Q4 2022 Clarus Corp Earnings Call

February 27, 2023

The conference will begin shortly.

Jayson lower Johan during Q&A, you can dial star one one.

[music].

Okay.

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

Now for year ended December 31, 2022.

Joining us today are Clarus Corporation's President John Welborn, Walbrook, CFO , Mike Yates and the company's external director of Investor Relations Cody Slaw.

Following their remarks, we'll open the call for your questions before we go further I would like to turn the call over to Mr. Slaw as he reads the safe company's safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1095 that provides information important cautions regarding forward looking statements Cody. Please go ahead.

Yes.

Thanks, Shannon 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 potential risks and uncertainties that could cause the actual results of operations or financial condition of <unk> Corporation.

To differ materially from those expressed or implied by the forward looking statements <unk>.

For information on potential factors that could affect the companys operating.

<unk> financial results is included from time to time in the company's public reports.

File with the SEC I would like to remind everyone. This call will be available for replay through February 27th starting at seven PM Eastern Tonight.

A webcast replay will also be available the link provided in today's press release as well as on the Companys website at Clarus Corp. Dot Com now I would like to turn the call over to Claris as President John <unk> John .

Thanks Cody.

It's good to be with everyone as I reflect on 2022, there is no doubt it will go down as one of the most challenging years in our company's history.

And uncertain macroeconomic environment, a tough consumer backdrop extremely volatile foreign currency exchange markets and inefficient supply change presented rough waters for our brands to navigate.

We are proud of our team's tenacity and dedication in these uncertain times. So I first want to recognize all the people across all of our brands and their great efforts.

As the challenges set in we acted quickly and pivoted towards the areas of our business that we're facing the most severe headwinds.

Areas of focus where precision sports as well as the markets outside of North American wholesale and our outdoor segment.

We also prioritized expense reductions free cash flow generation and debt reduction.

On the cash side of this equation, we focused on streamlining inventory and cost reductions. This has allowed us to generate over $30 million in free cash flow during the fourth quarter, which we used to pay down $28 million in debt.

We ended the quarter at approximately two times leverage which is at the low end of our leverage range.

And we believe it is a comfortable spot as we enter into 2023.

Zooming out on the full year, we have much to be proud of as well we drove record record revenue growth grew our precision sports segment by 21% deepen.

Deepened our specialty retail presence in our outdoor segment by increasing sales in this channel by 31% in the second half of the year grew our apparel by 31%.

And expanded our direct to consumer business by 26%, all while focusing on decreasing our inventory and paying down debt.

However, we werent totally immune to the challenges I, just mentioned negative impacts associated with foreign currency.

Inventory destocking at a large larger retail accounts in North America during the second half of 2022.

Our consumers.

Confidence has been tested by rapid inflation and continued inefficiencies with our supply chain were difficult for our brands to fully offset.

As a result on a consolidated basis, our fourth quarter sales.

We're $104 million down, 12% or down 9% on a constant currency basis.

Breaking down our Q4 performance at the segment level as mentioned precision sports continued its marked to market outperform growing 10%, our outdoor segment declined 15% or 11% on a constant currency basis, and our adventure declined 28% or 22%.

And our constant currency.

Like last quarter macroeconomic factors outside of our control continued to hamper our profitability specifically unfavorable movements in foreign currency exchange rates had negatively impacted our Q4 adjusted EBITDA by an estimated $3 7 million, while higher freight costs associated with supply chain challenge.

This resulted in an incremental $9 9 million in additional cost removing these costs our consolidated adjusted EBITDA margin would have been 14, 1%.

We believe elevated freight costs are transitory as supply chains continue to stabilize and that we are making progress in the reduction of lead times back to pre pandemic levels and container container costs are decreasing as well.

As such we currently expect a more normalized operating environment as we move towards the back half of 2023.

At this time I would like to provide additional highlights at the segment level starting with outdoor.

In our outdoor segment, our focus on Europe , and our international global distributor markets, which aren't experiencing the same magnitude of inventory overhangs that the north American market has allowed us to drive constant currency growth in the fourth quarter of 15% in Europe and 7% in our international global.

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To provide some context on the level of FX impact we endured in Europe . The strength of the dollar caused a $2 $3 million headwind on a constant currency basis in the fourth quarter and nearly $6 6 million for the full year impact.

Despite the market challenges and significant foreign currency headwinds, our outdoor segment experienced a 400 basis point gross margin improvement in the fourth quarter due to activities previously outlined around new product introductions pricing channel development sourcing and productivity initiatives.

With the App without the impact of the foreign currency headwinds that I just mentioned our outdoor segment gross margin would have increased 640 basis points to 41, 4% margin.

Apparel continues to be our fastest growing category with sales up 15% for the quarter and 31% for the year we.

We experienced outsized demand for the outdoor snow shells led by our Dawn patrol hybrid and our expanded recon collections.

Our innovative four way stretch fabrics and unique feature sets have been strong drivers for our new consumers in this brand as we continue to find and innovate our technical components are fit and our features we believe this will further increase demand awareness and our overarching growth path.

Our direct consumer business also remains a bright spot with fourth quarter sales up 19% year over year and up 38% in apparel alone.

We've been very intentional about driving our direct to consumer business doubling down on our engagement with our core community by opening flagship retail stores and executing a long term investment in e-commerce.

Internationally, our outdoor segment continues to perform well and gained market share.

With the lack of microprocessor availability. This is hampered our peaks brand all year and foreign currency exchange headwinds lower European sales by $2 3 million in the fourth quarter.

Demand trends are strong for the brand moving forward.

We believe this highlights the strength of our relationship with our vast network of European specialty stores.

And the desire for the consumer to remain active in the outdoors.

Our international Global distributor market, specifically Korea, Japan, and China reflected a 90% increase in footwear and a 41% increase in our mountain products in the fourth quarter overall, the retail channel in these two international markets is much healthier.

Then we experienced in the North American market.

In fact inventory destocking trends with our larger key accounts in North America were dramatically reduced their open to buys and was the major offset to the positive initiatives.

Just discussed.

Based on our continued conversations with our larger key accounts. This is not a black diamond specific issue as our products continue to show strong sell through.

We believe the issue stems from other discretionary categories not geared towards the activity based consumer.

Unlike other retailers, we work with globally. There continues to be a challenge for large north American key accounts to ensure a balanced portfolio of inventory.

The demand pull forward experienced in 2020, one due to the pandemic led to an extreme over indexing of inventory.

But the overall demand curve slowing open to buys or delay until this excess inventory has sold through at the retail level.

Within our specialty account. However, we continue to chase demand with sales in the channel up 31% in the second half of the year.

To meet this demand, we often need to incur higher than anticipated costs associated with integrating the product.

We estimate that we ended the quarter with $3 million in back order demand globally. This number has come down every quarter since the second quarter of 2022, given the strong sell through trends and our team's ability to service our accounts at higher levels, while chasing the increased demand in headlamps trekking poles gloves in apparel.

As we start 2023, we feel confident in our ability to deliver on time, 95% plus fulfillment and being easier to do business with than we were in 2022.

Looking forward, we are excited about the recent announcement of Neil Fiske as the new president of BD.

We'll be responsible for accelerating the growth in lifting profitability by capitalizing on the attractive expansion opportunities across various categories channels and regions.

Black Diamond for marquee brands is a leading brand accelerated with a portfolio of 13 brands.

As a CEO for almost 20 years. He has an extensive experience in outdoor active and apparel categories, having led transformational change at marquee brands, including the kind and body glove, Eddie Bauer Billabong International the gap and L brands.

He is an avid outdoorsman and experienced mountaineer and fifth bring deep experience in building brands driving innovation and improving operational performance.

Please welcome Neil onboard.

Our focus in our outdoor business in 2023, we'll be continuing our commitment to activating and scaling our go to market activities through a disciplined approach to new product.

Introductions identifying continuous improvement activities within our supply chain and operations and increasing the number of touch points with our retail partners and consumers. We believe that we are well positioned for continued market share gains as we seek to elevate the brand awareness and demand for our brands within our targeted markets.

We anticipate that the supply chain.

Continued to improve and inventory normalizes, and we will accelerate the segment growth and profitability.

Moving to precision sports.

Our niche brand positioning and the ability to be nimble with product deliveries resulted in another record quarter.

We drove another record quarter with sales growth of 10% our ability to continue executing in this segment stemmed from the diversification, we have by brand by vertical and by geography.

Not only do we have two superfan brands in Sierra and bonds, but both of these brands have strong business relationships across the globe supporting ammunition, OEM and component businesses.

Our 10% sales growth was driven by the prioritization of orders for our OEM partners, both domestically and internationally demand for our center-fire right rifle Hunt product and broader ammunition remains high limited only by our availability of the brass cases required to load and <unk>.

Liver this product, which continued to create back order through our wholesale channels.

As demand continues to exceed supply for both CRM bonds, we increased capacity in both bullets and loading of ammo ending the year at our production rate targets of $330 million bullet, the Sierra and $110 million at bonds.

And enamel loading capacity of 50 million rounds as.

As we look to 2023, we anticipate the use of this capacity.

We will mix between Oems re loaders and animal, but it will also mix from the various calibers.

But we do expect to focus on larger center fire rifle calipers and less on tests, one revolver in 2023.

The key driver of any variance in this strategy will be our ability to source product components, mainly as stated previously the brass cartridges for rifle loads.

All things being equal we will continue to chase growth opportunities in 2023. This stems from our two Super fan brands, we own. We believe it is inaccurate to lump our precision brand into the broader ammunition market, given our unique product and our brand positioning and our leading specialty market share premium prices.

Consumers and growing demand by our various channels worldwide.

Our demand across various diverse geographies and channels that allows us to shift quickly when one channel slows or when the supply chain limit other opportunities.

I mean, just come out of shops shot show in mid January we are feeling confident about the upcoming product launches at our Orange brand, we will be launching the pioneer line, which is product for lever action rifles, we expect our CFO will follow with a similar product.

In 2023.

