CLAR - NASDAQ

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the fourth quarter ended December 31, 2025. Joining us today are Clarus Corporation's Executive Chairman, Warren Kanders; CFO, Mike Yates; President of Black Diamond Equipment, Neil Fiske; and the company's External Director of Investor Relations, Matt Berkowitz. [Operator Instructions] 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 Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking 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 will 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 conditions 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 as on the company's website at claruscorp.com. Now I'd like to turn the call over to Clarus' Executive Chairman, Warren Kanders.

Good afternoon, and thank you for joining Clarus' earnings call to review our results for the fourth quarter and full year. I am joined today by our Chief Financial Officer, Mike Yates, who will cover our Q4 results, including Adventure segment performance as well as Neil Fiske, who will discuss our Outdoor segment. In 2025, we remained focused on positioning Clarus for sustainable growth over the long term, prioritizing our most profitable products and styles in the Outdoor segment and executing incremental operational progress in the Adventure segment. Our financial results reflect a challenging market, characterized by weaker consumer demand, tariff impact, supply chain disruptions and broader macro headwinds. As you will hear from Neil, during the fourth quarter, we experienced the most unfavorable seasonal conditions in 50 years in key ski destinations in the United States. Against this backdrop, we continue to advance our overall strategic plan to simplify our businesses to drive share gains as market conditions normalize. Across both segments, we implemented targeting cost-outs and tariff countermeasures that will enhance profitability on an annualized basis and set the stage for long-term value creation. At Outdoor, we have fundamentally reshaped the business over the last 2 years, simplifying the portfolio, exiting low-margin categories and rationalizing SKUs while upgrading leadership and reallocating investment toward higher growth areas. At the same time, we have meaningfully reduced our cost structure, modernized our systems and sourcing capabilities, and expanded product margins by more than 300 basis points before factoring in the impact of tariffs. Together, these actions have positioned the business to operate more efficiently and profitably moving forward. I would also like to highlight the continued success of the Black Diamond apparel line, which saw sales growth of 10% in the fourth quarter despite unusually adverse seasonal conditions in both the U.S. West and Europe. We see very strong momentum in key businesses unit heading into 2026. Turning to Adventure. Our results continue to be affected by market pressures. Q4 gross profit was impacted by several onetime and external factors that Mike will discuss in greater detail. While 2025 was a challenging year for the segment, we have taken corrective action to position the business for a stronger, more innovative future. Importantly, as we discussed last quarter, we identified the pricing in several of our markets, particularly Australia, had not kept pace with inflation or our cost base, contributing to market -- margin erosion, and we have moved forward with price increases across all brands and markets effective Q1 2026. We continue to believe that Adventure is only beginning to tap into significant growth opportunities around the world, and we have begun to see green shoots, particularly in Europe and Japan, where the steps we have taken to improve service levels and shortened lead times have helped to accelerate growth and drive new customer wins. Additionally, our commitment to fitting more vehicles led to a record number of new fitments delivered in 2025, strengthening our competitive positioning supporting future revenue growth. There is certainly more work to be done, but we have been pleased with the continued progress on our strategic initiatives at Adventure. Overall, Clarus is far better positioned today to navigate uncertainty and market weakness than we were a year ago. Supported by a debt-free balance sheet and a streamlined organizational structure, we will continue to advance our multiyear growth plans while maintaining a disciplined approach to capital allocation and a clear focus on maximizing shareholder value. With that, thank you for being with us today, and I will turn the call over to Neil.

