go further I would like to turn the call over to Mr. Slaw as he reads the company's safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1095 that provides important cautions regarding forward looking statements.

Please go ahead.

Thank you 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 faith Clarus Corp, and the industries in which we operate more information on potential risks excuse me potential factors that could affect the companys final.

Actual results is included from time to time in the company's public reports filed with Securities and Exchange Commission.

I'd like to remind everyone that this call will be available for replay through May 23, starting at eight PM Eastern Tonight.

A webcast replay will also be available via the link provided in today's press release as.

As well as on the company's website at Clarus Corp, <unk> com.

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

Thank you Cody and good afternoon, everyone.

First quarter of 2022 is successfully in the books. Despite the many challenges people across the world are experiencing proving once again that activity based brands in the outdoors are continuing to experience strong momentum and that Super fan brands drive those market trends, especially.

We ended up in tough times, let me summarize.

Our precision sports segment continues to execute at a high level growing sales by 41% and then our adventure segment. We are pleased to report early success in our innovate and accelerate strategy, especially in North America in fact, Brian <unk> net sales in North America during the first quarter.

<unk> increased 42% and early proof point of the substantial white space that we believe exists for our adventure brands in this market as we continue experience a strong order book with Black Diamond, but supply chain and logistics challenges impacted our ability.

<unk> to convert all outdoor segment demand into revenue.

We are incredibly proud of our entire team of colleagues who continue to drive these strong results, especially given so much uncertainty in the marketplace.

We continue to be nimble and decisive in the individual brand levels, which is critical in achieving the level of performance proof again that great teams build great brands.

Now, let me address our performance by business segment.

Starting with our outdoor segment.

Those were roughly flat in the first quarter, despite strong consumer demand.

Due to the continued supply chain and logistics challenges and other delays caused by COVID-19 related shutdowns in southeast Asia, we were unable to fulfill roughly $10 million in demand with product during the first quarter that had already been produced but stuck in transit.

Given the high concentration of core equipment that BD sales, we expect to convert this in transit inventory into inline or full price revenue in future quarters.

Our global order book for Black Diamond has continued to sustained momentum.

With that.

That we stated earlier this year, we are purchasing inventories in line with our demand plan of $270 million to support these higher levels of bookings. However, we are handicapped the handicapping. This order book in our 2022 sales guidance as a result of the supply chain and logistics challenge.

As we continue to face.

As we stand today, along with a very strong fall 'twenty two order book, we have confidence that the black Diamond brand topline revenues should accelerate going forward.

Most of the logistics challenges impacted our equipment sales as our apparel business was up 53% year over year, driven by growth in men's and women's outerwear and women's sportswear.

Most importantly, apparel remains our fastest growing category confirming that the black diamond positioning of apparel as equipment continues to resonate well with our core consumers.

We experienced strong reacceleration in our direct to consumer growth with sales up 38% in the quarter.

This was overseen by our new Vice President of E Commerce pricing White, who joined our team in December of 2021.

He has already been successful in activating our digital first strategy.

Focusing on performance marketing and balancing that approach across search top of funnel paid social and email re targeting we also did a better job of fulfillment, while still balancing our desire to serve and grow our wholesale retail partners.

As we look to the rest of the year, we expect continued momentum from our direct to consumer business within outdoor.

Moving to precision sports.

Q1, 41% growth was an exceptional quarter, where several factors worked in our favor.

We outperformed on our ability to increase capacity and satisfy an increasing growing OEM demand, while continuing to be scrappy, and our ability to deliver ammo across both Sierra and Barnes.

Shell cases continued to be our number one challenge from a sourcing standpoint, we've done an excellent job sourcing copper and lead using our balance sheet to secure these materials in advance of the rising cost and accelerated demand.

For 2022, we continue to drive towards an end of year book production run rate target of 350 million bullets at Sierra.

And 120 million bullets at bonds, resulting in the doubling of both businesses and substantially improve margins since acquiring them in 2017 and 2020, respectively.

Through both tiara and bonds, we have complementary brands that provide strong runway for long term growth.

Tiara is focused on precision and we will continue to see to maximize growth through proactive innovation and the expansion of our ammunition collections.

Barnes is focused on terminal impact.

The hunting brand of reference that has been selling ammo for 30 years servicing the large addressable market that has been built over decades.

Our brands are gaining market share across all leading categories and bookings remained strong across our portfolio. Although we are tenacious and disciplined in our approach. This doesn't mean that we are immune from the various external supply chain challenges that are currently being experienced as we work towards building increase.

Past, the and product availability to support our longer term targets of $200 million annually for precision sports.

The new product.

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

And our adventure segment, our innovate and accelerate strategy began to take shape in the first quarter we.

We are excited about the growing momentum of overlapping however, as many witnessed Australia was impacted by extraordinary floods affecting the Australian continent, and continued impacts of COVID-19, Lockdowns early in the first quarter.

This negatively impacted our short term demand in Australia.

More positively Q1 marked the first full quarter of Rhino rack introduction into the North American market reception was strong as sales increased 42% on a pro forma basis.

Initially we are focused on meeting the growing demand of our top 10 key automotive aftermarket retailers and preparing for accelerated opportunities through both the automotive aftermarket and outdoor channels.

<unk>, which we acquired in December of 2021.

So an acceleration in the first quarter as we increase the inventory allocation to catch up to the growing demand of our recovery boards within the overland need space.

In summary, we believe our portfolio of Super fan brands.

Well positioned to continue our market momentum.

Our activity based brands have demonstrated strong resistance to recent economic headwinds while outdoor is continues to fuel demand for the outdoor activities that we serve.

As a result, we believe there we are well positioned for another record setting year in 2022 ill now pass it over to Mike to talk about our financial results in more detail. Thanks, Mike.

Thank you John and good afternoon, everyone I'll go into some additional detail relating to our financial performance for the first quarter.

Our outlook for the second quarter and full year 2022, and conclude with a few comments around taxes and our capital allocation priorities.

Sales in the first quarter increased 50% to $113 3 million compared to $75 3 million in the prior year quarter. The increase was primarily driven by a $9 6 million of sales growth and the precision sports segment, along with revenue contribution of 20.

$4 5 million from Rhino rack and acquisition completed on July one 2021, and $4 2 million from Max tracks and acquisition completed on December one 2021.

If we had owned these brands during the first quarter of 2021 pro forma growth in Q1 2022 for the entire company would have been 6%.

First quarter sales in the outdoor segment were 51 $5 million roughly flat versus the $51 8 million in Q1 of 2021, if you adjust for foreign exchange outdoor sales would have been up 2% in Q1 2022 as John mentioned.

And supply chain and the logistics issues cost growth in Q1 to be challenging in the outdoor segment, specifically, we experienced longer lead times translating into higher value of inventory in transit during the quarter.

Impacting specifically our hard goods sales.

Typically around Poles and like the Black Diamond However, our apparel business continued to be our fastest growing category within our outdoor segment with sales up 53% in the quarter. This is important as apparel, along with footwear and direct to consumer our key strategic growth drivers over the next five.

Five years, our direct to consumer business grew nearly 38% in the quarter as we are starting to see our e-commerce business gained traction.

Precision sports sales increased 41% to $33 1 million in the first quarter with Sierra up 14% compared to the prior year. The increase is largely the result of continued high demand for ammo and significant growth in our OEM business during the first quarter specifics.

<unk> ammo was up 145% year over year, and our OEM business was up over 55%.

<unk> sales were up 88% year over year, including 69% growth in black box and a 196% growth in ammo our teams at CRM Barnes did a great job this quarter in <unk>.

<unk> capacity fulfilling strong OEM demand and continuing to be scrappy and our animal business.

Sales in our adventure segment were $28 7 million as John mentioned, the integration of Brian Iraq, and North America is going according to plan and we have seen it in the results total Rhinal rec sales for the first quarter were down 12% year over year on a pro forma basis due to the challenging market environment.

Failure caused by the COVID-19, shutdowns and catastrophic flooding in key regions throughout Australia, we expect the <unk> business to get back to growth for the remainder of 2022 total <unk> sales for the first quarter were up 5% year over year on a pro forma basis.

Switching over to margins consolidated gross margins in the first quarter increased 320 basis points to 39, 1% compared to 35, 9% in the year ago period, and it was up 290 basis points to 39, 3% when adding in the <unk>.

3 million fair value inventory step up charge associated with the <unk> acquisition improvements in channel and product mix, along with operational efficiencies drove the bulk of this margin performance.

It's more than offset the $400000 of incremental airfreight expenses that we incurred in our outdoor segment during the first quarter.

It is important to reiterate some of our commentary from our last call related to pricing, we will continue to be thoughtful and disciplined in our approach to pricing. During 2022, we have been able to increase pricing by approximately 6% across the claris portfolio.

A strong characteristic of a superfan brand.

Is the ability to raise prices each year, while still growing market share and we believe we are doing both.

Moving further down the income statement selling general and administrative expenses in the first quarter were $34 2 million compared to $20 9 million in the same year ago quarter. The increase was primarily due to the inclusion of Rhino wreck and Max tracks, which contributed $9 4 million in expenses.

Noncash stock based compensation for performance awards was $3 4 million and a $1 $8 million increased compared to the first quarter of 2021. The remainder of the increase was driven by investments in our go to market and fulfillment activities in support of growing sales.

Net income in the first quarter was $5 3 million or <unk> 13 per diluted share compared to $5 seven or 17.

Per diluted share and a year ago quarter adjusted EBITDA in the first quarter increased 85% to a record $19 7 million or an adjusted EBITDA margin of 17, 4%. This compares to $10 6 million or an adjusted margin of <unk>.

$14, one in the same year ago quarter.

<unk> adjusted EBITDA EBITDA results were driven by purchases sports segment, and the higher margins those products carry.