The response, we are receiving from the dealers is positive and combined with our relationship with key distributor partners. We believe we will continue to steal market share. In 2023. We're also continue to see opportunities outside of the domestic market, primarily in Europe , Australia, and South Africa.

Now onto adventure.

The challenges we experienced in the third quarter persisted into the fourth quarter worldwide, New vehicle supply continues to lag demand.

Our black Diamond business, our larger key distributors of our adventure products, we're sitting on too much inventory going into the second half of 2022 impacting the sales velocity.

To combat these headwinds we have improved our organizational structure enhanced our go to market process professionalized, our team via Salesforce expansion in store support systems fulfillment and our fulfillment center.

We have reallocated expenses to the areas that matter most around new product introduction distribution and systems we.

We have also taken over the U S and Canadian distribution dramatics tracks and in Canada for Rhino rack, allowing us to further control of these brands in these important markets.

We are also onboarding additional sales agencies to create more touch points with our retailers.

Ultimately, we believe the combination of factors negatively impacting our adventure segment in the past couple of quarters will be short lift our long term growth premise for these brands remains unchanged.

And by our overall industry churn that we witnessed at Sema in November we continue to see global vehicle trend shift towards more Suvs <unk> trucks.

And side by side or a utility cast vehicles, making outdoors combined with oberland, and the global automotive fashion trend, which fits perfectly with our products that both rhino rack and metrics.

Given the relatively young age of these brands within our portfolio. We are still in the process of activating our innovate and accelerate playbook, including meaningful new product introductions and sales channel expansions both into more specialty as well as outdoor accounts.

Activating this playbook forms the basis of our strategy to Reaccelerate growth in our adventure segment and our strategy is as follows.

We will seek to own the overlapping market globally retailer expansion into mainstream adventurers and is just beginning as key retailers launch flagship adventure stores with an overlapping as leading category of focus we are moving rapidly to build out our strategic initiatives as we seek to create an ecosystem.

Of overlapping products.

Sportsman and weekend warrior consumers, we expect to be introducing updated bike and ski and kayak Rex luggage boxes truck bed systems and on into his new accessories, including storage cases, rooftop tents duffel bags and expanded recovery systems.

Second we expect to improve our market.

Speed to market through more focused new product introduction efforts, increasing our sourcing efforts augmenting our engineering and supply chain teams and leveraging key vendor relationships within the <unk> portfolio.

Third we expect to unlock the U S market through an improved direct to consumer presence augmenting the support of our direct specialty dealer setups, providing more touch points of service and selling through the onboarding of additional sales agencies improved operation systems and building out our superfan brand approach to performance marketing and community activation.

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And finally, as we prove our U S expansion strategy, we expect to develop other attractive markets like Japan Korea, the middle East and Europe , which we believe will increase our total addressable markets.

We are confident that we are positioning the brand for growing.

As outdoor adventure through overlapping continues to build momentum globally.

As we look ahead to 2023, we believe we have a portfolio of superfan brands that have strong growth profiles with significant market share left to target even in challenging environments.

Climbing back country skiing trail running hiking hunting competitive shooting and.

And overland and adventuring are Mega trends, we do not anticipate changing for the next decade plus.

This is one of the most important attribute that we seek or in our superfan brand strategy. So we believe it is the key component to our long term shareholder value creation strategy.

Now I'll turn the call over to Mike Thanks, Mike.

Thank you John and good afternoon, everyone.

Let's jump right into the performance in the fourth quarter sales were $104 2 million compared to $118 2 million in the prior year quarter.

Sales included revenue contribution of $3 8 million from Max tracks and acquisition completed on December one 2021.

Reported sales in the fourth quarter were down 12%.

Organic sales were down 11% in the fourth quarter Max tracks contributed 2% and foreign exchange was a 3% headwind in the quarter.

On a constant currency basis total sales were down 9% in the quarter.

Fourth quarter sales at the outdoor segment were $55 3 million versus $65 1 million in the fourth quarter of 2021.

If you adjust for foreign currency exchange outdoor sales would have been down 11% as opposed to being down 15% at outdoor as John mentioned, while we've done a good job closing the gap on outstanding Black Diamond orders, we're still constrained by lower open to buys from our key North American retail.

Partners due in part to their inventory destocking activities.

Partially offsetting this decline was execution in the key pivot areas of direct to consumer European and IGT that John mentioned earlier.

Another area of strong execution was apparel, which continues to be our fastest growing category within the outdoor segment.

<unk> were up 15%.

Apparel category level. This is notable as apparel, along with footwear and our direct to consumer business represent key strategic growth pillars over the next five years for the Corporation.

Precision sports sales increased 10% in the quarter to $30 3 million.

Strength in the international business continued in the fourth quarter as a precision sports team continued to do an excellent job in fulfilling demand increasing production capacity and navigating a challenging sourcing environment.

One thing to note during the fourth quarter, we sold $5 million.

Nine millimeter ammo at lower margins.

Lower margins than normal and that reduced.

We did this in an attempt to reduce inventory and generate cash as the demand for nine millimeter is expected to remain low compared to the supplied during 2023.

You'll see.

This reflected in the segment EBITDA in the fourth quarter, we expect this to be a onetime decrement given the strategy John discussed.

Our adventure segment contributed sales of $18 5 million, reflecting lower consumer demand given the challenging economic environment.

Loaded an industry wide inventory at the distributor level and constraints on new vehicle deliveries.

These results are long term positive view of the these brands remains intact. However, during the fourth quarter due to the reduction in the consolidated market capitalization of Clarus Corporation, and the enterprise value of the corporation and the lower sales growth and lower EBITDAX.

Patients in the immediate or near term forecast for the adventure segment, we determined it necessary to break down the value of the trademark and goodwill associated with the <unk> acquisition.

As a result, an impairment charge of $92 3 million was recorded in the quarter.

This noncash charge is included in operating expenses and we have excluded it from our adjusted EBITDA in the earnings release published earlier today.

Moving onto gross margin consolidated gross margin in the fourth quarter declined to 34, 6% compared to 36, 1% in the year ago period.

As John mentioned, we were able to push through significant improvements in gross margin for our outdoor segment.

So these improvements were offset by inventory optimization at the precision sports segment as we cleared out our remaining nine millimeter inventory ammo and.

In addition, foreign currency had a negative impact of $3 7 million or 220 basis points, while higher freight costs had a negative impact on gross margins of 900000 or 90 basis points. Excluding both gross margins in Q4 on a consolidated basis would've been 37, 7%.

Selling general and administrative expenses in the fourth quarter were $33 1 million compared to $32 6 million in the same year ago quarter.

In both our outdoor and precision sports segments, we were able to push through expense improvements leading to lower SG&A compared to the prior year.

SG&A expenses for the quarter also reflected lower noncash stock based compensation for performance awards at corporate.

Disciplined expense management was entirely offset by the inclusion of Max tracks.

And higher rent and selling investments at the adventure segment.

Net loss in the fourth quarter was $81 6 million or $2.20 per diluted share compared to net income of $14 million or <unk> 36 per diluted share in the prior year quarter.

Net loss in the fourth quarter of 2022 included the noncash impairment charge of $92 3 million.

As referenced.

Adjusted EBITDA in the fourth quarter was $10 6 million.

Our adjusted EBITDA margin of 10, 2% compared to $20 million or an adjusted EBITDA margin of 16, 9% in the same year ago quarter.

Lower revenues in this adventure segment higher freight expenses and adverse changes in foreign currency exchange rates all contributed to the reduction in adjusted EBITDA. The 10, 2% adjusted EBITDA in the fourth quarter would have been 13, 3% on consolidated basis, if you remove the impact of FX and what.

Have been $14, one or <unk> $15 $2 million, if you remove the FX impact and the higher freight costs.

At outdoor and adventure.

EBITDA in outdoor was 11, 7% for the quarter.

It was 23% at the precision of the sports segment in the quarter due to the nine millimeter inventory liquidation I just discussed EBITDA.

EBITDA was a loss of $1 million of adventure in the quarter as we continue to deal with unfavorable FX and three we.

We do expect the challenges associated with freight to be behind us in the first half of 2023 as we monetize the inventory that carry these higher freight costs.

Now, let me shift over to liquidity and asset efficiency inventory levels declined by 5% from where we ended.

So the September quarter to $147 1 million, which was near our ended the year ago. At December 31, 2022, cash and cash equivalents were $12 1 million compared to $19 5 million at December 31, 2021.

Free cash flow defined as net cash provided by operating activities less capital expenditures for the fourth quarter of 2022 was $33 million compared to 5 million same year ago quarter.

This is reflective of our conscious efforts to improve working capital during the fourth quarter, specifically, we were able to reduce receivables by $10 million in the quarter and inventory by $8 million on a sequential basis.

We are committed to generating cash in 2023 through our continued focus on optimizing working capital across all three segments.

During the fourth quarter.

We paid down $28 million in debt.

<unk> ended the year with total debt of $139 million.

This put us in a net debt position of $127 million with net debt leverage of two times on a trailing 12 months adjusted EBITDA basis, which is at the low end of our two to three times target. We expect to stay at that low end of that range in the near future under our $300 million revolving credit facility, we have approx.

$18 million outstanding and further borrowing capacity of approximately $98 million as of December 31st 2022, while maintaining compliance with our required covenants under our credit agreement.

From a tax perspective, we were able to utilize $41 million in Nols in 2022, and expect to use the remaining $18 million in 2023.

During this time period, we've been able to realize $220 million in tax benefits from our Nols.

A testament to the organization's accomplishments and making accretive acquisitions, while driving significant cash tax savings for our shareholders.

Now I'm going to introduce our 2023 outlook, we expect sales of approximately $420 million and adjusted EBITDA of approximately $60 million.

And adjusted EBITDA margin of 14, 3%, we expect full year capital expenditures to range between $7 8 million and free cash flow is expected to range between $35 million to $40 million for the full year 2023.

Blissett in these expectations is caution and conservatism concerns a challenging macro environment.

Higher interest rates and the uncertain impact these challenges might have on the consumer.

As.

We work through the rest of 2023 as.

