Clarus Corporation

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Claris Corporation's financial results for the fourth quarter ended December 31, 2024. Joining us today are Claris Corporation's Executive Chairman, Warren Kanders, CFO, Mike Yates, President of Black Diamond Equipment, Neil Fisk, Management Director of Claris Adventure Segment, Matt Hedward, and the company's external Director of Investor Relations, Matt Berkowitz. Following the 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 that provides important cautions regarding board and look at statements. Matt, please go ahead.

Thank you. 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 to Claris 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 followed with the SEC. I'd like to remind everyone this call will be available for replay starting at 7 p.m. Eastern time tonight. 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. Now I'd like to turn the call over to Claris' Executive Chairman, Warren Kanders.

Good afternoon, and thank you for joining Claris' earnings call to review our results for the fourth quarter and full year. I am joined today by our Chief Financial Officer, Mike Yates, as well as Neil Fisk and Matt Hayward, who will discuss our outdoor and adventure segments respectively. In 2024, we remain focused on executing in line with our road mapping position in Claris 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 investor presentation back in March of 2024, we missed our top line objectives by $10 million. At the operating company level, we achieved 99% of net sales in our outdoor segment and 90% of net sales in our adventure segment. While we fell short of certain financial metrics, I am 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 simplifying and strengthening the core 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 .9% in the fourth quarter compared to .8% in two four of last year. While outdoor revenue declined year over year, consistent with market softness and 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, right sizing 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 350 to 450 basis points of margin improvement possible this coming year, turning to our adventure segment, we always anticipated this past year would require significant investment in R&D and development 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 support Adventures US, 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 hitch-mounted bicycle racks as a critical product category, we required Rocky Mountain 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 opportunities. 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&A session. Beginning on slide five, I'll highlight a few figures. Clarice's fourth quarter revenue of 71.4 million 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. Clarice realized consolidated gross margins of 38% or a year over year improvement of 330 basis points. Overall, Clarice's consolidated fourth quarter financial results continue to be affected by near-term pressure on the business. Fourth quarter 2024 consolidated adjusted EBITDA of 4.4 million represents a year over year increase, but was short of our guidance range of five to 7 million. This was primarily due to higher fixed costs in our adventure segment on lower than expected net sales. Pre-cash flow was 14.4 million in the fourth quarter of 2024. 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 approximately $43 million, 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 51.1 million compared to 50.1 in the prior year. Gross margin at outdoor adjusted for the PFAS reserve was .9% compared to .8% in the fourth quarter of last year, a 410 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 $4.5 million of adjusted EBITDA in the fourth quarter of 2024 at outdoor. At Adventure, fourth quarter revenue of 20.3 million and adjusted EBITDA of 1.6 million were short of our expectations. The Adventure business was impacted by lower OEM and lower Australian wholesale revenue at RhinoRack and higher growth investments that were necessary to scale the business. After broad corporate realignment at Adventure and the leadership appointments Warren 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, the managing director of Clarissa's Adventure segment.

Matt.

