CLAR - NASDAQ

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the second quarter ended June 30, 2024. Joining us today are Clarus Corporation's Executive Chairman, Warren Kanders; CFO, Mike Yates; President of Black Diamond Equipment, Neil Fiske; Management Director of Clarus' Adventure segment, Mathew Hayward; and the company's External Director of Investor Relations, Matt Berkowitz. Following the remarks, we'll open the call for questions. Please note, this call is being recorded. 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 forward-looking statements. Matt, please go ahead.

Thank you. Before I begin, I'd like to remind everyone that during today's call, we will be making several forward-looking statements, and we make these statements under the safe harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements reflect our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to potential risks and uncertainties that could cause the actual results of operations or the 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 for replay starting at 7:00 p.m. Eastern Time tonight. A webcast replay will also be available via the link provided in today's press release as well on the company's website at claruscorp.com. Now I'd like to turn the call over to Clarus' Executive Chairman, Warren Kanders.

Thank you, Matt. Good afternoon, and thank you for joining Clarus' earnings call to review our results for the second quarter. I am joined today by our Chief Financial Officer, Mike Yates as well as Neil Fiske and Mat Hayward, who will discuss our Outdoor and Adventure segments, respectively. Before I turn the call over, I'd like to highlight the incremental progress we have made thus far in 2024, executing Clarus' strategic initiatives to seek to create long-term value. While overall macroeconomic conditions have remained challenging with consumer demand broadly constrained, we are confident that we have laid the foundation for expected sustainable growth moving forward. It is worth reiterating that we remain in the early stages of our multiyear strategic plan, but believe the investments we have made to date will deliver significant long-term benefit. While Neil and Matt will provide more specific comments, we continue to take positive steps forward in each segment during the quarter. At Outdoor, in the face of strong market headwinds, the team continued to execute initiatives focused on simplification and rightsizing of the inventory. Importantly, inventory levels were down 17% year-over-year and we've improved the quality and composition of the inventory to focus on our A styles across categories, which Neil will discuss in greater detail. From an operational standpoint, we identified several opportunities that may drive efficiencies in the business, and we've been pleased with our progress both reducing operating costs and solidifying the core. In the Adventure segment, while Q2 results reflected market softness, particularly in the United States, we continue to see positive trends during the first half of the year within the broader segment primarily in Australia. As we have detailed previously, we believe there are significant growth opportunities outside of the home market, and we continue to invest proactively to capitalize on the strong long-term industry dynamics and largely growing addressable market across our verticals. Mat will discuss the team's broader corporate realignment and recent appointments which we believe will bring a focus to the U.S. and international markets and strengthen our global OEM initiatives. We believe we now have the right team and strategic road map in place to build out a best-in-class product ecosystem while maintaining a commitment to enhance product margins as we scale. As we look towards the future, we recognize there is still much more work to be done, but are pleased with the incremental improvements we have seen across the business and believe that the previously stated long-term profitability objectives are achievable. 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 Q2 update before turning it over to Mat and Neil to review segment performance. I will then conclude with a more detailed summary of our Q2 financial results and then open it up for a Q&A session. Beginning on Slide 4. We continue to advance our strategic plan in the second quarter with Clarus positioned for long-term growth as a pure-play ESG-friendly outdoor business. As a reminder, this was our first full quarter following the divestiture of the Precision Sports segment in Q1. As Warren mentioned, in the second quarter, we advanced our strategic initiatives to reposition the organizational structure, drive balance sheet improvement and deemphasize categories and revenue streams that do not enhance our goal to find our foundation and drive profitable growth. In the Outdoor segment, our simplification initiatives remain on track as we continue to focus on our core categories and build on positions of strength. We previously indicated that we believe we were seeing stabilization in the North American market, and we can confirm that today. In the first half of the year against a difficult backdrop where many of our peers have seen sales decline, our North American wholesale business was up 1% over the prior year period, which is encouraging as we have been simplifying and rationalizing our scope of products. We view this as evidence that our strategy of leaning into our best categories with our best customers is working. Operationally, we have continued to streamline our development process, leaning on excellent vendor partners to deliver better products and tighter timelines, which is the engine for higher-margin growth. Over at the Adventure segment, revenue increased year-over-year for the fourth consecutive quarter. Although overall sales growth and profitability were affected by weakness in the U.S. and rest of world markets, especially in the U.S.A., consistent with our invest to scale objective, we continue to take steps to strengthen our Adventure team and seek to expand beyond the home market of Australia and New

