Clarus Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements Please note that in this Quarterly Report on Form 10-Q Clarus Corporation (which may be referred to as the “Company,” “Clarus,” “we,” “our” or “us”) may use words such as “appears,” “anticipates,” “believes,” “plans,” “expects,” “intends,” “future” and similar expressions which constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting the Company and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. Potential risks and uncertainties that could cause the actual results of operations or financial condition of the Company to differ materially from those expressed or implied by forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, the overall level of consumer demand on our products; general economic conditions and other factors affecting consumer confidence, preferences, and behavior; disruption and volatility in the global currency, capital and credit markets; the financial strength of the Company’s customers; the Company’s ability to implement its business strategy; the ability of the Company to execute and integrate acquisitions; changes in governmental regulation, legislation or public opinion relating to the manufacture and sale of bullets and ammunition, and the possession and use of firearms and ammunition by our customers; the Company’s exposure to product liability or product warranty claims and other loss contingencies; disruptions and other impacts to the Company’s business, as a result of the COVID-19 global pandemic and government actions and restrictive measures implemented in response; stability of the Company’s manufacturing facilities and suppliers, as well as consumer demand for our products, in light of disease epidemics and health-related concerns such as the COVID-19 global pandemic; the impact that global climate change trends may have on the Company and its suppliers and customers, increased focus on sustainability issues as a result of global climate change, the Company's ability to protect patents, trademarks and other intellectual property rights; any breaches of, or interruptions in, our information systems; the ability of our information technology systems or information security systems to operate effectively, including as a result of security breaches, viruses, hackers, malware, natural disasters, vendor business interruptions or other causes; our ability to properly maintain, protect, repair or upgrade our information technology systems or information security systems, or problems with our transitioning to upgraded or replacement systems; the impact of adverse publicity about the Company and/or its brands, including without limitation, through social media or in connection with brand damaging events and/or public perception; fluctuations in the price, availability and quality of raw materials and contracted products as well as foreign currency fluctuations; ongoing disruptions and delays in the shipping and transportation of our products due to port congestion, container ship availability and/or other logistical challenges; the impact of political unrest, natural disasters or other crises, terrorist acts, acts of war and/or military operations; our ability to utilize our net operating loss carryforwards; changes in tax laws and liabilities, tariffs, legal, regulatory, political and economic risks; the Company’s ability to maintain a quarterly dividend ; and any material differences in the actual financial results of the Rhino-Rack acquisition as compared with expectations, including the impact of the acquisition on the Company’s future earnings per share. More information on potential factors that could affect the Company’s financial results is included from time to time in the Company’s public reports filed with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to the Company as of the date of this Quarterly Report on Form 10-Q, and speak only as of the date hereof. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q. Overview Headquartered in Salt Lake City, Utah, Clarus is a global leading designer, developer, manufacturer and distributor of best-in-class outdoor equipment and lifestyle products focused on the outdoor and consumer enthusiast markets. Our mission is to identify, acquire and grow outdoor “super fan” brands through our unique “innovate and accelerate” strategy. We define a “super fan” brand as a brand that creates the world’s pre-eminent, performance-defining product that the best-in-class user cannot live without. Each of our brands has a long history of continuous product innovation for core and everyday users alike. The Company’s products are principally sold globally under the Black Diamond®, Sierra®, Barnes® and Rhino-Rack® and MAXTRAX® brand names through outdoor specialty and online retailers, our own websites, distributors and original equipment manufacturers. Our portfolio of iconic brands is well-positioned for sustainable, long-term growth underpinned by powerful industry trends across the outdoor and adventure sport end markets. One of the key elements of our sustained financial performance is our persistent focus on brand building through product initiatives. Our iconic brands are rooted in performance-defining technologies that enable our customers to have their best days outdoors. We have a long history of technical innovation