Thanks, Mike. I'll begin my remarks with slide six. Our primary objective remains to scale the Adventure business globally. While there is significant work outstanding, we believe we made important operational progress in 2024 and we are beginning to see the signs of our investments to date are resulting in accelerated traction for our Adventure brands, particularly in US and our international markets outside of Australia and New Zealand. Before 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 and 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 1.2 million units were up 1.7 versus 2023. However, vehicle sales declined materially in 2024 second half. Additionally, we spoke previously about an important OEM partner that halted production in September. Operations have since resumed in the first quarter of 2025, but our OEM business felt 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 a key account. As a result, our total wholesale challenge declined 10%. We continue to work in this partnership with our customer to find a path to normalize demand levels over the next 12 months. In the US, new car sales in 2024 continue to rise from their pandemic lows, bolstered by replenished inventories, as well as higher incentives driving increased demand for vehicles. Sales of new vehicles finished at 15.9 million last year, according towards intelligence, up .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 2024 to 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 seek to take advantage of immense global growth opportunities. In addition, we hired a new head of sales in the US and are actively pursuing 3PL opportunities in Europe in order to better serve local customers and our distribution partners as we add them. Furthermore, we are excited about the acquisition of Rocky Mounts, announced in December. With an innovative product offering and lawyer following, we believe that it is an ideally, ideal complementary product for Rhinoracks. Bike racks represent roughly one third of the total market opportunity in the US, with hitch mounted racks being especially popular in the US. 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 North America, we anticipate Rocky Mounts 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 a significant investment made over the last year will begin to deliver benefits in 2025. Consistent with our focus on building out a product ecosystem across our brand portfolio to empower our consumers' outdoor and adventure pursuits, there has been a steadfast focus on returning to our foundational strengths of fits. Going from previous annual lows of 20 to 30 vehicles and 120 fits, we have ramped up the fitment process and team. This has shown improved results in Q4 2024 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. Fitments are the backbone of our -to-market strategy. The more vehicles we can fit, the more racks we can sell, the more accessories we can add on to complete a lifestyle offering. As we've added these fitments, I'm also excited by the recent relaunch of the Sports Bar and our new RX Series offering, which simplify the new number of SKUs necessary to fit any roof site, 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 AMIA, with the Americas launching in April of this year. As part of our focus, embracing a community that brings our product to life, the campaign series 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 AMIA 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 50 new product introductions across 2025, across racks and accessories for our adventure brands. In summary, while our results in 2024 reflect acute 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 and 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 segments, Q4 and full year results and 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, improve gross margins, right size inventory, reshape the organization, revamp the supply chain and lower our cost structure. We said we would seek to build a smaller, healthier, more profitable business. Now, after 24 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 expected for long-term growth with double digit EBITDA margins. For the fourth quarter, we saw a return to growth for BD, a 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 2025 in great shape. 2024 revenue came in at 183.6 million and adjusted EBITDA for the year was 11.4 million. In line with our direction of a smaller, more profitable business, revenues for the year were down .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 183.6 million was down from 204.1 million in 2023 but this was expected as we executed on our simplification strategy. I'd like to highlight that revenue from our high margin, A and B styles was $11 million higher in the full year 2024 versus the prior year, offset by a 32 million 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 annualize the gains from all our restructuring work, we see a run rate that can sequentially build towards double digit EBITDA margins on the existing level of sales. 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 .0% globally. By region and channel, North America wholesale, our largest market, increased 6.5%. North America digital D to C declined .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 probe program. Overall, we believe this was a healthy rebalancing of our direct channel mix. In Europe, wholesale was down .8% while digital D to C was up 22.1%. In the international markets, 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 per PFAS and other inventory reserves in both 24 and 23, we're up 410 basis points. Operating expenses were down .