Thanks, Mike. I'll begin my remarks on Slide 6. Following the reset and stabilization of our business, we continue to take steps in the second quarter consistent with our primary objective of investing to scale and finding integrated efficiency across our portfolio of businesses. In our core Australia and New

Thanks, Mat. Turning to Slide 7. Overall, results in the Outdoor segment were in line with our expectations for the quarter, and we are pleased with our progress in the face of some strong market headwinds. Actions in Q2 represented our key themes for 2024: simplifying the business to solidify our core, improving profitability and laying the foundation for long-term sustainable growth. Overall, revenues met our expectations for the quarter in the context of a market that is still adjusting to the post-pandemic demand levels. In North America, wholesale revenues were down 4.7% on a comparable basis with significantly less promotional activity and one fewer mat pricing breaks this year. For the first half of the year, as you've heard, North American wholesale grew 1% year-over-year. We've rebuilt the sales team in North America and are very pleased with the results that we are seeing. North America digital B2C was down 15.7% for the quarter, due in large part to less promotional activity and not repeating our huge June clearance event from last year. The digital channel represented 20.5% of the region's revenue compared to 22% last year. While retail stores accounted for 4.4% of the total, down from 5.8% last year. In the European wholesale market, we saw a sequential improvement over the first quarter with a 5% decline versus a 17% drop in Q1, again, in line with our expectations. We see further improvement ahead in H2 with an outlook that is flat to up slightly in wholesale. That said, many accounts in Europe have bought conservatively for the fall/winter season and are counting on fill-in orders if the weather is normal to favorable. EU digital direct-to-consumer grew 7.4%, and we expect some modest acceleration in the second half, although that channel is still a relatively low 7.6% of the region's revenue. Our international distributor markets also posted a sequential improvement from Q1, with revenues down 7.8% versus the 44.1% drop in Q1. However, we believe 2024 will continue to be an inventory reset year for most of our distributor markets consistent with the commentary we provided in Q1. Our regions are at varying stages of recovery, but signals point to them all heading in the right direction. In total, our revenue for Q2 was down 10%. Excluding reserves to deal with potential PFAS inventory, Q2 gross margins were down 180 basis points to prior year, primarily due to channel and product mix. For the first half of the year, margins were flat year-over-year. Operating costs, excluding restructuring charges, were down 9.3% year-over-year on a comparable basis. We continue to drive efficiencies in the business and reshape the organization to be leaner and more agile. We expect to see additional cost savings materialize in H2 and continue to grow into 2025. Inventory ended the quarter down 17.1% at $66.4 million compared to the prior year of $80.1 million. Our simplification work continues to improve the quality and composition of the inventory. The percentage of inventory in our volume-driving A styles, for example, increased to 68%, up from 59% last quarter and 45% a year ago. Meanwhile, fill rates on our wholesale orders improved to over 95%, reflecting stronger inventory management and improvement in our sales and operations planning processes. Importantly, apparel inventory ended the quarter down 19.8% year-over-year at $17.8 million. Finally, as we continue to rationalize our product lines and simplify the business, we are undertaking a strategic review of our PIEPS snow safety brand. The goal of this review is to assess whether the value of this business can best be unlocked by Black Diamond or another owner. In summary, I'll reiterate the message from last quarter. We are pleased with our progress and confident in our strategy, knowing that there is much more to do and to demonstrate. I'll now turn the call back over to Mike.

