Q1 2024 Clarus Corp Earnings Call

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Unknown Executive: Good afternoon, everyone, and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the first quarter ended March 31st, 2024. Joining us today are Clarus' Executive Chairman, Warren Kanders, CFO Mike Yates, and President, Black Diamond Equipment, Neil Fish. Management Director of Clarus's Adventure Segment, Matthew Hayward, and the company's External Director of Investor Relations, Matt Berkowitz. 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. Berkowitz as he reads the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995, which provides important cautions regarding forward-looking statements. Matt, please go ahead.

Good afternoon, everyone and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the first quarter ended March 31st 2020 for joining.

Warren B. Kanders: Joining us today are Clarus Corporation's executive Chairman Warren Kantor.

Unknown Executive: Oh, Mike Yates, President Black Diamond equipment Yoga.

Unknown Executive: Management director of classes Adventure segment, Matthew Hayward, and the company's external director of Investor Relations, Matt Berkowitz.

Matthew Berkowitz: Following their remarks, well open the call for your questions before we go further I would like to turn the call over to Mr. Berkowitz. She reads the Companys Safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward.

Matthew Berkowitz: Looking statements Matt. Please go ahead.

Matthew Berkowitz: 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 Clarus Corporation to differ materially from those expressed or implied by the forward-looking statement.

Matthew Berkowitz: Thank you before I begin I'd like to remind everyone that during today's call, we'll be making several forward looking statements. We make these statements under the safe Harbor provisions of the private Securities Litigation Reform Act.

Matthew Berkowitz: 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, followed by the SEC. I'd like to remind everyone that this call will be available for replay starting at 7 p.m. Eastern Time tonight. A webcast replay will also be available via the link provided in today's press release as well as on the company's website at www.clariscorp.com. Now, I'd like to turn the call over to Clarus's Executive Chairman, Warren Kanders.

Warren B. Kanders: 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 differ materially from those expressed or implied by the forward looking statement more information on potential factors that could have.

Warren B. Kanders: The company's operating and financial results.

Warren B. Kanders: Got it from time to time in the company's public reports.

Warren B. Kanders: C C.

Warren B. Kanders: To remind everyone. This call will be available for replay starting at seven P. M. Eastern time Tonight, a webcast replay will also be available via the link provided in today's press release as well as on the company's website at Clarus Corp Dot com.

Warren B. Kanders: Now I'd like to turn the call over to Claris as executive Chairman Warren Kansas.

Warren B. Kanders: Good afternoon, and thank you all for joining Clarus's earnings call to review our results for the first quarter. I am pleased to be joined today by not only our Chief Financial Officer, Mike Yates, but also Neil Fiske and Matt Hayward, who lead our outdoor and adventure segment. At our investor day this past March, we discussed wanting to deliver a comprehensive segment level view, so we are excited to have Neil and Matt deliver it on board for earnings calls going forward.

Matthew Berkowitz: Okay.

Warren B. Kanders: Good afternoon, and thank you all for joining Clarus is earnings call to review our results for the first quarter.

Warren B. Kanders: I am pleased to be joined today by not only our chief Financial Officer, Mike Yates, but also Neil Fiske and not Hayward will lead our outdoor and adventure segments.

Warren B. Kanders: At our Investor Day. This past March we discussed wanting to deliver a comprehensive segment level view. So that we are excited to have Neil and deliberate.

Warren B. Kanders: On board for earnings calls going forward.

Warren B. Kanders: Last year, we took crucial steps to realign our overall platform and individual brand, and a key component of this strategy was hiring highly experienced and dedicated executives to guide the outdoor and adventure business. Since their appointments last year, both have made considerable progress implementing strategic, Streamlined Business Processes to capitalize on clear long-term growth opportunities. Today, I am confident that we have the right team in place.

Warren B. Kanders: Last year, which are crucial steps to realign our overall platform and individual brands and a key component of this strategy was hiring highly experienced and dedicated executives to guide the outdoor and adventure businesses.

Warren B. Kanders: Since they are important appointments last year.

Warren B. Kanders: We have made considerable progress implementing strategic plans to streamline business processes and capitalize on clear long term growth opportunities.

Warren B. Kanders: Today I am confident that we have the right team in place and we continue to be encouraged by the steps in your own matter, taking to advance our rebased businesses and turnaround.

Warren B. Kanders: And we continue to be encouraged by the steps Neil and Matt are taking to advance our rebase businesses and turnaround. At our Investor Day, we outlined a strategic roadmap highlighting anticipated multi-year growth and margin expansion targets for both segments that we believe Clarus can achieve in the first quarter of 2024, representing the initial phase of these plans. While Neil and Matt will provide more specific comments, we are encouraged by the incremental progress demonstrated in the first quarter. In outdoor, we continue to seek to prioritize simplification and right sizing, which we believe is evidenced by a reduction in total outdoor inventory of 15% versus last year.

Warren B. Kanders: At our Investor day, we outlined our strategic roadmap.

Warren B. Kanders: Anticipated multiyear growth and margin expansion targets for both segments and we believe clarus can achieve.

Warren B. Kanders: First quarter of 2024, representing the initial phase of these plants.

Warren B. Kanders: Well Neal and Matt will provide more specific comments, we are encouraged by the incremental progress demonstrated in the first quarter and.

Warren B. Kanders: In outdoor we continue to seek to prioritize simplification and right sizing, which we believe is evidenced by a reduction in total outdoor ambulatory at 15%.

Warren B. Kanders: At Adventure, we saw significant year-over-year sales growth, driven by the launch of compelling new products and expansion in our OEM channel. Based on the results to date, we are pleased to reaffirm our full year guidance. Michael Details later in the presentation. There is still much more work to be done, but we believe we have laid the foundation to drive increased profitability and unlock new growth opportunities in 2024 and beyond. With that, thank you again for being with us today, and I will turn the call over to Mike.

Warren B. Kanders: Just as last year.

Warren B. Kanders: At adventure, we saw significant year over year sales growth driven by the launch of compelling new products and expansion in our OEM channel.

Warren B. Kanders: Based on our results to date, we are pleased to reaffirm our full year guidance, which Mike will detail later in the presentation.

Mike: There is still much more work to be done, but we believe we have laid the foundation to drive increased profitability.

Mike: Walk new growth opportunities in 2024 and beyond.

Warren B. Kanders: With that thank you again for being with US today, and I will turn the call over to Mike.

Michael J. Yates: Thank you, Warren, and good afternoon, everyone. I want to remind people or let people know who are on the call that we've actually provided slides to accompany our presentation. They're available if you're on the webcast, and they're also available on our website.

Mike: Thank you Warren and good afternoon, everyone.

Mike: I want to remind people are let people know who are on the call that we've actually provided slides.

Mike: Slides to accompany our presentation, they're available if you're on the webcast and they're also available on our website, that's something new so I wanted to make sure. All the participants were aware of the additions that we've made to our call today.

Michael J. Yates: That's something new, so I wanted to make sure all the participants were aware of the addition that we've made to our call today. On today's call, I'll provide a general Q1 update before turning it over to Matt and Neil to review the segment performance. I'll conclude with a more detailed summary of our Q1 financial results, followed by a Q&A session. Beginning on slide four, we entered the year focused on initiating our strategic plan for Clarus's next chapter as a pure play ESG-friendly outdoor business, as we have discussed previously.

Speaker Change: On today's call I'll provide a general Q1 update before turning it over to Matt and Neil to review the segment performance.

Michael J. Yates: Conclude with a more detailed summary of our Q1 financial results followed by Q&A session.

Michael J. Yates: Beginning on slide four we entered the year focused on initiating a strategic plan for Claris. This next chapter as a pure play ESG friendly outdoor business.

Michael J. Yates: As we have discussed previously.

Michael J. Yates: We completed the sale of our precision sports segment in February of 2024, which represented a highly successful outcome for Clarus. Today we have a more streamlined company focused on two consumer segments with broad appeal and attractive long-term tailwinds, outdoor and adventure. In-Outdoor, our focus is on simplification and solidifying the core. Although the macroeconomic backdrop remained challenging during the first quarter.