As a countermeasure to these unknowns, we are focused on further optimizing our SG&A and driving gross margin enhancing initiatives in order to accelerate the underlying profitability profiles of each of our segments.

Also expect to realize further working capital improvements generating the outlined free cash flow target I just provided.

Results are further deleveraging our business with this incremental free cash flow, we're expecting to generate in 2023.

This is.

Our strategy will not only ensure further value creation in 'twenty, three but will also reestablished the baseline business.

And position us for growth, both organically and via M&A in 2024.

Additionally, this outlook assumes foreign currency exchange rates stay where they are specific really the euro at 1.05.

And the Australian dollar at $1 67 to the dollar.

Based on these rates, we estimate that FX is a $2 million headwind for 23 compared to <unk> 22 on a constant currency basis.

For the first quarter of 'twenty, three we expect consolidated sales to be approximately $95 million.

Reflecting continued headwinds surrounding unwinding of inventory in our key North American wholesale partners.

Excuse me.

I'll pause here and hand, the call back to the operator we're.

We're ready for Q&A.

Thank you Sir.

As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

These standby, while we compile the Q&A roster.

Our first question will come from Alex Perry with Bank of America. Please proceed.

Hi, Thanks for taking my questions.

First any color about on how we should think about the growth rates between segments for 2023.

Should should precision sports continue to outgrow like.

I think in the past you have provided.

A little bit more detail on sort of stack rank growth. So any help there would be.

Very appreciate it thanks.

Alex I'll start and John can add any comments, but we specifically have not given segment guidance this year.

We're really proud of the diversification and strength of the entire portfolio across the three very distinctive.

Segments and each of these segments is really positioned to grow in 2003, we've done.

Put the effort into grow these segments and make the investments necessary to grow them.

But each are in different phases of growth.

And as you may recall.

Last year, we guided precision.

Probably underwhelmed guide and it outperformed so we're really look into 'twenty three with the challenging macro environment the impact the consumer the higher interest rates, we wanted to leave ourselves some optionality of where we.

Where we pivot too because like I said, all three businesses.

We've made it.

Efforts to grow these businesses and like I said, they are positioned to grow but we're going to want to keep some optionality available to as we move through the year and lean into where were seeing the best opportunities to grow in light of this difficult environment.

So we're going to be Super.

Cautious about.

Our capital and where we invest and how we allocate resources.

But we're going to lean into the hot segment, whether that's geographically the hot.

Hot channel et cetera.

As we go through 'twenty, three and that's why we've elected to kind of give a guidance at the consolidated level versus trying to predict.

How each of these businesses is going to perform here as we go through 'twenty three.

Great. That's really helpful. And then just just wanted to clarify.

It looks like the 95 million total sales guidance is down a bit from the 113, you did last year any help in terms of how we should think about.

On the margin there versus maybe the 17, 4% you did in <unk> 'twenty, two and then my mic.

My other question was.

Theme last quarter was re towers were being really cautious with their open to buy if we continue to work their inventory levels and competing categories not necessarily your category is this still the case and is this headwind sort of carrying with you and to 2023.

Sure Alex Great question, Yes, no. The main driver of that $95 million in the first quarter is really big.

John alluded to the difficulties with our North American retail partners, specifically in our in our outdoor business right.

We said in our prepared remarks.

They.

Their open to buys or limited, we're seeing demand for our product, but our big customers here in North America are really painting back in right sizing their inventory levels and as long as that going on despite the tremendous job at specialty or despite the growth in our international distribution.

<unk> or in Europe .

Or in our new initiatives right when North America wholesale is struggling thats really the headwind we're facing here in Q1.

But we think that's transitory.

In nature right once they right size their inventories.

<unk>.

We see that picking up but.

We're sitting here almost two months into the first quarter. So we.

We know what's going on here in the first couple of months. So that's really the background to that from a earnings perspective.

I think gross margins and EBITDA margins of both.

Should be.

Trending favorable compared to what we just posted here in the fourth quarter, because a lot of the initiatives, we talked about controlling SG&A, but more importantly, capturing value leakages that the gross margin line.

Stabilization of freight.

More favorable FX than we had prior in.

In the back half of 'twenty, two so we're not giving specific but I think we highlighted the significant improvement in gross margins at outdoor and we think a lot of that sticks here as we move forward.

Great and sorry, just to clarify you said EBITDA margins and gross margins favorable versus for Q for the first quarter right, yes, okay.

Okay perfect. Thank you I'll pass it along best of luck going forward. Thank you.

Yes.

Thank you.

Our next question comes from the line of Randy <unk> with Jefferies. Your line is now open.

Hey, I guess first hey, guys.

Just first quickly I guess for Mike.

Just on the EBITDA margin guidance for next year for the year, just how much of that is gross margin expansion versus.

<unk> rate change just could you give us some clarity just clarify that first.

We havent been that specific but it's over 100 basis points of margin improvement compared to where we finished this year on a reported basis.

Like I just mentioned to Alex.

Initiatives that we've been driving under Eric <unk> leadership.

They are sticky so.

I'd say over 100 basis points.

100 basis over 100 basis points of gross margin.

Got it Okay, and then I guess John for you.

Is it the.

Our leadership bench continues to expand maybe I know Neil Fiske from his days at Bath <unk> body works.

He did a good job of kind of elevating the perception of the brand there he wrote a book.

Aiding that I've read maybe give us some perspective of conversations you've had with Neil about.

He is focused on we're going to be focused on his first year ahead at black diamond any kind of broad strokes.

We think he is going to be attacking for that particular brand in the next 12 months.

Yes and to ask a question. Thank you Randy good to hear from you again.

As we look to 2023, two aspects that Neil will be focusing on first and foremost is continuing to accelerate.

The innovate and accelerate strategy across the brand today continue to innovate in the apparel and footwear segment as well as the expansion of distribution within Headlamps trekking Poles gloves patch you name it.

We look beyond that our real goal is how do we continue to think about BD its place in the market space.

<unk> this new category expansion.

New retail more focus on consumer direct and our community centric model.

And the long term competitive growth of black Diamond beyond what we've achieved.

Up to 2023.

Got it I guess my last question is I think on the guidance.

<unk> talked about I guess, a free cash flow generation expectation of $35 million to $40 million.

How do you think about the utilization of that free cash you're just going to kind of support it in the bank.

Take a pause on acquisition for 2023, given the market uncertainty.

James.

Look at debt pay down or anything like that just just curious on what youre thinking about.

In terms of utilization of free cash flow.

Going forward sure Randy let me take that one.

Yes.

We've been very specific about invest in inorganic growth and doing M&A strategic M&A finding the next super fan brands.

For the first six months of the year, we're going to focus on generating cash and <unk>.

Paying down debt, though this year right in right sizing improving our working capital.

Et cetera, so it's going to be kind of an.

Internal book right.

Focused on.

Paying down debt with that cash flow generation now, we only have $18 million in my prepared remarks outstanding under the revolver, we have about $10 million of required payments under the term loan so.

That's $28 million, so we should be building cash at some point throughout.

Through the year.

Thats it.

In my prepared remarks, I said, we'd get back to looking more aggressively at M&A in the.

The back half of the year in 2004.

Understood. Thanks, guys really appreciate it.

Thanks Randy.

Thank you.

Our next question comes from the line of Joe Alto Bello with Raymond James Your line is now open.

Hi, good afternoon.

I wanted to talk about outdoor.

Retailer inventory reductions that you guys.

I have alluded to throughout the call are there any categories in particular that there.

We're heavy on or is it pretty much across the board.

Good question, Joe good to hear from you.

Think that coming out of spring summer 'twenty two.

There was an expectation that some of these new growth categories that had seen explosion during COVID-19.

Which can be around family camping could've been around bikes and bike carriers racks things like that it ended up heavy as we went into Q3 and Q4 and we saw a shift and a slowdown.

And I think it just manifests itself in too much inventory in the total system, which just limited open to buys and made it difficult to chase those categories that we're continuing to see growth, which for us where things like trekking Poles headlamps gloves packs.

Apparel in the mix now I think apparel as a whole.

Saturated in the market specifically.

Casual side of the business.

Okay. It was pretty it was pretty broad based.

On precision sport, you mentioned that the $9 million than nine millimeter inventory liquidation.

Is that done or is that continuing here in Taiwan.

That's done that's done and that was it.

We took advantage of the popularity of nine millimeter and to do three in 'twenty, one and thought it would carryover some into 'twenty two in 'twenty two the demand was really around the center fire Hunt and precision.

That's where we chased through all of 2003 and Theres still chasing into 'twenty three.

Got it got it one last one for me.

As you know we're splitting up into two.

<unk>.

Company supporting in outdoor products, you have to put any change in your relationship.

With the <unk> side.

No.

We believe we have very good relationships with federal and the team. Jason then all the way down.

We are partners on both sides.

We supplied bullish both from Sierra in Barnes to federal.

Both for commercial loading as well as their OEM contracts.

And their generous enough to help us with cases and primers.

Okay, great. Thank you.

Okay.

Thank you.

Our next question comes from the line of Ryan Sundby with William Blair. Please proceed.

Yeah, Hi, thanks for the questions.

Maybe to follow up on Joe's question, there around inventory by category Alright, Jeremy If you got a pretty unique portfolio in that it's Scott.

Seasonal offerings.

Are you seeing any difference in the way retailers are managing are behaving and kind of it.

And category and activities in categories like ski and something that will be independently during the year.

Yes I.

I think what we find is that the specialty level, where they chase on a weekly basis, they're able to chase whatever the latest greatest whether trend is when you have larger accounts, who have a normal seasonal cadence right. It's a little more difficult to chase <unk>.

Often the buys in those categories, because they already have prescribed bookings going out right and we pull off of those with trends, but they anticipate certain seasonal and activity trends shifting in their business.

We've seen that impacted in this space.

The winter that comes later, but it's much bigger longer or big in the Rockies, but warm and dry in new England for example, or whatever makes that difficult for them to chase.

Got it that's helpful and then trying to call out a few positives around demand whether it would be constant currency growth, 15% in Europe or do you see on tour growth of 19%.