Thank you, Neil. Turning to Slide 8. I'll begin with a summary of our financial performance in the second quarter. As a reminder, and as we have noted previously, given the sale of Precision Support segment for approximately $175 million, which was closed in the first quarter of this year, our U.S. GAAP results are comprised of Outdoor and the Adventure segment, and the results are referred to as continuing operations. Second quarter sales were $56.5 million compared to $57.9 million in the prior year second quarter. The 3% decline in total sales was driven by a decrease in the Outdoor segment of 10% that Neil just mentioned. This is was partially offset by Adventure segment sales growth of 14%. Overall, FX was immaterial in this quarter. Moving to the consolidated gross margins. In the second quarter, gross margin was 36.1% compared to 39% in the year-ago quarter. The decrease was primarily attributable to an increase in the PFAS-related inventory reserves, unfavorable product mix in Outdoor and higher inventory and sales return reserve expenses for the Adventure segment. Adjusted gross margin adjusted for the PFAS reserve that Neil mentioned, which was $716,000 in the quarter, adjusted gross margin adjusting for the PFAS reserve of 37.4% compared to 39% in the year ago quarter. Q2 selling and general and administrative expenses were $28.1 million compared to $26.9 million in the same year ago quarter. The increase was primarily due to additional investments in marketing initiatives at Adventure as well as higher employee-related expenses across the company, including higher bonus expense and the 15 new employees added to the Adventure segment to help scale the business. These investments were partially offset by expense reduction initiatives at the Outdoor segment to manage cost as well as lower intangible amortization. Our adjusted EBITDA loss in the second quarter was $1.9 million or an adjusted EBITDA margin of negative 3.4%, compared to an adjusted EBITDA of $1.0 million or an adjusted EBITDA margin of 1.7% in the same year ago quarter. Our adjusted EBITDA is adjusted for restructuring charges, transaction costs, contingent consideration benefit and stock compensation expense as well as PFAS inventory reserves. Additionally, beginning in the first quarter of the year, 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 $399,000 in the second quarter. Second quarter adjusted EBITDA by segment was $1.2 million at Adventure and a loss of $400,000 at Outdoor. Adjusted corporate costs was $2.7 million in the second quarter. Next, let me shift to liquidity. At June 30, 2024, cash and cash equivalents were $46.2 million compared to $11.3 million at December 31, 2023. Total debt at June 30, 2024, was zero compared to $119.8 million at the end of 2023. Our reduced debt and substantial improved cash position reflects the closing of the Precision Sports sale in February of 2024 and the termination and repayment in full of our credit agreement. Consolidated cash tax expenses for the full-year is expected to be $3 million to $4 million, which will allow us to maintain most of the net cash realized from the Precision Sports sale. Free cash flow, defined as net cash provided by operating activities less capital expenditures for the second quarter of 2024 was an outflow of $700,000. We expect to generate approximately $25 million of free cash flow in the second half of 2024. If achieved, our cash balance would be north of $70 million compared to the $46.2 million at June 30, 2024. As a reminder, we have NOL carryforwards for U.S. federal income tax purposes of approximately $7.7 million at the end of December of 2023. The company expects to utilize all the remaining NOLs in their entirety this year. Before turning to our outlook, I would like to provide an update on the outstanding Section 16B securities litigation matters that the company is pursuing. We continue to proceed in our lawsuit against HAP Trading, LLC and Mr. Harsh A. Padia, Both fact discovery and expert discovery have now been concluded. The court set the following schedule for HAP's summary judgment motion and challenge to our expert witness. Motion papers were served on May 9 of 2024. Opposition papers were served on July 9, 2024, and reply papers are due by August 9 of 2024. If this matter goes to trial, we would expect the trial to commence sometime in 2025. We also have filed a lawsuit against Caption Management and its related entities and control persons. Those defendants filed a motion to dismiss on June 27. We filed opposition papers on July 25, and reply papers are due by August 15. Moving on to our 2024 outlook on Slide 9. We have reaffirmed our topline guidance and continue to expect sales to range between $270 million and $280 million for the full-year 2024. Adjusted EBITDA from continuing operations is now expected to be approximately $11 million to $14 million or an adjusted EBITDA margin of 4.5% at the midpoint of revenue and adjusted EBITDA. We now expect capital expenditures to range between $6 million and $7 million and adjusted free cash flow to range between $7 million to $9 million for the full-year 2024, excluding $2 million of cash outflow related to Precision Sports prior to the disposal. Consistent with our historical seasonal pattern, the second half accelerated compared to the first half. Therefore, third quarter sales are expected to be between $70 million and $75 million and adjusted EBITDA is expected to be between $3 million and $4 million. I want to reiterate that our outlook does not include any expense or ongoing litigation specifically relating to Section 16B matters, the CPSC matter or further increases to the PFAS-related inventory reserves. Before I move on from discussing our outlook. I want to be very clear regarding what has changed. We still expect Outdoor revenue to be approximately $185 million and Adventure sales to be $90 million for the full-year 2024. This is consistent with the guidance we have been sharing since our Investor Day back in early March in New York City. We also continue to expect the Outdoor business to generate $14.5 million of adjusted EBITDA, representing a nearly 8% margin. The change today compared to our prior guidance is that we now expect the Adventure segment to only generate a 10% EBITDA margin compared to the 15% margin we shared earlier in the year. This is a $4.5 million impact on the adjusted EBITDA and is the bridge between our new guidance at the midpoint of $12.5 million and our prior guidance at the midpoint of $17 million for adjusted EBITDA. The obvious question is why the decrease from 15% to 10%. And the answer, we believe we have a tremendous strategic plan to take an iconic market-leading Australian/New