Michael J. Yates: We completed the sale of our precision sports segment in February 2024, which represented a highly successful outcome for claris.

Michael J. Yates: To date, we have a more streamlined company focused on two consumer segments with broad appeal and attractive long term tailwind outdoor and adventure.

Michael J. Yates: In outdoor.

Michael J. Yates: Our focus is on simplification and solidifying the core.

Michael J. Yates: Although the macroeconomic backdrop remained.

Michael J. Yates: The stabilization we mentioned during our Q4 and year-end 2023 earnings call was confirmed as our North American wholesale market grew year over year. We believe that the work the sales team put in during the second half of 2023 is paying dividends now, as we sought to listen to our cathedral accounts and deliver the right product for them on time. From an operations standpoint, we believe that our inventory reduction and SKU rationalization initiatives are on track.

Michael J. Yates: Challenging during the first quarter the stabilization we mentioned during our Q4 and year end 2023 earnings call was confirmed as our North American wholesale market grew year over year.

Michael J. Yates: We believe that the work that sales team put in during the second half of 2023 is paying dividends now as we start to listen to our cathedral counts and deliver the right product for them on time.

Michael J. Yates: From an operation standpoint, we believe that our inventory reduction and S. K U rationalization initiatives are on track.

Michael J. Yates: In Adventure, where our core objective is to invest to scale, we saw a continuation of the strong sales growth momentum we established in the back half of 2023. We've made strides both increasing brand awareness through global marketing programs and strengthening our Adventure team to ensure we're best positioned to capitalize on strong market tailwinds. Complementing this progress and following the sale of the Precision Sports segment, Clarus has a debt-free balance sheet that we believe provides us with significant optionality to allocate capital for the benefit of shareholders.

Michael J. Yates: And adventure, where our core objective is to invest to scale. We saw continuation of the strong sales growth momentum we established in the back half of 2023, we've made strides both increasing brand awareness through a global marketing programs and strengthening our adventure team to ensure we're.

Michael J. Yates: Best positioned to capitalize on strong market tailwind.

Michael J. Yates: Complementing this progress and following the sale of precision sports segment Claris has a debt free balance sheet that we believe provides us with significant optionality to allocate capital for the benefit of shareholders. After retiring olive Claire says outstanding debt with the proceeds from the sale we.

Michael J. Yates: After retiring all of Clarus's outstanding debt with the proceeds from the sale, we had over $47 million of cash on hand at the end of the first quarter. Importantly, this provides the flexibility and how we seek to pursue our long-term value creation objectives and growth initiatives. In terms of priorities, we are committed to reinvesting in our existing two segments to drive organic growth. We expect to continue to pay our quarterly dividend and also selectively look at smaller bolt-on M&A opportunities that may enhance our adventure business in the United States and New Geography.

Michael J. Yates: Had over $47 million of cash on hand at the end of the first quarter.

Michael J. Yates: Importantly, this provides the flexibility in how we seek to pursue our long term value creation objectives and growth initiatives.

Michael J. Yates: In terms of priorities, we are committed to reinvesting in our existing two segments to drive organic growth. We expect to continue to pay our quarterly dividend and also selectively look at smaller bolt on M&A opportunities that may enhance our adventure business in the United States and new geographies.

Michael J. Yates: Overall, our focus is on cash generation through the continued right sizing of inventory and business expansion with the intent of accumulating cash on our balance sheet as we execute our strategic growth plan. Before I turn the call over to Matt, I'll briefly highlight a couple of key figures on slide five. Clarus's first quarter revenue of $69.3 million exceeded our guidance of $64 to $66 million. We also generated adjusted EBITDA of $2 million, which beat our expectations of $1 to $2 million for the quarter.

Michael J. Yates: Overall, our focus is on cash generation through the continued right sizing of inventory and business expansion with the intent of accumulating cash on our balance sheet as we execute our strategic growth plans.

Michael J. Yates: Before I turn the call over to Matt I'll briefly highlight a couple of key figures on slide five.

Michael J. Yates: <unk> first quarter revenue of $69 3 million exceeded our guidance of $64 million to $66 million. We also generated adjusted EBITDA of $2 million, which beat our expectations of 1% to $2 million for the quarter.

Michael J. Yates: Overall, we are pleased with our execution in Q1 and with the building blocks in place and we're ready to continue to meet Claire says long term financial targets.

Michael J. Yates: Overall, we are pleased with our execution in Q1 and with the building blocks in place, and we are ready to continue to meet Clarus's long-term financial targets. I'll now turn the call over to Matt Hayward, Managing Director of Clarus's Adventure Segment.

Michael J. Yates: I will turn the call over to Matt Hayward, managing director of Clarus is adventure segment Matt.

Matthew Berkowitz: Thanks, Mike. And good morning, everyone from Australia.

Michael J. Yates: Yes.

Matthew Berkowitz: Thanks, Mike and good morning, everyone from Australia, I'll begin my remarks on slide six.

Matthew Berkowitz: I'll begin my remarks on slide six. I'm very excited to be part of these calls now to address our adventure segment directly. I'll try to tie back to many of the things we touched on during our investor day in order to track our progress financially and strategically. 2023 marked a recess and stabilization year for the adventure segment, and we are pleased to have kicked off 2024 with significant momentum. The first quarter represented the initial phase of our new three-year strategic plan, and we took important steps launching compelling new products and continuing to expand beyond the home market in Australia. Q1 sales increased 27% year-over-year, supported by two primary drivers. The First in Wholesale.

Matthew Berkowitz: I'm very excited to be part of these calls now to address our adventure segment directly all tried to tie back to many of the things we've touched on during.

Matthew Berkowitz: During our Investor day in order to track, our progress financially and strategically.

Matthew Berkowitz: 2023 months' of recess and stabilization yet the adventure segment and we are pleased to have kicked off 2024 with significant momentum.

Matthew Berkowitz: The first quarter represented the initial phase of our new three year strategic plan and we took important steps launching compelling new products and continuing to expand beyond the high market in Australia.

Matthew Berkowitz: Q1 sales increased 27% year over year supported by two primary drivers.

Matthew Berkowitz: We saw strong key account performance across Australia, New Zealand, and combined with the onboarding of new key accounts in the US market. This has been supported by strong product portfolio introductions across all of our key categories, inclusive of trays, where we have our category-leading Pioneer 6 platform, our new crossbar system with the RX100 and RX200 introductions, and new accessory ranges with rooftop tents and storage boxes. Second, we continue to experience strong demand in our OEM channel, a vital channel for us that we believe will drive volume while enhancing our brand in new markets and vehicle models.

Matthew Berkowitz: First in wholesale.

Matthew Berkowitz: We saw strong key account performance across Australia, New Zealand and combined with the Onboarding of new key accounts in the U S market.

Matthew Berkowitz: This has been supported by strong product portfolio introductions across all of our key categories inclusive of <unk>, where we have our category leading pioneer six platform, our new cross bar system would be at 100, and Alex 200 introductions, and new accessory ranges with rooftop tents and storage boxes.

Matthew Berkowitz: Second we continued to experience strong demand in our <unk> channel.

Matthew Berkowitz: So channel for us that we believe will drive volume, while enhancing our brand in new markets and vehicle models.

Matthew Berkowitz: Following the first deliveries to new OEM customers in 2023 for a product launch, demand has continued to remain robust, which has helped accelerate sales growth. At the same time, our first quarter margins were affected by a less favorable channel mix, particularly given the outperformance of OEM as that continues to grow. Q1 gross margins in Adventure were 38.4% as compared to 41% last year.

Matthew Berkowitz: Following the first deliveries to new OEM customers in 2023 for a product launch demand has continued to remain robust which has helped accelerate sales growth.

Matthew Berkowitz: At the same time, our first quarter margins were affected by less favorable channel mix, particularly given the outperformance of OEM as that continues to grow.

Matthew Berkowitz: Q1, gross margins, an adventure with 38, 4% as compared to 41% last year.