and product development, backed by an extensive patent portfolio that continues to evolve and 23 CLARUS CORPORATION MANAGEMENT DISCUSSION AND ANALYSIS (in thousands, except per share amounts) advance our markets. We currently employ approximately 120 engineers across the portfolio, focusing on enhancing our customers’ performance in the most critical moments. Our commitment to quality, rigorous safety, and ultimately best-in-class design is evidenced by outstanding industry recognition, as we have received numerous product awards across our portfolio of super fan brands. Each of our brands represents a unique customer value proposition. Supported by six decades of proven innovation, Black Diamond, is an established global leader in high-performance, activity-based climbing, skiing, and technical mountain sports equipment. The brand is synonymous with premium performance, safety and reliability. Our Sierra and Barnes brands have been leading specialty manufacturers of bullets and ammunition for over 50 years. Since 1947, Sierra has been dedicated to manufacturing the highest-quality, most accurate bullets in the world for hunting and sport shooting enthusiasts. Barnes traces its history back to 1932, and since 1989 has manufactured technologically-advanced lead-free bullets and premium ammunition for hunters, range shooters, military and law enforcement professionals. Founded in 1992, our Rhino-Rack brand is a globally-recognized designer and distributor of highly-engineered automotive roof racks and accessories to enhance the outdoor enthusiast’s overlanding experience. Founded in 2005, our MAXTRAX brand offers high-quality overlanding and off-road vehicle recovery and extraction tracks for the overland and off-road market. Clarus, incorporated in Delaware in 1991, acquired Black Diamond Equipment, Ltd. (“Black Diamond Equipment”) in May 2010 and changed its name to Black Diamond, Inc. in January 2011. In October 2012, we acquired PIEPS Holding GmbH and its subsidiaries (collectively, “PIEPS”). On August 14, 2017, the Company changed its name from Black Diamond, Inc. to Clarus Corporation and its stock ticker symbol from “BDE” to “CLAR” on the NASDAQ stock exchange. On August 21, 2017, the Company acquired Sierra Bullets, L.L.C. (“Sierra”). On November 6, 2018, the Company acquired the assets of SKINourishment, Inc. (“SKINourishment”). On October 2, 2020, the Company completed the acquisition of certain assets and liabilities constituting the Barnes business (“Barnes”). On July 1, 2021, the Company completed the acquisition of Australia-based Rhino-Rack Holdings Pty Ltd (“Rhino-Rack”). On December 1, 2021, the Company completed the acquisition of Australia-based MaxTrax Australia Pty Ltd (“MAXTRAX”). On August 6, 2018, the Company announced that its Board of Directors approved the initiation of a quarterly cash dividend program of $0.025 per share of the Company’s common stock (the “Quarterly Cash Dividend”) or $0.10 per share on an annualized basis. The declaration and payment of future Quarterly Cash Dividends is subject to the discretion of and approval of the Company’s Board of Directors. On April 29, 2022, the Company announced that its Board of Directors approved the payment on May 20, 2022 of the Quarterly Cash Dividend of $0.025 to the record holders of shares of the Company’s common stock as of the close of business on May 9, 2022. Impact of COVID-19 The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by each of the U.S., European, and Australian governments in March 2020, with governments world-wide implementing safety measures restricting travel and requiring citizen lockdowns and self-confinements for quarantining purposes. This has negatively affected the U.S., European, Australian and global economies, disrupted global supply chains, and resulted in significant transport restrictions and disruption of global financial markets. The COVID-19 pandemic has significantly impacted the global supply chain, with restrictions and limitations on related activities causing disruption and delay, along with increased raw material, storage, and shipping costs. These disruptions and delays have strained domestic and international supply chains, which have affected and could continue to negatively affect the flow or availability of certain critical raw materials and finished good products that the Company relies upon. Furthermore, significantly increased demand from online sales channels, including our website, has impacted our logistical operations, including our fulfillment and shipping functions, which has resulted in periodic delays in the delivery of our products. We expect a continued impact on the Company’s sales and profitability in future periods due to the ongoing impact of the pandemic. The duration of these trends and the magnitude of such impacts cannot be precisely estimated at this time, as they are affected by a number of factors (some of which are outside management’s control), including those presented in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021. Critical Accounting Policies and Use of Estimates Management’s discussion of our financial condition and results of operations is based on the consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure 24 CLARUS CORPORATION MANAGEMENT DISCUSSION AND ANALYSIS (in thousands, except per share