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Matt Koranda from ROTH Capital. Please go ahead.

Hey, guys. Good afternoon.

Hello, Matt.

I guess just to dig in a little bit more. Hey, Mike. So just wanted to dig in a little bit more on the EBITDA guide and the $4.5 million change that you mentioned. So I guess just the follow-on question to your explanation is just why the change that we're seeing now? I guess, wouldn't you have contemplated a scale-up investment in the business prior to sort of the long-term planning you did in preparation for the Investor Day in March? And I guess, could you break down the $4.5 million a little bit more in detail? I know you mentioned there are some buckets in there, like new team members, marketing, supply chain. Any further detail you can provide around sort of where we're making the investments and why we expect those to bear fruit?

Well, sure. No, great question. So obviously, it's investment and the decline in Q2's, I think in Mat's commentary, and we've already acknowledged that Q2 way underperformed here in the U.S., right? So we've probably underperformed by our budget – from a budget perspective by $2 million to $3 million of what we thought we have profitability would be coming out of the U.S. business here in the second quarter, all right? So that – and that's not going to – like we said in our prepared remarks, we're not going to be able to make that up, right? The season in the U.S. is in the Q2 period. That's the biggest period we would expect to do business in the U.S. So quite disappointed by that. On the flip side, we are committed to our plan. We think we have a great brand, a great product and we think the market is ripe for us to take advantage of this. That's why we've gone ahead and we've hired Tripp Wyckoff to lead the Americas, right, whether that's Canada and North America – all throughout North America. And his background, he did this once 12 years earlier in his career for Thule. He's a proven leader. He knows the folks in – at the distributor level. He's already spoke with them all as part of his diligence to take the job, right? So we're excited about what he can do to come in and help get the Rhino-Rack brand, that is a market leader that is showing the strength in Australia and New

Okay. Got it. So it sounds like maybe things have righted a little bit toward the latter portion of the quarter on the topline at the very least.

Yes. Yes, indeed.

Okay. All right. Got it. And then one other, I guess, more outlook-oriented question, which is just – I guess if I triangulate between the full-year guide and what you put out for the third quarter, it does imply like a pretty good improvement in EBITDA margin heading into the fourth quarter and just kind of wondering where we get the confidence to say that we're going to be able to jump up to what looks like a low double-digit EBITDA margin in the fourth quarter. Where specifically can we highlight some costs that maybe were pulling out or some improvement fundamentally in one of the segments where we can get there?

Yes. No, no. So right. So at the midpoint of the Q3 revenue, 72.5%, which implies the fourth quarter is 77.5%, right? So that's for the fourth quarter of revenue. The difference of what you're highlighting is I'm only guiding $3 million to $4 million of, call it, $3.5 million at the midpoint of profitability for the third quarter. But to get to the $12.5 million, I need $9 million of profitability in the fourth quarter. So your question is spot on. And so that is exactly how we're looking at it. Interestingly enough, right, the fourth quarter this year is setting up to be our strongest quarter in that how the numbers are coming together specifically over the Adventure business and at the Black Diamond business. Neil, Mat, either one of you want to comment on why you stayed at your confidence level for the fourth quarter on the topline?

