Clarus Corporation Price & Performance (CLAR)

Before we begin, I'd like to remind everyone that during today's call, we'll be making several forward looking statements, and we'll 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 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 filed with the SEC. I'd like to remind everyone this call will be available The webcast replay will also be available via the link provided in today's press release as well as on the company's website at clariscorp.com Clarus. Now I'd like to turn the call over to Clarus' Executive Chairman, Warren Canders. Good afternoon. Thank you for joining Clarus' earnings call to review our results for the fourth quarter and full year. I'm joined today by our Chief Financial Officer, Mike Yates as well as Neil Fisk and Matt Hayward who will discuss our Outdoor and Adventures segments respectively.

In 2024, we remain focused on executing in line with our roadmap and positioning Clarus for profitable growth over the long term. Throughout the year, our businesses continued to deal with significant market headwinds. But we've been pleased with our team's emphasis on managing the factors within our influence. In looking at our goals that we set during our presentation back in March of twenty twenty four, we missed our top line objectives by $10,000,000 At the operating company level, we achieved 99% of net sales in our outdoor 90% of net sales in our Adventure segment. While we fell short of certain financial metrics I'm pleased with the progress we have made towards achieving our longer term strategic goals that we highlighted in our Investor Day. Specifically, we made considerable progress in the outdoor segment. As Neil will detail in greater depth, we've delivered on our commitment to improve the quality and composition of our inventory. Focusing on the best and most profitable styles. As a result, Outdoor adjusted gross margin improved to 36.9% in the fourth quarter compared to 32.8% Q4 of last year. While outdoor revenue declined year over year, consistent with market softness in our expectations, full year adjusted EBITDA was up 80%.

Our objective has been to build a smaller, more profitable business and our fourth quarter outdoor results are further evidence that the strategies that we have implemented. Are delivering. Looking ahead, we believe our success simplifying the business rightsizing inventory and reshaping the organization positions Black Diamond for return to growth as the market stabilizes. And we expect to see the benefits of our strategic initiatives continue to lift profitability. While our revenue growth expectations in 2025 are muted, we see another three fifty to four fifty basis points of margin improvement possible this coming year. Turning to our Adventure segment, we always anticipated this past year would in order to bring forward a full suite of new products in 2025. Furthermore, we needed to invest in incremental headcount in order to set up North America and EMA for growth. With revenue falling short in the back half of the year, we were unable to cover these incremental fixed investments that we believe are necessary to scale. Following the appointments of three veteran operating and sales executives to Adventures U. S. International And OEM Channels. We've Seen Early Signs That These Organizational Changes Have Helped To Drive Positive Momentum In Regions Outside Of Australia.

As Matt will detail shortly, we are excited about a broad spectrum of compelling new product launches that are expected throughout the year. Additionally, after identifying We acquired Rocky Mountain in December to further strengthen our adventure offering. This adds immediate scale in North America and a compelling offering in our home market. That we believe will resonate with key wholesale customers. As we look ahead, our two segments are in different places but we are generally encouraged by the steps the teams are taking to seek to unlock new growth This is supported by a strong balance sheet with no third party bank debt as we continue to move our turnaround forward. With that, thank you for being with us today and I will turn the call over to Mike. Thank you, Warren. And good afternoon, everyone. On today's call, I'll provide a brief update before turning it over to Matt and Neil to review the segment performance.

I will then conclude with a more detailed summary of our fourth quarter and full year financial results. Followed by the Q and A session. Beginning on Slide five, I'll highlight a few figures. Claris' fourth quarter revenue of $71,400,000 was slightly above our Q4 guidance. While sales declined year over year, As anticipated, as we execute on our simplification strategy, we've been pleased to see continued positive momentum at the gross margin level. Polaris realized consolidated gross margins of 38% or a year over year improvement of three thirty basis points. Overall, Claris' consolidated fourth quarter financial results continued to be affected by near term pressure on the business. Fourth quarter twenty twenty four consolidated adjusted EBITDA of $4,400,000 represents a year over year increase but was short of our guidance range of $5,000,000 to $7,000,000 was primarily due to higher fixed costs in our Adventure segment on lower than expected net sales.

Free cash flow was $14,400,000 in the fourth quarter of twenty twenty four. This is consistent with our historically strong fourth quarter performance from a cash flow perspective. Additionally, I would like to note that cash today is a approximately $43,000,000 consistent with our cash balance a year ago after the closing on the sale of Precision Sport. Moving forward, I expect us to generate positive cash flow annually. Looking closer at our two segments, first, sales at Outdoor were $51,100,000 compared to 50.1 in the prior year. Gross margin at Outdoor adjusted for the PFAS reserve was 36.9% compared to 32.8% in the fourth quarter of last year. A four ten basis point improvement. As Neil will outline, this improvement is structural and a direct result of our simplification strategy as we continue to lean into our best products, with our best customers. The higher gross margins resulted in a $4,500,000 of adjusted EBITDA in the fourth quarter of twenty twenty four at Outdoor. An adventure fourth quarter revenue of $20,300,000 and adjusted EBITDA of $1,600,000 were short of our expectations. The Adventure business was impacted by lower OEM and lower Australian wholesale revenue at Rhino Rack. And higher growth investments that were necessary to scale the business.