Now I'll shift to liquidity and asset efficiency.

Inventory levels were at $152 7 million up 18% from where we ended 2021. The dollar increase reflects proactive buying across all of our segments. Given the demand curve. In addition, we experienced longer lead times during the quarter translating into higher than normal inventory levels.

We expect these supply chain challenges to subside in the back half of 2022 as we are now currently starting to see lead times improve which we expect to also translate into lower levels of inventory at year end.

As of March 31, 2022, cash and cash equivalents were $16 5 million compared to $19 5 million at December 31, 2021 free cash flow defined as net cash provided by operating operating activities less capital expenditures for the first quarter of 2022 was a neck.

<unk> $12 7 million compared to a negative $3 9 million in the same year.

The decrease was primarily due to our investments in inventory previously noted.

As Mark at March 31, 2022, total debt was $151 9 million, putting us in a net debt position of $135 5 million.

Net debt leverage was one nine times on a trailing 12 month adjusted EBITDA basis, which is right at the low end of the 2% to three times targeted leverage leverage goals that we shared last quarter.

In connection with future M&A.

We may we may experience and we expect that we may extend our leverage a bit higher but when we do we will always seek to have a clear plan of how to bring it back within the targeted range over the course of a 12 month period, where owners and operators that are committed to being shareholder friendly and response.

<unk> and how we run the business and manage leverage.

On April 18th we took an additional step to strengthen our ability to pursue other activity based super fan brands by upsizing, our credit agreement to $425 million.

The new credit agreement is very similar to our prior agreement, but working with our expanded banking partners. We were able to expand our bank group to seven bank and increased our revolving facility from $100 million to $300 million. We continue to have a term loan in the amount of $125 million, bringing the total facility to <unk>.

$425 million compared to our prior credit agreement of $225 million, we look forward prudently using this additional capital to seek to invest both organically and inorganically to create shareholder value.

Let me move onto our outlook for 2022, we expect consolidated 2022 sales to grow 25% to $470 million compared compared to 2021 by segment, we expect sales to the outdoor segment in 2020.

Who increased high single digits to approximately $237 5 million in sales from our precision sports segment is expected to grow low single digits to approximately $112 5 million.

Also expect sales from our adventure segment to contribute approximately $120 million in 2022.

Specifically for the second quarter of 2022, we expect consolidated sales of approximately $110 million.

More importantly, we expect the growth in the second quarter to be broad based with all three segments expected to deliver sales growth.

On a consolidated basis, we continue to expect adjusted EBITDA in 2022 to grow approximately 27% to $78 million. In addition, we still expect.

Full year capital expenditures of approximately $9 million and free cash flow is still expected to range between 50 and $60 million for the full year 2022.

From a tax perspective, I'd like to address our Nols.

We have delivered record sales and profitability that has enabled us to deploy over $350 million of capital on acquisitions, starting with Sierra bullets in 2017. Since this time, we've also realized over $109 million of tax benefits associated with our NOL carry forwards.

In 2022, we expect to realize $39 5 million in tax benefits prior to their expiration at the end of 2022. This is quite a testament to our organization's accomplishments in making accretive acquisitions, while driving significant cash tax savings and value creation.

For our shareholders.

Finally, I'd like to address our capital allocation priorities. We are very pleased with the direction of our business, 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 bag.

<unk> is first and foremost way to grow we have a business with increasing levels of EBITDA and strong recurring free cash flow.

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

Maintain a $30 million share repurchase program, which still has approximately $10 8 million of available.

Over the years, we have purchased nearly three 5 million shares of our outstanding common stock at a cost of approximately $19 2 million at an average price of $5 42 per share from a capital allocation strategy, we expect to continue to prioritize organic growth M&A.

Our quarterly dividend over shareholder share repurchase, but we will continue to seek to accumulate shares on an opportunistic basis.

I will pause here and hand, the call back to the operator as we are now ready for Q&A.

Thank you Sir as a reminder to ask a question you will need to press Star and then the number one on your telephone keypad to withdraw your question press the pound key please standby, while we compile the Q&A roster.

And our first question will come from Randy <unk> with Jefferies. Please proceed.

Yes. Thanks, a lot good afternoon, guys how are you.

Hey, Randy.

I guess, Aaron there sort of avenues there right.

Yes, good morning.

How are you yeah I just wanted to get your perspective on for me from a supply chain cost perspective.

How do you think we are running around in terms of trend lines going forward or are we kind of still.

Our cost of elevating or are they starting to kind of flatten out just wanted to get some perspective on the cost side of the equation and then on the.

The lead times, you spoke about how we.

Lead times negatively impacted.

Ability to.

Fulfill demand in the quarter I just wanted to get some perspective on what youre seeing around those lead times are they starting to kind of.

Peter out or at least are they still increasing just wanted to get some perspective, there as well thanks.

Yeah, you bet. So on the cost side of things Fortunately enough for us things are starting to normalize I wouldn't say normalize theyre starting to stabilize.

As Mike mentioned, we have been able to in a disciplined way to navigate through that not only in terms of the way that we.

Manage the cost inputs.

With our with our vendor partners, but also how we've approached the pricing side of things in general, but fortunate enough in.

In terms of cost inputs, they are starting to stabilize and so the trend line is it's more flat and we are aggressively working with our vendor partners, but also with our R&D teams and our supply chains to find ways to offset that through cost cutting efforts and also just redesign efforts and the nice thing about also the innovate and accelerate.

Playbook is that each time, you come out with new products. It gives you a chance to reset the market.

The market price for the associated products as well.

As it relates to the to the delays that we saw in particular on the outdoor business side of things in Q1.

As you as you are aware of we've been building up the pipeline of inventory to offset the lung due to lead times associated with the logistics challenges that were being experienced we really felt that we were heading in a good way at the end of last year, but about mid February or so we started to see it was actually.

Towards the mid part of January to mid part of February we started to see the lead times associated with getting product from southeast Asia to the U S and also the Europe elongate by about 30 days.

As a result, we saw a gap started.

Get created in Q1, Fortunately enough in April we were able to start to see that softening up and to stabilize and get back to.

The traditional lead times that we were experiencing in Q4 and Q3 of last year.

The positive side is the inventory is flowing it's starting to come back in to the warehouses as Mike mentioned, we have quite a bit of inventory on the water, where now that inventory started starting to find its way into the warehouse and so as we look to Q2, we do expect each of the business units to get back to growing again, and it's not that we're out of the.

Woods, there, but we are starting to see a stabilization and to get back into a more natural rhythm that will enable us to get back to growing the businesses.

Super Helpful. And then I guess my last question is.

You talked about are Mike brought up.

Nice growth within the outdoor segment of apparel just wanted to get some perspective again, maybe from charter Mikes perspective, where do you think.

Errol can kind of get to from a penetration of total perspective, and then just how you're thinking about <unk>.

Channel channel mix in terms of DTC versus wholesale again within the outdoor segment just curious on how youre thinking long term, where that kind of channel distribution penetration goes thanks guys.

Yes.

So obviously, we yes, we really focused on this apparel as equipment concept and we've seen that really focused on three initiatives of growth within apparel that are happening both.

When we reported last quarter, but also this quarter and moving forward that that being snow.

That a performance rainwear stretch rainwear and that of rock bottoms, and then obviously from there we fill in what is the rest of sportswear in those three categories are growing significantly.

Think that now opens up new expansion of opportunities within existing doors.

As well as new door opportunities as we head into both the bookings that we saw in thought fall 'twenty two new door expansion, but then as we now launch into spring of 'twenty, three which is happening here.

Momentarily.

Your second question, what we what gives us great confidence in apparel at this time is that obviously, we have the super fan equipment parallels.

Parallels equipment strategy that really focuses first and foremost on ensuring we're building the right product for the core.

And the measurement of that is do we have a higher penetration and success through D to C.

And through our own expanded retail flagships and the answer on both of those is yes, and there. We currently see a global apparel business, that's about 15% of our sales globally, but we see apparel represent anywhere between 40% to 60% monthly in our D to C and in our flagship.

Our stores and that just gives us great confidence that we're aligning correctly with this core superfan consumer while at the same time expanding that success into our wholesale distribution long term I think we'd like to see it somewhere around the 30% of our sales direct to consumer.

Obviously apparel has wide footprint.

Men's and women's eventually in the kids you name. It. So it gives you a lot of opportunity in that.

And our big growth in the next few years is to get the level of success that we see in D. C. In retail in our biggest key accounts and in our specialty retailers globally.

Very helpful. Thanks, guys.

Thank you and our next question will come from Iran, Russia last year with BNP Paribas. Your line is open.

Good afternoon, and thank you very much for taking my question.

I think you mentioned for <unk> and I appreciate this.

You should think about <unk> revenues at $110 million, which I think you mentioned, maybe some balanced growth across the segment.

If that's the case and precision sports.

Would be up.

In <unk> year over year.

Should we assume that the segments should be down.

Double digits in the back half if that's the case just curious to know what's the driver on that.

No you understood that right.

The 110, and we do expect.

Precision sports business to grow.

As show growth in the second quarter as well, but as we've been saying consistently here.

It's not a question of demand, even though across pushes and sports. It's always comes back to the question around capacity, which the team has done an amazing job continuing to add capacity, but also when we talk about being scrap it's around making sure. We can source specifically from a AMOLED standpoints the shell casing right we've talked.

A little bit about the challenges sourcing that so.

Have we don't have a full view on the back half yet for precision sports, we're taking it one quarter at a time, we've been conservative with our view on that business here.

65 days ago, when we released first.

Year end and gave the guidance for the full year for 2022, and we're going to continue to be prudent with our view on how that business performed throughout the year, but it has gotten off to a great start as youre noticing and we do expect it to grow in the second quarter as well as we sit here in may and.