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. We expect very little restructuring costs in 2025. Adjusted EBITDA for the fourth quarter came in at 4.5 million versus zero in the prior year period. Looking ahead to 2025, 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 based on these initial reads, although our overall top line expectations remain cautious. Response to our new apparel line in particular has been better than we anticipated 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 2025 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 in 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 sentiment and demand. Our focus remains on controlling what we can and in that regard, I 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 in executing on so much transformational change in such a compressed timeframe. I'm grateful and proud to 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 sales precision sport segment for approximately $175 million, which closed in the first quarter of 2024, our US gap results are comprised of our outdoor and adventure segments and results are referred to as continuing operations, except for the cashflow statement, which includes both continuing and discontinued operations. Fourth quarter sales were 71.4 million compared to 76.5 million 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 .4% compared to .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 max tracks revenue. The improvement was partially offset by 2.3 million increase in adventure inventory reserves to address slow moving and obsolete inventory. Consolidated adjusted gross margin reflects the PFAS reserve which was $900,000 in the fourth quarter, as well as inventory reserve increase in adventure of 2.3 million and inventory fair value adjustments related to the Rocky Mounts acquisition. Adjusted consolidated gross margin was 38% compared to .7% in the year ago quarter, a 330 basis point improvement. Adjusted gross margin by segment was as follows. Outdoor was .9% up 410 basis points and .6% at adventure up 230 basis points compared to last year. Q4 selling general and administrative expenses were 27.8 million compared to 30 million in the same year ago quarter. The decrease was primarily due to lower retail expenses at the outdoor 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 4.4 million or an adjusted EBITDA margin of .1% compared to adjusted EBITDA of 1.6 million or an adjusted EBITDA margin of .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 2024, we adjusted for legal costs associated with the section 16B litigation and the Consumer Product 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 1.6 million at adventure and 4.5 million at outdoor. Adjusted corporate cost was 1.8 million in the fourth quarter. Next, let me shift to liquidity. At December 31st, 2024 cash and cash equivalents were 45.4 million compared to 11.3 million at December 31, 2023. Total debt on December 31st, 2024 was 1.9 million related to an obligation associated with the Rocky Mountain acquisition compared to 119.8 million at the end of 2023. As a reminder, our reduced debt and substantially improved cash position reflects the closing of the precision sports sale in February of 2024 and a termination repayment in full of our credit agreement. Consolidated cash taxes for the full year 2024 was $2.5 million, which has allowed us to maintain most of the net cash realized from the sale of precision sports. The gain on the sale of precision sports 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 2024 was 14.4 million compared to 13.3 million in the prior year quarter. Regarding our cash balances as of the first week of March of this year, it is essentially the same as a year ago subsequent to the closing of precision sport in the disposal of that segment. As we have discussed previously, CLARIS has historically had net operating loss carry forward for US federal income tax purposes. During 2024, the remaining NOLs were fully utilized. However, in the fourth quarter of 2024, we established a valuation allowance against certain deferred taxes through an increase to tax expense. Many of these deferred tax 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 offset any US federal taxable income during the next few years. 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&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 $2.5 million. 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 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 June 27th, 2024. We filed opposition papers on July 25th of 2024, and reply papers were filed on August 15th, 2024. We are still waiting for the court to opine on the motion to dismiss. On November 7th, 2024, the company was notified by the CPSC that they referred to unresolved matter with Black Diamond to the Department of Justice. In January of 2025, 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 and 260 million. An adjusted EVA-DOT from continuing operations is expected to be in the range of 14 to 16 million, or an adjusted EVA-DOT margin of .9% at the midpoint of revenue and adjusted EVA-DOT. From a segment perspective, we are being cautious, particularly as it relates to adventure sales and EVA-DOT 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 effects partially offset by new product development and geographic expansion that Matt referred to. We are initiating our 2025 segment guidance as follows. Adventure, 80 million, and outdoor, 175 million of sales. This total of a 255 million is the midpoint of the Consolidated Sales Guide. The guidance also includes an Apex headwind of approximately 8 million as compared to 2024, approximately 4 million per segment, driven by the recent strength in the US dollar. From a segment EVA-DOT perspective, we are guiding 17 million and 7 million of EVA-DOT at outdoor and adventure respectively, along with 9 million of cost at corporate, which is equal to 15 million of EVA-DOT on a consolidated basis or the midpoint of our guide. We expect capital expenditures to range between 4 and 5 million, and free cash flow to range between 8 million to 10 million for the full year 25. First quarter sales are expected to be between 55 and 57 million, and adjusted EVA-DOT 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 approximately $4.2 million for PFAS, which is 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 at this point in time going forward. We have sold over 20 million 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 alternative review for our Peeps Snow Safety brand that we launched during the second half of 2024, with the intention of soliciting interests from potential acquirers. 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 Claire's today's far better position 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 Claire's shareholders. At this point, I'd like to take questions. Thank you.