Yes. Look, it's Mat here from Adventure. Look, Q4 is typically our strongest. One of the benefits – we have had softness in Q2, as you called out, we haven't performed in the U.S. The benefit going into the back half is AN

And Matt, I can add on from the Outdoor perspective. So fourth quarter is naturally our biggest quarter just in terms of demand and seasonal build. And we get a tremendous amount of operating leverage in the fourth quarter. So the flow-through on that revenue is extremely high. Secondly, we've taken an incremental amount of cost out of the operating model at Black Diamond that I think will ensure that we hit our profitability goals for Q4, specifically, about $700,000 in the quarter alone from incremental cost-out initiatives that we've put in place. And frankly, this will continue to build into 2025. And thirdly, I would say, we look forward to business, some of it is mostly wholesale-based, and we look at the order book as the first indicator of what we'll be able to do in any given quarter. And we feel good about the order book matching our expectations. There is quite a bit still, maybe 20% of the business, that will be at once, either call orders or ASAP orders. And I think that's where the fluctuation could be depending on how early winter turns on and what the early seasonal demand is for the new product, but it's a confined amount of revenue for us. So I think those are the three factors for Black Diamond that give us confidence in the profit outlook for the Q4 and for the second half. I also think we're in a better inventory position overall [indiscernible] for those call orders and ASAP orders that do come in, our fill rates are considerably better this year than last year, should allow us to react to any upside in any given product line category or overall market trends?

Okay. I appreciate all the detail on the segments, guys. Maybe just one more, and then I'll turn it over, but just wanted to understand the latest from you guys and your perspective on the PFAS exposure. I guess we had another inventory reserve this quarter. That sort of doubles what we've done thus far, I guess. How much more of the exposure do we have left? Do we think we've kind of reserve for all of the exposure that we have? When does this fully get cleaned up? And how should we think about it?

So Matt, I'll take that. The – I think when we first brought this up here two calls ago, I mentioned I thought there was a $3 million to $5 million risk. I think the team has done an excellent job working through PFAS inventory, right? We do have – we've booked $1.5 million of reserves on the – and we have that on the books still. We are continuing to focus on that and work through PFAS inventory. It's – the criteria continues to change, and there are some exceptions we're able to take advantage of but our goal and our objective is to get rid of all this inventory by the end of the year. I think we have about $9 million of inventory left as of June 30 that we need to work through. And I know we've sold a good chunk of that here, [indiscernible] had a good chunk of that we sold. We sold a lot of PFAS packs here in the month of July, frankly. So we're continuing to work through it. I think I'll stick with my guidance from six months ago is I think we have a $3 million to $4 million exposure. So I could see us booking another $750,000 each quarter. But I don't think it's much more than that, I mean, with the objective of being through this and having most of this issue behind us by the end of the year.

Mike, if I could just add to that from qualitative standpoint in terms of execution. We've established a glide path for getting out of our PFAS inventory. We look at it every week and at the halfway point here we're actually a little bit ahead of our glide path schedule. So feeling like we got on this problem early. We moved through quite a bit of product last year, early this year. And while we've got some more work to go, we feel like we're on it. We're a little bit ahead of pace and should we continue on this pace, we'll end the year relatively clean and in that range of reserves that Mike talked about and be set up for margin expansion in 2025 as a result of the work we've done this year.

All right. Appreciate all the responses, guys. I will leave it here.

Thanks, Matt.

The next question comes from Anna Glaessgen from B. Riley. Please go ahead.

Hi. Good afternoon.

Hello.

Thanks for taking my questions.

Sure. Hello, Anna.

First, I'd like to touch on the state of the retail landscape in Outdoor. In the past, you've given us some perspective on the different subsegments that you break down, your retailers and your mass versus the national accounts. Could you give us an update on how those performed in the quarter?