After broad corporate realignment at Adventure and the leadership appointments worn referenced, our team continues to proactively address challenges to drive sustained financial performance. We believe we have established a baseline for both businesses in 2024 that we expect to give us a firm foundation to drive an increase in shareholder returns going forward. I'll now pause and turn the call over to Matt Hayward, Managing Director of Clarus' InVenture segment. Matt? Thanks, Mike. I'll begin my remarks on Slide six. Our primary objective remains to scale the Adventure business globally. While there is significant work outstanding, believe we made important operational progress in 2024 we are beginning to see the signs of our investments to date. Resulting in accelerated traction for our adventure brands particularly in U. S. And our international markets outside of Australia and New Zealand. I turn to 2025, and key strategic priorities moving forward, I'll touch briefly on our fourth quarter financial results, which were adversely affected by a number of specific factors.

Primary among them was a continued slowdown in both our global OEM business our wholesale market and our home market of Australia. Overall market weakness materialized during the latter part of the year and sales softened in the back half of the year. Total 2024 new vehicle sales in Australia of 1,200,000 units were up 1.7% versus 2023 However, vehicle sales declined materially in twenty twenty four's second half. Additionally, we spoke previously about an important OEM partner that halted production in [indiscernible] Operations have since resumed in the first quarter of twenty twenty five but our OEM business saw the impact in the fourth quarter with no material deliveries. For context, overall, our quarterly sales were down 23% versus the fourth quarter in 2023. This directly corresponds to peak delivery of our OEM trade platform in the prior year. Challenging market conditions led to year over year declines with the key account As a result, our total wholesale channel declined 10%. We continue to work in this partnership with our customer to find a path to normalized demand levels over the next twelve months. In The U. S, new car sales in 2024 continue to rise from their pandemic lows, bolstered by replenishment inventories as well as hiring centers driving increased demand for vehicles.

Sales of new vehicles finished at $15,900,000 last year according towards intelligence. Up 2.2% from prior year and the highest since 2019. We believe we're well positioned to capitalize on this positive momentum as we continue to allocate resources to focus on initiatives that are expected to drive market share gains internationally. As Warren alluded to earlier, the key investments we made in '20 appoint a General Manager of Adventure Americas a global Head of OEM based in The Americas and Head of EMEA Sales are important steps forward as we speak to take advantage of immense global growth opportunities. In addition, we hired a new head of sales in The U. S. And are actively pursuing 3PL opportunities in Europe in order to better serve local customers and our distribution partners Furthermore, we are excited about the acquisition of Rocky Mounts, announced in December. With an innovative product offering and more following, we believe that it is an ideally ideal complementary product for Rhino Rack.

Bike racks, represent roughly one third of the total market opportunity in The U. S. With hedge mounted rigs being especially popular in The U. S. So we are very pleased to now have a premium offering that we expect to enable us to capture this key segment of the market with the proper investment and messaging. Importantly, in addition to helping accelerate our brand penetration in America we anticipate RockyMounts providing an entry point to serve new products to existing customers in our home market of Australia. Finally, turning to new product introductions. We expect the significant investment made over the last year will begin to deliver benefit in 2025. Consistent with our focus on building out our product ecosystem across our brand portfolio Polio to empower our consumers outdoor and adventure pursuits there has been a steadfast focus on returning to our foundational strength [indiscernible] Going from previous annual lows of 20 to 30 vehicles and one hundred and twenty fifth we have ramped up the fitment process and team. This has shown improved results in Q4 twenty twenty four with 13 new vehicles and 63 new fitments in this quarter alone.

Moving into 2025, we're continuing the momentum targeting in excess of 50 new vehicles that will deliver over 300 fits to our three key regional markets. Shipments are the backbone of our go to market strategy. The more vehicles we can fit, the more racks we can sell, the more accessories we can on to complete a lifestyle offering. As we have added these fitments, I'm also excited by the recent of the sports bar and our new RX Series offering which simplify the new number of SKUs necessary to fit any roof type. Be it bare roof, fixed point mounts, flush rails, raised rails or gutter mounts. For context, the Sports Series is a Rhinorack legacy offering that has been reinvigorated to overhaul an existing and complex Crossbar program. To create a simplified solution for all of our customers. We are currently mid launch of our full campaign rollout for March across APAC and EMEA with The Americas launching in April of this year. As part of our focus embracing the community that brings our product to life, [indiscernible] invited seven everyday adventurers to share their stories with us in terms of the brand and product and what it meant to them and what adventures it enabled.