Matthew Berkowitz: We also saw the onboarding of new key account programs and locations, which do bring in some lower margins in order to be good partners in our database. We continue to take immediate and intermediate steps expected to improve overall profitability and are committed to seeking to drive better skewed productivity, inventory management, and organizational efficiency. Driving performance outside of Regions A and Z is critical, as is the ramp-up of opportunities across both Maxtrax and TREAD as we expand brand and category reach across 2024.

Matthew Berkowitz: We also saw Onboarding of new key account programs and locations, which do bring in some lower margins in order to be to be good partners in that database.

Matthew Berkowitz: We continue to take immediate and intermediate steps expected to improve overall profitability.

Matthew Berkowitz: And are committed to seeking to drive better SKU productivity inventory management and organizational efficiency.

Matthew Berkowitz: Driving performance outside of region names it is critical.

Matthew Berkowitz: As is the ramp up of opportunities across both Mac strikes and trade as we expand brand and category reach across 2024.

Matthew Berkowitz: In terms of market conditions, more generally, positive fundamentals continue to be supported by strong auto sales. VFAC figures, the standard for vehicle deliveries in Australia, showed all-time record first quarter results for the auto sector, with 300,000 sales, a year-over-year increase of 13%.

Matthew Berkowitz: In terms of market conditions more generally positive fundamentals continue to be supported by strong auto sales.

Matthew Berkowitz: Facts figures the standard for vehicle deliveries and Australia showed the all time record first quarter results for the auto sector with 300000 sales a year over year increase of 13%.

Matthew Berkowitz: Close to home in the US, new vehicle sales are expected to have risen 5.6% year over year to 3.8 million units in the first quarter of 2024, as per Cox Automotive. Diving into select strategic initiatives, I'd like to highlight some of the key investments we're making in the US market. During the first quarter, we identified several key positions that we believe will enhance our ability to grow. With our focus on delivering best in class products globally, we've recently added a new fit technician and national marketing leader that will sync up with our shared services in Australia to deliver best in class content tailored specifically for North America.

Matthew Berkowitz: Closer to home in the U S. New vehicle sales are expected to have risen five 6% year over year to $3 8 million units volume in the first quarter of 2024, as they're called soda makers.

Matthew Berkowitz: Diving into select strategic initiatives I'd like to highlight some of the key investments we are making in the U S market.

Matthew Berkowitz: During the first quarter, we identified several key positions that we believe will enhance our ability to grow.

Matthew Berkowitz: With our focus on delivering best in class product globally. We have recently added a new fit fit technician and national marketing later that will sync up with our shared services in Australia to deliver best in class content tailored specifically for North America that.

Matthew Berkowitz: They will soon be joined by local IT leadership to not only help drive greater DTC transformation but also to support enhanced integration with our key partners locally. Linking to the above but called out as a key imperative for the adventure segment is our strategy to grow our OEM opportunities on a global level outside of ANZ. To this end, we are very excited to be adding a new global head of OEM sales and development to the U.S. base in our Denver office in Q2.

Matthew Berkowitz: That will soon be joined by local leadership.

Matthew Berkowitz: Any help drive greater DTC transformation, but also to support enhanced integration with our key partners locally.

Matthew Berkowitz: Linked to the above are called out as a key imperative for the adventure segment is our strategy to grow OEM opportunities on a global level outside of ANZ.

Matthew Berkowitz: So the thing we are very excited to be adding a new global head of Ibm's thousand development.

Matthew Berkowitz: In the U S base in our Denver office in Q2.

Matthew Berkowitz: In terms of brand investment, we've stepped up investment and support across both trade marketing in parallel with digital investment. Within trade support, we've been very excited to launch our first truly global brand and product catalogue for Rhin-O-Rack, delivered in multiple languages for the very first time for partners across Japan, China, Germany, and also adaptations with vehicle specifics for US and Canada.

Matthew Berkowitz: In terms of brand investment, we have stepped up investment and support across by trade marketing in parallel with digital investment.

Neil Fiske: This has been supported with trade show investments across Japan and France, and we will continue across markets in 2024. We'll also be introducing a brand new platform to support the Adventure Portfolio as a whole across Overland Expos and SEMA later on in 2024. Developments to showcase our ramped up new product development delivered comprehensive campaigns for our world famous and industry-leading Pioneer6 platform and our new focus on showcasing an adventure lifestyle supported by an amazing array of accessories across all brands in our portfolio, including Maxtrax and Tread in these campaigns.

Neil Fiske: Developments to showcase that ramped up new product development.

Neil Fiske: Delivered comprehensive campaigns for our world famous and industry, leading client Essex platform and our new focus on showcasing an adventure lifestyle supported by an amazing array of accessories across all brands in our portfolio, including <unk> and trade in these campaigns.

Neil Fiske: Our focus is clearly aimed at the support of our amazing partners globally, while driving greater visibility with investment into digital platforms and media. Lastly, a new game changing product has arrived and is on the horizon. As we mentioned during our last earnings calls, the new Pioneer 6 platform in Australia marked the first major new product launch in the last 15 months, and we've begun to bring a portfolio of accessories that complement it.

Neil Fiske: Our focus is clearly aimed at the support of our amazing partners globally.

Neil Fiske: We're driving greater visibility with investment into digital platforms and media.

Neil Fiske: We also brought to the market the first Maxrex board innovation for nearly a decade through the introduction of a light board. We are pleased with the progress of launching new products in the US as well as new accessories globally, including rooftop tents during the first quarter. We believe that our adventure segment is well positioned to capitalise on strong industry dynamics and a large and growing addressable market across multiple vehicles and verticals. We've made significant investments in professionalizing the team, process re-engineering, and product commercialization to ensure we continue to gain market share.

Neil Fiske: Moving forward, we are committed to seeking to establish a best-in-class product ecosystem while remaining intensely focused on enhanced product margins as we scale. At the end of the day, when we engage with our wider community and empower them with the opportunity to make space for adventure in whatever shape and activity that entails, with our key partners globally across all key markets, we will win together. I'd like to now turn the call over to Neil Fiske, President of Black Diamond. Neil, it's over to you.

Neil Fiske: Thanks, Matt. Turning to slide seven, overall results in the outdoor segment were in line with our expectations for the first quarter of 2024. And we are pleased with the progress we're seeing. At our investor day in March, I said that 2023 was a reset year for the industry and for Black Diamond and that 2024 would be about simplifying the business to solidify our core, improve profitability, and lay the foundation for long-term sustainable growth.

Neil Fiske: This quarter, we are starting to see the early results from the hard work we put in over the last year. Importantly, our biggest region, North America, returned to growth, with the Wholesale Channel growing 10% year over year. This is one of the first areas of focus in our turnaround plan as we completely rebuild our sales leadership team. As Warren indicated earlier, in addition to the sales results, we're hearing good feedback from our retail partners, that our service levels have improved, that we are sharper in our brand positioning and execution, and that we are, for the most part, outperforming the market in our core categories as we seek to expand our product leadership.

Neil Fiske: I'm also pleased with our progress in strengthening our relationships in the specialty channel, which is a top priority for us strategically. We are continuing to rationalize our product line under the direction of fewer, bigger, better. This quarter, for example, we made the decision to exit our distribution of ski bindings.

Neil Fiske: The category, which has low margins, high skew complexity, low terms, and a High Cost to Serve. We expect to see further category and skew reduction over the course of the year as we focus on our core sports. [inaudible] As we've simplified the business, we've streamlined the organization and taken out costs. Operating costs are down 8.3% year over year, and we expect that they will continue to fall as a percentage of sales over the course of 2024. We closed five underperforming stores versus the same period last year.

Neil Fiske: We've also made major strides in both the quality and levels of our inventory. Overall inventory is down 15% versus last year. But equally important, we've moved more of this inventory value into the A styles, which drive 80% of our sales. 59% this year versus 45% last year, and the trend is still improving. Fill rates are up. Markdown exposure is down.