Thanks, Warren. Turning to Slide 6. I will review the Outdoor segment's Q4 performance and our expectations heading into the remainder of 2026. Overall, Q4 came in somewhat softer than our expectations due primarily to adverse seasonal conditions affecting our ski segment that Warren mentioned. That said, our more focused, simplified business showed growth and resilience in our core go-forward priority categories. The aggressive reshaping of Black Diamond over the last 3 years has allowed us to weather a year of tremendous disruption, tariff impact, supply challenges and macro headwinds. It's worth putting that multiyear effort in perspective. Since 2023, we've dramatically simplified and narrowed our focus, exited low-margin, underperforming categories, PIEPS, bindings, JetForce, to name a few. Rationalized styles and SKUs reduced headcount versus the 2023 baseline by 38% in total and 30%, excluding changes in manufacturing. We've upgraded key leadership positions, reallocated headcount and investment to support apparel growth. We've set up Black Diamond Asia sourcing and product development, launched a new e-comm platform and supporting martech stack, launched a new S&OP system to support better supply/demand alignment, modernized our ERP in EU with a new North American ERP and process. We've substantially improved the quality of inventory, concentrating our mix into high-volume A styles while reducing markdown exposure and the level of discontinued merchandise. We've moved BD to a more full-priced lower discount model, and we've engineered more than 300 basis points of improvement in product margin pre-tariff through line simplification, new product introductions, mix management, sourcing and supply chain improvements. In short, we are leaner, more focused, more agile and more competitive. The core of the business is strong. Thanks to the hard work of our teams over the last few years, we've set the stage for sustainable, profitable growth and operating margin expansion in the years ahead. Now let's turn to Q4 results. As with my last update, I'll address tariffs and currency at the top of my remarks and exclude the PIEPS brand, which we divested in Q3 and year-over-year comparisons. First, tariffs. In early May, we initiated the first phase of our tariff mitigation plan, which included raising prices, negotiating vendor concessions, air freighting products where necessary and accelerating our exit out of China. By moving quickly and decisively, we were able to offset about half of the impact of tariffs in 2025. We estimate that the net unrecovered impact from tariffs and duties for the year was approximately $3.4 million to adjusted EBITDA. As we roll forward into 2026, we've now offset nearly 75% of the tariff impact as best we can estimate today, leaving a $2.8 million unrecovered gap in this coming fiscal year. Over time, we believe we can reduce that gap still further through pricing, sourcing, new product introductions and value engineering. In the event that we are able to recover tariffs as a result of the recent Supreme Court decision, Black Diamond would receive approximately $6.5 million for the reciprocal IEEPA tariffs we paid in 2025. Note that the most punitive tariffs on our business, the 50% Section 232 tariffs on steel and aluminum, are not covered by the Supreme Court decision and remain in effect. And of course, the IEEPA tariffs have largely been replaced by new ones under a different claim authority. Now let me address currency. As noted last quarter, while we benefited from the translation of the higher euro to the dollar, we incurred significant losses on FX contracts in 2025. These losses, which amounted to a $2.2 million EBITDA swing year-over-year flowed through and suppressed product margins. We've now rolled off these contracts and expect a run rate pickup of $1.6 million in EBITDA in 2026 at the current exchange rate. Turning to operating results. Revenue for the quarter was down 2.1% to prior year, down 2.9% in constant currency, excluding FX contracts. The largest drag on the top line was our ski business unit, which was down 30% to prior period due to a combination of our rotation out of low-margin categories like bindings, beacons and airbags, and the most unfavorable seasonal conditions in 50 years in ski -- in key ski destinations in the U.S. Moreover, while our ski apparel line started strong through October and November, the growth trend tapered in December with the unusually poor conditions in both the U.S. West and Europe. Still, apparel for the quarter was up 10% compared to Q4 2024, and we continue to see very strong momentum in that business into 2026. Meanwhile, our mountain and climb business units were both up for the quarter, 0.4% and 4.3%, respectively. Taken together, these 3 categories of apparel, mountain and climb grew 3.7% in Q4, accounting for 86% of our sales in the quarter and 90% for the full year. This is where our simplification strategy is paying off, and we expect this strategy to drive profitable growth at BD in the future. By channel and region, North America wholesale, excluding FX contracts, was down 10.4% due to planned exits in the ski category and somewhat softer replenishment orders in December. North America digital D2C was down 0.8% compared to the fourth quarter of last year, which was a significant improvement in the run rate from previous quarters. Europe wholesale, excluding FX contracts was up 12.1% in U.S. dollars and 3.2% on a constant currency basis. Europe digital D2C, which is a relatively small part of the region's revenue at 7.3% of total sales, was down 29.9% or 36% in constant currency. Our international distributor channel was up 19.3% for the quarter. In 2024, we realigned our deliveries to better suit the needs of our international market. That means our year-over-year results are now comparable in timing. I'd also like to highlight results of our design for the deep winter catalog, which far exceeded our expectations and validated an important new part of our marketing mix. We had taken a break from marketing via the catalog this -- and this past winter success gives us confidence, and we expect to continue with the catalog marketing program going forward. Turning to gross margin. Q4 gross margin rate declined 280 basis points versus prior period due to the impact of unrecovered tariffs and FX contracts as well as write-downs for exiting inventory. Breaking that down, tariffs had a 390 basis point impact in the quarter while FX contracts accounted for another 240 basis points of drag and inventory exits cost 80 basis points. Stripping out these noncomp factors, our comparable underlying gross margin showed a 450 basis point improvement, reflecting the progress we've made in simplifying the line and focusing on higher-margin sales and categories. This helped reduce the impact of what would have otherwise been a 730 basis point decline in margin. Operating expenses, excluding restructuring and legal costs from both periods, were essentially flat year-over-year. Adjusted EBITDA came in at $2 million for the quarter, down $2.1 million to prior period with unrecovered tariffs and loss on FX contracts amounting to a $2.4 million drag on earnings versus the prior year period. Adjustments to EBITDA reflect the latest phase of our restructuring efforts, which have been designed to help offset the higher cost of tariffs and trade in this environment. These actions occurred in Q4 in January of 2026 and include continued streamlining of our organization and overall headcount, completing the exits of PIEPS, JetForce and binding businesses, exiting our 3PL in Canada, initiating a project to restructure our logistics and fulfillment operations in Europe, closing additional Black Diamond stores and slimming down our athlete roster. For Q4, these actions resulted in approximately $0.9 million of restructuring charges. We also expect to incur another $1.5 million in 2026, which will be reflected in our Q1 results. We do not anticipate any further restructuring at this point yet remain mindful of the dynamic and changing macro environment. Finally, inventory ended the year at $64.9 million. On the surface, that looks like a significant increase versus last year's ending position, excluding PIEPS at $53.5 million. However, the biggest factor in the increase was a change of inventory recognition from Delivered at Place, or DAP, to recognition at FOB shipment this year, meaning our in-transit inventory on the books appear much larger this year than last. This $7.9 million -- this is $7.9 million of the difference to prior year and is strictly a matter of timing. The 2 other factors raising this year's number are tariffs and currency, which together inflate the value of inventory approximately $5 million. We've made great progress in improving the quality and composition of the inventory over the last few years and enter 2026 in good shape. In closing, I will again thank our teams around the world for their incredible perseverance, creativity and drive in the face of this turbulent, often chaotic and unpredictable global environment. With that, I'll turn it over to our CFO, Mike Yates.