Is that is that more reflective of kind of true underlying demand or prs youre seeing out there.

Just help us kind of understand that that's helpful. Just given some of the dislocation that's happening from the inventory management.

Very very astute on that that's one of the.

Obviously, when we look at the year as a whole there are areas. We were bom that we couldnt accelerate the business as we had previously hoped and some of it not in our control, which we talked about whether it's air ship and supply chain or it's FX headwinds or whatever but.

As you've caught on the true demand for the brand typically shows up in key growth categories or it shows up in key growth geographies, which we're seeing in Europe in IGD or it shows up in key growth channels, which could be direct to consumer it could be specialty.

And when you see the the mix the mix gives you a sense of as you're saying what is really the demand for the brand today versus the marketplace and Thats why.

Albeit we're guiding conservatively because we're going to have to in 2023 chase certain channels certain geographies certain products lines right, even certain brands or segments.

And we will do so and that's our commitment to it it won't be an easy lay up that every category every brand every channel every geography.

Same upside right.

And that that's going to be the challenge for every brand in 2023.

Alright, thanks for the questions.

Thank you.

Our next question comes from the line of Matt Koranda with Roth <unk>. Your line is now open.

Hey, guys good afternoon.

So just wanted to spend back to the guidance one more time just to make sure I understand.

So I mean, the simple take for me Youre guiding revenue lower by about 30 million.

Just a tad less than that.

But Alan May shrink by about three.

And I think that implies that you expect some margin improvement, but there's got to be some puts and takes underneath the surface from a segment level and it feels a little bit like maybe we're relying on a bit more contribution from the persistent sports segment, just given its higher margin and so that mix shift should be helpful.

Am I thinking about that in the right way and then are there. Other areas you did talk about 100 bps of gross margin improvement.

Where do we see I guess opportunity to cut on the SG&A front, because it sounds like.

The guide also implies a bit of SG&A.

Cut as well.

Right.

We're not talking about cutting a lot of the SG&A I mean, there's a few opportunities perhaps maybe in the adventure segment.

Year over year.

The SG&A it.

From 'twenty, one to 'twenty two of them.

Actually down at outdoor and precision supports.

So on the SG&A is pretty tight.

Back half of last year focused on expense control and generating cash in right sizing the inventory.

We're not going to get into the details of where we are.

Comments around that around where we see that.

From a segment perspective further.

More opportunity or less opportunity from this segment that segment, we're going to lean we think we've made investments all three of them like I said have different.

Headwinds different tailwind.

We're going to lean into that.

Segment, where we see where we can.

Achieved the growth rate.

With the difficult environment today.

Consumer or the macro or interest rates.

As interest rates took place.

A bigger impact, especially in Australia.

Because of the way there.

Financing works down there.

So we're going to lean in where the opportunity is.

And.

We're only.

60 days away from reporting Q1 again, so we'll.

We'll get we'll have more to say in 60 days.

Well I will say Matt.

Positivity from Berry it increases.

That won't be as much of a headwind as it was in 'twenty two.

We don't anticipate having the experience as much air freight so all of those things being positive to the overall EBITDA.

I'm, sorry, Jon that's a great point.

FX in the air freight right.

Right behind Us right.

The second for the second half of 'twenty three.

We're seeing those.

Container and shipping costs normalized in the <unk>.

<unk> has built in I said, we are expecting about a $2 million headwind compared to last year, but.

Compared to last year, FX overall with a $9 million.

Headwind.

Okay got it very helpful. Thanks for the color on that job.

Precision score.

Just wanted a little bit more detail you mentioned the onetime sale bulk sale by mill, just what was the EBITDA headwind from that in the fourth quarter Mike.

Is there any more sort of.

Large amount of loaded MLR inventory that you could be sitting on that you can monetize over the next quarter or two so we should be factoring in sort of how do we think about the first half of the year.

Lines are that one we don't have any pistol and revolver ammo large amounts of that right is John prepared remarks, we're really leaning into the center fire rifle, which is foot barns since here really.

That's really where they play.

We were opportunistic in 'twenty, one when we did sell some of this.

On the call nine millimeter stuff, we have a couple of $3 billion $2 three ammo and that's about it.

I will say is slower moving stuff.

But from a margin perspective.

We sold it at cost so it was pretty significant impact that's why margin of 23% for the segment was the main driver right.

We don't expect that to continue expect that.

Profitability of the business to bounce back to that.

30% to 35% range that we've talked about our precision sports business performing at.

Okay, Great I, just want to sneak one more add on the adventure segment, if I could.

It seems like the issue in that business, especially on right. Iraq has just been channel inventory over the last couple of quarters, just any update on sort of where you think channel inventories.

How long you think it'll take to kind of work through over the next couple of quarters. It sounds like some nice developments on the distribution front in North America, how does that play into your growth expectation, maybe just the progression of the revenue for the year.

Veteran.

I would say that that there are two headwinds that we faced both in Australia and in North America in 2022 that we didn't.

Account as aggressively for one was the.

Inventory hangover.

And the second was really about the new vehicles and the two are similar I E. We expect typically 10% to 15% a year type of growth through new product introductions associated with new vehicle launches and when the vehicles get delayed whether it's at the Polaris OEM level or the consumer not being up.

The buy in F 150, or whatever that has some impact now I anticipate.

I think that the.

Impact.

The inventories were really heavy in three and four Q3, and Q4 and rolled over a little bit into Q1, I think as we come into the spring summer, we anticipate those inventories to get to minimal levels in the business start to see a pickup.

Got it I'll go back to you guys if I could.

Yes.

Thank you. Our next question comes from the line of Mark Smith with Lake Street. Please proceed.

Hi, guys.

Just digging a little bit more on precision here for a minute.

We've seen slowdown in nine mill in.

In two to three to $5 six as well.

Starting to see some of the beginnings of maybe some slowdown in normalization in the remainder of center fire rifle, especially as we start to see channel inventory fill up a little better.

Are you.

A question Youre seeing that Youre asking.

Asking are you starting to see any signs of maybe some slowdown in demand.

Maybe if you speak to what you've done in backlog of orders.

So as we came out of shot show.

Two trends, we saw and continue to hear from both the OEM partners, which is a significant portion of our business. As you are aware, which is loading for either military or law enforcement under contract or even the commercial side is continued demand for what we call. The big eight cartridges would start with a 270 and go all the.

The 300 eights and everything in between and then for US the big demand around things like 338 for my global.

International conflict perspective, and so as we said in the prepared remarks.

We're going to over index into those products channels geographies, where the demand is still accelerating and we don't see a slowdown in center fire rifle, but again, it's it's caveat it by how many shell cases, we can acquire as fast as we need them.

<unk>.

Our order book is back up to the demand levels, we saw coming out of Q3 and Q4. So we're very positive about that.

And I think again, the superfan nature of Sierra in bonds that we have a unique positioning in the market and it's super difficult to replace those two brands and what they offer in product.

Okay.

Can you just talk about any commodity pressures or easing.

Within precision and also are you starting to see any better availability and brass casings.

Or primers or any other components the loaded.

So.

Message is the same.

Sourcing of components, specifically the cases Mark is critical.

A wildcard.

<unk> no different than its been throughout 'twenty two right the more cases.

Can source more conversion of bullets that we can convert over to ammo right. That's the wildcard right. The demand for this center fire rifle is seeing strong as John just alluded to because of the big eight.

Ah calibers that we're focusing on and we're not focusing on this phone call.

For the nine months.

With regards to commodities copper.

Copper is about.

$4.

On the Al on me right now and that's right around us.

Where we would expect it to be from a standard standpoint so.

We don't see it.

Headwind or tailwind either way right now from commodities.

Yeah.

Okay.

And the last one just wanted to dig into just the apparel and footwear and sorry that I think I missed it could you give maybe the growth numbers again that you saw for the full year in those segments or anything else that you can kind of quantify for us for sales and the strength that we're seeing there.

Yes, we had 31% growth for apparel for the year of 15% in the quarter. We continued to chase demand in growth in footwear, and we don't see either of those categories slowing down in 2023, obviously, they're not the predominance of our business.

But I think even more exciting is the level of apparel growth, we saw even through our D to C. D. C was up and apparel was up even more than our DTC growth. So.

We continue to see strong.

Interest and strong demand for these new categories.

Excellent. Thank you.

Thank you.

Our next question comes from the line of Linda Bolton Weiser with D. A Davidson. Please proceed.

Yes, hi, so.

I think that when you were talking about your expectations for inventory your own inventory at the end of the year I thought you had said something like $143 million or so so you got really close to that but it was still a little bit higher so I'm just trying to kind of.

Marry that with the idea that you had this pause.

Precision for inventory reduction that impacted gross margin.

Are there some other inventory reduction that you had hoped you would do that didn't quite get done in the fourth quarter or like why wasn't inventory performance even more.

Isn't it even lower and I guess at the end of the year.

Hi, Linda Good question I think.

That observation.

Inventory at outdoors, a little higher than we'd hoped for again directly tied into the fact that north American retail or wholesale partners are taken as much right.

So we have a little more inventory on hand, and we hope to get there, but we.

We're working through that that's a priority here as I mentioned in the prepared remarks.

Okay.

Through our adventure as well Linda right I mean, when you look at the overall businesses, we didn't expect to see the headwinds in either outdoor or adventure that we experienced.

Very little closer John .

John's correct, but they're a little closer to the target.

Yes.

As you pointed out it's a little stronger.

Outdoor.

Uh-huh.

So I mean, I know I know that this is not the same channel as what youre supplying into but I mean, when you look at like Walmart for example, I think their inventory in the most recent quarter was was actually flat year over year.

They've declared the inventory reductions kind of completed so is there just something different going on among your retail customers. That's so different from say a Walmart like can you just like.

Talk about it is your inventory up still year over year, but just up less at retail or can you give us more color on that.

Yes.

I would say that our retailers arent vaseline similar to Walmart, but I think they will all tell you that over the last.