This campaign has been promoted across all our channels, both digital and through our dealers and in their stores and has been well received by our target audience. I must also mention that this product has been manufactured and supported across two supply chain streams to empower both the APAC and EMEA regions and support The Americas through some of the external factors challenging many of us right now. I'm very proud of the team being able to establish this mid development through 2024. In addition to these core offerings, we expect to roll out more than 15 new products introductions across 2025 across racks and accessories for our adventure brands. In summary, while our results in 2024 reflect the key challenges we continue to invest in the building blocks to execute in line with our multi year strategic roadmap. Given macro conditions, potential tariff implications and overall consumer sentiment, we are planning for modest growth We see incremental progress establishing a new product and sourcing engine that can support profitable growth look forward to providing additional updates as we take the next steps in our continued turnaround. I'd like to now turn the call over to Neil Fisk, President of Black Diamond.

Neil, over to you. Thanks, Matt. Turning to Slide seven, I'll review the Outdoor segment's Q4 and full year results. Our expectations for 2025.

Let me start by recapping our goals for the prior year which we laid out in our Investor Day last March.

We said we would seek to simplify the business strengthen the core exit unprofitable categories and styles. Right size inventory, reshape the organization, revamped the supply chain, and lower our cost structure. We said we would seek to build a smaller healthier, more profitable business.

Now after twenty four months of hard work, I'm pleased to report that we have completed our restructuring, dramatically reshaped the business delivered on our strategic objectives and set the foundation with double digit EBITDA margins. For the fourth quarter, we saw a return to growth for BD.

Much healthier gross margin rate lower costs lower inventory levels with a better quality of inventory and a big lift in adjusted EBITDA. We entered twenty twenty five in great shape. 2024 revenue came in at $183,600,000 dollars and adjusted EBITDA for the year was $11,400,000 In line with our direction of a smaller, more profitable business, revenues for the year down 9.9% but adjusted EBITDA was up 80%. In down market, we gained share in most of our important categories and with our most important retailers. Revenue of $183,600,000 was down from 204,100,000.0 in 2023 but this was expected as we executed on our simplification strategy.

I would like to highlight that revenue from our high margin A and B styles was $11,000,000 higher in the full year 2024 versus the prior year. Offset by a 32,000,000 less revenue from our low margin C and D styles. This was deliberate and consistent with our focus on building an outdoor business with higher gross margins higher profitability and inventory that will turn more and help improve our working capital. Notably, as we annualized gains from all our restructuring work, we see a run rate that can sequentially build Gross margins are lifting and are expected to continue to expand. Our inventories are in much better shape, both lower in the aggregate and higher in the quality of the inventory we have against our A styles. Service levels and fill rates are up. Feedback from our retail partners continues to improve particularly in the critically important specialty channel. As we look at the fourth quarter in more detail, revenues grew 2% globally. Our region and channel North America wholesale, our largest market, increased 6.5%. North America digital D2C declined 3.2% with growth in the consumer segment offset by a reduction in the probe business as we tightened up the discounts and availability of our of our PRO program.

Overall, we believe this was a healthy rebalancing of our direct channel mix.

In Europe, wholesale was down 1.8% while digital D2C was up 22.1%. [indiscernible] we're up 90.4%, largely driven by a more optimal timing of deliveries, which we expect to be a permanent shift. Importantly though, we are also starting to see recovery and organic growth take hold in these markets after a couple of years of contraction. Gross margin for the fourth quarter reflected the benefit of our product inventory and simplification initiatives. On an aggregate basis, adjusted gross margins adjusted for PFAS and other inventory reserves in both '24 and '23, were up four ten basis points Operating expenses were down 15.6% for the year On a year over year basis, Excluding restructuring and legal expense in both the current and prior year, operating expenses were down 12.7%. Restructuring costs were 789,000 as we completed the remainder of our restructuring program. Expect very little restructuring costs in 2025. Adjusted EBITDA for the fourth quarter came in at $4,500,000 versus zero in the prior year period. We expect to see the benefits of our strategic initiatives continue to lift profitability. Feedback on our new product and overall assortment has been very strong for both the spring summer and fall winter seasons.

Our forward order book looks to have upside potential although our overall top line expectations remain cautious. Response to our new apparel line in particular and we are working to chase the demand. Our mountain and climb divisions, which represent the core of our assortment have sold in well and we believe that at once fill in, could provide additional lift as retailers return to more normalized levels of ASAP orders. On the margin front, we see an opportunity to increase gross margins and decrease operating expenses in twenty twenty five As a result of our prior restructuring and realizing the benefits from changing the way we work and improved simpler processes. The one caution in all of this however, is tariffs. There's tremendous uncertainty and chaos the market right now following the initial Trump tariff outlines. At the levels most recently proposed, there is no question prices will have to go up for consumers. The outdoor industry has absorbed inflationary pressures for too long. Prices will simply have to go up.