And our understanding but.

Got it.

The prudent as we look through the remainder of the year.

Great to hear Mike. Thank you very much for that color and then my second question is really kind of a two part question here, but.

Can you parse out the drivers of the first quarter gross margin.

Most companies are guys are reporting gross margins down.

Like you could get to understand what's the drivers how do we think about gross margins as they evolve over the course of the year and then back in 2020 I think it was called out on one of the earnings calls that BD at about about a quarter of its supply chain coming from China, just curious to know where that stands today and if youre seeing any disruption from the lockdown.

In China.

Two separate questions there I'll take the first one on margins without pass.

The.

Supply chain question over to Aaron but from a margin standpoint, consistent with what we talked about really we thought we could get to a 39% margin for the full year right.

Even a few back in our first quarter call in March.

And we did get there this quarter right, but it's a little bit of a mixed bag.

Precision sports business fueled much of that margin improvement.

So that's where you see that obviously with.

The black Diamond in the outdoor business being flat margins were struggling a little bit they are under a little pressure there, but we expect that as Aaron alluded to if you just answered. The first question, we expect the black diamond business to improve throughout the year and margin will flow.

Through consistent with the top line growing.

Black Diamond as we see the supply chain.

Here in the second quarter and more so in the back half so.

So that's how the margin got up to 39% its really a combination of those couple of things.

And then Laura.

On the on the exposure to China side of things, that's still consistent with where were at and it really highlights though the way that the team has continued to work with our supply chain partners and working through those different.

Variations within the marketplace, whether it be shutdowns are just logistic delays and it also really.

It also reinforces our approach in terms of making investments into inventory and trying to securitize or mitigate some of those exposures by carrying just a little bit more inventory than what we normally would so that we can hopefully provides a higher price level of service to our retail partners, but also to our end consumers through our own DTC.

Channels with higher levels of delivery and on time fulfillment.

Great to hear congrats again on great results.

Thank you.

Thank you and our next question will come from the line of Matt Koranda with Roth Capital. Your line is open.

Hey, guys. Good afternoon. Thanks.

So you guys mentioned in the prepared remarks, I think if I heard correctly.

On average about 6% contribution from pricing increases in the quarter. So I was just curious if you could maybe discuss the segments, where you have had the ability to push price a bit more my assumption I guess would be.

You guys have the ability to take a bit more price more recently antero Barnes.

A little bit less so in <unk>, just given some of the supply chain challenges, but are we correct in our thinking there and then maybe just how to characterize price within <unk> and then where is there still opportunity for the rest of this year for additional action on price.

Well I'll start and I'll, let <unk>.

John and Aaron add any color, but.

As we mentioned again in a prior call Hey, we can put price increase into effect late.

Late last year.

The entire portfolio of businesses, we believe.

Those prices are out there that on average of around 6% across the portfolio. So I think we're capturing price.

Across the entire business right, we are incurring higher cost so too and I think we've mentioned that that's how we were expanding margins. We expected cost would probably go up about 500 basis points as well to yield about.

That 100 basis points improvement in margin, which is even.

Which we're realizing that we have.

We have realized price and we'll continue to push it across the entire portfolio and we will take we will evaluate that here as we continue to go throughout the year.

Based on that.

<unk>.

Input cost that we're going to experience right copper continues to be in the low.

Or $4 35, I think a pound. This morning, so we're continuing to see those types of increases aluminum as well so we'll be prudent.

And be able to react accordingly, if necessary later in the year with additional price.

The only other thing I would add to that is obviously each business has its own cyclical nature and in case of Sierra in barns, we typically unless absolutely necessary do price increases once a year. However in the BD world.

Season, both through NPI, and new products, we get to raise prices on new introductions innovations to the market and then we revisit pricing every single season, both relative to the input costs, but also relative to the competition and how we position ourselves in the marketplace and so it's always ongoing topic.

And as we look to spring 'twenty, three we revisit that again.

But we think of pricing as a way to both how we position our brand, but also how we maintain our our margins and our overall perspective on the market.

Great very helpful guys and then just when we think about the supply chain challenges subsiding.

At BD later this year.

Maybe just put a finer point on that for us it sounds like it's mostly just a function of improvement in inbound ocean freight and sort of the timing there but is there also some assumed improvement on the product sourcing side could you just break it down a bit more for us in terms of what's what's driving the improvement in the back half of the year.

You bet, Matt. So it was more of a commentary around stabilization versus improving I think thats an important distinction really highlights once again the approach the strategy that we've taken from.

Our supply chain side of things, but also the way that we've been utilizing our balance sheet.

We do anticipate seeing some of the supply chain challenges subside in terms of just overall improvements in the inventory availability, but there still are some.

The challenges out there similar to what we highlighted during our previous call in particular around microprocessors that are required for our lighting in our outlets.

<unk> transceiver beacon products et cetera. So.

The teams actively working through on a daily basis, but once again because of the way that we the way that we plan for the business the way that we interact and the way that we're prioritizing with our supply chain partners, we do get prioritization and we are in pole position to be able to realize the best possible outcome, but it's also why we will continue to be very focused.

In terms of discipline in how we did.

Ploy, our capital and the inventory during these.

During these periods of time, so that we can increase our levels of fulfillment and on time deliveries.

If I could just sneak one follow up on the inventory side.

Is there a way for you guys to quantify how much.

Inventory is still on the water that's embedded within the inventory balance at the end of <unk>.

Curious if its expanded year over year, how that's trended since <unk>, maybe just any any trends in conversion on that front would be super helpful.

Yes, we always have a certain level of inventory on the water naturally, but when we look at the inventory levels that existed at the end of the quarter I would say that we're sitting on $20 million of extra inventory.

That is just working through the system and that we purposely brought on in order to mitigate some of the supply chain and logistics challenges or delays that we're experiencing.

It is important to highlight though that.

We're very sensitive to one.

The generation of free cash flow in the way that we manage the overall health of our balance sheet in particular that of inventory, but also the way that we manage our land plans and as a result, we continue to be very confident that the inventory that we have on the books will translate into full price in line revenues over the next quarter or two.

Okay, Great I'll leave it there guys. Thank you.

Our next question will come from Mark Smith with Lake Street Capital. Please proceed with your question.

Hi, guys I wanted to look at precision just a little deeper here can you talk anymore about the mix of ammo versus bullet.

And how each of those segments.

It trended during the quarter.

Yes, so if you look at the way we reported here.

We're seeing significant triple digit increases in our ammo.

<unk>.

50, plus percent growth in our OEM businesses.

Obviously as you well know, we're not doubling and tripling our production. So we make choices between what we call reloading bullets green box or black box to that of OEM and ammo.

As we've often said, we prioritize ammo OEM and green box in the allocation.

Obviously ammo is a function as mentioned through this ammo is also a function of chasing bras and cartridges and so when we're scrap being able to pull it off we see better than accelerated opportunity and if and when we can't pull off the breast and obviously.

We reallocate towards the OEM and the Green box were black box, depending on the brand.

Mix of bullets.

And in that business as we look at International you had your best quarter, I think ever in that segment and international was that.

A function of Europe coming back or just having some capacity to be able to ship into international markets. What was it really was the main driver there.

That's OEM business that team over to precision sports group was able to execute on I think you've probably seen the number up from $1 7 million to over $5 million of over $3 $5 million of growth and it's all in the OEM side of the space.

And Mark just to reiterate there, though it's not that we've seen a slowdown in the domestic market. What it was is that these orders have been outstanding for an extended period of time, and we just felt it was necessary or appropriate.

How do we keep some of our capacity to those customers.

Pre 2020, we had a very balanced approach in terms of how we're doing with the domestic versus international side of things in the international piece will continue to be an area of focus and also an opportunity for growth, especially now that we have the Barnes.

Within the portfolio, especially when you think about being able to provide an all copper offering and so it's something that we felt was getting to the point, where it was a strategic importance to be able to allocate and service that market.

Once again was underserved over the last 12 to 18 months.

Perfect and then I think the last one for me just as we look at adventure segment.

Domestically can you just talk about the.

The growth there was that a function of more distribution or better sales within existing distribution or a solid combination of both those factors.

Yes, so the focus as we said going back to the premise is that we have approximately 50% plus market share in Australia than we had under 2% in the U S.

We started a preseason program last fall that we mentioned in previous calls.

We focused really the first.

Quarter on what we would call the top five to seven key accounts in the automotive aftermarket opportunity and reallocated we use the.

The situation in Australia to reallocate.

Inventory from Australia to the North American market to accelerate and catch up to that now again, we were only able to focus on arguably the top 5% to seven we werent, even able to maximize all of that and we werent able to maximize the automotive aftermarket across all of North America to little more doors.

And top five to seven accounts.

And long term, obviously, our goal is off to accelerate the outdoor side.

As Leslie would kind of have it.

The Australian market been chasing at the rate they had been pre COVID-19 or biblical floods, we would add a difficult time allocating inventory to chase those markets and so the premise would've been a little slower we just were able to accelerate that north American market opportunity and it just proved out what we always said that there.

It was somewhere between 2%, 50% is the opportunity in North America.

Okay, great. Thank you.

Thank you and our next question will come from Jim Duffy with Stifel. Please go ahead with your question.

Thank you good afternoon, Mike John Herron, Cody Hope you guys are doing well.

I wanted to ask you.

With some follow ups just on the inventory questions.

Maybe you can help us with a little visibility within the inventory balances.

Current posture on raw materials I recall you were.

Frontloading some raw materials have you continue to do so.

Any way to consider that as it relates to what we're seeing in the inventory number at quarter end.

So thats part of that $20 million.

And I wouldn't call it excess inventory, but just higher higher than normal or higher than optimal inventory levels. So we do have close to $5 million of raw materials that.

Within that bucket.