3% to six six months, they have successfully moved down their inventory towards their targets and their new open to buys and Thats why as we said in.

Looking into the future.

You buy exactly every channel every geography, but we expect the businesses you will see growth now that the inventories have come down right.

That was.

That's what impacted Q4, so much was big retailers using trying to manage every ounce of inventory at the cost of open to buy.

So you see that growth in second quarter or not until third quarter 'twenty three.

I think we are expected to start accelerating in the second quarter, but we do think that the second half of the year will be stronger.

That's correct.

Okay, alright, thanks very much.

Great. Thanks, Linda.

Thank you.

Our next question comes from the line of Jim Duffy with Stifel. Please proceed.

Thanks, John Hello, Hello, Jim.

It's been a long call so I'll keep it brief.

Quick one on the cash flow might close the gap between the 60 million EBITA in the $30 million to $40 million in cash flow Guide I guess I'm surprised you don't see working capital opportunity in 'twenty three.

We do see some working capital.

Next year, though we are going to be higher.

Higher tax cash cash taxpayer right, we only we only.

We have $18 million.

<unk>.

NOL slot right, we utilized over $40 million this year.

The main driver.

Okay.

And then next question I guess for you John with Neil coming onboard you spoke to where he is going to focus his efforts with the black Diamond brand, maybe you could talk about what the incremental bandwidth that provides the U S and are and what are the areas that are going to attract your attention from where do you see the opportunity for greatest written.

Turn.

On your incremental bandwidth.

Yes, I think as we look to 'twenty three and beyond this being the year that we're not as focused on M&A, which obviously was an area of our bandwidth in the past is really accelerating the business, new NPI innovate and accelerate site along with the operational plans and strategic the strategic plan.

Are we accelerating the other categories, which we still believe have strong growth.

Okay.

Thank you.

Thanks, Jim.

Thank you as a reminder to ask a question at this time. Please press star one one or you touched on the telephone.

Our next question is a follow up from Alex Perry with Bank of America. Please proceed.

Hi, Yes, sorry about the third question here, but I just wanted to ask so the guidance implies sort of a reacceleration in revenue from call it down 16% and <unk> down 6% for the year I know you have sort of the open to buy impacting BD in the first quarter, our retailers to H orders up year over year.

For Black Diamond based on sort of your read on the fall Winter 2003 order book, which is sort of causing the implied acceleration in revenue as you move through the year.

Yes, great question, Alex So, yes, we were able to look forward and see a strong order book for both spring 'twenty three as well as all 23, obviously for as a higher percentage of our business, it's more like a $55 to 45 as the mix.

And then.

As we know the acceleration of D E and even our flagship retail retail does 75% of this business in the back half of the year and 50% in Q4, and we see that often in our direct to consumer businesses as well.

Got you so the fall winter 2003 order books should be up against this year is that correct.

Yes.

Correct and obviously in line with.

This anticipation that the open to buy or inventory overhang that we have seen at our key accounts will not be the case in Q3 and Q4 of this year.

So the one in Q is just <unk>.

22 product I'm, not chasing sort of winter 2002 product, that's not necessarily indicative of.

Core core momentum or demand for your product, it's more of a factor.

Do you see that easing as you move through the year correct and we believe that we've had a long winter as you all know me as we get more snow again this week, but yes as the season changes over from what was the season in Q3 and Q4 and into <unk>.

Spring Summer, you're probably now really April as opposed to February or March we will see that shift of activity accelerate key categories.

So the spring 'twenty three is up as well.

Okay, Alright, perfect. Thank you.

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. <unk> for closing remarks.

Thank you we thank everyone for listening into today's call and I. Appreciate all your questions and we look forward to speaking with you. When we report our first quarter 2023 results. Thanks again, everyone be safe.

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

Okay.

The conference will begin shortly to raise and lower Johan during Q&A you can dial one one.

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Good afternoon, everyone and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for Q4.

Year ended December 31, 2022.

Joining us today are Clarus Corporation's President John Welborn Albrecht.

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

Following their remarks, we'll open the call for your questions before we go further I would like to turn the call over to Mr. <unk> as he received Companys Safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1095 that provides information.

<unk> cautions regarding forward looking statements Cody. Please go ahead.

Yes.

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 potential risks and uncertainties that could cause the actual results of operations or financial condition of Clarus Corporation to.

To differ materially from those expressed or implied by the forward looking statements more information on potential factors that could affect the company's operating.

And financial results is included from time to time in the company's public reports.

With the SEC I would like to remind everyone. This call will be available for replay through February 27, starting at seven PM Eastern Tonight.

A webcast replay will also be available the link provided in today's press release as well as on the Companys website at Clarus Corp. Dot Com now I would like to turn the call over to <unk>, President and John <unk> John .

Thanks Cody.

It's good to be with everyone as I reflect on 2022, there is no doubt it will go down as one of the most challenging years in our company's history.

We are proud of our team's tenacity and dedication in these uncertain times.

I first want to recognize all the people across all of our brands and their great efforts.

As the challenges set and we acted quickly and pivoted towards the areas of our business that werent facing the most severe headwinds.

Areas of focus where precision sports as well as the markets outside of North American wholesale and our outdoor segment.

We also prioritized expense reductions free cash flow generation and debt reduction.

We ended the quarter at approximately two times leverage which is at the low end of our leverage range range and we believe it is a comfortable spot as we enter into 2023.

Zooming out on the full year, we have much to be proud of as well we drove record record revenue growth grew our precision sports segment by 21%.

Deepened our specialty retail presence in our outdoor segment by increasing sales in this channel by 31% in the second half of the year.

Drew our apparel by 31%.

And expanded our direct to consumer business by 26%, all while focusing on decreasing our inventory and paying down debt.

However, we werent totally immune to the challenges I, just mentioned negative impacts associated with foreign currency.

Inventory destocking at a large larger retail accounts in North America during the second half of 2022, okay.

Consumers.

Confidence has been tested by rapid inflation and continued inefficiencies with our supply chain were difficult for our brands to fully offset.

As a result on a consolidated basis, our fourth quarter sales.

We're $104 million down, 12% or down 9% on a constant currency basis.

Breaking down our Q4 performance at the segment level as mentioned precision sports continued its marked to market outperformed growing 10%, our outdoor segment declined 15% or 11% on a constant currency basis, and our adventure declined 28% or 22%.

And our constant currency <unk>.

This resulted in an incremental $9 9 million in additional cost removing these costs our consolidated adjusted EBITDA margin would have been 14, 1%.

As such we currently expect a more normalized operating environment as we move towards the back half of 2023.

At this time I would like to provide additional highlights at the segment level starting with outdoor.

<unk>.

Spite the market challenges and significant foreign currency headwinds, our outdoor segment experienced a 400 basis point gross margin improvement in the fourth quarter due to activities previously outlined around new product introductions pricing channel development sourcing and productivity initiatives.

With the App without the impact of the foreign currency headwinds that I just mentioned our outdoor segment gross margin would have increased 640 basis points to 41, 4% margin.

Apparel continues to be our fastest growing category with sales up 15% for the quarter and 31% for the year.

We experienced outsized demand for the outdoor snow shells led by our Dawn patrol hybrid MLR expanded recon collections are innovative four way stretch fabrics and unique feature sets have been strong drivers for our new consumers in this brand as we continue to find and innovate our technical components are.

Fit and our features we believe this will further increase demand awareness and our overarching growth path.

Our direct to consumer business also remains a bright spot with fourth quarter sales up 19% year over year and up 38% in apparel alone.

Internationally, our outdoor segment continues to perform well and gained market share.

With the lack of microprocessor availability. This is hampered our peaks brand all year and foreign currency exchange headwinds lowered European scale by $2 3 million in the fourth quarter.

Demand trends are strong for the brand moving forward.

We believe this highlights the strength of our relationship with our vast network of European specialty stores.

And the desire for the consumer to remain active in the outdoors.

Then we experienced in the North American market.

In fact inventory destocking trends with our larger key accounts in North America were dramatically reduced their open to buys and was the major offset to the positive initiatives.

Just discussed.

Based on our continued conversations with our larger key accounts. This is not a black diamond specific issue as our products continue to show strong sell through we believe the issue stems from other discretionary categories not geared towards the activity based consumer.

Unlike other retailer we work with globally. There continues to be a challenge for large north American key accounts to ensure a balanced portfolio of inventory.

The demand pull forward experienced in 2020, one due to the pandemic led to an extreme over indexing of inventory.

With the overall demand curve slowing open to buys are delayed until this excess inventory has sold through at the retail level.

Within our specialty account. However, we continue to chase demand with sales in the channel up 31% in the second half of the year.

To meet this demand, we often need to incur higher than anticipated costs associated with air Freighting product.

As we start 2023, we feel confident in our ability to deliver on time, 95% plus fulfillment and being easier to do business with than we were in 2022.

Looking forward, we are excited about the recent announcement of Neil Fiske as the new President of BV. He will be responsible for accelerating the growth in lifting profitability by capitalizing on the attractive expansion opportunities across various categories channels and regions.

He joined Black Diamond for marquee brands at a leading brand accelerated with a portfolio of 13 brands.

As the CEO for almost 20 years. He has an extensive experience in outdoor active and apparel categories.

Having led transformational change at marquee brands, including the kind and body Globe, Eddie Bauer Billabong International the gap and L brands.

He is an avid outdoorsman and experienced mountaineer and fifth bring deep experience in building brands driving innovation and improving operational performance.

Please welcome Neil onboard.

Our focus in our outdoor business in 2023, we'll be continuing our commitment to activating and scaling our go to market activities through a disciplined approach to new product.

We anticipate that the supply chain.

To improve and inventory normalizes, and we will accelerate this segment growth and profitability.

Moving to precision sports.

Our niche brand positioning and the ability to be nimble with product deliveries resulted in another record quarter.

We drove another record quarter with sales growth of 10% our ability to continue executing in this segment stems from the diversification, we have by brand by vertical and by geography.

Not only do we have two super fan brands in Sierra and bombs, but both of these brands have strong business relationships across the globe supporting ammunition OEM and component businesses are.