It's difficult at this point to understand what impact That may have on consumer [indiscernible] Our focus remains on controlling what we can in that regard, feel confident both about our progress and our position for the year ahead. Once again, I'd like to acknowledge the hard work of our teams and the success of the organization and executing on so much transformational change in such a compressed timeframe. Grateful and proud to be such be part of such a dynamic and creative organization. And such a powerful brand. With that, Michael, I'll turn it back to you. Thanks, Neil. Turning to Slide nine, I'll begin with a summary of our financial performance in the fourth quarter. As a reminder and as we noted previously, given the sale of Precision Sport, segment for approximately $175,000,000 closed in the first quarter of twenty twenty four. Our U. S. GAAP results are comprised of our Outdoor and Adventure segments and results are referred to as continuing operations. Except for the cash flow statement, which includes both continuing and discontinued operations. Fourth quarter sales were $71,400,000 compared to $76,500,000 in the prior year fourth quarter. The 7% decline in total sales was driven by a decrease in the Adventure segment of 23%, partially offset by the outdoor sales growth, Neil.

Just highlighted. Moving to consolidated gross margins in the fourth quarter, gross margins was 33.4% compared to 28.9% in the year ago quarter. The improvement was primarily a result of the product simplification and SKU rationalization efforts in the outdoor segment that Neil just discussed as well as lower PFAS inventory reserves Margins were further helped by favorable channel mix at the Adventure segment due to lower OEM sales and higher MaxTracks revenue. The improvement was partially offset by a $2,300,000 increase in adventure inventory reserves to address slow moving and obsolete Consolidated adjusted gross margin reflects a PFAS reserve, which was $900,000 in the fourth quarter as well as inventory reserve increase in inventory of $2,300,000 and inventory fair value adjustments relating to the Rocky Mounts acquisition. Adjusted consolidated gross margin was 38% compared to 34.7% in the year ago quarter. A three thirty basis point improvement. Adjusted gross margin by segment was as follows: Outdoor was 36.9% up four ten basis points and 40.6% in Adventure, up two thirty basis points compared to last year. Q4 selling, general and administrative expenses were $27,800,000 compared to $30,000,000 in the same year ago quarter. The decrease was primarily due to lower retail expenses at the door because of our decision to close unprofitable retail stores as well as the successful implementation of other expense reduction initiatives to manage costs at the outdoor segment.

This was partially offset by investments at the Adventure segment in Global Marketing, research and development and e commerce initiatives to accelerate growth. Adjusted EBITDA in the fourth quarter was $4,400,000 or an adjusted EBITDA of million dollars or an adjusted EBITDA margin of 2.1% in the same year ago quarter. Our adjusted EBITDA is adjusted for impairment charges related to goodwill and intangible assets, restructuring charges, transaction costs, stock compensation expenses, inventory fair value of purchase accounting, as well as the PFAS inventory reserves and other inventory reserves at Adventure.

Additionally, beginning the first quarter of twenty twenty four, we adjusted for legal costs associated with the section 16B litigation and the Consumer Products Safety Commission known as the CPSC matter. These legal costs were only $47,000 in the fourth quarter. Fourth quarter adjusted EBITDA by segment was $1,600,000 at Adventure and $4,500,000 at Outdoor.

Adjusted corporate cost was $1,800,000 in the fourth quarter.

Next, let me shift to liquidity. At 12/31/2024, cash and cash equivalents were $45,400,000 compared to $11,300,000 at 12/31/2023. Total debt on 12/31/2024 was $1,900,000 related to an obligation associated with the Rocky Mounts acquisition compared to 119,800,000.0 at the end of twenty twenty three. As a reminder, our reduced debt and substantially improved cash position reflects the closing of the Precision Sports sale in February of twenty twenty four, and the termination repayment in full of our credit agreement. Consolidated cash taxes for the full year 2024 was $2,500,000,000 which has allowed us to maintain most of the net cash realized from the sale of Precision Sport. The gain on the sale of Precision was essentially tax free except for some minimal state taxes that were due. Free cash flow defined as net cash provided by operating activities less capital expenditures for the fourth quarter of twenty twenty four was $14,400,000 compared to $13,300,000 in the prior year quarter.

Regarding our cash balances as of the March, it is essentially the same as a year ago subsequent to the closing of Precision Sport and the disposal of that segment. As we have discussed previously, Claris has historically had net operating loss carry forward for U. S. Federal income tax purposes. During 2024, the remaining NOLs were fully utilized. However, in the fourth quarter of twenty twenty four, we established a valuation allowance against certain taxes through an increase to tax expense. Many of these deferred tax assets assets will reverse in the coming years and create taxable losses that will generate additional NOLs. Therefore, it is our expectation that we will have NOLs in the future to off I would also like to comment on tariffs. To add to what Neil mentioned in his remarks. We are working with our vendors and shipping partners in real time to mitigate the impact on our P and L. While the situation remains fluid and subject to further change, we estimate as of today that the current tariff posture could affect our gross margins by up to $2,500,000 This is a moving target and we will continue to focus on what we are able to control and attempt to mitigate as much as possible as we proceed through 2025.