Neil Fiske: We've done a lot of work to bring apparel inventories in line with a 38% reduction versus a year ago. However, geographically, the regions are in different stages of recovery. We're pleased to see the turnaround in our largest region of North America. However, Europe and the Independent Global Distributor Mark still face tough market conditions. The EU was down 17% in wholesale, which was better than our expectations. The smaller D to C segment in the EU was up 33%. The EU represents 34% of our revenues in Q1. IGD is a different story altogether.

Neil Fiske: Here we have an added layer of distribution that is still overstocked from the pandemic boom and will likely take all of 2024 to get back in line. For the quarter, IGD was down 44%, and we expect the year to be down 25% to 30% as inventories rebalance across the network. IGD represents 10% of our revenue in Q1. Overall, gross margins for outdoor work flat year over year.

Neil Fiske: While we're still clearing through and rightsizing inventory, we believe we're less promotional than the overall market in North America and Europe. We have, however, begun to build a reserve to deal with any PFAS-related inventory that may be more difficult for us to move as a result of new regulations taking effect at the end of this year. By the fall of 2025, all of our apparel and packs will be PFAS-free, but there will likely be some residual PFAS inventory to clear in the first half of next year. In summary, we're pleased with our progress and confident in our strategy, knowing there's so much more to do and to demonstrate. I'll now turn the call back over to Mike.

Neil Fiske: I'll now turn the call back over to Mike.

Michael J. Yates: I'm on slide 8, and I'll begin with a summary of our financial performance in the first quarter. As a reminder, and as we've noted previously, given the sale of the precision sports segment for approximately $175 million, which was completed and closed on February 29, 2024, during the first quarter, our U.S. GAAP results are comprised of our outdoor and adventure segments, and the results are referred to as continuing operations. First quarter sales were $69.3 million compared to $70.3 million in the prior year first quarter, driven largely by the softness in the European wholesale market and the IGD market that Neil just discussed at Outdoor, partially offset by strong adventure segment sales growth. On a constant currency basis, sales were down a half of 1%. FX was not material in the first quarter.

Mike: Thank you Neil.

Mike: I'm on slide eight I'll begin with a summary of our financial performance in the first quarter.

Michael J. Yates: As a reminder, and as we've noted previously given the sale of precision sports segment of approximately $175 million, which was completed and closed on February 29, 2024 during the first quarter.

Michael J. Yates: Our U S. GAAP results are comprised of our outdoor and adventure segment and the results are referred to as continuing operations.

Michael J. Yates: First quarter sales were $69 3 million compared to $73 million in the prior year first quarter.

Michael J. Yates: Partially offset by strong adventure segment sales growth.

Michael J. Yates: On a constant currency basis sales were down a half of 1% FX was not material in the first quarter.

Michael J. Yates: Moving to consolidated gross margin, gross margin in the first quarter was 35.9% compared to 36.3% in the year-ago quarter. As you heard, the decrease was primarily attributable to promotional pricing at the outdoor segment, the increase in PFAS-related inventory reserves, as well as unfavorable channel mix in the adventure sector. I'd like to highlight that the adjusted gross margin of 36.9 percent in the first quarter improved 60 basis points versus Q1 of last year.

Michael J. Yates: Moving to consolidated gross margin in the first quarter gross margin was 35, 9% compared to 36, 3% in the year ago quarter.

Michael J. Yates: As you heard the decrease was primarily primarily attributed attributable.

Michael J. Yates: Attributable to promotional pricing at the outdoor segment.

Michael J. Yates: The increase in DFAST related inventory reserves as well as unfavorable channel mix in the adventure segment.

Michael J. Yates: Like to highlight that.

Michael J. Yates: Adjusted gross margin is adjusted for the PFAS reserve that Neil just mentioned. We reserved $729,000 in the first quarter for this exposure. Selling general and administrative expenses in the first quarter were $28.2 million compared to $29.4 million in the same year-ago quarter. The decrease was attributable to success in reducing costs at outdoor as well as lower intangible amortization and lower stock compensation expenses.

Michael J. Yates: Higher Investments in Marketing Initiatives in the Venture Segment partially offset the overall deficit. The loss from continuing operations in the first quarter of 2024 was $6.5 million, or $0.17 per diluted share, compared to a loss from continuing operations of $2 million, or $0.05 per diluted share, in the year-ago quarter. Lost from continuing operations in the first quarter included $3 million of charges relating to legal costs and regulatory matter expenses and $700,000 of PFAS inventory reserve.

Michael J. Yates: Adjusted loss from continuing operations was $0.1 million or $0.00 per diluted share. This compares to adjusted income from continuing operations of $400,000 or $0.01 per diluted share in the year-ago quarter. Adjusted EBITDA in the first quarter was $2 million, or an adjusted EBITDA margin of 2.9%, compared to $1.1 million, or an adjusted EBITDA margin of 1.6%, in the same year-ago quarter. Our adjusted EBITDA is adjusted for restructuring charges, transaction costs, stock compensation expense, and this quarter we began adjusting for the PFAS inventory reserve. Additionally, beginning in the first quarter, we adjusted for legal costs associated with the Section 16b litigation and the Consumer Product Safety Commission Matter, known as the CPC Matter.

Michael J. Yates: These legal costs were $502,000 in the first quarter. Finally, also included in the separate line on our P&L legal costs and regulatory matters was a $2.5 million estimate of our liability for the matter outstanding with the CPSC, which we recorded as a liability in the first quarter. We have adjusted our EBITDA for this estimated liability as well. After consideration of these adjustments, the year-over-year improvement in Adjusted EBITDA reflects the early results of our efforts to achieve less complexity and focus on the highest margin, highest return opportunities, particularly in the outdoor sector. First quarter Justin Iveda revenue by segment was $2.9 million at outdoor and $1.9 million at adventure.

Michael J. Yates: The adjusted corporate cost was $2.8 million in the first quarter. We've provided a reconciliation of these adjusted EBITDA numbers by segment and the corporate cost at the back of the presentation included in today's materials. Next, let me shift to liquidity.

Michael J. Yates: At March 31, 2024, cash and cash equivalents were $47.5 million compared to $11.3 million at December 31, 2023. Total debt at March 31, 2024 was $100,000 compared to $119.8 million at the end of 2023. Our reduced debt and substantially improved cash position reflects the closing on the Precision Sports sale in February and the termination and repayment in full of our credit agreement. During the first quarter, we realized a gain on the sale of Precision Sports of $40.6 million, which was recognized through discontinued operations on our statement of income.

Michael J. Yates: Consolidated cash tax expense for the full year is expected to be $2 million, which will allow us to maintain most of the net cash realized from the sale of Precision. Free cash flow, defined as net cash provided by operating activities, less capital expenditures for the first quarter, was an outflow of $18.3 million compared to positive free cash flow of $1.7 million in the prior year quarter. Free cash flow was significantly lower because of a significant reduction in accounts payable during the first two months of the quarter.

Michael J. Yates: $100000 compared to $119 8 million at the end of 2023.

Michael J. Yates: Our reduced debt and substantially improved cash position.

Michael J. Yates: Position reflects the closing on the precision sports sale in February and a termination repayment in full of our credit agreement.

Michael J. Yates: During the first quarter, we realized a gain on the sale of precision sports up $46 million, which was recognized through discontinued operations on our statement of income.

Michael J. Yates: Solidago cash tax expense for the full year is expected to be $2 billion.

Michael J. Yates: Which will allow us to maintain most of the net cash realized from the sale of precision sport.

Michael J. Yates: Free cash flow defined as net cash provided by operating activities less capital expenditures for the first quarter was an outflow of $18 3 million compared to positive free cash flow of $1 7 billion in the prior year quarter.

Michael J. Yates: Free cash flow was significantly lower because of the significant reduction in accounts payable during the first two months of the quarter.

Michael J. Yates: As a reminder, we have net operating loss forward for U.S. federal income tax purposes of approximately $7.7 million at December 31, 2023. The company expects to utilize all the remaining NOLs in the future years. Before turning to our guidance, I would like to highlight that we continue to proceed in our lawsuit against Hap Trading LLC and Mr. Harsh A. Padilla. Both fact discovery and expert discovery have been concluded.