Thank you, Neil, and good afternoon, everyone. On today's call, I'll provide some brief comments on the Adventure segment, and then we'll conclude with a summary of our Q4 financial results followed by the Q&A session. Let's take a closer look at Adventure. Q4 revenue declined $2.1 million year-over-year or 10.4%, driven primarily by reduced demand from 2 OEM customers compared to the prior year quarter. Also contributing were weaknesses in the U.S. bike market and customer transitions in our home markets of Australia and New

[Operator Instructions] And our first question comes from the line of Matt Koranda of ROTH Capital.

Just wanted to hear a little bit more about the pricing actions that you guys took, I guess, at the end of the year and then in January. So maybe just between breaking them out between Outdoor and Adventure, could you just talk about sort of the magnitude of pricing that was taken and how that impacts the outlook for growth for '26 between the 2 segments?

Certainly. Neil, you want to talk about BD, and I'll cover Adventure?

Yes. Sure. Thanks for the question. So maybe give you a sense of the magnitude on the pricing actions we've taken at Black Diamond, really, with the goal, of course, of offsetting the impact of tariffs. If you look at the gross impact of tariffs on the Black Diamond business, it would be about $11 million to $12 million a year impact on margin and earnings. With pricing and with some sourcing work that we've done, we're able to offset all but $2.8 million of that, so something around 75%, 80%. And so I think you can assume that there's about $7 million to $8 million of pricing that we've taken in the Black Diamond business in order to offset tariffs. Obviously, that's not the whole amount. We didn't get all the way back to $11 million, but we pushed it as far as we thought we could push it relative to what competitors were doing and what we thought the consumer would accept in this environment. And then over time, our goal is to continue with smaller price adjustments, product line reengineering, remixing to close that remaining $2.8 million gap, but about a $7 million to $8 million overall price increase.