Before turning to our outlook, I'd like to provide an update on the F outstanding 16B securities litigation matters that the company is pursuing. We continue to proceed in our lawsuit against HAP Trading LLC and Mr. Harish A. Padilla. Both Fact Discovery and Expert Discovery have now been concluded The court received a summary judgment from the defendants, a motion for a summary judgment from the defendants as well as motions challenging our expert We are waiting for the court to rule on this request for summary judgment. If this matter goes to trial, we expect the trial to commence towards the end of 2025. We also filed a lawsuit against Caption Management and its related entities and control persons. Those defendants filed a motion to dismiss on 06/27/2024, We filed opposition papers on 07/25/2024 and reply papers were filed on 08/15/2024. We are still waiting for the court to opine on the motion to dismiss. On 11/07/2024, the company was notified by the CPSC that they referred the unresolved matter with Black Diamond to the Department of Justice. In January of twenty twenty five, the Department of Justice served the company and Black Diamond with grand jury subpoenas requesting various categories of documents related to Black Diamond's Avalanche Beacons.

We are cooperating with the request. Moving on to our 2025 outlook. I'm on Slide 10. We expect full year 2025 sales to range between $250,000,000 and $260,000,000 and adjusted EBITDA from continuing operations is expected to be in the range of $14,000,000 to 16,000,000 or an adjusted EBITDA margin of 5.9% at the midpoint of revenue and adjusted EBITDA. From a segment perspective, are being cautious particularly as it relates to venture sales and EBITDA guide. Guidance. We are assuming approximately flat top line year over year due to weak auto sales in the core Australian and New Zealand market and unfavorable FX partially offset by new product development and geographic expansion that Matt referred to.

We are initiating our 2025 segment guidance as follows: Adventure, dollars 80,000,000 and Outdoor, dollars 175,000,000 of sales.

This total of $255,000,000 is the midpoint of the consolidated sales guide. The guidance also includes an FX headwind of approximately approximately $4,000,000 per segment, driven by the recent strength in the U. S. Dollar. From a segment EBITDA perspective, we are guiding 17,000,000 and $7,000,000 of EBITDA at Outdoor and Adventure respectively. Along with $9,000,000 of caustic corporate which is equal to $15,000,000 of EBITDA on a consolidated basis or the midpoint of our guide. We expect capital expenditures to range between $4,000,000 and $5,000,000 and free cash flow to range between $8,000,000 to $10,000,000 for the full year 2025.

First quarter sales are expected to be between $55,000,000 and 57,000,000 and adjusted EBITDA is expected to be breakeven. I want to reiterate that our outlook does not include any expense for ongoing litigation specifically relating to Section 16B matters the CPSC matter or the DOJ investigation. A quick update on PFAS related inventory. The team at Black Diamond has done a great job dealing with this unfortunate situation. And I don't expect further reserves associated with this inventory going forward Since Q4 of last year, we have reserved consistent with how we frame this exposure back during our year end call in early March of last year. And I don't expect the need for any additional reserves related to PFAS inventory We have sold over $20,000,000 of PFAS inventory in 2024 and believe our future exposure on the remaining inventory is covered via our existing reserves.

Finally, I want to provide an update on the strategic alternatives review for our Pete snow safety brand that we launched during the second half twenty twenty four with the intention of soliciting interest from potential While we have nothing to announce at this time, we are encouraged by the process to date. As we look towards the future, we see Clare's today's far better positioned to drive sustainable profitable growth supported by talented teams globally and a strong balance sheet. We look forward to taking the next steps to advance our turnaround in 2025 and deliver significant long term value for Clair's shareholders. At this point, I'd like to take [indiscernible] Thank you. Roster. Our first question comes from the line of Anna Glynn with B. Riley Securities. Hi, Steve. How's it going? Thanks for taking my questions.

There was a comment in Neel's prepared remarks I think something to the effect of on the current level of sales and getting to double digit EBITDA margin I just want to Clarus, was he saying that on the current outdoor revenue base, there's a path to double digit EBITDA margin and if I'm misunderstanding, if you could clarify [indiscernible] [indiscernible] Yes, you're understanding that correctly. We $175,000,000 and we think We'll work towards a double digit margin of EBITDA. It will be lower in the first half of the year and it will be hopefully higher than double digits in the back half of the year. So on a consolidated full year basis, we're targeting in the double digit or 10% type EBITDA for the Outdoor segment specifically.

On that $175,000,000 of revenue. Perfect. Thanks. And then I want to touch on [indiscernible] within the North American retail based given the dynamism of the current environment with tariffs, etcetera, To what extent has ordering behavior been disrupted [indiscernible] to what extent you kind of bracing for disruption over the next few months or so.

Neil, do you want to address that from a standpoint of our exposure to Clarus retail?

Sure.