Yes.

<unk>.

This was something that was really important to us is that as we can see within the precision sports side of things is that if we can make sure that our our capacity has been optimized not only in terms of the way.

The plants are run, but also in terms of the flow of inventory that we can really create and this was a real important piece of the equation that we were still missing coming into the year with in terms of just having those raw the.

The raw materials are the components that would enable us to optimize our operations would be able to increase our capacity in a more efficient way as well. So that's something that we've been able to securitize, where not all the way there in terms of where we'd like to be able to be but through scrapping and opportunistically, we've been able to securitize where components.

We previously had which enables us to continue to be very optimistic about the rest of the year in particular, our ability to load out ammo and continue to build out those initiatives for both the Barnes and Sierra business.

Got it.

You guys have given us some interesting perspective with the backlog.

For the Black Diamond business versus the revenue guidance can you talk about the current backlog for precision sports.

I'm curious how does that compare to the revenue assumptions.

That you're looking at for the second quarter.

If I'm understanding things it sounds like.

The principal bottlenecks with respect to supplier within the ammunition offering.

Yes, so as we look out obviously, we think of this business in three perspectives that of.

The reloading components, what we either call green box or black box, depending on the brand tier versus Barnes.

And then there's obviously the OEM business is which is a bigger proponent of that is in Sierra and obviously again recognizing that Sierra has.

On track to a run rate of $330 million of bullets, whereas Barnes is on a run rate towards the end of the year of $110 million to $120 million right.

So big OEM component and then I am out at Barnes, we can load our own ammo at Sierra we don't load our own ammo, we're not vertical and so we use partners.

Order books for Oems are strong and growing order books for Green box or Black box is strong and growing.

And obviously, we see opportunities and are prioritizing ammo, but ammo in the case of Sierra is not 100% driven by us.

In terms of loading capacity at other facilities as well as chasing bras.

Cases to this and that Barnes theres more demand specifically around center fire going into fall 'twenty, two and that driver the limiter right there again as Brad.

And Fortunately or unfortunately, it's the same problem across the whole industry.

So strong order books will continue to be scrappy, as we say and chase the opportunity there if and when we over index as we did in the first quarter. Then you see the results we see a strong order book for the second quarter as well as our ability to chase that and as Mike referenced.

We would love to keep that momentum through the third and fourth quarter, but we cant see that far out in the crystal ball and know exactly when we can receive cases and opportunities to fulfill that.

Understood.

Things different direction here, John I was surprised you didn't call out footwear for Black Diamond can you give us an update on on the footwear the pipeline for future seasons is that still aligned with what you had shared with us in prior years or to Covid shift that around so.

No.

Feel very optimistic about the footwear business.

We've seen huge explosion in what we call the outdoor lifestyle side, which the approach we've seen growth in the technical approach, which we call hike.

We still continue to chase declined footwear.

And with climbing gyms coming on we start to see that turn back along launching a brand new shoe here in 'twenty three spring 'twenty three and clearly we still think one of the big opportunities is net of trail run.

<unk>.

Honestly, we just trying to keep our notes for the quarter concise just didn't put out every single category.

I think one of the other surprises, which obviously 10 just to footwear is that now that climbing gyms have opened we're seeing a surge in climbing equipment and climbing footwear again, which we didn't see the last couple of years during COVID-19 just because of the lockdowns.

Great. Thank you guys.

Thanks, Jim.

Our next question will come from Joe <unk> with Raymond James. Please proceed with your question.

Hi, This is Martin the telecom in for Joe at the Belo You've mentioned earlier that your DTC channel went up about 38% for the quarter, how much does that in revenue and what are your expectations for the full year for that channel.

Yes, yes, we don't drop in specifically on the revenue aspect of breaking down the businesses.

I will tell you that we have said that our goal is to continue to accelerate our D to C business.

As we started.

Prior to 2022, our estimates where our DTC business from approximately 15% of our sales and that our long term vision is then it should be probably more around the 30% given the acceleration of categories like footwear apparel.

In the mix.

Clearly, it's outpacing our wholesale.

<unk>.

And really that's a function of mix as well and that's why you actually see this interesting split between our apparel sales being up 53% and our D to C being up 37, and our wholesale E highly.

Equipment, driven still chasing inventory to catch up so that kind of gives you a sense of where those two categories are going.

We believe that we will be able to maintain that growth with D to C. Both through our E. Comm and then also the expansion of retail we recently opened bend and Jackson hole stores and our goal is that over the next three years, we trend that like I said at least 20, if not approaching 30% of our of our percentage of business.

Overall.

Got it thank you and the rest of my questions have been answered. So thank you very much.

Thank you and our next question will come from Linda Bolton wafer with Davidson. Your line is open.

Yes Hello.

I was just curious how your businesses are expected to perform in like kind of a consumer recessionary environment. It strikes me that some of these outdoor activities could be discretionary and consumers might have to cut back on some of their activities. If there were being a little bit tense and also in erith.

And would there be like a different mix of demand for bullets versus ammo.

So one of the key characteristics of a superfan brand is that the dis activity based and this is really important because those consumers do not change their approach or their lifestyle based off of economic <unk>.

<unk> Windsor headwind instead, they're very loyal and they're very they're very focused on those activities. One of the things that we've also seen historically in particular with about a black diamond is during recessionary environments.

The environment, it's actually been able to grow at a pretty substantial way and we do believe that that's because of just once again, what the brand represents to the corps enthusiasm, but also this contract.

Concept of being activity page.

And so as we think about the different backdrops of the current marketplace and what that may be.

How that May impact your represented itself in the current business, we're very confident and we're very optimistic about where we're going with the businesses and our ability to achieve our overarching objectives because once again the end consumer that we serve and the nature of the activities that we serve are very resilient, they're very durable and they have been able to.

Prove that time and time again, I think Linda the best way to think of that is.

I lose my job I may not go to chipotle or the movie, but im not going to run any less in fact that may run twice a day just to deal with the anxiety right and therefore, I'll actually do more of the sport to your question of bullets in ammo.

Frankly, because.

Those that use our activity products as Aaron said.

Really engaged in shooting sports, whether it's hunting or its target. This market doesn't really have a different impact versus recession or not a recession I E reload or still reload bullet those that hunton by an ammo still shoot ammo and then on the OEM world whether it is law enforcement military that doesn't slow down.

Because of the economic trends.

Okay.

Also can you just talk about what youre seeing in the M&A environment.

Firemen.

I mean are you seeing pricing kind of moderating more or are you seeing more opportunities or.

Are you kind of holding back just because of the uncertainties in the macro environment.

No I think we've been always up.

Front of our M&A strategy, one we like to find superfan brands.

Do perform in both good times and bad times, even better in bad times, we look for brands in the outdoor space.

We currently have a.

A pretty strong pipeline of companies that we're looking at.

We think there are clearly opportunities in the outdoor segment, but we also continue to see strong demand and growth in the overland in segment.

Your commentary of pricing I think what we are going to find and we're watching is just the valuations of businesses.

They trade lower as the market has now started to trade lower on that.

And some of these brands that are in.

We don't typically chase processes.

The mix, we typically try and do them on the side, but I think that some of the processes are probably not going to go.

All the way through and we'll see the market change.

More importantly for US I think that's really making sure that each acquisition is accretive in our business and really lines up to the way, we think of our segments of outdoor precision sports and adventure and making sure that the brand we pick every time, we announce.

The next M&A that everybody.

The answer is that's perfectly aligned.

I would have done the exact same thing at the same time, and that's really important to us and again going back where operators were owners were going to be long term and so each and every acquisition is super meaningful to our story.

Okay. Thanks, a lot.

Thank you Linda.

Thank you and our next question will come from Ryan Sundby with William Blair. Please proceed with your question.

Hey, guys congrats on a nice quarter in a tough environment here.

This one might be more geared towards Erin I think are a little over a year ago, you started to transition away from a distributor model in Europe .

Clearly a lot has happened since then but I'm wondering if you could update us on how that transition.

First.

And.

If that has helped make the improvements and build their flexibility during this time of uncertainty.

Without a doubt Ryan great question.

That transition continues to go extremely well the European team has fully embraced what it means to serve as core markets within the within the EU in particular some of the reasons that we did transition over being the U K.

As well as.

The core markets concerning the dark markets, France, and then also Scandinavian that's one of the areas. Despite the noise, what's taking place with the Russian Ukrainian conflict and all that's going on there is a reason that we continue to see a lot of a lot of growth opportunities a lot of momentum both in terms of bookings, but also that of aesop.

<unk> orders I think it's really highlighted is that one that team has done a really good job of connecting with key retail partners and really providing them with a high level of support but also we have as a collective group and the focus that we've placed on one of the secrets seven categories really making it very clear for our retail partners to understand the strat.

But also then backing that up with.

With better than the industry.

Standard results in terms of our ability to deliver on time and in full is it really help support those efforts and some of the feedback that we've got just recently associated with Brexit was that BD was recognized as one of the top brands in terms of managing through that process. Both in terms of the way that we communicated but also supported those.

Retail partners in the U K, so that definitely reinforces that region for us, especially for the Black Diamond brand, but also continues to widen out a model that we're very comfortable with as we think about expanding our distribution.

On a global basis across the different brands within the portfolio and that was a significant move in the U K because it's one of the top outdoor markets. Obviously in Europe number two but also globally as a trendsetter in an area, where we really saw opportunity.

That's good to hear demand playing out well and the transition has gone well.

Just wanted to follow up on a couple of other questions that were asked Kurt with apparel growth up over 50% this quarter.

I mean, what is it about that that you've been able to get your hands on products easier for that over the hard goods and.

Then with trying to rack just given the lockdowns and the flooding there I'm just trying to make sure I understood.