Okay. That's helpful. Before Mike answers the Adventure, I guess, just clarify, the $7 million to $8 million, was that taken in 2 tranches? Because you mentioned some May actions from '25. I just want to make sure I understand the impact of '26 and how that feeds into sort of the growth outlook for -- especially for Outdoor.

Yes. Thanks. Good clarifying question. That's the result of both sets of actions. We've now taken the initial price ups we took in May and then the ones we took at the beginning of 2026. It's both of those.

Okay. Should we think half and half in terms of impact? Or any breakout, I guess, between those 2 actions that were taken?

I don't think I have an accurate estimate off hand of this split. Yes, we hope to get back to you on that soon.

Let me take it offline. Yes. Okay. That's fair. And then Mike, go ahead on Adventure.

Yes. So Matt, at Adventure, we took price specifically at RockyMounts back in November from my prepared remarks. That's a nice bump, probably around 5% price increase there. And then here in the first quarter across the Rhino-Rack business, we took price up as well pretty much on the primary, Pioneer, the platform, racks, our primary categories that we sell. All in, I think we would expect to get about $2 million to $3 million of price this year.

Got it. Okay. All right. Very clear. That helps.

We are fighting volume. The market's challenging as we've talked about and as some of our competitors have reported.

Yes. Okay. Understood. And it seems like embedded in the expectation for '26, especially as it pertains to Adventure, is a pickup in growth and unit volume as the year moves on. I guess, just maybe what are the components that you're assuming there that give you confidence in that return to growth?

Yes. No. So it's volume. It's price, and then there's an FX tailwind as well. It's really -- it's -- some of that volume should recover in the Australian -- in the home market but also through some of the expansion I talk about, right? We have some growth in Europe and elsewhere specifically when you think about the bike business here in North America and some of the other things I mentioned in Japan and so forth. So that's where it comes from, is a combination of all 3 of those things.

Okay. Got it. And then maybe just any commentary from you guys on how we plan to use the balance sheet this year? Obviously, you're in a much better position from a cash perspective, no debt. Access to capital, I assume, is solid. Are you finding anything in the funnel in terms of M&A that's interesting? It's just a really dynamic time in the markets, I guess, and maybe there's more stuff shaking loose, but I'd love to hear your perspective or maybe Warren's on there.

Yes. I think, yes, that's a good question. For right now, I think we're really focused internally on our 2 respective businesses and making sure they're well positioned for the future and that we can grow those businesses. So I think we're just going to sit on our cash for the first half of the year.

Our next question comes from the line of Anna Glaessgen of B. Riley Securities.

I'd like to start on the category breakdown within Black Diamond. You used to disclose the breakdown between mountain, climb, ski in the Ks. It's been a while. I think by the prepared remarks have implied that ski was roughly 10% of the business. Was that accurate? And is that the right number going forward to expect? Or should we expect some compression as we fully lap the exit of bindings, et cetera?

Well, I think what we talked about here, and Neil can follow up, but we talked about 86% of our revenue coming from apparel, climb and mountain, right? And that's a direct results of our simplification strategy leaning into our best products that are our most profitable products and that are core to our business. So skis is -- we're not disclosing those categories in the 10-K. We just filed it. But we're really focused on those 3 categories going forward. And that's where the growth's going to come from, and that's what we're focused on, Anna.

Got it. I guess...

Yes, and...

Go ahead. Go ahead, Neil.

I could add just a little bit of this, appreciating, Mike, you don't want to break out specifically the categories themselves yet. But basically, mountain, climb and apparel for the year were 90% of our sales. Ski is less than 10% because we also have a little footwear segment in there that we don't normally talk about. It's primarily focused on rock shoes. So ski is less than 10%, and we expect that to drop by a couple more percentage points on the mix as we complete the rotation out of PIEPS and JetForce and bindings. So I think if you think about the go-forward business, mountain, climb and apparel, it will get pretty close to 93%, 94%, 95% of the business going forward. That's helpful.