Our 10% sales growth was driven by the prioritization of orders for our OEM partners, both domestically and internationally demand for our center fire rifle Hunt product and broader ammunition remains high limited only by our availability of Nebraska cases required to load and delay.

This product, which continued to create back order through our wholesale channels.

As demand continues to exceed supply for most of the earned bonds, we increased capacity in both bullets and loading of ammo ending the year at our production rate targets of 330 million bullets at Sierra and $110 million at bonds.

And enamel loading capacity of 50 million rounds.

As we look to 2023, we anticipate the use of this capacity.

We will mix between Oems reload, there's and ammo, but it will also mix in the various calibers.

But we do expect to focus on larger center fire rifle calipers and less on test one revolver in 2023.

The key driver of any variance in this strategy will be our ability to source product components, mainly as stated previously the brass cartridges for rifle loads.

Consumers and growing demand by our various channels worldwide.

It is our demand across various diverse geographies and channels that allows us to shift quickly when one channel slows or when the supply chain limit other opportunities.

I mean, just come out of shops shot show in mid January we are feeling confident about the upcoming product launches at our barn brand, we will be launching the pioneer lines, which is product for lever action rifles, we expect our CFO will follow with a similar product.

In 2023.

Now onto adventure.

The challenges we experienced in the third quarter persisted into the fourth quarter worldwide, New vehicle supply continues to lag demand like our black Diamond business, our larger key distributors of our adventure products, we're sitting on too much inventory going into the second half of 2022 impacting the sales velocity.

We have reallocated expenses to the areas that matter most around new product introduction distribution systems.

We have also taken over the U S and Canadian distribution dramatic stretch and in Canada for Rhino rack, allowing us to further control of these brands in these important markets.

We are also onboarding additional sales agencies to create more touch points with our retailers.

<unk> by our overall industry churn that we witnessed at Sema in November .

We continue to see global vehicle trend shift towards more Suvs <unk> trucks.

And side by side or utility cast vehicles, making outdoors combined with overlapping the global automotive fashion trend, which fits perfectly with our products that both rhino rack and metrics.

Activating this playbook forms the basis of our strategy to Reaccelerate growth in our adventure segment and our strategy is as follows.

We will seek to own the overlapping market globally retailer expansion into mainstream adventurism is just beginning as key retailers launch flagship adventure stores with an overlapping as leading category of focus we are moving rapidly to build out our strategic initiatives as we seek to create an ecosystem.

Of overlapping products.

Sportsman and weekend warrior consumers, we expect to be introducing updated bike and ski and kayak Rex luggage boxes truck bed systems and on <unk>. This new accessories, including storage cases, rooftop tents duffel bags and expanded recovery systems.

Second we expect to improve our market.

<unk>.

And finally, as we improve our U S expansion strategy, we expect to develop other attractive markets like Japan Korea, the middle East and Europe , which we believe will increase our total addressable markets.

We are confident that we are positioning the brand for growing.

As outdoor adventure through overlapping continues to build momentum globally.

As we look ahead to 2023, we believe we have a portfolio of Super fan brands that have strong growth profile with significant market share left to target even in challenging environments.

Climbing back country skiing trail running hiking hunting competitive issue.

And overland and adventuring are Mega trends, we do not anticipate changing for the next decade plus.

This is one of the most important attributes that we were in our superfan brand strategy. So we believe it is the key component to our long term shareholder value creation strategy.

Now I'll turn the call over to Mike Thanks, Mike.

Thank you John and good afternoon, everyone.

I'm going to jump right into the performance in the fourth quarter sales were $104 2 million compared to $118 2 million in the prior year quarter.

Sales included revenue contribution of $3 8 million from Max tracks and acquisition completed on December one 2021.

<unk> sales into the fourth quarter were down 12% or.

Organic sales were down 11% in the fourth quarter <unk> contributed 2% and foreign exchange was a 3% headwind in the quarter on a constant currency basis total sales were down 9% in the quarter.

Fourth quarter sales at the outdoor segment were $55 3 million versus $65 1 million in the fourth quarter of 2021.

You adjust for foreign currency exchange outdoor sales would have been down 11% as opposed to being down 15% at outdoor as John mentioned, while we've done a good job closing the gap on outstanding Black Diamond orders, we're still constrained by lower open to buys from our key North American retail.

Partners due in part to their inventory destocking activities.

Partially offsetting this decline was execution in the key pivot areas of direct to consumer European and IGT that John mentioned earlier.

Another area of strong execution was apparel, which continues to be our fastest growing category within the outdoor segment sale.

Sales were up 15%.

At the apparel category level. This is notable as apparel, along with footwear and our direct to consumer business represent key strategic growth pillars over the next five years for the Corporation.

Precision sports sales increased 10% in the quarter to $33 million.

One thing to note during the fourth quarter, we sold $5 million of nine millimeter ammo at lower margins.

Lower margins than normal and that reduced.

This in an attempt to reduce inventory and generate cash it's a demand for nine millimeter is expected to remain low compared to the supplied during 2023.

You will see.

This reflected in the segment EBITDA in the fourth quarter, but we expect this to be a onetime decrement given the strategy John discussed.

Our adventure segment contributed sales of $18 5 million, reflecting lower consumer demand given the challenging economic environment.

Loaded an industry wide inventory at the distributor level and constraints on new vehicle deliveries.

Patients in the immediate and near term forecast for the adventure segment, we determined it necessary to write down the value of the trademark and goodwill associated with the <unk> acquisition.

As a result, an impairment charge of $92 3 million was recorded in the quarter.

This noncash charge is included in operating expenses and we have excluded it from our adjusted EBITDA in the earnings release published earlier today.

Moving onto gross margin consolidated gross margin in the fourth quarter declined to 34, 6% compared to 36, 1% in the year ago period.

As John mentioned, we were able to push through significant improvements in gross margin for our outdoor segment.

Though these improvements were offset by inventory optimization its precision sports segment as we cleared out our remaining nine millimeter inventory ammo and.

In addition, foreign currency had a negative impact of $3 7 million or 220 basis points, while higher freight costs had a negative impact on gross margins of 900000 or.

90 basis points, excluding both gross margins in Q4 on a consolidated basis would've been 37, 7%.

Selling general and administrative expenses in the fourth quarter were $33 1 million compared to $32 6 million in the same year ago quarter.

In both our outdoor and precision sports segments, we were able to push through expense improvement leading to lower SG&A compared to the prior year.

SG&A expenses in the fourth quarter also reflected lower noncash stock based compensation for performance awards at corporate.

Disciplined expense management was entirely offset by the inclusion of Max tracked.

And higher rent and selling investments at the adventure segment.

Net loss in the fourth quarter was $81 6 million or $2.20 per diluted share compared to net income of $14 million or <unk> 36 per diluted share in the prior year quarter.

Net loss in the fourth quarter of 2022 included the noncash impairment charge of $92 3 million that I just referenced.

Adjusted EBITDA in the fourth quarter was $10 6 million or an adjusted EBITDA margin of 10, 2% compared to $20 million or an adjusted EBITDA margin of 16, 9% in the same year ago quarter.

Lower revenues in the adventure segment higher freight expenses and adverse changes in foreign currency exchange rates all contributed to the reduction in adjusted EBITDA.

10, 2% adjusted EBITDA in the fourth quarter would have been 13, 3% on consolidated basis. If you remove the impact of FX and would have been $14, one or $15 $2 million. If you remove the FX impact and the higher freight costs.

At outdoor and adventure.

EBITDA in outdoor was 11, 7% for the quarter.

It was 23% at the precision of the sports segment in the quarter due to the nine millimeter inventory liquidation I just discussed.

EBITDA was a loss of $1 million of adventure in the quarters, we continued to deal with unfavorable FX and freight.

We do expect the challenges associated with freight to be behind us in the first half of 2023 as we monetize the inventory that carry these higher freight costs.

Now, let me shift over to liquidity and asset efficiency inventory levels declined by 5% from where we ended.

So the September quarter to $147 1 million, which was near our end of the year goal at December 31, 2022, cash and cash equivalents were $12 1 million compared to $19 5 million at December 31, 2021.

Free cash flow defined as net cash provided by operating activities less capital expenditures for the fourth quarter of 2022 was $33 million compared to 5 million same year ago quarter.

We are committed to generating cash in 2023 through our continued focus on optimizing working capital across all three segments.

During the fourth quarter.

We paid down $28 million in debt and ended the year with total debt of $139 million.

This put us in a net debt position of $127 million with net debt leverage of two times on a trailing 12 month adjusted EBITDA basis, which is at the low end of our two to three times target. We expect to stay at that low end of that range in the near future under our $300 million revolving credit facility, we have approximately.

Only $18 million outstanding and further borrowing capacity of approximately $98 million as of December 31, 2022, while maintaining compliance with our required covenants under our credit agreement.

From a tax perspective, we were able to utilize $41 million in Nols in 2022, and expect to use the remaining $18 million in 2023.

That's right, we only have $18 million left at the Nols and over the last 10 years, we have worked to strategically balance the utilization of our Nols to ensure the optimum path for growth, while mitigating tax burden and during this time period, we've been able to realize $220 million in tax benefits from our Nols.

A testament to the organization's accomplishments and making accretive acquisitions, while driving significant cash tax savings for our shareholders.

Now going to introduce our 2023 outlook, we expect sales of approximately $420 million and adjusted EBITDA of approximately $60 million or an adjusted EBITDA margin of 14, 3%, we expect full year capital expenditures to range between $7 8 million and free cash flow is expected.

To range between $35 million to $40 million for the full year 2023 and.

Implicit in these expectations is caution and conservatism considering the challenging macro environment.

The higher interest rates and the uncertain impact these challenges might have on the consumer.

As.

We work through the rest of 2023.

Also expect to realize further working capital improvements generating the outlined free cash flow target I just provided.

The results are further deleveraging our business with this incremental free cash flow, we're expecting to generate in 2023.

This.

The strategy will not only ensure further value creation in 'twenty, three but will also reestablish a baseline business.