You're able to maybe lean a shift product and they're in North America, a little quicker than we thought to help offset that pressure just wanted to follow up there.

Yes, so on the apparel piece one that represents just once again. This is we've purposely over indexed on the apparel initiative. It truly is a strategic initiative, but the entire organization, but also the real reason why we saw some of the delays.

On the.

On the inventory front from the hard goods side was specific to key items, such as lighting and trekking poles.

One we saw the delays in the logistics side of things, but also as we know aluminum is under a little bit of pressure as well. So that just created this gap that we werent able to overcome because once again the logistic delays of 90 days also became a 120 days and Thats what created the rule gap within hard goods or even the equipment side of things.

Black Diamond in Q1 that supply chain and the flow of inventory is back on track. We will continue to expedite some of that inventory because the demand is extremely high for those product categories. Those are two of the top categories within equipment and so when we don't deliver that's naturally going to have an impact on our ability to continue to grow the business.

On the <unk> piece this is something that.

We knew was going to be an opportunity for us in terms of.

<unk> has a very strong position in Australia.

Through our due diligence and also through the integration efforts, we knew that North America was going to be an area of focus and a real opportunity and thats always been part of the thesis in terms of the transaction for <unk> and so we started to put a few things into place already in last fall to try to get the right inventory in the right place at the right time, including that of North America.

With what took place as well with them.

The flooding and the Covid shutdowns, but also took away some of the pressures to kind of balances out where it enabled us to over index, the north American market and really position ourselves not only to be able to capture the results that we did in Q1, but as we know so much of this is dependent upon our ability to truly show support and the ability to.

Service to the market through on time deliveries high levels of fulfillment et cetera, et cetera, and so one of the questions was did we expand distribution and the answer is no. We just continue to serve as the top 10 top 20 accounts that we have and by us being able to now position run Iraq USC here in North American way.

And then it will be able to expand distribution, we can do that now with the higher level of confidence because of inventory sitting in our warehouse.

That's great. Thanks, guys.

First find the feeling for the business you have today before you look for another bucket to fill.

Thank you at this time. This concludes our question and answer session I would now like to turn the call back over to Mr. <unk> for closing remarks.

And thank you everyone for your support today and listening in we Super appreciate it and we'll look forward to speaking to you again, when we report on our second quarter 2022 results, thank everyone and be safe.

Ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

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Good afternoon, everyone and thank you for participating in today's conference call to discuss Clarus Corporation.

<unk> results for the first quarter ended March 31, 2022 joining us today are Clarus Corporation's President John <unk> Executive Vice President and CEO Erin Judy.

CFO , Mike Keith and the company's external director of Investor Relations Cody <unk> <unk>.

Following their remarks, we will open the call for your questions.

Before we go further I would like to turn the call over to Mr. Shaw as he reads the Companys Safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 90 95 that provides important cautions regarding forward looking statements.

Please go ahead.

Thank you before we begin I'd like to remind everyone that during today's call we.

We will be making several forward looking statements and we make these statements under the safe Harbor provisions.

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 risks excuse me potential factors that could affect the company's final.

Actual results is included from time to time in the company's public reports filed with Securities and Exchange Commission.

I'd like to remind everyone that this call will be available for replay through May 23, starting at eight PM Eastern Tonight.

A webcast replay will also be available via the link provided in today's press release as.

As well as on the Companys website at Clarus Corp Dot com.

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

Thank you Cody and good afternoon, everyone.

First quarter of 2022 is successfully in the books. Despite the many challenges people across the world are experiencing proving once again that activity based brands in the outdoors are continuing to experience strong momentum and that superfan brands drive those market trends, especially.

We ended up in tough times, let me summarize.

Our precision sports segment continues to execute at a high level growing sales by 41% and in our adventure segment. We are pleased to report early success in our innovate and accelerate strategy, especially in North America. In fact, <unk> net sales in North America during the first quarter.

<unk> increased 42% and early proof point of the substantial white space that we believe exist for our adventure brand in this market as we continue experience a strong order book with Black Diamond, but supply chain and logistics challenges impacted our ability.

<unk> to convert all outdoor segment demand into revenue.

We are incredibly proud of our entire team of colleagues who continue to drive these strong results, especially given so much uncertainty in the marketplace.

We continue to be nimble and decisive in the individual brand levels, which is critical in achieving the level of performance proof again that great teams build great brands.

Now, let me address our performance by business segment.

Starting with our outdoor segment.

Those were roughly flat in the first quarter, despite strong consumer demand.

Given the high concentration of core equipment that BD sales, we expect to convert this in transit inventory into inline or full price revenue in future quarters.

Our global order book for Black Diamond has continued to sustained momentum.

Distant with that.

That we stated earlier this year, we are purchasing inventory in line with our demand plans of $270 million to support these higher levels of bookings. However, we are handicapped.

Handicapping. This order book in our 2022 sales guidance as a result of the supply chain and logistics challenges we continue to face.

As we stand today, along with a very strong fall 'twenty two order book, we have confidence that the black Diamond brands topline revenues should accelerate going forward.

Most of the logistics challenges impacted our equipment sales as our apparel business was up 53% year over year, driven by growth in men's and women's outerwear and women's sportswear. Most importantly, apparel remains our fastest growing category confirming that the black diamond possess.

Turning out apparel as equipment continues to resonate well with our core consumers.

We experienced strong reacceleration in our direct to consumer growth with sales up 38% in the quarter.

This was overseen by our new Vice President of E Commerce pricing White, who joined our team in December of 2021.

He has already been successful in activating our digital first strategy focusing on performance marketing and balancing that approach across search top of funnel paid social and email re targeting we also did a better job of fulfillment, while still balancing our desire to serve and grow our wholesale retail partners.

As we look to the rest of the year, we expect continued momentum from our direct to consumer business within outdoors.

Moving to precision sports.

Q1, 41% growth was an exceptional quarter, where several factors worked in our favor we.

Formed on our ability to increase capacity and satisfy an increasing growing OEM demand, while continuing to be scrappy, and our ability to deliver ammo across both Sierra and Barnes.

While shell cases continued to be our number one challenge from a sourcing standpoint, we've done an excellent job sourcing copper and lead using our balance sheet to secure these materials in advance of the rising cost and accelerated demand.

For 2022, we continue to drive towards an end of year Board production run rate target of 350 million bullets at Sierra and 120 million bullets at bonds, resulting in the doubling of both businesses and substantially improve margins since acquiring them.

In 2017 and 2020, respectively.

Through both tiara and bonds, we have complementary brands that provide strong runway for long term growth.

<unk> is focused on precision and we will continue to seek to maximize growth through proactive innovation and the expansion of our ammunition collections.

Barnes is focused on terminal impact as D hunting brand of reference there.

It has been selling ammo for 30 years servicing a large addressable market that has been built over decades.

<unk> and product availability to support our longer term targets of $200 million annually for precision sports.

The new product.

And our adventure segment, our innovate and accelerate strategy began to take shape in the first quarter. We are excited about the growing momentum of overlapping however, as many witnessed Australia was impacted by extraordinary floods affecting the Australian continent and continued impact of Covid.

19, Lockdowns early in the first quarter.

This negatively impacted our short term demand in Australia.

More positively Q1 marked the first full quarter of Rhino rack introduction into the North American market.

<unk> was strong as sales increased 42% on a pro forma basis.

<unk>, which we acquired in December of 2021.

So an acceleration in the first quarter as we increased the inventory allocations to catch up to the growing demand of our recovery boards within the overlapping space in.

In summary, we believe our portfolio of Super fan brands has us well positioned to continue our market momentum.

Our activity based brands have demonstrated strong resistance to recent economic headwinds while outdoor it is continues to fuel demand for the outdoor activities that we serve.

As a result, we believe there we are well positioned for another record setting year in 2022.

I'll now pass it over to Mike to talk about our financial results in more detail. Thanks, Mike.

Thank you John and good afternoon, everyone I'll go into some additional detail relating to our financial performance for the first quarter and address our outlook for the second quarter and full year 2022, and conclude with a few comments around taxes and our capital allocation priorities sales.

$4 5 million from Rhino rack and acquisition completed on July one 2021, and $4 2 million from Max tracks and acquisition completed on December one 2021.

If we had owned these brands during the first quarter of 2021 pro forma growth in Q1 2022 for the entire company would have been 6%.

Impacting specifically our hard goods sales.

Pacifically around Poles, and like the Black Diamond However, our apparel business continued to be our fastest growing category within our outdoor segment with sales up 53% in the quarter. This is important as apparel, along with footwear and direct to consumer our key strategic growth drivers over the next five.

Five years, our direct to consumer business grew nearly 38% in the quarter as we are starting to see our e-commerce business gained traction.

<unk> ammo was up 145% year over year, and our OEM business was up over 55%.

Barnes sales were up 88% year over year, including 69% growth in black box and 196% growth in ammo our teams at CRM Barnes did a great job this quarter, increasing capacity fulfilling strong OEM demand and continuing to be scrappy and.

Our animal business.

Sales in our adventure segment were $28 7 million as John mentioned, the integration of Brian Iraq, and North America is going according to plan and we are seeing it in the results total <unk> sales for the first quarter were down 12% year over year on a pro forma basis due to the challenging market environment.

Trailing caused by the COVID-19, shutdowns and catastrophic flooding in key regions throughout Australia, we expect the <unk> business to get back to growth for the remainder of 2022 total <unk> sales for the first quarter were up 5% year over year on a pro forma basis.

$3 million of fair value inventory step up charge associated with the <unk> acquisition improvements in channel and product mix, along with operational efficiencies drove the bulk of this margin performance.

It's more than offset the $400000 of incremental air freight expenses that we incurred in our outdoor segment during the first quarter.

A strong characteristic of a superfan brand is.

The ability to raise prices each year, while still growing market share and we believe we are doing both.