Got it. Yes, that's really helpful. And then shifting to broader market expectations. Understand you've talked about but it continues to be a challenging environment. But just wondering general tone you're hearing from retailers and expectations for sell-in versus sell-through. Should we expect those to be more aligned? Or are there still pockets of destocking that you expect in this year?

Do you want me to take that, Mike?

Yes, go ahead, Neil. You can talk about...

Yes, I can certainly speak to Outdoor on that and Mike can comment on Adventure. I would say it's really hard to read. I don't think there's a clear trend or a clear pattern that's yet emerged, and the only constant is change, as they say. And so I think we're just in that environment. As a result, I would say retailers are being cautious and maybe keeping their powder dry in terms of where they spend their money, deferring open-to-buy decisions into the latest possible moment, trying to keep a little bit more of their open-to-buy in the at-once versus the preseason category. And I think particularly with the winter that we had this year in the Mountain West that in that particular segment, the retailers, I think, will probably be a little bit more conservative next year. But for the most part, we're pretty happy with our order book for 2026 and how it's holding up and very happy with the strength of our wholesale relationships from the big accounts like [ REC ] and MEC to a very much revitalized and rebuilt specialty business for us. I think our wholesale relationships are the strongest they've been in more than 5 years. So I think that will keep us in good stead this year.

Our next question comes from the line of Laurent Vasilescu of BNP Paribas.

This is Leah on Laurent. Just following up on the overall trend, can you talk about the recent trends in the Outdoor segment particularly? Like what are you seeing in terms of consumer demand and also channel inventories?

So I can -- do you want me to take that, Mike?

Please.

Well, sorry, let me be clear on the channel inventory. I think we're through the kind of heavy days of the destocking trend that came in the post-COVID correction. And now I'd say, for retailers, it's more fine-tuning and ongoing rebalancing of their inventory in normal course. So I don't see any kind of major overhang right now, at least from the Black Diamond business as we see it in retail. And that gives us some good confidence for where we are in our inventory and where our retail partners are in their inventory in the year ahead. And I would say trends in our business, apparel has the most momentum right now. It's up 10% in Q4. It was up 25% in Q3. We expect it to be up again double digits in 2026. We have seen mountain, our big mountain category, which includes trekking poles, lighting, gloves and some of our real power categories return to growth in 2026 and even a little bit in Q4. And interestingly, we're seeing a bit of a rebound in climb right now. I'm not sure I'd call that a trend yet, but what I would say is if you take those 3 big business units together, mountain, climb and apparel, they grew in the fourth quarter. We're seeing that they'll grow again in 2026.

Our next question comes from the line of Alex Sturnieks of Lake Street Capital Markets.

You got Alex on for Mark Smith today. First one for me, looking at the RockyMounts contribution in the quarter, could you just talk about how that business is performing so far? How meaningful do you expect it to become within that Adventure segment over time?

Well, it is meaningful. It's an excellent product. It's specifically here in the North American market. It did about $5 million, a little more than $5.5 million, I think, of revenue here in 2025. We continue to expect that growth. And I mentioned the point of sale. We've made some investments in point-of-sale marketing that's been specific to the RockyMounts business. That's out at our bike shop distributors, the wholesalers that we work with. So we're excited about that. I think it's a good business. It's a great product, and we expect that to drive -- be part of our growth story going forward.

Okay. That's great. And then last one for me. You've highlighted encouraging traction in Europe following the opening of the Netherlands warehouse. Could you expand on how meaningful Europe has become for the Adventure segment? And then how do you see that opportunity developing going forward?

So what the warehouse in the Netherlands is giving us the opportunity to do is just expand our footprint and serve some of our smaller customers, right? Our bigger customers in Europe who are -- who've been our legacy customers, they would -- they're still taking inventory from our business in Australia. They're ordering a full container, right, and it's shipping. The warehouse in Netherlands is allowing us to fulfill orders that are smaller than a full shipping container, and that's where you see growth in Spain, growth in the Nordic region, growth throughout Europe, where we weren't penetrating at all in the past. So I'd say that's going to be about $1 million this year of incremental revenue for the Adventure business.

I'm showing no further questions at this time. I will now turn it back to Mike Yates for closing remarks. Thank you for participating in today's conference. This does conclude the program. You may now disconnect.

I'm sorry I was muted. Thank you, everyone. 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. Thank you.