Thank you. Ladies and gentlemen, to ask the question, please press start 1-1 on your telephone, then wait for your name to be announced. To withdraw your question, please press start 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Anna Glaston with B Raleigh Securities. The line is open.

Hello, Anna. Good afternoon, thanks. Hi, how's it going? Thanks for taking my question. There was a comment in Neil'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 wanna clarify, was he saying that on the current outdoor revenue base, there's a path to double digit EBITDA margin? And I'm misunderstanding if you could clarify the intent behind that.

That's, yeah, you're understanding that correctly. We guided 175 million and we think it will work towards a double digit margin of EBITDA. It'll be lower in the first half of the year and it'll be hopefully higher than double digits in the back half of the year. On a consolidated full year basis, we're targeting in a double digit or 10% type EBITDA for the outdoor segment specifically on that 175 million of revenue.

Perfect, thanks. And then wanna touch on sentiment within the North American retail base, given the dynamism of the current environment with tariffs, et cetera. To what extent has ordering behavior been disrupted in one queue and to what extent are you kind of bracing for disruptions over the next few months or so?

Neil, do you wanna address that from a standpoint of our exposure to large retail?

Sure, I think it's too early to tell, because the short answer. I think we feel good about where we are through the first two months of the year and probably a little bit ahead of our expectation. But I think the effect of all of this is really yet to hit. And I would say both at 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 IGD business or among the distributors and to what extent their ordering has potentially been disrupted as we navigate the current environment?

Yeah, 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. And as a result, I think inventories are normalizing there like we said they would or that we hoped they would and 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.

Yeah, I think that's right, Mike. The recovery process has started. We haven't yet sort of got back to the peak year by any stretch of the imagination. And Mike's 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 the IGD market starting to stabilize and come back. The one thing I might clarify with 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 a 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.

Thanks, guys.

Thanks, Hannah.

Thank you. Please stand by for our next question. Our next question comes from the line of Matt Correnda with Ross Capital. Your line is open.

Hello, Matt. Hey, guys, good afternoon. Hey, Mike. So just, I guess, wanted to talk about the 25 guidance. It does suggest there's still some structural cost savings that you guys have to go get with the revenue sort of guided down, but it even looks like it's up about 8 million at the midpoint. Maybe just wanted to hear Neil and Matt separately break down where they see the biggest opportunities in their segments. And then is this more of a cost-cutting exercise in 25 for each of you or a 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 backend weighted.

Matt, do you want to go first?

Yeah, 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 the investments into our NPD. So a lot of new products kicking in from July through to December. This does align specifically with our home market, 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've touched on, into the US 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 into DDC. So there is a heavy weight on that back half and looking for continued improvements in our operating baseline.

And I would just say from the outdoor perspective, 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, we expect that to be up year over year in the range of 350 to 450 basis points. So 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 will give us another lift on the margin line in 2025.

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 rate 175 in 17 million of EBITDA, so almost 10%, approaching double digit like Anna's question for outdoor. And then obviously the 80 million at Adventure, I guided that around, I guided that at 7 million, right, 80 million. So a little north of 8% EBITDA, the 17 and the seven is the 24, less than 9 million of corporate cost is the 15 million of consolidated full year guidance at the midpoint.

Yep, understood, appreciate you time that together Mike. Okay. And then on the, I was unclear, I guess, one thing I wanted to clarify was that the tariff impact that you guys mentioned, potential tariff impact of two and a half million 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 two and a half million. As Neil mentioned, and as I reconfirmed, that 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 gonna try to mitigate this, but the ball is kind of moving, and that's why we didn't wanna be silent when we spoke about tariffs, but we think it could be anywhere from zero to two and a half million bucks. Yeah, it's not in the numbers.

But

it's not in the numbers. There's nothing in the

numbers, just to be clear. Okay, yeah, I appreciate that clarity. And then maybe just any thoughts on, initial thoughts on Rocky Mountains and what that does for you guys in the adventure segment. Curious kinda 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.

Yeah, no, we're excited. We're excited about Rocky Mountains. We think that's an excellent entree into the North American market, right? I've told several folks that the North American market's a little different than the Australian market, meaning a third of the market here in North America is bike racks. The other third is cargo boxes, luggage boxes, and the other third is racks and accessories, right? And starting here in 24 and 25, we're gonna 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 super excited about Rocky Mountains 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 wanna place the orders as well. Matt, what did I miss? What would you add?

No, Mike, you touched on that again. Look, the great thing is that immediately upon acquisition, we got a larger distribution footprint. We've been present in the US 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 US. So that's probably the most important call out. The other thing is with the infrastructure we've got there, being able to invest with a now 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 the distributed presence in all of the markets. It was very much a US 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. And 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 Rack and Max Tracks and Tread. So on that side, pretty exciting to be able to get a 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 2025.

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

Well, I think we are seeing some weakness in the adventure business in the whole, I kind of gave that as an assumption of why we're kind of trying to be conservative around the 80 million full year guide for adventure. We are seeing some weakness in the wholesale market in Australia, due to the direct result of lower car sales. Auto sales in adventure in Australia are down. They were just starting to go down, 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 consider at outdoor though, we have started the year pretty strong, 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. So, there is a little bit of a non-comp factor at outdoor in Q1, which is that IGD shift I talked about where we shifted to a better timing for our distributors into November and December of 24. So that sort of comes out of the first quarter. We'll see that basically get a pickup in the second quarter as we shift, as we make a comparable shift from Q3 into Q2. So again, on a run rate basis, it sort of evens out, but there's a little bit of a step back just from that shift alone. And then I think there's some other timing issues between Q1 and Q2, but we don't see a run rate decline on a comparable basis in Q1.