Think it's too early to tell because it's a short answer. I think we feel good about where we are through the first two months of the year. [indiscernible] [indiscernible] But I think the effect of all of this is really yet to hit. And I would say both at a a retailer level and a consumer level. We have started to pick up some signals that consumer sentiment has been a little bit rattled by kind of the macroeconomic trade issues and tariffs But I think at this point, we can't really see any material impact yet on our order book or the rate of sales relative to our expectation I just think it's too early.

Got it. And then a related question, but similar Could you comment, Mike, on kind of where inventory levels are in the IGB Business among the distributors and to what extent Their ordering has potentially been disrupted as we navigate the current environment?

Yes. No. I think over the last year, I've kind of said, we've talked about stability in the North American market. For the outdoor space. And I've also mentioned that I felt like IGD was about a year behind I think in the fourth quarter, the IGD business exceeded our expectation and was up, right? And as a result, I think inventories are normalizing there. Like like we said they would or that we hope they would in Neil, you can add to that if you'd like, but I think that's what is going on. I think that the Asian markets that we go through are stabilizing as well.

Yes. I think that's right, Mike. The recovery process is has started we haven't yet sort of got back to the peak year any stretch of the imagination and much right given that we go through another layer of distribution, and it takes an extra year to work all its way through, but we do see [indiscernible] to stabilize and come back The one thing I might clarify regard to the fourth quarter is I mentioned in my remarks that there was a timing shift into the fourth quarter for IGD relatively small in the scheme of all of Black Diamond and Outdoor. But significant to the IGD business. And that was really to align our deliveries with when our vendors would ideally like to receive them. And that will be [indiscernible] permanent shift in our ordering pattern, we'll see a similar effect towards the end of the first half of this year and then we'll annualize that same shift in December of next year.

I think that's Thanks, Anna. Thank you.

Please standby for our next question. Our next question comes from the line of Matt Koranda with Roth Capital. Line is open.

Hello, Matt. Yes. Good afternoon. Hey, Mike.

So just I guess one of the talk about the $25,000,000 guidance, it does suggest there's still some structural cost savings that you guys have to go get with revenue sort of guided down, but the EBITDA looks like it's up about $8,000,000 at the midpoint. Maybe just wanted to hear Neil and Matt separately break down where they see the biggest opportunities in their [indiscernible] And then is this more of a cost cutting exercise in 2025 for each of you or it product mix improvement exercise Just trying to get a sense for sort of how we should be thinking about the margin expansion that sounds like it's pretty back end weighted Matt, do you want to go first?

Yes. Look, from a full year point of view, as mentioned, we do see the back half of the year being crucial to the Adventure segment. It is the peak of our business as it relates to home market, Q4 especially. And it's also when we start to realize a lot of investments into our NPD So a lot of new products kicking in from July through to December. This does align specifically with our home markets. But also in relation to the timing it takes to get this new product to market. So we do have that. In addition, there has been investments, as Mike called out and as you touched on, into The U. S. And EMEA markets. And we see early signs of growth in EMEA.

With our new Head of Sales going into new markets with a big focus on Middle East. So there is further work to be done in terms of the delivery of that. And our focus on execution. Our home market of Australia We are yet to realize investments in the DDC there is a heavy weight on that back half. And looking for continued improvements in our operating baseline Maybe frame the profitability improvement this way. We see OpEx on a run rate basis down 180 basis points on sales. So clearly a good lift there, but the real profit expansion in 2025 is from continued lift in our gross margin As Warren said, expect that to be three fifty to four fifty basis points. So there's there's definitely flow through and sort of annualization of the cost initiatives that we've undertaken that will benefit us in 2025. And likewise, the annualization of the work we've done to improve the mix and our gross margin give us another lift on the margin line in '25 Okay.

That's helpful. From both of you guys. Thank you. And then maybe just Matt, if I can, can I just reconcile that to the consolidated guide, right? I guided segment, right, dollars 175,000,000 and 17,000,000 of EBITDA So almost 10% approaching double digit like Anna's question. For outdoor. And then obviously the $80,000,000 at Adventure, I guided that around I guided that at $7,000,000 right, dollars 80,000,000 a little north of 8% EBITDA, the $17,000,000 in the 7% is the 24 less than $9,000,000 of corporate costs is the $15,000,000 of consolidated full year guidance at the midpoint?

Yes, understood. Appreciate your time that together.

And then on the I was unclear, I guess, one thing I want to clarify was that the tariff impact that you guys mentioned, the potential tariff impact of $2,500,000 to the gross margin line. Is that in the guidance for the year or is that incremental to the guidance?

That would be a headwind to the guidance. Right? We're saying it could be zero to up to $2,500,000 As Neil mentioned and as I reconfirmed, the things are changing daily, right, from the commentary from the White House. We are working with our partners whether that's our shipping partners, our vendors. And as Neil referred to, we're also looking at pricing, right? So we're going to try to mitigate this but the ball is kind of moving. And that's why we're kind of we didn't want to be silent when we spoke about tariffs, but we think it could be anywhere from 0 to $2,500,000.