Speaker Change: As a reminder.

Michael J. Yates: We had net operating loss.

Michael J. Yates: Forward for U S. Federal income tax purposes of approximately $7 7 billion at December 31, 2023 the company.

Michael J. Yates: <unk> expects to utilize all of the remaining Nols in the future years.

Michael J. Yates: Before turning to our guidance I would like to highlight that we continue to proceed in our lawsuit against half trading LLC and Mr. Harsh a padilla.

Michael J. Yates: Both fact discovery and expert discovery have been concluded.

Michael J. Yates: The court set the following schedule for the HAP summary judgment motion and challenge to our expert witness. Motion papers to be filed by May 9th, opposition papers by July 9th, 2024, and reply papers by August 9th, 2024. If this matter goes to trial, we would expect the trial to commence in the fourth quarter of 2024 or sometime in 2025. Moving on to our outlook for 2024, I'm on slide nine.

Michael J. Yates: The court has set the following schedule for the Haps summary, judgment motion and challenge to our expert witnesses.

Michael J. Yates: Moshe papers to be filed by May 9th.

Michael J. Yates: <unk> 2024 opposition papers by July <unk>, 2024, and replied papers by August 19 2024.

Michael J. Yates: This matter goes to trial, we would expect the trial to commence in the fourth quarter of 2020 for sometime in 2025.

Michael J. Yates: We have reaffirmed our guidance and continue to expect sales to range between $270 million and $280 million and adjusted EBITDA from continuing operations of approximately $16 to $18 million or an adjusted EBITDA margin of 6.2% at the midpoint of revenue and adjusted EBITDA. We continue to expect capital expenditures to range between $4 and $5 million and free cash flow to range between $18 and $20 million for the full year 2024.

Michael J. Yates: Yes.

Michael J. Yates: Moving onto our outlook for 2024 I'm on slide nine we have reaffirmed reaffirmed our guidance and continue to expect sales to range between $270 million and $280 million and adjusted EBITDA from continuing operations of approximately $16 million to $18 million or an adjusted EBITDA margin of six.

Michael J. Yates: 2% at the midpoint of revenue and adjusted EBITDA.

Michael J. Yates: We continue to expect capital expenditures to range between four and $5 million in free cash flow.

Michael J. Yates: <unk> between 18 and $20 million for the full year of 2024.

Michael J. Yates: Consistent with our historical seasonal pattern, the second quarter decelerates compared to the first quarter. Therefore, second quarter sales are expected to be between $58 and $62 million, and adjusted EBITDA is expected to be between zero and a half a million dollars. I want to reiterate that our outlook does not include any expense for ongoing litigation specifically relating to the Section 16B matters, the CPSC matter, or further increases in PFAS-related inventory reserves.

Michael J. Yates: Consistent with our historical seasonal pattern.

Michael J. Yates: Zero in a half a million dollars.

Michael J. Yates: Want to reiterate that our outlook does not include any expense for ongoing litigation specifically relating to the section 16 be matters, the Cps see matter or further increases in PFS related inventory reserves.

Michael J. Yates: As we look forward to the remainder of 2024, we are pleased with the incremental progress we are making in both the outdoor and adventure segments, and we believe the foundation is in place for profitable growth ahead. While hurdles remain, we are confident in the exceptional team we now have in place and our new positioning as a peer-play outdoor company. At this point in the call, operator, we are ready to take questions from the participants. Thank you. As a reminder, to ask a question, please press star 11.

Michael J. Yates: As we look forward to the remainder of 2024, we are pleased with the incremental progress we are making in both outdoor and adventure segment.

Michael J. Yates: And we believe the foundation is in place for profitable growth ahead.

Michael J. Yates: Well hurdles remain we are confident and exceptional team, we now have in place and our new positioning as a pure play outdoor company.

Michael J. Yates: At this point in the call operator, we are ready to take questions from the participants.

Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. One moment.

Speaker Change: Thank you 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, please standby, while we compile the Q&A roster.

Operator: Okay.

Speaker Change: Hi, guys.

Operator: Okay.

Operator: One moment.

Operator: And our first question comes from Laurence <unk> of BNP Paribas. Your line is open.

Laurent Andre Vasilescu: Oh, good afternoon. Thank you very much for taking my question, as well as thank you for the detailed presentation this afternoon, as the investor did a couple of weeks ago. I wanted to ask- You're very welcome, Laurent. Good to hear your voice. How are you? Yeah, it was good, good.

Speaker Change: Good afternoon, and thank you very much for taking my question as well as the thank you for a detailed presentation. This afternoon as.

Speaker Change: As well as the Investor day, a couple weeks ago I wanted to very welcome Lauren good to hear your voice. How are you. Yes. It was it was good. It was it was very detailed and I appreciate having the team on the call today I wanted to ask Mike about the guidance for revenues.

Laurent Andre Vasilescu: It was very detailed, and I appreciate having the team on the call today. I wanted to ask Mike about the guidance for revenues. Starting off, you know, the midpoint for 2Q would suggest mid-single digit growth, which is great. But the guidance on this back half would suggest that 2H revenues are down high single digits by my rough math. And we can just kind of walk through what's happening there. Is that a level of conservatism, or is there something that we should consider separate from that?

Mike: Starting off.

Laurent Andre Vasilescu: The midpoint for QQ would suggest mid single digit growth, which is great.

Laurent Andre Vasilescu: But the guidance on the back half would suggest that <unk> revenues are down high single digits by my rough math, maybe you can just kind of walk through whats happening there is that level of conservatism or is there something that we should consider.

Michael J. Yates: Well, it's a little bit of both, right? I mean, last year, we did about $59 million in Q2, right? So we're kind of right, right at the midpoint. We're up to 60. In the back half, if we kind of hit that, that would imply the back half would be about $145 to $150 million in revenue. So call that $75 million a quarter in Q3 and Q4. Last year, I think we did about $83 million in Q3 and $76 million.

Laurent Andre Vasilescu: Separate from that.

Mike: It's a little bit of both right I mean.

Michael J. Yates: Last year, we did about $59 million in Q2, right. So we're kind of right at the midpoint, we're up 60 in the back half.

Michael J. Yates: If we kind of hit that that would imply the back half would be about $145 million to $150 million of revenue so call that $75 million a key.

Michael J. Yates: Quarter in Q3 and Q4.

Michael J. Yates: So it's slightly down. You know, I think it's a little bit of, you know, as we right-size the business, we may see a little slower revenue. But I think, I, you know, I hope there's some conservatism, right?

Michael J. Yates: Last year, I think we did about $83 million in Q3 and $76 million. So it's slightly down.

Michael J. Yates: <unk>.

Michael J. Yates: I think it's a little bit of as we right size. The business, we may see a little slower revenue it but I think I hope there is some conservatism right.

Michael J. Yates: We've set a budget and.

Michael J. Yates: We've set a budget and, you know, the plan is back and loaded, consistent with our business, right? Laurent, you know, our Black Diamond outdoor business is really a third and fourth quarter winter business, fall and winter business. And same with our adventure business, the big season is in the summer in the southern hemisphere. Unfortunately, or understandably, the summer in the southern hemisphere is Q3 and Q4.

Michael J. Yates: No.

Michael J. Yates: The plan is back end loaded.

Michael J. Yates: Consistent with our business right.

Laurent: Right you know.

Michael J. Yates: Our black Diamond outdoor business is really a third and fourth quarters winter business fall winter business, and saying with our adventure business. The big season is in the summer in the southern Hemisphere. Unfortunately are.

Michael J. Yates: Understandably the summer in the southern Hemisphere is Q3 and Q4 so.

Michael J. Yates: So, you know, we do expect to see our business turn, you know, return to some profitability and some growth in the back half. But at this point, that's kind of how it's put together. I kind of think of it as flat. Hopefully, it'll be flat on a year-over-year basis. But that's where the profit will come from in the back half as well.

Michael J. Yates: We do expect to see our business.

Michael J. Yates: Turn.

Michael J. Yates: Returned to some.