Yeah, I think that as I look at the phasing of the outdoor business, the first half in 25 looks to be about similar to the first half of 24.

I think Mike, just to balance it. So with the new team led by Trippin in the US, we are seeing a positive start to the year. And this has really been aided by Rocky Mountains discussed. We're also seeing growth across our mayor 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. We can see the fruits of that startup coming in. And so we're lowering our expectations on that. Secondly, as we work through in partnership with one of our largest wholesale partners here, 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, or it's not directly related to us per se as a brand and product. It's across the entire category for them as they kind of restructure their own business. So I think it's a tale of two halves. Our international investments are paying off and we're seeing early fruits, but the challenge is at the size at the moment versus our home market. It is a very conservative approach to Q1 and Q2.

Okay, appreciate all the color guys. So I'll leave it over.

Thank you.

Thanks, Ben.

Please stand by for our next question. Our next question comes from the line of Noant Vasiliscus 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 are 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 that went to your top line for fiscal year 25?

Well, it's right. In my prepared remarks, I commented it was about $8 million on the full year, about $4 million per each segment. And you are right that the dollar has strengthened significantly both against the Euro and the Aussie dollar. So we think it's about $4 million of headwind that we're facing this year, but for each segment.

Okay, thank you, Mike, for clarifying that. And then Rocky Mountains, it looks like from the 10K, the purchase price is about $6 million. Curious to know how much in terms of revenue should it contribute to fiscal year 25?

You know, 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. It's been favorably received here in the US, as we've introduced it into our distribution network. Historically, that business had only done $4 or $5 million of revenue annually. So we're excited, but we're trying to be cautiously conservative with what we expect from that here. But we have plenty of opportunities to grow that business because of the importance of, like Ed mentioned, the bike rack and how important that is here in the US 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 million for it. But we think with, the founder has trusted us, kind of with his baby to try to expand his business and grow it across globally, both here in the US and in Australia.

Okay, very helpful. And then gross margins, adjusted gross margins for the year in 24, it reached 37.5. Trying to understand the bridge to get to the EBITDA margin. It sounds like, is it driven by gross margins? No, the FX, sorry, FX tariffs could be an impact, but trying to understand how to put together the P&L here for 25, right? Yeah, 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 350 to 450 basis points of gross margin improvement. So if you kind of split that, you know, that 36% margin, you know, in the back, second half of the year would be a lot closer to 40% for outdoor. And same with adventure, adventure, adventures adjusted gross margin this fourth quarter was 40%. We will continue to, I think if you model of that at 40%, that's probably reasonable as well. As we will continue to invest in grow the business, invest in the business and adventure.

Okay, very helpful. And the last question is you mentioned about peeps. 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 like have a call for this, but like how big is that business? So 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.

Please stand by for our next question. Our next question comes from Alana Peter Maygovich with Stiefel. 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. Can you update us on the mix of these styles versus your overall 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 were about 73% of our inventory. And I think the comparable number last year would have been in the low 60s or high 50s. So much more of our inventory stacked against the A styles clearly that helped drive the growth that we saw. And we've seen every quarter, the percentage of our inventory against the A styles go up sequentially. I think it's about where it needs to be now at around 73%. It's never gonna be a dollar for dollar, 80% of inventory, 80% of sales, just because they do turn faster and you need some of the other assortment to complete the mix. But it's pretty close to optimal now. I think I was part one on inventory. Did I answer that?

Well, it's just like how you were planning it across 2025, but it 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 to 57 in breakeven even for the first quarter. I think that shift is, that Neil talked about at IGD, it's probably closer to 37, 38 million in the remainder, 18, 20 million in the first quarter. So, it's a bit 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, Twana. I just wanna thank everyone very much. I appreciate everyone attending the call this afternoon and your continued support and interest in Clarice. We look forward to updating you on our results again next quarter. Thank you again, appreciate it. Bye-bye.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.