Neil, do you want me to take that or – yes, sure. You take it.

Sure. So I would say, as a headline, we see the market continuing to stabilize, inventories coming more back in line with demand. But having said that, I don't think we're through it yet. We've still got another good six months, I think, before retailers are at the inventory levels they want and with the right composition of inventory that thereafter. And so that's a little bit of a drag still, a little bit of a headwind on the market overall. I would say when we look at specialty, the specialty segment overall is kind of holding its own to down low single digits, better than prior year, showing sequential improvement. Our retailers are still cautious about what the outlook is and making sure not to get over-inventoried and overbought again. So they're being quite tight on the first strings and forward orders. But I think as I look at the specialty business, the core of it seems pretty good to me and in pretty good shape. There are, at the margin, some of the weaker specialty players that have struggled for a little bit. And I think we might see a little bit of shakeout of small accounts in the market, but with the kind of multiyear pressure that's been in the market. But overall, we see specialty coming back and becoming healthy. And that remains a super important part for the industry and for our strategy as well. It's very much the top of our distribution pyramid. With regard to the big national accounts, notably REI has seen a little bit of the same story. They're both kind of digging out of the ditch from last year, still some softness there. But we're seeing sequential improvement. We're seeing inventories get back in line and in better balance. We think we're outperforming our – the industry and the categories with those accounts and picking up share. It's hard to get the data. But from what we hear from our buyers, Black Diamond continues to be a brand by virtue of its equity and leadership positions in core categories that those big retailers count on. And when things get a little rocky, one of the good things about being a market leader is you tend to get a little bit more of that open to buy because you're more of a sure bet. And I think we're seeing, as a brand, we're seeing some of that pick up. So I would say across the big accounts, the national accounts as well as specialty, we're seeing stabilization of the market with more to come. And it certainly – I wouldn't say there aren't any tailwinds out there, still a little bit of headwinds, but much less than what we saw last year. And I think that going into 2025, that the industry will be healthier, as accounts, we'll all be in a better place. So cautiously optimistic, I would say, in terms of the recovery of our retail account base. Does that answer your question, Anna?

Yes. That was super helpful. I guess it seems like retailers are still cautious, still working down probably some pockets of excesses, but you're not seeing kind of like the wild swings in order flow or sort of last-minute cancellations that were an issue probably more last year. Is that fair?

Much less. And there's still some, but I think it's abating at a steady pace.

Got it. And it seems to be that there's less of a delta between the specialty and mass or national accounts than in the past. Is that fair?

Probably less of a delta and maybe specialty has responded a little bit more quickly and has come through this more quickly than some of the big accounts. But – and so maybe they're a little bit ahead just in the recovery curve. But I think the delta is relatively small.

Okay. Great. Thanks so much. That’s for me.

The next question comes from Jim Duffy from Stifel. Please go ahead.

Hi. This is Peter on for Jim. Thanks for taking our questions. Mike, a question for you. The constrained consumer was recognized as a source of pressure for both the Outdoor and Adventure segments. Is this incremental to the prior outlook? And what are you baking into the second half outlook? I'm just curious if there's a consumer macro influence to the second half outlook.

No, our commentary about that is, hey, overall, the consumer and retail is being called out as being challenged and things are – the consumer is getting tighter and tighter. And I don't think that debatable, right? We've seen that, especially in the Outdoor when we look at our peer groups and other folks who've presented and then disclosed their earnings. Is it specifically baked into our outlook in some fashion? Not entirely, it's not, right? The numbers we're presenting here for the rest of the year are based on what we see our order book, where we have line of sight to here in the third quarter and what we know we have to on line of sight for fall/winter season that will ship in the – late in the third quarter into the fourth quarter. So I don't think there's a – we didn't discount any numbers because we think the consumer is tight based on what we're seeing specific to our business.

Okay. Thank you for that. Then switching, Mike, again, specific to your commentary on the Adventure business in the U.S. market and a potential for a bolt-on acquisition. Can you talk about where you want to add to the business, if there are any categories, channels or capabilities you're looking to add to bolster the existing business? And then a follow-up to that would be now that you've reached a net cash position, how are you thinking about sensitivity to the leverage profile?