Michael J. Yates: Profitability and some growth in the back half, but at this point, that's kind of how its put together I kind of think of it as flat hopefully it'll be flat on a year over year basis, but that's where the profit will come from in the back half as well.

Laurent Andre Vasilescu: Very helpful. Thank you very much.

Speaker Change: Very helpful. Thank you very much and my second question is around the EBITDA margin.

Laurent Andre Vasilescu: And then my second question is around the EBITDA margin of 6.2% for the full year. If I remember correctly from 90 days ago, that's largely going to come from gross margin. So I wanted to ask about gross margins. I think they were up 60 bits on an adjusted basis. You know, how much was promotional pricing? It had one in this quarter. And how do we think about the gross margin evolution, you know, particularly in 2Q and then for the balance of the year? Gross margin should.

Laurent Andre Vasilescu: <unk>, 2% for the full year.

Laurent Andre Vasilescu: And then for the balance of the year gross margin should be a little better in Q2, but not a whole lot I mean, maybe 37%.

Michael J. Yates: Margin should be a little better in Q2, but not by a whole lot. I mean, maybe 37%. It should be right, right, kind of around where we're at 36.9, 37, 37.2. I mean, it's probably in that range. Promotional pricing, there's still some of that going on for sure. As Neil highlighted in his comments, you know, the market is still Randal Konik, James Duffy,

Michael J. Yates: It should be right at kind of around where we are at 36 930, 737, two and it's probably in that range.

Michael J. Yates: Emotional pricing theres still some of that going on for sure.

Michael J. Yates: Neil highlighted in his comments.

Michael J. Yates: Is that the market is still.

Laurent Andre Vasilescu: Mike, that's super helpful. Last question, if I may, any comments around inventory levels at your key retail partners on the US side within the outdoor category? I know we had It's been challenging for a lot of key retailers, but just curious to know what your sense is about their inventories? Are we finally at the destock level and potentially at the restock inflection here? Well, I think the short answer is:

Michael J. Yates: In our margin.

Laurent Andre Vasilescu: Any commentary comments around.

Laurent Andre Vasilescu: Inventory levels at your key retail partners in the U S side.

Laurent Andre Vasilescu: The outdoor category I know we had.

Laurent Andre Vasilescu: It's been challenging for a lot of key retailers, but just curious to know.

Laurent Andre Vasilescu: What's your sense.

Laurent Andre Vasilescu: Their inventories are we finally at the destock level potentially at the restock.

Michael J. Yates: I think the short answer is yes, but there are categories where some of our partners have categories of inventory that they're still overstocking. But, as we mentioned, we saw a 10% increase in our North American wholesale, which is a good sign that they are restocking, especially in the categories that we're a market leader in. So that's been, you know, and that's specifically like Klein. Neil's comments also highlighted that the channel is over in Asia, which was only 10% of revenue; they're still struggling with too much inventory. But fortunately, that's only 10% of our revenue.

Laurent Andre Vasilescu: Inflection here well I think I think the short answer is yes, but there are categories, where some of our partners categories of inventory that theyre still overstocked, but as we mentioned we saw a 10% increase in our North American wholesale which is a good sign that they are restocking, especially in the categories that were.

Michael J. Yates: We are a market leader and so that that's been done that specifically like declined.

Michael J. Yates: Neil's comments also highlighted though that the channel.

Michael J. Yates: Over in Asia, which was only 10% of revenue they are still struggling with too much inventory.

Michael J. Yates: Fortunately or that's only 10% of our revenue.

Laurent Andre Vasilescu: Okay, very helpful. Thank you very much. Thanks, Lauren. Thank you.

Speaker Change: Okay very helpful. Thank you very much.

Operator: Thanks, Laurent. Thank you. One moment for our next question, and our next question comes from Matt Koranda of Roth MKM. Your line is open.

Operator: And our next question comes from Matt Koranda of Roth MTM. Your line is open.

Matthew Butler Koranda: Hey guys, good afternoon. I just wanted to take off the prior question for sort of the consolidated outlook and just wanted to understand or make sure you put a finer point on for the second half with the implied growth rate dropping off. Is that largely because we have tougher comps and adventure, or is that because, you know, we just still sort of lack an inflection point in demand and outdoor? Maybe if you could just take it segment by segment and just kind of give us the rationale there.

Matthew Butler Koranda: Hey, guys. Good afternoon, just want to go back off the <unk>.

Mike: Hey, Mike.

Matthew Butler Koranda: Just wanted to take off the prior question or sort of the consolidated outlook and just wanted to understand or make sure you put a finer point on for the second half with the.

Matthew Butler Koranda: The implied growth rate dropping off is that largely because we have tougher comps and adventure or is that because we just sell sort of lack an inflection point in demand in outdoor and maybe if you could just take it segment by segment and just kind of give us the rationale there.

Michael J. Yates: Yeah, it's, you know, it's a little bit of both, right? I think I mentioned there's probably some conservatism.

Speaker Change: Oh, yes.

Michael J. Yates: It's a little bit of both right I think I mentioned, there's probably some conservatism I think internally, we roll up to a little greater than the $150 million that I've kind of highlighted that the back half would be but I don't want to commit to that until we see till we get a little further in the year.

Michael J. Yates: You know, I think internally we'll roll up to a little greater than the $150 million that I've kind of highlighted that the back half would be, but I don't want to commit to that until we see, until we get a little further in the year. You know, I like to say, you know, one quarter doesn't give us a year. So let us, let us execute it over the next day, and we'll get some, our next 90 days, and we'll get some better visibility in the back half.

Michael J. Yates: So I'd like to say one quarter doesn't give us make a year. So let us let us execute here over the next day and we get some next 90 days and we'll get some better visibility in the back half.

Michael J. Yates: But we are.

Michael J. Yates: And, you know, but we are confident in our pre-season orders for the fall and winter, you know, at the outdoor space and in adventure, you know, is continuing to, did have some real nice growth in the fourth quarter that will be challenging to, to comp against. So that's a little bit of that as well. But you know, we've posted 43% growth last quarter and 27% growth this quarter. So we're starting to see the efforts from the work that the team put in place. But you know, like I said, we've got to get a little farther into the year to get confident about the back half.

Michael J. Yates: <unk>.

Michael J. Yates: Confident in our pre season orders for the fall winter at the outdoor space and an adventure.

Michael J. Yates: Is continuing to.

Michael J. Yates: Comp against so that's a little bit of that as well, but we had fun with.

Michael J. Yates: Posted 43% growth last quarter, 27% growth this quarter. So we're starting to see the.

Michael J. Yates: The efforts from the work that the team has put in place.

Michael J. Yates: Like I said, we've got to get a little further into the year to get confident about the back half.

Speaker Change: Okay fair enough.

Michael J. Yates: Okay, fair enough. And I've got one question for each of the segment leaders. So maybe just outdoor and Neil first, the positive 10% in North America wholesale is definitely an encouraging data point. Just wondering if you could maybe unpack for us the categories that are working where you're seeing some growth, the types of retailers that are participating in that growth, and then where there is still room for improvement in North America.

Speaker Change: Got one question for each of the segment leaders, so maybe just outdoor and Neil first.

Michael J. Yates: The positive, 10% and North America wholesale it's definitely an encouraging data point.

Michael J. Yates: Where is there still room for improvement in North America.

Neil Fiske: Yeah, thanks, Matt. So the good news is, I think the places that we're seeing growth are in our core categories, where we've really put the focus on building on our positions of strength, where we're number one, two, or three in those categories, things like tracking polls, lighting, and the number of our climb categories. And I think that's a combination of marketing programs that we've put in place. Importantly, reallocating our inventory dollars to get behind our core categories and our top styles has really led to a big improvement in fill rate year over year and cut down a lot on the friction that we've had in the retail channel with our retail partners over the last couple of years. So I think it's good to see the fill rates coming up. It's good to see the friction going down.

Speaker Change: Yes, Thanks, Matt.

Neil Fiske: So the good news is I think.

Neil Fiske: The places that we're seeing the growth in our core categories were.

Neil Fiske: We've we've really put the focus on building on our position of strength.