Yes, it's not in the numbers.

But it's not in the numbers? Yes, just to be clear.

Okay.

Yes. I appreciate that clarity. And then maybe just any thoughts on initial thoughts on Rocky Mounts and what that does for you guys in the Adventure segment? Curious kind of how to think about scale there and how it might be built into the '25 outlook and some of the synergies you might see there?

Yes. No, we're excited We're excited about Rocky Mounts. We think that's an excellent entree into the North American market, right? I've told several folks that the the North American market is a little different than the Australian market, meaning [indiscernible] market here in North America is bike racks.

And the other third is cargo boxes, luggage boxes and the other third is racks. And accessories, right? And starting here in 2024 and 2025, we're going to be a player in the luggage boxes and the bicycle racks. So from a North American market, I think it's critical to unlock that growth that we've been chasing. The last three years since. So So super excited about Rocky Mount. Here. I also think it opens up opportunities in our Australian wholesale market because several of our wholesale partners in Australia are excited about the product and want to place the orders as well. Matt, what did I miss? What would you add?

Mike, you touched on the key now. Look, the great thing is that immediately upon acquisition, we got a larger distribution footprint. We've been present in The U. S. Market for some time. And what this brings is a critical product category to our entire industry. As Mike mentioned, but it also gave us almost double the footprint of distribution for The U. S. So that's probably the most important call out. The other thing is, would the infrastructure we've got there being able to invest with an hour robust and solid sales team, and marketing team based in Denver, we can accelerate that On the flip side, the one other call out I'd say is it was a distributor presence in all of the markets.

It was very much a U. S. Focused brand and product line. With great partners around the world, one of which was in Australia. We've been able to take that over. So having direct control and really being able to ramp it up in our home market where we do have the brand presence and distribution already for Rhino and MaxTracks and Tread. So on that side, pretty exciting to be able to get fantastic brand with incredible products that has great product reviews under control and into the hands of our sales and marketing team. So that's really helping lead the way and open doors across both markets in '25. Okay.

Great. Maybe just if I could ask one more on the front quarter here. Just it seems like The top line guide at least implies some erosion in the business since the beginning of the year. So maybe just wanted to if you could talk about trends you're seeing in each segment. It sounds like adventure is probably still the the bigger drag in the near term. I'd be also curious to hear about sort of trends year to date in outdoor because you just kind of flipped positive in the fourth quarter. But I guess the guide for the first quarter implies maybe some more negativity in the near term?

Well, look, I think we are seeing some weakness in the adventure business in the whole it I kind of gave that as an assumption of why we're kind of trying to be conservative around the $80,000,000 full year guide for Adventure. We are seeing some weakness in the wholesale market in Australia to reserve direct result of lower car sales, Auto sales in adventure in Australia are down. They were started to go down in the back half of last year and they continue to underperform. And so we are seeing that weakness in our whole market. And so that's part of the reason for the year over year decline in the first quarter revenue guide. You also have to [indiscernible] we have started the year pretty strong. So stronger than we anticipated. So we are kind of fighting a couple of different dynamics in the markets right now. So but Neil mentioned that he has seen some strength across his markets here as we start the New Year.

And Mike, if I could just add one point of clarity to that. Please. Certainly. [indiscernible] So there is a little bit of a non comp factor at Outdoor in Q1. Which is that IGD shift I talked about we shifted to a better timing for our distributors into November and December of twenty twenty four. So that sort of comes out of the first quarter basically get a pickup in the second quarter as we shift as we make a comparable shift from Q3 into Q2. [indiscernible] on a run rate basis, it sort of evens out there's a little bit of [indiscernible] just from that shift alone. And then think there's some other timing issues between Q1 and Q2, but we don't see We don't see a run rate decline on a comparable basis in [indiscernible] as I look at the phasing of the outdoor business, the first half in 2025 looks to be about similar to the first half of twenty twenty four.

I think Mike could also help us out on this.

Just to balance it. So With the new team led by Tripp in The U. S, we are seeing a positive start to the year.

And this has really been aided by Rocky Mount as discussed also seeing growth across our EMEA region, But the challenge we've got is that is offset in the largest part of our business in our home market. There are two key factors that we are basically wanting to be reasonably conservative on. One, whilst our OEM partner is ramping up, in Q1 and Q2, We are taking a very pragmatic approach to that and we don't want to bank on it too much. Yet to see the fruits of that startup come in And so we're lowering our expectations on that. Secondly, as we work through in partnership with one of our largest wholesale partners there, We have looked to see how we can get them back on track from a brand and inventory point of view. It's not a direct impact. It was not directly related to us per se as a brand and products. Across the entire category for them. As they kind of restructured their own business. So think it's a tale of two halves.

Our international investments are paying off and we're seeing early fruits. But the challenges at the size at the moment versus our home markets. It is a very conservative approach to Q1 and Q2.

Okay.

Appreciate all the color guys. I'll leave it over.

Thank you.