Yeah.

Moving further down the income statement selling general and administrative expenses in the first quarter were $34 2 million compared to $20 9 million in the same year ago quarter. The increase was primarily due to the inclusion of <unk> and Max Fracs, which contributed $9 4 million in expenses noncash.

<unk> based compensation for performance awards was $3 4 million and a $1 $8 million increased compared to the first quarter of 2021. The remainder of the increase was driven by investments in our go to market and fulfillment activities in support of growing sales.

Net income in the first quarter was $5 3 million or <unk> 13 per diluted share compared to $5 seven or <unk> 17.

$14 one in the same year ago quarter. The strong adjusted EBITDA EBITDA results were driven by our precision sports segment and the higher margins those products carry.

Now I'll shift to liquidity and asset efficiency.

Inventory levels were at a $152 $7 million up 18% from where we ended 2021. The dollar increase reflects proactive buying across all of our segments. Given the demand curve. In addition, we experienced longer lead times during the quarter translating into higher than normal inventory levels.

We expect the supply chain challenges to subside in the back half of 2022 as we are now currently starting to see lead times improve which we expect to also translate into lower levels of inventory at year end.

<unk> $12 7 million compared to a negative $3 9 million in the same year.

The decrease is primarily due to our investments in inventory previously noted.

As Mark at March 31, 2022, total debt was $151 9 million, putting us in a net debt position of $135 5 million net debt leverage was one nine times on a trailing 12 month adjusted EBITDA basis, which is right at the low end of the 2% to three <unk>.

<unk> targeted leverage leverage goals that we shared last quarter.

In connection with future M&A.

We may.

May experience and we expect that we may extend our leverage a bit higher but when we do we will always seek to have a clear plan of how to bring it back within this targeted range over the course of a 12 month period, where owners and operators that are committed to being shareholder friendly and responsible in how we run the business in <unk>.

Manage leverage.

On April 18th we took an additional step to strengthen our ability to pursue other activity based superfan brands by upsizing, our credit agreement of $425 million.

The new credit agreement is very similar to our prior agreement, but working with our expanded banking partners. We were able to expand our bank group to seven banks and increased our revolving facility from $100 million to $300 million. We continue to have a term loan in the amount of $125 million, bringing the total facility to.

$425 million compared to our prior credit agreement of $225 million, we look forward to prudently using this additional capital to seek to invest both organically and inorganically to create shareholder value.

Let me move onto our outlook for 2022, we expect consolidated 2022 sales to grow 25% to $470 million compared compared to 2021 by segment, we expect sales to the outdoor segment in 2020.

Two to increase high single digits to approximately $237 5 million in sales from our precision sports segment is expected to grow low single digits to approximately $112 $5 million. We also expect sales from our adventure segment to contribute approximately $120 million in 2022.

Specifically for the second quarter 2022, we expect consolidated sales of approximately $110 million.

More importantly, we expect the growth in the second quarter to be broad based with all three segments expected to deliver sales growth.

On a consolidated basis, we continue to expect adjusted EBITDA in 2022 to grow approximately 27% to $78 million. In addition, we still expect full.

Full year capital expenditures of approximately $9 million and free cash flow is still expected to range between 50 and $60 million for the full year 2022.

From a tax perspective, I'd like to address our Nols.

We have delivered record sales and profitability that has enabled us to deploy over $350 million of capital on acquisitions, starting with Sierra bullets in 2017.

This time, we've also realized over $109 million of tax benefits associated with our NOL carry forwards in 2022, we expect to realize $39 5 million in tax benefits prior to their expiration at the end of 2022. This is quite a testament to our organization.

Accomplishments in making accretive acquisitions, while driving significant cash tax savings and value creation for our shareholders.

<unk> is first and foremost way to grow we have a business with increasing levels of EBITDA and strong recurring free cash flow.

Our owner operators that are committed to being shareholder friendly and responsible in how we run the business, including the amount of leverage we take on we also maintain a $30 million share repurchase program, which still has approximately $10 8 million of available.

Our quarterly dividend over shareholder share repurchase, but we will continue to seek to accumulate shares on an opportunistic basis.

I will pause here and hand, the call back to the operator as we are now ready for Q&A.

Thank you Sir as a reminder to ask a question you will need to press Star and then the number one on your telephone keypad to withdraw your question just press the pound key please standby, while we compile the Q&A roster.

And our first question will come from Randy <unk> with Jefferies. Please proceed.

Yes. Thanks, a lot good afternoon, guys how are you.

Hey, Randy.

I guess, Aaron Aaron is there right.

Yes, good morning.

Eric how are you yeah I just wanted to get your perspective on for me from a supply chain cost perspective.

How do you think we are running around in terms of trend lines going forward or are we kind of still.

Our cost of elevating or are they starting to kind of flatten out just wanted to get some perspective on the cost side of the equation and then on the.

The lead times, you spoke about how lead.

Lead times negatively impacted.

Ability to.

Fulfill demand in the quarter I just wanted to get some perspective on what youre seeing around those lead times are they starting to kind of Peter out or at least are they still increasing just wanted to get some perspective, there as well thanks.

Yeah, you bet, so on the cost side of things Fortunately enough for us things.

Things are starting to normalize I would say normalized theyre starting to stabilize.

Mike mentioned, we have been able to in a disciplined way to navigate through that not only in terms of the way that we.

<unk> managed the cost inputs.

With our with our vendor partners, but also how we've approached the pricing side of things in general, but Fortunately enough.

Playbook is that each time, you come out with new products. It gives you a chance to reset the market.

The market price for the associated products as well.

As it relates to the to the delays that we saw in particular on the outdoor business side of things in Q1.

As you as you are aware, we've been building up this pipeline of inventory to offset the lung due to lead times associated with the logistic challenges that were being experienced we really felt that we were heading in a good way at the end of last year, but about mid February or so we started to see it.

Actually towards the mid part of January to mid part of February we started to see the lead times associated with getting product from southeast Asia to the U S and also the Europe elongate by about 30 days.

As a result, we saw it started.

Get created in Q1 fortunate enough in April we were able to start to see that softening up and to stabilize and get back to the traditional lead times that we were experiencing in Q4 and Q3 of last year.

On the positive side is the inventory is flowing it's starting to come back in to the warehouses as Mike mentioned, we have quite a bit of inventory on the water, where now that inventory started starting to find its way into the warehouse and so as we look to Q2, we do expect each of the business units to get back to growing again, and it's not that we're out of the woods.

Is there, but we are starting to see a stabilization and to get back into a more natural rhythm that will enable us to get back to growing the businesses.

Super Helpful. And then I guess my last question is.

You talked about Mike brought up.

The nice growth within the outdoor segment of apparel just wanted to get some perspective again, maybe from John on Mike's perspective, where do you think apparel can kind of get to from a penetration of total perspective, and then just how you're thinking about channel channel mix in terms of.

DTC versus wholesale again within the outdoor segment, just curious on how youre thinking long term, where that kind of channel distribution penetration goes thanks guys.

Yes. So obviously, we yes, we've really focused on this apparel as equipment concept.

And we've seen that really focused on three initiatives of growth within apparel that are happening both when we reported last quarter, but also this quarter and moving forward that that being snow.

Data performance Rainwear stretch rainwear and that of rock bottoms, and then obviously from there we fill in what is the rest of sportswear in those three categories are growing significantly.

Think that now opens up new expansion opportunities within existing doors.

Momentarily.

Your second question, what we what gives us great confidence in apparel at this time is that obviously, we have the super fan equipment apparel as equipment strategy that really focuses first and foremost on ensuring we're building the right product for the core.

And the measurement of that is do we have a higher penetration and success through D to C.

And through our own expanded retail flagships and the answer on both of those is yes, and there we currently see a.

Global apparel business, that's about 15% of our sales globally, but we see apparel represent anywhere between 40% to 60% monthly in our D to C and in our flagship retail stores and that just gives us the great confidence that we're aligning correctly with this core superfan consumer.

While at the same time expanding that success into our wholesale distribution long term I think we'd like to see it somewhere around the 30% of our sales direct to consumer.

Obviously apparel has wide footprint men's and women's eventually in the kids you name. It. So it gives you a lot of opportunity in that.

And our big growth in the next few years is to get the level of success that we see in D. C in retail and our biggest key accounts and in our specialty retailers globally.

Very helpful. Thanks, guys.

Yes.

Thank you and our next question will come from Ryan <unk> with BNP Paribas. Your line is open.

Good afternoon. Thank you very much for taking my question.

Mike I think you mentioned for <unk> and I appreciate this.

We should think about Q2 revenues at $110 million, which I think you mentioned made some balanced growth across the segments.

If that's the case and precision sports.

Would be up.

In <unk> year over year.

Should we assume that that segment should be down.

Double digits in the back half if that's the case just curious to know what's the driver on that.

No you understood that right.

The 110, and we do expect the pressure.

Precision sports business to grow.

Show growth in the second quarter as well, but as we've been saying consistently here.

Not a question of <unk>.

Manned even though across purchases sports. It's always comes back to the question around capacity, which the team has done an amazing job continuing to add capacity, but also when we talk about being scrap it's around making sure. We can source specifically from a AMOLED standpoint, the shell casing right, we've talked a little bit about the challenges.

Sourcing that so.

Have we don't have a full view on the back half yet for precision sports, we're taking it one quarter at a time, we've been conservative with our view on that business here.

65 days ago, and we released for the year.

Year end and gave the guidance for the full year for 2022, and we're going to continue to be prudent with our view on how that business performed throughout the year, but it has gotten off to a great start and tiered noticing and we do expect it to grow in the second quarter as well as we sit here in may.

Our understanding but we're going to be.

Be prudent as we look through the remainder of the year.

It's great to hear Mike. Thank you very much.