And position us for growth, both organically and via M&A in 2024 <unk>.

Additionally, this outlook assumes foreign currency exchange rates stay where they are specific glee the euro at 1.05.

And the Australian dollar at $1 67 to the dollar.

Based on these rates, we estimate that FX is a $2 million headwind for 23 compared to 22 on a constant currency basis.

For the first quarter of 'twenty, three we expect consolidated sales to be approximately $95 million.

Reflecting continued headwinds surrounding unwind of inventory in our key North American wholesale partners.

Excuse me.

I'll pause here and hand, the call back to the operator we're.

We're ready for Q&A.

Thank you Sir.

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

These standby, while we compile the Q&A roster.

Our first question will come from Alex Perry with Bank of America. Please proceed.

Hi, Thanks for taking my questions.

First any color about on how we should think about the growth rates between segments for 2023.

Sure sure precision sports continue to outgrow like.

I think in the past you have provided.

A little bit more detail on sort of segment growth. So any help there would be.

Very appreciate it thanks.

Alex I'll start and John can add any comments, but we specifically have not given segment guidance this year.

We're really proud of the diversification and strength of the entire portfolio across the three very distinctive.

Segments and each of these segments is really positioned to grow in 2003, we've done.

With the effort into grow these segments and make the investments necessary to grow them, but each are and they're different phases of growth.

And as you may recall.

Last year, we guided precision.

It was probably underwhelmed guide and it outperformed so we're really look into 'twenty three with the challenging macro environment the impact the consumer the higher interest rates, we wanted to leave ourselves some optionality of where we are.

Where we pivot too because like I said, all three businesses.

We've made it.

So we're going to be Super.

I'm cautious about.

Our capital and where we invest and how we allocate resources.

But we're going to lean into the hot segment, whether that's geographically is it.

Hot channel et cetera.

As we go through 'twenty, three and that's why we've elected to kind of give a guidance at the consolidated level versus trying to predict.

How each of these businesses is going to perform here as we go through 'twenty three.

Great. That's really helpful. And then just just wanted to clarify.

It looks like the 95 million total sales guidance is down a bit from the $1 13, you did last year any help in terms of how we should think about.

The margin there versus maybe the 17, 4% you did in Q2 and then my Mic.

My other question was.

The theme last quarter was re towers are being really cautious with their open to buy if it continued to work their inventory levels and competing categories not necessarily your category is this still the case.

This headwind sort of carrying with you and to 2023.

Sure Alex Great question, Yes.

The main driver of that $95 million in the first quarter is really big John alluded to the difficulties with our North American retail partners specifically.

In our outdoor business right as we said in our prepared remarks.

Okay.

Their open to buys or limited, we're seeing demand for our product, but our big customers here in North America are really tiny back in right sizing their inventory levels and as long as that going on despite the tremendous job at specialty or despite the growth in our international.

<unk> or in Europe .

Or in our new initiatives right when North America wholesale is struggling and Thats really the headwind we're facing here in Q1.

But we think that's transitory.

In nature right once they right size their inventories.

We see that picking up but.

We're sitting here almost two months into the first quarter. So we.

We know what's going on here in the first couple of months. So that's really the background to that from a earnings perspective.

I think gross margins and EBITDA margins of both.

Should be.

More favorable FX than we.

Had prior in.

Great and sorry, just to clarify you said EBITDA margins and gross margins favorable versus for Q for the first quarter right yes.

Okay perfect. Thank you I'll pass it along best of luck going forward. Thank you.

Yes.

Thank you.

Our next question comes from the line of Randy <unk> with Jefferies. Your line is now open.

Hey, I guess first hey, guys.

Just first quickly I guess for Mike.

Just on the EBITDA margin guidance for next year for the year, just how much of that is gross margin expansion versus <unk>.

SG&A rate change just can you give us some clarity just clarify that first.

We havent been that specific but it's over 100 basis points of margin improvement compared to where we finished this year on a reported basis.

Like I just mentioned to Alex.

Initiatives that we've been driving under Eric Cooney leadership.

They are sticky so.

I'd say over 100 basis points.

100 basis over 100 basis points of gross margin yes.

Got it Okay, and then I guess John for you.

Is it.

The leadership bench continues to expand maybe.

No Neil from his days at Bath <unk> body works.

You did a good job of kind of elevating the perception of the brand there.

Book trading.

Trading up that I've read maybe give us some perspective of conversations you've had with Neil about what Keith Keith focused on we're going to be focused on in his first year ahead at black Diamond any kind of broad strokes.

I think he is going to be attacking for that particular brand in the next 12 months.

Yeah and to ask a question. Thank you Randy good to hear from you again.

As we look to 2023, two aspects that need to be focusing on first and foremost is continuing to accelerate.

We look beyond that the real goal is how do we continue to think about BD its place in the market space brand awareness new category expansion.

New retail more focus on consumer direct and our community centric model.

The long term competitive growth of black Diamond beyond what we've achieved.

Up to 2023.

Got it I guess my last question is I think on the guidance you guys talked about I guess, a free cash flow generation.

Expectation of $35 million to $40 million.

How do you think about the utilization of that free cash.

That kind of support it in the bank that will.

Take a pause on acquisition for 2023, given the market uncertainty.

Change to look at.

Debt pay down or anything like that just just curious on what youre thinking about.

In terms of utilization of free cash flow.

Going forward sure Randy let me take that one.

We've been very specific about invest in inorganic growth and doing M&A strategic M&A finding the next a superfan brand.

For the first six months of the year, we're going to focus on generating cash and.

Paying down debt, though this year right in right sizing.

Moving our working capital.

Et cetera, so it's going to be kind of.

Internal book right.

Focused on paying.

Got it.

That's $28 million. So so we should be building cash at some point.

Through the year and that debt.

In my prepared remarks, I said, we'd get back to looking more aggressively at M&A in the back half of the year in 2004.

Understood. Thanks, guys really appreciate it.

Thanks Randy.

Thank you.

Our next question comes from the line of Joe Alto Bello with Raymond James Your line is now open.

Guys good afternoon.

I wanted to talk about outdoor.

Retailer inventory reductions that you guys.

You have alluded to throughout the call are there any categories in particular that there.

We're heavy on or is it pretty much across the board.

Good question, Joe good to hear from you.

Think of that.

Coming out of spring summer 'twenty two.

There was an expectation that some of these new growth categories that had seen explosion during COVID-19.

Which can be around family camping could've been around bikes and bike carriers racks things like that it ended up heavy as we went into Q3 and Q4 and we saw a shift and a slowdown.

And I think it just manifest itself in too much inventory in the total system, which just limited open to buys and made it difficult to chase those categories that we're continuing to see growth, which for us where things like trekking Poles headlamps gloves packs.

Apparel in the mix now I think apparel as a whole.

Saturated in the market specifically in the.

Casual side of the business.

Okay. It was pretty it was pretty broad based.

Precision sport.

<unk> 9 million the nine millimeter inventory liquidation is that done or is that continuing here in Taiwan.

That's done that's done and that was that.

We took advantage of the popularity of nine millimeter and to do three in 'twenty, one and thought it would carryover some 'twenty two in 'twenty two the demand was really around the center fire Hunt and precision and that's where we chased through all of 2003 and they are still chasing into 'twenty three.

Got it got it one last one for me.

As you know, it's splitting up into two.

To company Sporting and outdoor products do you anticipate any change in your relationship.

With the <unk> side.

No.

We believe we have very good relationships with federal and the team, Jason and all the way down.

We are partners on both sides of.

We supplied bullish both from Sierra in bonds to federal.

Both for commercial loading as well as their OEM contracts.

And they are generous enough to help us with cases and primers.

Okay, great. Thank you.

Okay.

Thank you.

Our next question comes from the line of Ryan Sundby with William Blair. Please proceed.

Yeah, Hi, thanks for the questions.

Maybe to follow up on Joe's question, there around inventory by category Alright, Jeremy If you got a pretty unique portfolio in that it's Scott.

Seasonal offerings are you seeing any difference in the way retailers are managing are behaving and kind of it.

And category and activities in categories like ski and something that will be in demand later in the year.

Yes, I think what we find is that the specialty level, where they chase on a weekly basis, they're able to chase whatever the latest greatest whether trend is when you have larger accounts, who have a normal seasonal cadence right.

It's a little more difficult to chase open to buys in those categories, because they already have prescribed bookings going out right and we pull off of those with trends, but they anticipate certain seasonal and activity trends shifting in their business.

We've seen that impacted in this space.

The winter that comes later, but it is much bigger longer or big in the Rockies, but warm and dry in new England for example, or whatever change makes that difficult for them to chase.

Got it that's helpful and then trying to call out a few positives around demand whether it would be constant currency growth, 15% in Europe or do you see outdoor growth of 19%.

Is that is that more reflective of kind of true underlying demand or prs youre seeing out there.

Just help us kind of understand that better.

I'll close given some of the dislocation that's happening from the inventory management.

Very various stood on that that's one of the.

And when you see the the mix the mix gives you a sense of as Youre, saying what is really the demand for the brand today versus the marketplace and Thats why.

Albeit we're guiding conservatively because we're going to have to in 2023 chase certain channels certain geographies certain products lines right, even certain brands or segments.

And we will do so and that's our commitment to it it won't be an easy lay up that every category every brand every channel every geography.

Same upside.

Alright.

It's going to be the challenge for every brand in 2023.

Alright, thanks for the questions.

Thank you.

Our next question comes from the line of Matt Koranda with Roth <unk>. Your line is now open.

Hey, guys good afternoon.

So just wanted to spend back to the guidance one more time just to make sure I understand.

So I mean, the simple take for me Youre guiding revenue lower by about $30 million.

Just a tad lesson that Ebola elements shrunk by about three and I think that implies.

You expect some margin improvement.

There's got to be some puts and takes underneath the surface from a segment level and it feels a little bit like Mega we're relying on a bit more contribution from precision sports segment, just given the higher margin and so that mix shift should be helpful.