Neil Fiske: We're number one two or three.

Neil Fiske: And in those categories things like trekking poles lighting number of our client categories.

Neil Fiske: And I think Thats a combination of.

Neil Fiske: Our core categories in our top styles has really led to a big improvement in fill rate year over year and cut down a lot of it cut down a lot on the friction.

Neil Fiske: That we've had in the retail channel.

Neil Fiske: With our retail partners over the last couple of years, So I think.

Neil Fiske: I think our retail partners are much happier with our performance in both sell-through and our ability to support that sell-through in customer service. The other thing that I would just say as sort of an addendum to Mike's comments around revenue for the outlook for the year, bear in mind, too, that some of the revenue outlook for Black Diamond includes the exit of categories such as ski bindings and other things that we'll be getting out of during the course of the year. So bear that in mind as you think about factors that affect year-over-year comparables on the top line. Less stores this year than we had last year, et cetera.

Neil Fiske: The friction going down.

Neil Fiske: Our retail partners are much happier with.

Neil Fiske: Our performance.

Neil Fiske: And both sell through and our ability to support that sell through.

Neil Fiske: Service.

Neil Fiske: Revenue outlook for Black Diamond includes the exited categories such as ski bindings.

Neil Fiske: One of the things that we will be getting out of the course of year. So bear that in mind as you think about.

Neil Fiske: Factors that affect year over year comparable on the topline.

Neil Fiske: Less stores this year than we had last year et cetera.

Neil Fiske: Does that answer your question? Okay. Yeah.

Speaker Change: That answer your question Okay.

Matthew Berkowitz: Maybe just turning to Adventure and Matt, I guess you called out operating margins being a little bit impacted by Mix and the OEM business that you're pursuing and winning. Just curious, I guess, one, why pursue that business if it isn't sort of accretive to margins for the segment, just given the margin goals that you have over the next several years? And then I assume that probably means that, you know, you see a path to improving them.

Matthew Butler Koranda: Yeah, yeah, that's helpful, Neil. I appreciate that.

Matthew Butler Koranda: Just curious I guess, one why pursue that business. If it is in sort of accretive to margins for the segment just given the margin goals that you have over the next several years.

Matthew Butler Koranda: And then I assume that probably means that you see a path to improving those so maybe just if you could highlight.

Matthew Berkowitz: And maybe just if you could highlight, for us, what levers you have to kind of improve margins on the OEM side of the business to get them back up to the kind of that aftermarket sort of, you know, cadence.

Speaker Change: So cadence.

Matthew Berkowitz: Look, great questions. I'll start by saying, like, historically, our OEM business has been very much focused in our backyard of ANZ. And again, when I kind of outlined the opportunities at the investor session, it really is about the growth opportunities in the US and outside of ANZ. So part of that is establishing a team that's chasing the growth opportunities that exist in the US and going directly with the likes of the Toyotas, the Fords, increasing our partnerships with Palaz. INEOS is taking on the US in 2024. So it's about finding that opportunity.

Speaker Change: Hi, Matt.

Matthew Berkowitz: And business has been very micro focused in our backyard of bad debt.

Matthew Berkowitz: And again, when I kind of outlined the opportunities.

Matthew Berkowitz: Now, the reason why OEM is so important is it does give you access to accelerated aftermarket programs. A good example is that we are the global partner, from an ANZ point of view, for the launch of the new Land Cruiser, which is returning to the US. Now, in Australia, we have access to that, and it's around 4000 units. The challenge is when you don't have that on a global level; the size and scale are a lot bigger in the US.

Matthew Berkowitz: Is it does give you access to accelerated after market programs.

Matthew Berkowitz: From an <unk> point of view for the launch of the new land cruiser.

Matthew Berkowitz: Turning to the U S. Now in Australia, we have access to that.

Matthew Berkowitz: And so the investment with a new global head of OE base in the US, to actually partner directly with the larger market and one of the driving forces in auto, that's where the growth opportunity lies. And that's the right sizing of the margins as well, just getting that scale.

Matthew Berkowitz: As well, it's just getting that scale. So it does give us access and first in class kind of our positioning to have new products hit the market at the same time as the new vehicles, because your development timelines can range from two to five to seven years, depending on the life.

Matthew Berkowitz: So it does give us access to and a first in class kind of positioning to have new products hit the market at the same time as the new vehicles because your development timelines can range from two to five to seven years, depending on delays in auto production. And then it gives us readiness for aftermarket programs. Outside of that, with margin improvement, it really is also about bringing online size and scale outside of ANZ, but also making sure we're seeing improvements in DTC. So in the second half of this year, we'll be launching new platforms across digital, new websites where we haven't really focused. ANZ has not done that directly to the consumer.

Matthew Berkowitz: That production and then it gives us the readiness for after market programs.

Matthew Berkowitz: Outside of that with margin improvement and it really is also about bringing online the size and scale outside of <unk>, but also making sure we're seeing improvements in BDC. So in the second half of this year, we'll be launching new platforms across digital new websites, where we haven't really focused and it has not done direct to consumer and this is getting done in line with.

Matthew Berkowitz: And this is getting done in line with supporting key wholesale; that blend should see margin improvements as well. So there are a number of different levers, product mix across the board. Adventure accessories have not been a strong part of it, so looking at lifetime value and really adding on after the sale of a fit, being able to sell a system and accessories. And that's where the blended margin will actually improve as well, when we can get more products and a larger basket size per sale.

Matthew Berkowitz: Supporting key wholesale.

Matthew Berkowitz: Adventure accessories have not been a strong part of it so looking at lifetime value and really adding on after the sale of a fit.

Matthew Berkowitz: The <unk> system, and accessories, and that's where the blended margin will actually improve as well when we can get more products and more basket size per sale. So it's a mix of levers and I guess, that's one of the good things as we go throughout this year, we're adding a lot more firepower across I guess multiple growth opportunities versus relying on a single after market product.

Matthew Berkowitz: So it's a mix of levers, and I guess that's one of the good things as we go throughout this year. We're adding a lot more firepower across, I guess, multiple growth opportunities versus relying on a single aftermarket product or a single OEM partner. Matt, does that help kind of give you a high level on that?

Matt: Or a single OEM partner.

Matthew Berkowitz: Matt does that help kind of give you a high level on that.

Matthew Berkowitz: Yeah, that's a great overview. Appreciate that, Matt. I'll take the rest of mine offline.

Matthew Berkowitz: Yes, that's a great overview I appreciate that Matt I'll take the rest of mine here offline I appreciate it guys.

Operator: Thanks a lot. Thanks, Matt. Thank you. And our next question comes from Mark Smith of Lake Street. Your line is open.

Matthew Butler Koranda: I appreciate you guys. Thanks so much. Thanks, Matt. Thank you.

Speaker Change: Thanks, so much thank you.

Matthew Butler Koranda: And our next question comes from Mark Smith of Lake Street. Your line is open.

Mark Eric Smith: Hey guys, first, just wanted to ask about the PFAS products, kind of where we are, kind of what we got through here, and what it's reserved for this quarter, and kind of how you feel that that's coming along.

Mark Eric Smith: Hey, guys.

Mark Eric Smith: First I just wanted to ask on the P fast products on kind of where we are kind of what we got through here and is reserved for in this quarter and.

Mark Eric Smith: Kind of how you feel that that's coming along.

Michael J. Yates: Good question, Mark. Now, we're progressing well with that. You know, we're working with all the opportunities to move inventory that we have that has PFAS in it. There are actually some exceptions we're looking to take advantage of for some extreme weather gear that'll give us another year to move that inventory as well. And then there are also regions that they're still acceptable to sell. But with all that being said, you know, like I think I mentioned in the last call, you know, we said there were 3 to 5 million exposures.

Matt: Good good question, Mark now, we're progressing well with that.

Michael J. Yates: Workload working.

Michael J. Yates: With all the opportunities to move.

Michael J. Yates: Inventory that we have that as fast and it there's actually some exceptions, we're looking in to take advantage of for some extreme weather gear that will give us another year to move that inventory as well.