Well, first, from an M&A standpoint...

Mike, do you want me to take that?

Sure. Go ahead. Go ahead, Warren.

Yes. Yes. Thanks. So I think the acquisitions that currently we're looking at in that space are modest and would fit really part of our – what we view as our product portfolio that we need to truly be successful in this market. And so I think our cash balances, as Mike talked about, we expect to be upwards of $70 million by the end of the year and any acquisition would be modest. So we would have quite a bit of cash still on our balance sheet, just to give you an order of magnitude. Not very big.

[Operator Instructions] The next question comes from Mark Smith from Lake Street Capital.

Hi, guys. A similar question here, just as we think about consumer trends domestically. Can you just speak to kind of what you're seeing in Europe or other markets kind of around the consumer? Any signs of improvement and how they're holding up today?

Well, I can start, but I'll let Neil and Mat add to it. Because I would say the North American consumer is probably holding up a little better. We're seeing that in our North American business at Outdoor. The D2C customer, right, they're probably looking for a promotion, right? The market's a lot of promotional activity still on websites for Outdoor product. The European customer from my perspective in talking with the team and the market conditions over in Europe, we've discussed internally that we think the European market is about six months behind – at a minimum six months behind the U.S. market. So we started seeing stabilization of the North American market here at the beginning of the year. So we're hopeful we see stabilization with the European consumer here in the back half or at some point in the back half of 2024 for the Outdoor consumer over in Europe. Mat, any comments on the consumer over in Australia or – that you'd like to add?

Yes. Thanks, Mike. Look, I think the best way of answering this is outside of AN

Sorry, Mike, I just...

Go ahead, Neil.

To your point, because you hit on something very important, which is I think consumers are out there still buying, but they're buying more promotional items. And as we've come through a period of a year or more of supply exceeding – supply exceeding demand and a very promotional market as players at all levels have tried to get their inventories in line, the reality is we've trained as an industry that the consumer to be more price-sensitive, deal-oriented. And I think we'll see a little bit of that still this year as – with people clearing through PFAS inventories. There are a lot of bargains out there for consumers right now. And so we just have to be a little bit mindful that there will be across the industry, I think, continued margin pressure this year. Should get much better next year as we get through the last bit of PFAS inventory overhang. But it is a price-sensitive consumer indicitaing they're a little bit fatigued. They're still buying, but they're looking for the deal.

Okay. And I think the last question for me just maybe if Mat wants to take it or somebody else, just as we think about kind of a squeezed North American or U.S. consumer, maybe hitting some stumbles out of the gates here on trying to roll out and improve the business or grow the business in the U.S. for Adventure. Is this something that's going to get pushed and really much more of a 2025 story rather than second half of this year, especially as we think about kind of the seasonality and when maybe consumers are buying these products?

Yes. Great question – sorry, Mike.

Go ahead. You answer that. But the short answer, I believe, is yes. Go ahead.

Short answer is yes, and we'll bake that in, again, giving Tripp time to get a feet under the desk. But the reality is we've launched some new products in the U.S. in April. So they did. We put in our flagship product globally, the Pioneer 6 trade. This is world-class. It's got over 90 accessories that comes with it. We launched in April. We weren't able to realize that with changes of management. And we exited the old partner early in Q2 when we brought in – Tripp in July. So we've got that sitting there waiting. We've got stock on hand. We've got an incredible marketing campaign ready to go. Same thing with our new accessories that we launched [indiscernible] boxes and tents that kind of complete that adventure opportunity standing up our new website that launches in September. We're about four months behind standing that up. So yes, we are seeing this more of an acceleration into 2025 but we'll bake that into our number. And we do want to make sure that we deliver on the rest of the year in the U.S., and we have bought that I guess, that projection down. But we do have expectations that we can realize some of that in H2.

Thank you.

This concludes our question-and-answer session. I'd like to turn the conference back over to Mike Yates for closing remarks.

Thank you. Thank you very much. I want to thank everyone for attending the call this afternoon and your continued support and interest in Clarus. We look forward to updating you on our results again next quarter. I appreciate your time. Take care.