Thinking about that in the right way and then are there. Other areas. You did talk about 100 bps of gross margin improvement, but where do we see I guess opportunity to cut on the SG&A front, because it sounds like the <unk>.

The guide also implies a bit of SG&A.

Cut as well.

Okay.

<unk>.

We're not talking about cutting a lot of the SG&A I mean, there's a few opportunities perhaps maybe in the adventure segment.

Year over year.

On the SG&A.

From 'twenty, one to 'twenty two.

<unk> down.

Outdoor and precision supports.

So on the SG&A is pretty tight.

Back half of last year focused on expense control and generating cash and right sizing inventory.

We're not going to get into the details of where we.

Comments around net around where we see that from a segment perspective or are there.

More opportunity or less opportunity from this segment that segment, we're going to lean we think we've made investments all three of them like I said have different <unk>.

Headwinds different tailwind, we're going to lean into that.

Where we see where we can.

<unk> the growth rate and with the difficult environment today.

The consumer or the macro or interest rates as interest rates to play.

Bigger impact, especially in Australia.

Because of the way there.

Financing works down there.

So we're going to lean in where the opportunity is.

And.

We're only.

60 days away from reporting Q1 again so.

We thought we'll get we'll have more to say in 60 days.

Well I will say Matt.

Positivity from Barracuda it increases.

That won't be as much of a headwind as it was in 'twenty two.

We don't anticipate having the experience as much air freight so all those things being positive to the overall EBITDA.

I'm, sorry, Jon that's a great point, the FX and the airfreight.

Yes.

Right behind Us right.

For the second half of 'twenty three.

We're seeing those contained.

Container and shipping costs normalized in the FX has built in I said, we are expecting about $2 million headwind compared to last year, but.

Compared to last year, FX overall with a $9 million.

Headwind.

Okay got it very helpful. Thanks for the color on that job.

Precision for.

Just wondering a little bit more detail you mentioned the onetime sale bulk sale by mill, just what was the EBITDA headwind from that in the fourth quarter, Mike and then is there any more sort of.

Large amount of loaded MLR inventory that you could be sitting on that you can monetize over the next quarter or two so we should be factoring in sort of how we think about the first half of the year.

Long answer that one we don't have them.

Any pistol and revolver ammo large amounts of that right is John prepared remarks, we're really leaning into the center fire rifle, which is what Barnes and Sierra really.

That's really where they play.

We were opportunistic in 'twenty, one when we did sell some of this.

On the call nine millimeter stuff, we have a couple of $3 billion $2 three ammo and that's about it.

I'll say, it's slower moving stuff.

But from a margin perspective.

We sold it at cost so it was pretty significant impact that's why margin.

3% for the segment was that.

The main driver.

<unk>.

We don't expect that to continue as expected.

Profitability of the business to bounce back to that.

30% to 35% range that we've talked about our precision sports business performing at.

Okay, Great I, just want to sneak one more add on the adventure segment, if I could.

The it seems like the issue in that business, especially in right. Iraq has just been channel inventory over the last couple of quarters, just any update on sort of where you think channel inventories.

Patrick.

I would say that that there are two headwinds that we faced both in Australia and in North America in 2022 that we didn't.

Account as aggressively for one was the.

Inventory hangover.

Polaris OEM level or the consumer not being able to buy an F 150, or whatever that has an impact now I anticipate.

I think that the.

Impact of the inventories were really heavy in three and four Q3, and Q4 and rolled over a little bit into Q1, I think as we come into the spring summer, we anticipate those inventories to get to minimal levels in the business start to see a pick up.

Got you I'll go back to you guys if I could.

Thank you.

Next question comes from the line of Mark Smith with Lake Street. Please proceed.

Hi, guys.

Wanted to just dig in a little bit more on precision here for a minute.

We've seen slowdown in nine mill.

$235 six as well.

Starting to see some of the beginnings of maybe some slowdown in normalization.

In the remainder of center fire rifle, especially as we start to see channel inventory fill up a little better.

Are you.

Question, Youre seeing that or you are yes.

Yes, yes, asking are you starting to see any signs of maybe some slowdown in demand.

Maybe if you speak of what you've done in backlog of orders.

So as we came out of shot show that.

The 300, <unk> and everything in between and then for US the big demand around things like three three eighths for my global.

International conflict perspective, and so as we said in the prepared remarks.

<unk>.

Our order book is back up to the demand levels, we saw coming out of Q3 and Q4. So we're very positive about that.

And I think again, the superfan nature of Sierra in bonds that we have a unique positioning in the market and it's super difficult to replace those two brands and what they offer in product.

Okay.

Can you just talk about any commodity pressures or easing.

Within precision and also are you starting to see any better availability and brass casings.

Or primers or any other components the loaded at all.

So.

Message is the same.

Sourcing of components, specifically the cases markets critical that is the wildcard.

<unk> no different than its been throughout 'twenty two right the more cases.

And source them more conversion of bullets that we can convert over to ammo alright, that's the wildcard right. The demand for this center fire rifle.

Strong as John just alluded to because of the gate.

Ah calibers that we're focusing on and we're not focusing on at this point.

Thanks.

With regards to commodities copper.

Copper is above.

$4.

On the LNG right now and Thats right around us.

Where we would expect it to be from a standard standpoint so.

We don't see.

Headwind or tailwind.

Either way right now from commodity prices.

Okay.

And the last one just wanted to dig into just apparel and footwear and sorry that I think I missed it could you give maybe the growth numbers again that you saw for the full year in those segments or anything else that you can kind of quantify for sales and the strength that we're seeing that.

But I think even more exciting is the level of a parallel growth we saw even through our D to C. DTC was up and apparel was up even more than our D to C growth. So.

We continue to see strong.

Interest and strong demand for these new categories.

Excellent. Thank you.

Thank you.

Our next question comes from the line of Linda Bolton Weiser with D. A Davidson. Please proceed.

Yes, hi.

I think that when we were.

Were talking about your expectations for inventory your own inventory at the end of the year I thought you had said something like $143 million or so so you got really close to that but it was still a little bit higher so I'm just trying to kind of.

Marry that with the idea that you had this.

Precision for inventory reduction that impacted gross margin. So was there. Some other inventory reduction that you had hoped you would do that didn't quite get done in the fourth quarter or like why wasn't inventory performance even more.

Isn't it even lower and I guess at the end of the year.

Hi, Linda Good question I think it's a good observation.

Inventory at outdoors, a little higher than we'd hoped for against directly tied into the fact that north American retail or wholesale partners are taken as much right.

So we have a little more inventory on hand, and we hope to get there, but we're working through that that's a priority here.

Mentioned in the prepared remarks.

Tim through adventure as well Linda right I mean, when you look at the overall business as we didn't expect to see the headwinds in either outdoor or adventure that we experienced.

They are a little closer.

John's correct, but they're a little closer to the target in the Miss.

As you pointed out it's a little early.

A little stronger.

Outdoor.

Okay.

They've declared the inventory reductions kind of completed so is there just something different going on among your retail customers. That's so different from say a Walmart like can you just like.

Talk about it is your inventory up still year over year, but just up less at retail or can you give us more color on that.

I would say that our retailers arent.

Lastly, similar to Walmart, but I think they will all tell you that over the last.

Three to six months, they have successfully moved down their inventory towards their targets and their new open to buys and Thats why as we said in the looking into the future.

Plus you buy exactly every channel every geography, but we expect the businesses you will see growth now that the inventories have come down and that was.

That's what impacted Q4, so much was big retailers using trying to manage every ounce of inventory at the cost of open to buy.

So you see that growth in second quarter or not until third quarter 'twenty three.

I think we are expected to start accelerating in the second quarter, but we do think that the second half of the year will be stronger.

That's correct.

Okay, alright, thanks very much.

Great. Thanks, Linda.

Thank you.

Our next question comes from the line of Jim Duffy with Stifel. Please proceed.

Thanks, John Hello, Hello, Jim.

It's been a long call so I'll keep it brief.

Quick one on the cash flow might close the gap between the $60 million EBITDA in the $30 million to $40 million in cash flow Guide I guess I'm surprised you don't see working capital opportunity in 'twenty three.

We do see some working capital.

Next year, though we are going to be higher.

Higher tax cash cash taxpayer right.

I only have $18 million.

NOL slot right, we utilized over $40 million this year so.

The main driver.

Okay.

And then next question I guess for you John with Neil coming onboard you spoke to where he is going to focus his efforts with the black Diamond brand, maybe you could talk about what the incremental bandwidth that provides do you and are and what are the areas that are going to attract your attention from where do you see the opportunity for greatest return.

On your incremental bandwidth.

Yes, I think as we look to 'twenty, three and beyond just being a year that we're not as focused on M&A, which obviously was an area of our bandwidth in the past is really accelerating the business, new NPI innovate and accelerate site along with the operational plans and strategies.

T J planning of accelerating the other categories, which we still believe have strong growth.

Okay, great. Thank you.

Thanks, Jim Thank.

Thank you as a reminder to ask a question at this time. Please press star one one or you touched on telephone.

Our next question is a follow up from Alex Perry with Bank of America. Please proceed.

Year for Black Diamond based on sort of your read on the fall Winter 2000, <unk> order book, which is sort of causing the implied acceleration in revenue as you move through the year.

And then.

As we know the acceleration of <unk> and even our flagship retail retail does 75% of this business in the back half of the year and 50% in Q4, and we see that often in our direct to consumer businesses as well.

Got you so the fall winter 2003 order books should be up against this year is that correct.

Yes.

Correct and obviously in line with.

This anticipation that the open to buy or inventory overhang that we have seen at our key accounts will not be the case in Q3 and Q4 of this year.

So the one in Q is just.

22 product, if I'm not chasing sort of winter 2002 product its not necessarily indicative of.

Core core momentum or demand for your product, it's more of a factor.

Spring Summer, you're probably now really April as opposed to February or March we will see that shift of activity accelerate key categories.

So the spring 'twenty three is up as well.

Okay, Alright, perfect. Thank you.

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. <unk> for closing remarks.

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

Q4 2022 Clarus Corp Earnings Call

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