Michael J. Yates: Then theres also regions that they are still <unk>.

Michael J. Yates: Septimal to sell that but with all that being said.

Michael J. Yates: I think I've mentioned in the last call. We said there is $3 million to $5 million of exposure.

Michael J. Yates: You know, and I think that number's probably very similar still, 3 to 4 million exposures. But, you know, that's why we've gone ahead and booked a small, you know, 25% of that number here in the quarter.

Michael J. Yates: And I think that number's, probably very similar still 3% to $4 million of exposure, but.

Michael J. Yates: And that's why we've gone ahead and booked a small.

Michael J. Yates: 25% of that number here in the quarter alright.

Mark Eric Smith: And then another question for me, just as we think about inventory in general today, and primarily within outdoor, you know, how do you feel about the, you know, the improvements are positive, but how do we feel about that total inventory number today? Are we in a good place? How much is left to kind of move? What's a good level where you'd like to be?

Mark: Alright, perfect and then other question for me is just.

Mark Eric Smith: As we think about inventory in general today, primarily within outdoor.

Mark Eric Smith: How do you feel about that.

Mark Eric Smith: The improvements are positive, but how do we feel about that total inventory number today or be in a good place. How much is left to kind of move what's the what's a good level, where you'd like to be.

Michael J. Yates: Oh, I'm very pleased. I'd explain it this way: In 23, we wanted to just reduce inventory, right? In 24, we're definitely reducing inventory kind of with a purpose. Last year they reduced inventory to generate cash and pay down debt. This year, it's very tactical and has direction and is strategic. We're reducing inventory, but we're pivoting, as Neil described, you know; we're adding back some inventory. What we do is we categorize inventory ABCs and Ds, and we're adding the inventory we're adding back is a category inventory, which will allow us to meet demand, which will allow us to improve our fill rates. It's all category inventory stuff that we sell the most of, that we have the highest margin on, that our customers want, you know. So, overall, I would expect inventory to continue to decrease. You know, at the end But more importantly, the mix of our inventory at the end of this year compared to the end of last year will be much more helpful.

Michael J. Yates: Oh, I'm, I'm, you know, I'm very pleased. I'd explain it this way.

Michael J. Yates: I am.

Michael J. Yates: I'm very pleased I'd explain it this way in 'twenty three we wanted to just reduce inventory right in 'twenty four we're definitely reducing inventory kind of with a purpose last year's reduced inventory generate cash pay down debt. This year, it's very tactical with direction its strategic were reduced.

Michael J. Yates: Inventory.

Michael J. Yates: But we're pivoting.

Michael J. Yates: As Neil described.

Michael J. Yates: We're adding back some inventory.

Michael J. Yates: Categorized inventory Abcs, indeed, and we're adding the inventory we're adding back is a category inventory, which will allow us to meet demand, which allow us to fill our improved fill rates.

Michael J. Yates: It's eight eight category inventory stuff that we sell the most of that we have the highest margin on that our customers want.

Michael J. Yates: So.

Michael J. Yates: I think overall I would expect inventory to continue to decrease.

Michael J. Yates: At the end of Q2, it will probably increase a little bit.

Michael J. Yates: Compared to where we are now as we prepare for the fall and winter, but by the time, we get to the end of the year I would expect inventory to be down significantly compared to last year, but more importantly, the mix of our inventory at the end of this year compared to the end of last year will be much healthier.

Speaker Change: Alright, thank you.

Michael J. Yates: Yes.

Speaker Change: Thank you.

Operator: And our next question comes from Jim Duffy of.

Michael J. Yates: And our next question comes from Jim Duffy of Stifel. Your line is open.

Peter Mcgoldrick: Hey guys, this is Peter McGoldrick on for Jim. Thanks for taking the question. Hey Peter. Sure, go ahead. Yeah, I wanted to discuss your investment plans as you build your strategies for replatforming outdoor DTC, updating systems, and otherwise simplifying the business. So how should we be thinking of SG&A dollar growth on a year over year basis as 2024 progresses?

James Vincent Duffy: Hey, Jim.

Operator: Hey, guys. This is Peter Mcgoldrick on for Jim Thanks for taking the question Peter.

Juan: Go ahead Juan.

Peter Mcgoldrick: I wanted to discuss your investment plans as you build your strategies for re platforming outdoor DTC updating systems and otherwise simplifying the business. So how should we be thinking of SG&A dollar growth on a year over year basis as 2024 progresses.

Michael J. Yates: Good, good, good, good question. So, you know, I think Neil mentioned we are being very cautious on SG&A. In fact, our operating costs are down 8% year over year. So again, it's all about complexity reduction and choosing the best investments with the highest return, whether that's human capital, which is hiring more people, or investing in CapEx, right, whether that's new systems that we go ahead and install, right, on capitalize onto our books.

Speaker Change: Good good good question so.

Michael J. Yates: I think Neil mentioned, we are being very cautious on SG&A. In fact, it's our operating cost is down 8% year over year.

Michael J. Yates: So again, it's all about complexity reduction and choosing the best investments with the highest return whether that's human capital, which is hiring more people are investing in capex right, whether that's new systems.

Michael J. Yates: We'll go ahead and install right and capitalize on tower.

Michael J. Yates: So that's how we're kind of, that's the filter; we're looking at all investments, again, whether it's operating costs or capital. And Neil and I and Warren are fully aligned on that. So when we think about SG&A, I wouldn't expect it to increase significantly; it's really about an allocation of those dollars that we have available and putting them to the right and the best opportunity.

Michael J. Yates: So that's how we're kind of that's the filter we're looking at all investments again, whether it's operating cost or capital.

Michael J. Yates: In.

Michael J. Yates: Neil and I and Warner.

Michael J. Yates: Fully aligned on that.

Michael J. Yates: So when we think about SG&A.

Michael J. Yates: Increased significantly its really found an allocation of those dollars that we have available and putting them to the right and the best opportunities.

Peter Mcgoldrick: Okay, and then, as we think about gross margin drivers for the year, the BD Asia office is a meaningful driver long term. Can you provide some expectations for the timing of the BD Asia sourcing and product development office to influence gross margin? Yeah, great question, Jim.

Michael J. Yates: Okay, and then as we think about gross margin drivers for the year. The BD Asia office as a meaningful driver long term could you provide some expectations for timing of the BD Asia sourcing and product development.

Peter Mcgoldrick: Office to influence gross margin.

Michael J. Yates: Unknown Speaker Great question, Peter. That's an investment we're making this year, and we won't see the full benefit of that until next year. Okay, thank you. You know, our supply chain and lead times are extended, so we'll get that benefit in 2025.

Speaker Change: Great question, Jim Theater I'm sorry.

Michael J. Yates: That's that's the investment we're making this year and we wont we wont see the full benefit of that until next year.

Michael J. Yates: Okay. Thank you our supply chain and lead times.

Michael J. Yates: Our extended so we'll get that benefit in 'twenty five.

Peter Mcgoldrick: Thank you. I'd like to turn it back to Mike Yates for any closing remarks.

Michael J. Yates: Okay.

Michael J. Yates: Thank you I'd like to turn it back to Mike <unk> for any closing remarks.

Michael J. Yates: Oh, great. Great

Michael J. Yates: Great well, Hey, I want to thank everyone very much for participating on our call today and your interest in claris.

Michael J. Yates: Well, hey, I want to thank everyone very much for participating in our call today and for your interest in Clarus and your continued support. We look forward to updating you at investor conferences over the coming month. I'll be on the road at three or four conferences and then again in 90 days when we report the second quarter. Again, thank you very much, and we'll talk soon.

Michael J. Yates: And your continued support we look forward to updating you at investor conferences over the coming.

Michael J. Yates: Months I'll be on the road at three or four conferences and then again in 90 days when we report the second quarter.

Michael J. Yates: Again, thank you very much and we'll talk soon.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.

Speaker Change: This concludes today's conference call. Thank you for participating and you may now disconnect.

Operator: Okay.

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Operator: Yeah.

Operator: Okay.

Operator: Okay.

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