For that color and then my second question is really kind of a two part question here, but.

Can you parse out the drivers of the first quarter gross margin. Most companies are guys are reporting gross margins down.

Just like to get to understand what's the drivers how do we think about gross margins as they evolve over the course of the year and then back in 2020 I think it was called out on one of the earnings calls that BD at about about a quarter of its supply chain coming from China, just curious to know where that stands today and if youre seeing any disruptions from the lockdown.

<unk> in China.

Two separate questions there I'll take the first one on margins and I'll pass.

The.

Supply chain question over to Aaron but from a margin standpoint, consistent with what we've talked about really we thought we could get to a 39% margin for the full year right.

Even a few.

In our first quarter call in March.

We did get there.

This quarter right, but it's a little bit of a mixed bag.

Precision sports business fueled much of that margin improvement.

So thats, where you see that obviously with.

The black Diamond in the outdoor business being flat margin for struggling a little bit they are under a little pressure there, but we expect that as Aaron alluded to if you just answered. The first question, we expect the black diamond business to improve throughout the year and margin will flow.

Through consistent with the top line growing.

Black Diamond as we see the supply chain.

Here in the second quarter and more so in the back half so.

So that's how the margin got up to 39% its really a combination of those couple of things.

And then Laura.

Variations within the marketplace, whether it be shutdowns are just logistic delays and it also really.

It also reinforces our approach in terms of making investments into inventory and trying to securitize or mitigate some of those exposures by carrying just a little bit more inventory than what we normally would so that we can hopefully provides the highest level of service to our retail partners, but also to our end consumers through our own DTC.

Channels with higher levels of delivery and on time fulfillment.

Great to hear congrats again on great results.

Thank you.

Thank you and our next question will come from the line of Matt Koranda with Roth Capital. Your line is open.

Hey, guys. Good afternoon. Thanks.

And then you guys mentioned in the prepared remarks, I think if I heard correctly.

Maybe a little bit less selling days there just given some of the supply chain challenges, but are we correct in our thinking there and then maybe just how to characterize price within <unk> and then where is there still opportunity for the rest of this year for additional action on price.

Well I'll start and I'll, let John and Aaron add any color but.

As we mentioned again in a prior call Hey, we can put price increase into effect.

Late last year.

Ross the entire portfolio of businesses, we believe we with.

Those prices are out there in an average of around 6% across the portfolio. So I think we are capturing price.

Across the entire business right, we are incurring higher cost so too and I think we mentioned that that's how we were expanding margins. We expected cost would probably go up about 500 basis points as well to yield about.

Debt.

100 basis points improvement in margin, which is even.

Which we're realizing that so we have.

We have realized price and we'll continue to push it across the entire portfolio and we will take we'll evaluate that here as we continue to go throughout the year based on that.

Input cost that we're going to experience right copper continues to be low for $4 35, I think a pound. This morning. So we're continuing to see those types of increases aluminum as well so we'll be prudent.

And be able to react accordingly, if necessary later in the year with additional price.

The only other thing I would add to that is obviously each business has its own cyclical nature and in case of here on Barnes, we typically unless absolutely necessary do price increases once a year. However in the BD world.

Each season, both through NPI and new products, we get to raise prices on new introductions innovations to the market and then we revisit pricing every single season, both relative to the input costs, but also relative to the competition and how we position ourselves in the marketplace and so it's always ongoing topic.

And as we look to spring 'twenty, three we revisit that again.

But we think of pricing as a way to both how we position our brand, but also how we maintain our our margins and our overall perspective on the market.

Great very helpful guys and then just.

When we think about the supply chain challenges subsiding.

At BD later this year, maybe you can just put up.

Final point on this for us it sounds like it's mostly just a function of improvement in inbound ocean freight and sort of the timing there.

But is there also some assumed.

<unk> on the product sourcing side could you just break it down a bit more for us in terms of what's what's driving the improvement in the back half of the year.

Yes, you bet, Matt So it was more of a commentary around stabilization versus improving.

I think thats, an important distinction really highlights once again the approach the strategy that we've taken from.

Our supply chain side of things, but also the way that we've been utilizing our balance sheet.

We do anticipate seeing some of the supply chain challenges subside in terms of just overall improvements in the inventory availability, but there still are some.

The challenges out there similar to what we highlighted during our previous call in particular around microprocessors that are required for our lighting in our outlets.

Transceiver beacon products et cetera, So it's something that the teams actively working through on a daily basis, but once again because of the way that we the way that we plan for the business the way that we interact and the way that we're prioritizing with our supply chain partners, we do get prioritization and we are in pole position to be able to realize the best path.

Total outcome, but it's also why we will continue to be very focused in terms of and disciplined in how we deploy our capital and the inventory during these.

During these periods of time, so that we can increase our levels of fulfillment and on time deliveries.

If I could just sneak one follow up on the inventory side.

Is there a way for you guys to quantify how much.

Inventory is still on the water that's embedded within the inventory balance at the end of <unk>.

Curious if its expanded year over year, how that's trended since <unk>, maybe just any any trends you could mention on that front would be super helpful.

That is just working through the system and that we purposely brought on in order to mitigate some of the supply chain and logistics challenges or delays that we're experiencing.

It is important to highlight though that.

We're very sensitive to one.

Okay, Great I'll leave it there guys. Thank you.

Our next question will come from Mark Smith with Lake Street Capital. Please proceed with your question.

Hi, guys I wanted to look at precision just a little deeper here can you talk any more about the mix of ammo versus bullet.

And how each of those segments.

Trended during the quarter.

Yeah. So if you look at the way we reported here.

We're seeing significant triple digit increases in our ammo.

50, plus percent growth in our OEM businesses.

Obviously as you well know, we're not doubling and tripling our production. So we make choices between what we call reloading bullets green box or black box to that of OEM and ammo.

As we've often said, we prioritize ammo OEM and green box in the allocation.

We reallocate towards the OEM and the green box or black box, depending on the brand.

Mix of bullets.

And in that business as we look at International you had your best quarter, I think ever in that segment and international was that.

A function of Europe coming back or just having some capacity to be able to ship into international markets. What was it that really was the main driver there.

That's OEM business that team over to precision sports group was able to execute on I think you've probably seen the number up from.

$1 7 million to over $5 million of over $3 $5 million of growth and it's all in the OEM side of the space and Mark just to reiterate there, though it's not that we've seen a slowdown in the domestic market. When it was a step. These orders have been outstanding for an extended period of time, and we just felt it was necessary or appropriate.

Preet to allocate some of our capacity to those customers.

Which once again was underserved over the last 12 to 18 months.

Perfect and then I think the last one for me just as we look at the adventure segment domestically can you just talk about that.

The growth there was that a function of more distribution or better sales within existing distribution or a solid combination of both those factors.

Yes, so the focus as we said going back to the premises that we have approximately 50% plus market share in Australia than we had under 2% in the U S.

We started a preseason program last fall that we mentioned in previous calls.

We focused really the first quarter on what we would call the top five to seven key accounts in the automotive aftermarket opportunity.

And we allocated we use the the situation in Australia to reallocate.

And top $5 seven accounts.

And long term, obviously, our goal is off to accelerate the outdoor side.

As Leslie would kind of have it.

The Australian market has been chasing at the rate they had been pre COVID-19 or biblical floods, we would add a difficult time of allocating inventory to chase those markets.

And so the premise would've been a little slower we just were able to accelerate.

Accelerate that north American market opportunity and it just proved out what we always said that there was somewhere between 2% and 50% is the opportunity in North America.

Okay, great. Thank you.

Thank you and our next question will come from Jim Duffy with Stifel. Please go ahead with your question.

Thank you good afternoon, Mike John Herron, Coty Hope you guys are doing well.

I wanted to ask you.

With some follow ups just on the inventory questions.

Maybe you can help us with little visibility within the inventory balances.

The current posture on raw materials I recall you were.

Frontloading some raw materials have you continued to do so.

Any way to consider that as it relates to what we're seeing in the inventory number at quarter end.

So thats part of that $20 million.

And I wouldn't call it excess inventory, but just higher higher than normal or higher than optimal inventory levels. So we do have close to $5 million of raw materials that.

As within that bucket.

This was something that was really important to us is that as we can see within the precision sports side of things is that if we can make sure that our our capacity is being optimized not only in terms of the way. The plants are run but also in terms of the flow of inventory that we can really create and this.

It was a real important piece of the equation that we were still missing coming into the year with in terms of just having those run.

The raw materials are the components that would enable us to optimize our operations would be able to increase our capacity in a more efficient way as well. So that's something that we've been able to securitize, where not all the way there in terms of where we'd like to be able to be but through being scrapping opportunistically, we've been able to secure ties were components to that.

We previously had which enables us to continue to be very optimistic about the rest of the year in particular, our ability to load out and will continue to build out those initiatives for both the Barnes and Sierra business.

Got it.

You guys have given us some interesting perspective with the backlog.

For the Black Diamond business versus the revenue guidance can you talk about the current backlog for precision sports I'm curious how does that compare to the revenue assumptions.

Youre looking at for the second quarter.

If I'm understanding things it sounds like.

The principal bottlenecks with respect to supplier within the ammunition offering.

Yes, so as we look out obviously, we think of this business in three perspectives that of.

The reloading components, what we either call green box or black box, depending on the brand here versus bonds.

And then there is obviously the OEM businesses, which is a bigger proponent of that is in Sierra and obviously again recognizing that tiara is.

On track to a run rate of $330 million of bullets, whereas Barnes is on a run rate towards the end of the year of $110 million to $120 million right.

So big OEM component and then ammo at Barnes, we can load our own ammo at Sierra we don't load our own ammo, we're not vertical and so we use partners.

Order books for Oems are strong and growing order books were green box or black box is strong and growing.