Thanks, Ben.

Please stand by for our next question. Our next question comes from the line of Lauren Basliska with BNP Paribas. Your line is open. Good afternoon. Thank you very much for taking my question. Mike, I wanted to ask, since 60% of your revenues is overseas, and FX has moved quite violently over the last six months three months, excuse me, I'm curious to know what's embedded in your guide down low single digits for reported revenues. Should we assume that FX is like a 300 basis point headwind to your top line for fiscal year twenty twenty five?

Well, it's right. I In my prepared remarks, I commented it was about $8,000,000 on the on the full year, about $4,000,000 per each segment. And you are right that the dollar has strengthened significantly and against the euro and the Aussie dollar. So think it's about $4,000,000 of headwind that we're facing in this year, but for each segment. Okay. Thank you, Mike, for for clarifying that. And then then Rocky Mount, it looks like from the 10 ks, you purchase price is about $6,000,000 Curious to know how much how much in terms of revenue should it contribute to fiscal year twenty twenty five?

That is a great question, right? I mean, I think as you just heard Matt describe, we've taken over the Australian distribution into that market. We see that as a huge opportunity. We it's been favorably received here in The U. S. As we've introduced it into our distribution network, his Historically, that business had only done $4,000,000 or $5,000,000 of revenue annually. So we're We're excited, but we're trying to be cautiously conservative with with what we expect from that here. But we have plenty of opportunities to grow that business. As because of the importance of, like I had mentioned, the bike rack and how important that is here in The U. S. Market.

I don't have an exact number for you, but that historically it's been a relatively small business. You're right, we paid about $6,000,000 for But we think with the founder has trusted us with kind of with his baby to try to expand his business and grow it across globally, both here in The U. S. And in Australia. Okay.

Very helpful. And then gross margins, adjusted gross margins for the year in 2024 it reached 37.5 Trying to understand the bridge to get to the EBITDA Margin It sounds like is that is it driven by gross margins? No, FX sorry, FX tariffs could be an impact trying to understand how to put together the P and L here. [indiscernible] Yes, that's right, Mike. Thank you. I think for 25, Neil reinforced what Warren said. They're targeting a lot of the improvement at Outdoor is driven by enhanced gross margin. We're targeting three fifty to four fifty basis points of gross margin improvement So if you kind of split that, right, that 36% margin in the back second half of the year would be a lot closer to 40% for outdoor.

And same with adventure Adventures adjusted gross margin this fourth quarter was 40% We will continue to I think if you model that at 40%, that's probably reasonable as well.

Because we will continue to invest and grow the business invest in the business. At Adventure. Very helpful. And the last question is you mentioned about PPEs. How big is Peeps? And just in case like we see a press release at some this year obviously too small for you guys to really make a like have a call for this, but like big is that business? Yes, we haven't broken it out, but we will put out a press release on that.

Okay, wonderful. Thank you very much and best of luck. Okay, thank you.

Thank you.

Our next question comes from the line [indiscernible] With Stifel. Your line is open.

Thanks guys.

Neil, a question for you. You pointed to solid growth in A and B styles in the fourth quarter. You update us on the mix of these styles versus your overall ask aspirations in 2025 as you move towards an optimal product mix And how are you planning the progression across 2025 on a product tiering perspective.

Sure, Peter. So in the fourth quarter, the A styles 73% of our inventory think the comparable number last year would have been in the low 60s or high 50s down. [indiscernible] much more of our inventory stacked against the [indiscernible] helped drive the growth that we saw And we've seen every quarter The percentage of our inventory against the East Isles go up sequentially. I think it's about where it needs to be now at around 73%.

It's never going to be a dollar for dollar 80% of inventory. 80% of sales they do turn faster and you need some of the other assortment complete the mix.

It's pretty close to optimal now. I think that was part one on inventory. Did I answer that?

It's just like how you were planning it across 2025, but sounds like you're nearing your optimal product mix? Yes, we are.

Okay. Then Mike, I've got one for you, just a clarification question on the first quarter guidance.

Revenue down high teens and there's a shift factor from the IGD business and outdoor. Could you be more deliberate on the numbers what we should expect for outdoor and adventure revenue in the first quarter?

Well, we haven't given that number, but we did give this $55,000,000 to $57,000,000 in breakeven EBITDA, right, for the first quarter. I think that shift is that Neil talked about at IGD, it's probably closer to $37,000,000 $38,000,000 of in the remainder, right? $18,000,000 $20,000,000 at Adventure.

Okay.

Thank you very much. I'll pass it on.

Thank you.

Ladies and gentlemen, at this time, I would now like to turn the call back to Mike Yates for closing remarks.

Great. Thank you. Thank you, Tawana. I just want to thank everyone very much. I appreciate everyone attending the call this afternoon and your continued support and interest in Clarus. Look forward to updating you on our results again next quarter. Thank you again.

Ladies and gentlemen, that concludes today's conference call.

You for your participation. You may now disconnect.