And obviously, we see opportunities and are prioritizing ammo, but ammo in the case of Sierra is not 100% driven by US both in terms of loading capacity at other facilities as well as chasing bras.

Cases to this and at Barnes Theres more demand specifically around center fire going into fall 'twenty, two and that driver the limiter right there again as Brad.

And Fortunately or unfortunately, it's the same problem across the whole industry.

So strong order books will continue to be scrapped as we say and chase the opportunity there if and when we over index as we did in the first quarter. Then you see the results we see a strong order book for the second quarter as well as our ability to chase that and as Mike referenced.

Understood.

Things different direction here, John I was surprised you didn't call out footwear for Black Diamond can you give us an update on on the footwear.

Our pipeline for future seasons is that still aligned with what you had shared with us in prior years or to Covid shift that around so.

No.

Still very optimistic about the footwear business.

We've seen huge explosion in what we call the outdoor lifestyle side, which the approach we've seen growth in the technical approach, which we call hike.

We still continue to chase declined footwear.

With climbing gyms coming on we start to see that turn back along launching a brand new shoe here in 'twenty three spring 'twenty three and clearly we still think one of the big opportunities is net of trail run.

Honestly, we just trying to keep our notes for the quarter concise just didn't put out every single category.

I think one of the other surprises, which obviously <unk> two footwear is it now that climbing gyms have opened we're seeing a surge in climbing equipment and climbing footwear again, which we didn't see the last couple of years during COVID-19 just because of the lockdowns.

Great. Thank you guys.

Thanks, Jim.

Our next question will come from Joe <unk> with Raymond James. Please proceed with your question.

Hi, This is Martin the telecom in for Joe at the Belo You mentioned earlier that your DTC channel went up about 38% for the quarter, how much does that in revenue and what are your expectations for the full year for that channel.

Yes, yes, we don't drop in specifically on the revenue aspect of breaking down the businesses.

I will tell you that we have said that our goal is to continue to accelerate our D to C business.

As we started.

Prior to 2022, our estimates where our DTC business will approximately 15% of our sales and then our long term vision is then it should be probably more around the 30% given the acceleration of categories like footwear apparel.

In the mix.

Clearly, it's outpacing our wholesale.

<unk>.

And really that's a function of mix as well and that's why you actually see this interesting split between our apparel sales being up 53% and our D to C being up 37, and our wholesale E highly.

Equipment, driven still chasing inventory to catch up so that kind of gives you a sense of where those two categories are going well.

We believe that we will be able to maintain that growth with DSC both through our E. Comm and then also the expansion of retail we recently opened bend and Jackson hole stores and our goal is that over the next three years, we trend that like I said at least 20, if not approaching 30% of our of our percentage of business.

Overall.

Got it thank you and the rest of my questions have been answered. So thank you very much.

Thank you and our next question will come from Linda Bolton wafer with Davidson. Your line is open.

Yes Hello.

I was just curious how your businesses are expected to perform in like kind of a consumer a recessionary environment. It strikes me that some of these outdoor activities could be discretionary and consumers might have to cut back on some of their activities. If there were being a little bit Tien and also interest.

And would there be like a different mix of demand from bullets versus ammo. Thanks.

So one of the key characteristics of a superfan brand is.

That the dis activity based and this is really important because those consumers do not change their approach or their lifestyle based off of economic <unk>.

<unk> Windsor headwind instead, they are very loyal and they are very they're very focused on those activities. One of the things that we've also seen historically in particular with about at Black Diamond is during recessionary environments.

Environment, it's actually been able to grow at a pretty substantial way and we do believe that that's because of just once again, what the brand represents to the corps enthusiasm, but also this concept.

Concept of being activity based.

And so as we think about the different backdrops of the current marketplace and what that May.

How that may impact or were represented itself in the current business, we're very confident and we're very optimistic about where we're going with the businesses and our ability to achieve our overarching objectives because once again the end consumer that we serve and the nature of the activities that we serve are very resilient, they're very durable and they have been able to.

Prove that time and time again, I think Linda the best way to think of that is.

If I lose my job I may not go to chipotle or the movie, but im not going to run any less in fact, they may run twice a day just to deal with the anxiety right and therefore, I'll actually do more of the sport to your question of bullets in ammo.

Frankly, because.

Those that use our activity products as Aaron said are really engaged in shooting sports, whether it's hunting or its targets. This market doesn't really have a different impact versus a recession or not a recession I E. Reload theres still reload bullet those that hunton by an ammo still shoot ammo and then on the OEM.

World, whether it is law enforcement military that doesn't slow down because of the economic trends.

Okay.

Also can you just talk about what youre seeing in the M&A environment.

And then are you seeing.

<unk> kind of moderating more are you seeing more opportunities or.

Are you kind of holding back just because of the uncertainties in the macro environment.

No I think we've been always.

Front of our M&A strategy, one we liked spine superfan brands that do perform in both good times in bad times, even better in bad times.

We look for brands in the outdoor space I think.

We currently have.

Pretty strong pipeline of companies that we're looking at.

We think there are clearly opportunities in the outdoor segment, but we also continue to see strong demand and growth in the overland in segment.

Your commentary of pricing I think what we are going to find and we're watching is just the valuations of businesses may trade lower as the market has now started to trade lower on that.

And some of these brands that are in.

We don't typically chase processes.

The mix, we typically try and do them on the side, but I think that some of the processes are probably not going to go.

All the way through and we'll see the market change.

More importantly for US I think thats really making sure that each acquisition is accretive in our business and really lines up to the way, we think of our segments of outdoor precision sports and adventure and making sure that the brand. We pick every time, we announce the next M&A that everybody.

Answer is that's perfectly aligned.

Would have done the exact same thing at the same time, and that's really important to us and again going back where operators where owners were going to be long term and so each and every acquisition is super meaningful to our stores.

Okay. Thanks, a lot.

Thank you Linda.

Thank you and our next question will come from Ryan Sundby with William Blair. Please proceed with your question.

Hey, guys congrats on a nice quarter in a tough environment here.

This one might be more geared towards Erin I think are a little over a year ago, you started to transition away from a distributor model Europe .

A lot has happened since then but I'm wondering if you could update us on how that transition progressed and.

If that's helped maybe improved visibility or flexibility during this time.

Okay.

Without a doubt Ryan great question.

As well as.

The core markets concerning the dark markets, France, and then also Scandinavian that's one of the areas. Despite the noise, what's taking place with the Russian Ukrainian conflict and all Thats going on there is a region that we continue to see a lot of a lot of growth opportunities a lot of momentum both in terms of bookings, but also that of aesop.

Plenish met orders I think it's really highlighted is the one that team has done a really good job of connecting with key retail partners and really providing them with a high level of support but also we have as a collective group and the focus that we've placed on one of the secrets seven categories really making it very clear for our retail partners to understand that.

<unk> been also then backing that up with.

With better than the industry Star.

Standard results in terms of our ability to deliver on time and in full is really help support those efforts.

Some of the feedback that we've got just recently associated with Brexit was that BD was recognized as one of the top brands in terms of managing through that process. Both in terms of the way that we communicated but also supported those retail partners in the U K, so that definitely reinforces that region for us, especially for the Black Diamond brand, but also continue.

So why not a model that we're very comfortable with as we think about expanding our distribution.

On a global basis across the different brands within the portfolio and that was a significant move in the U K because it's one of the top outdoor market. Obviously in Europe number two but also globally as a trendsetter in an area, where we really saw opportunity.

That's good to hear demand is holding up well and the transition has gone well.

I just wanted to follow up on a couple of other questions that were asked.

With apparel growth up over 50% this quarter.

I mean, what is it about that that you're able to get your hands on products easier for that over the hard goods.

Then with run Iraq, just given the Lockdowns and the flooding there Im just trying to make sure I understood.

You're able to maybe lean a shift product and in North America, a little quicker than we thought to help offset that pressure just wanted to follow up there. So.

Yes, so on the apparel piece one that represents just once again. This is we've purposely over indexed on the apparel initiative. It truly is a strategic initiative by the entire organization, but also the real reason why we saw some of the delays.

On the.

On the inventory front from the hard goods side was specific to key items, such as lighting and trekking poles.

One we saw the delays in the logistics side of things, but also as we know aluminum is under a little bit of pressure as well and so that just created this gap that we werent able to overcome because once again the logistic delays of 90 days also became a 120 days and Thats what created the rule gap within hard goods or any of the equipment side of things with.

Black Diamond Q1 that supply chain and the flow of inventory is back on track. We will continue to expedite some of that inventory because the demand is extremely high for those product categories. Those are two of the top categories within equipment and so when we don't deliver that's naturally going to have an impact on our ability to continue to grow the business.

On the <unk> piece this is something that.

We knew was going to be an opportunity for us in terms of.

<unk> is a very strong position in Australia, but.

Yes.

<unk>.

With what took place as well with the with the flooding and the Covid shutdowns that also took away some of the pressures to kind of balances out where it enabled us to over index, the north American market and really position ourselves not only to be able to capture the results that we did in Q1, but as we know so much of this is dependent upon our ability.

To truly show support and the ability to service the market through on time deliveries high levels of fulfillment et cetera, et cetera, and so one of the questions was did we expand distribution and the answer is no as we just continue to serve as the top 10 top 20 accounts that we have and by us being able to now put.

<unk> run a rack USA or North American away, then it will be able to expand distribution. We can do that now with a higher level of confidence because of inventory sitting in our warehouse.

That's great. Thanks, guys.

First find the feeling for the business you have today before you look for another bucket to fill.

Yes.

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

And thank you everyone for your support today and listening in we Super appreciate it and we will look forward to speaking to you again, when we report on our second quarter 2022 results, thank everyone and be safe.

Ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

Q1 2022 Clarus Corp Earnings Call

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