amounts) of contingent liabilities at the date of the consolidated financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting periods. We continually evaluate our estimates and assumptions including those related to derivatives, revenue recognition, income taxes and valuation of long-lived assets, goodwill and other intangible assets. We base our estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates. There have been no significant changes to our critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2021. Accounting Pronouncements Issued Not Yet Adopted See “Accounting Pronouncements Not Yet Adopted” in Note 1 of the unaudited condensed consolidated financial statements. ‎ 25 CLARUS CORPORATION MANAGEMENT DISCUSSION AND ANALYSIS (in thousands, except per share amounts) Results of Operations Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021 The following presents a discussion of operations for the three months ended March 31, 2022, compared with the three months ended March 31, 2021. Three Months Ended March 31, 2022 March 31, 2021 Sales Domestic sales $ 62,307 $ 47,573 International sales 50,969 27,758 Total sales 113,276 75,331 Cost of goods sold 69,024 48,281 Gross profit 44,252 27,050 Operating expenses Selling, general and administrative 34,175 20,885 Transaction costs 1,201 476 Contingent consideration expense 763 - Total operating expenses 36,139 21,361 Operating income 8,113 5,689 Other expense Interest expense, net (1,116) (238) Other, net (67) (140) Total other expense, net (1,183) (378) Income before income tax 6,930 5,311 Income tax expense (benefit) 1,621 (366) Net income $ 5,309 $ 5,677 Sales Total sales increased $37,945, or 50.4%, to $113,276, during the three months ended March 31, 2022, compared to total sales of $75,331 during the three months ended March 31, 2021. The increase in sales was primarily attributable to $28,636 of sales from the inclusion of Rhino-Rack and MAXTRAX in the current period . Additionally, there was an increase in the quantity of new and existing precision sport products sold of $9,583. There was also an increase in the quantity of new and existing outdoor products sold during the period of $253. This was partially offset by a decrease in sales of $527 due to the strengthening of the U.S. dollar against foreign currencies during the three months ended March 31, 2022, compared to the prior period. Domestic sales increased $14,734, or 31.0%, to $62,307 during the three months ended March 31, 2022, compared to domestic sales of $47,573 during the three months ended March 31, 2021. The increase in sales was primarily attributable to $9,235 of sales from the inclusion of Rhino-Rack and MAXTRAX in the current period. Additionally, there was an increase in the quantity of new and existing precision sport products sold of $5,630. This was partially offset by a decrease in the quantity of new and existing outdoor products sold during the period of $131. International sales increased $23,211, or 83.6%, to $50,969 during the three months ended March 31, 2022, compared to international sales of $27,758 during the three months ended March 31, 2021. The increase in sales was primarily attributable to $19,401 of sales from the inclusion of Rhino-Rack and MAXTRAX in the current period. Additionally, there was an increase in the quantity of new and existing precision sport products sold of $3,953. There was also an increase in the quantity of new and existing outdoor products sold during the period of $384. This was partially offset by a decrease in sales of $527 due to the strengthening of the U.S. dollar against 26 CLARUS CORPORATION MANAGEMENT DISCUSSION AND ANALYSIS (in thousands, except per share amounts) foreign currencies during the three months ended March 31, 2022, compared to the prior period. Cost of Goods Sold Cost of goods sold increased $20,743 or 43.0%, to $69,024 during the three months ended March 31, 2022, compared to cost of goods sold of $48,281 during the three months ended March 31, 2021. The increase in cost of goods sold was primarily attributable to an increase in the number of units sold. Gross Profit Gross profit increased $17,202 or 63.6%, to $44,252 during the three months ended March 31, 2022, compared to gross profit of $27,050 during the three months ended March 31, 2021. Gross margin was 39.1% during the three months ended March 31, 2022, compared to a gross margin of 35.9% during the three months ended March 31, 2021. Gross margin during the three months ended March 31, 2022, increased compared to the prior year due to a favorable product mix from higher margin products. Gross margin also benefited from the inclusion of Rhino-Rack and MAXTRAX. However, the benefit from MAXTRAX was offset by a decrease in gross margin of 0.2% due to the sale of MAXTRAX inventory that was recorded at its fair value in purchase accounting during the three months ended March 31, 2022. Selling, General and Administrative Selling, general, and administrative expenses increased $13,290, or 63.6%, to $34,175 during the three months ended March 31, 2022, compared to selling, general and administrative expenses of $20,885 during the three months ended March 31, 2021. The increase in selling, general and administrative expenses is due to the inclusion of Rhino-Rack and MAXTRAX, which contributed $8,142 and $1,231, respectively. The remaining increase was attributable to the Company’s investments in the brand related activities of sales, direct-to-consumer, marketing, and warehousing and logistics, focused on supporting its strategic initiatives around expanding distribution, elevating brand awareness and being easier to do business with and an increase of stock compensation of $1,843 during the three months ended March 31, 2022 compared to the prior year. Transaction Costs Transaction expense increased to $1,201 during the three months ended March 31, 2022, compared to transaction costs of $476 during the three months ended March 31, 2021, which consisted of expenses related to the Company’s various acquisition efforts. Contingent Consideration Expense Contingent consideration expense increased to $763 during the three months ended March 31, 2022, compared to $0 contingent consideration expense during the three months ended March 31, 2021, which consisted of changes in estimated fair value of contingent consideration liabilities. Interest Expense, net Interest expense, net increased to $1,116 during the three months ended March 31, 2022, compared to interest expense, net of $238 during the three months ended March 31, 2021. The increase in interest expense recognized during the three months ended March 31, 2022 was primarily associated with the increase in the average outstanding debt amounts during the period compared to the prior year and the recording of certain debt issuance costs. Other, net Other, net changed by $73, or 52.1%, to $67 during the three months ended March 31, 2022, compared to other, net of $140 during the three months ended March 31, 2021. The change in other, net, was primarily attributable to a decrease in remeasurement losses recognized on the Company’s foreign denominated accounts receivable and accounts payable. The decrease was partially offset by changes on mark-to-market adjustments on non-hedged foreign currency contracts. Income Taxes Income tax expense changed by $1,987, or 542.9%, to an expense of $1,621 during the three months ended March 31, 2022, compared to a benefit of $366 during the same period in 2021. Our effective income tax rate was 23.4% for the three months ended March 31, 2022, and differed compared to the statutory tax rates due to the impact of foreign earnings taxed at applicable statutory rates and 27 CLARUS CORPORATION MANAGEMENT DISCUSSION AND ANALYSIS (in thousands, except per share amounts) permanent book to tax differences related to incentive stock options and officer compensation limitations . For the three months ended March 31, 2021, our effective income tax rate was (6.9%) and differed compared to the statutory tax rates due to a release of a partial valuation allowance of the deferred tax assets and a discrete charge recorded during the period. Liquidity and Capital Resources Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021 Our primary ongoing funding requirements are for working capital, expansion of our operations (both organically and through acquisitions) and general corporate needs, as well as investing activities associated with the various brands. We plan to fund these activities through a combination of our future operating cash flows and revolving credit facility which had approximately $69,519 available to borrow at March 31, 2022. We believe that our liquidity requirements and contractual obligations for at least the next 12 months will be adequately covered by cash provided by operations and our existing revolving credit facility. Additionally, long-term contractual obligations are also currently expected to be funded from cash from operations and availability under our existing credit facilities. On January 3, 2022, the Company entered into Amendment No. 4 (“Amendment No. 4”), as previously amended, with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto (collectively, the “Credit Agreement”). Amendment No. 4, among other things, permits (i) the Company to borrow in Australian Dollars and New Zealand Dollars in order to support the operations of the Company in Australia and New Zealand and (ii) provides for addbacks to EBITDA, for debt covenant purposes, (as defined in the Credit Agreement) under the Credit Agreement for expenses relating to activities in respect of acquisitions, dispositions, investments and financings (whether or not these transactions are actually consummated). The Company is required to repay the term loan through quarterly payments of $1,563 each beginning with September 30, 2021, increasing to $3,125 beginning September 30, 2022, and any remaining obligations will be repaid in full on the maturity date of the Credit Agreement of May 3, 2024. The maximum consolidated total leverage ratio permitted under the Credit Agreement is 4.25:1.00. At March 31, 2022, we had total cash of $16,451, compared to a cash balance of $19,465 at December 31, 2021. At March 31, 2022, the Company had $11,577 of the $16,451 in cash held by foreign entities, of which $9,375 is considered permanently reinvested. The following presents a discussion of cash flows for the condensed consolidated three months ended March 31, 2022 compared with the condensed consolidated three months ended March 31, 2021. Three Months Ended March 31, 2022 March 31, 2021 Net cash used in operating activities $ (10,795) $ (2,518) Net cash used in investing activities (1,900) (1,347) Net cash provided by (used in) financing activities 8,467 (7,196) Effect of foreign exchange rates on cash 1,214 (203) Change in cash (3,014) (11,264) Cash, beginning of year 19,465 17,789 Cash, end of period $ 16,451 $ 6,525 Net Cash From Operating Activities Net cash used in operating activities was $10,795 during the three months ended March 31, 2022, compared to net cash used in operating activities of $2,518 during the three months ended March 31, 2021. The change in net cash used in operating activities during 2022 is primarily due to an increase in net operating assets, or non-cash working capital, of $15,586, partially offset by an increase in amortization and stock compensation during the three months ended March 31, 2022, compared to the same period in 2021. Free cash flow, defined as net cash (used in) provided by operating activities less capital expenditures, of ($12,695) was used during the three months ended March 31, 2022 compared to ($3,865) used during the same period in 2021. The Company believes that the non-GAAP measure, free cash flow, provides an understanding of the capital required by the Company to expand its asset base. A reconciliation of free cash flows to comparable GAAP financial measures is set forth below: 28 CLARUS CORPORATION MANAGEMENT DISCUSSION AND ANALYSIS (in thousands, except per share amounts) Three Months Ended March 31, 2022 March 31, 2021 Net cash used in operating activities $ (10,795) $ (2,518) Purchase of property and equipment (1,900) (1,347) Free cash flow $ (12,695) $ (3,865) Net Cash From Investing Activities Net cash used in investing activities was $1,900 during the three months ended March 31, 2022, compared to $1,347 during the three months ended March 31, 2021. The increase in cash used during the three months ended March 31, 2022 is due to an increase in purchases of property and equipment, compared to the same period in 2021. Net Cash From Financing Activities Net cash provided by financing activities was $8,467 during the three months ended March 31, 2022, compared to net cash used of $7,196 during the three months ended March 31, 2021. The increase in cash provided during the three months ended March 31, 2022, compared to the same period in 2021 was primarily due to the net proceeds to the revolving line of credit. Cash used by financing activities during the three months ended March 31, 2021 was primarily due to the net repayments to the revolving line of credit and repayments of the term loan. Net Operating Loss As of December 31, 2021, the Company had net operating loss carryforwards (“NOLs”) and research and experimentation credit for U.S. federal income tax purposes of $60,712 and $2,289, respectively. The Company believes its U.S. Federal NOLs will substantially offset its future U.S. Federal income taxes until expiration. The Company has $60,712 of NOLs, of which, $39,507 expire on December 31, 2022. These NOLs are subject to compliance with Section 382 of the Internal Revenue Code of 1986, as amended. As of December 31, 2021, the Company’s gross deferred tax asset was $38,184. The Company has recorded a valuation allowance of $4,378, resulting in a net deferred tax asset of $33,806, before deferred tax liabilities of $46,653. The Company has provided a valuation allowance against a portion of the net deferred tax assets as of December 31, 2021, because the ultimate realization of those assets does not meet the more-likely-than-not criteria. The majority of the Company’s deferred tax assets consist of net operating loss carryforwards for federal tax purposes. If a change in control were to occur, these could be limited under Section 382 of the Internal Revenue Code of 1986 (“Code”), as amended. Credit Agreement As of March 31, 2022, the Company had drawn approximately $30,481 of the $100,000 revolving loan commitment that was available for borrowing under the Existing Credit Agreement, and $120,313 was outstanding under the term loan commitment. As of March 31, 2022, the interest rate for each loan was 2.3750% . The Company was in compliance with the debt covenants set forth in the Existing Credit Agreement as of March 31, 2022. On April 18, 2022 (the “Effective Date”), the Company, Black Diamond Retail, Inc., Black Diamond Retail – Alaska, LLC, Sierra Bullets, L.L.C., SKINourishment, LLC, Black Diamond Retail – Colorado, LLC, Black Diamond Retail – Montana, LLC, Black Diamond Retail – Wyoming, LLC, Barnes Bullets-Mona, LLC, Black Diamond Retail – Oregon, LLC, Black Diamond Retail – Vermont, LLC (collectively with the Company, the “Borrowers”) and the other loan parties party thereto (together with the Borrowers, the “Loan Parties”) entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”) and the lenders party thereto (the “Restated Credit Agreement”) pursuant to which the existing Credit Agreement, dated as of May 3, 2019 (as amended prior to the Effective Date, the “Existing Credit Agreement”) by and among the Company, the lenders and loan parties from time to time party thereto and the Administrative Agent was amended and restated in its entirety. Each of the Loan Parties, other than the Company, is a direct or indirect subsidiary of the Company. The Restated Credit Agreement provides for borrowings of up to $300,000 under a secured revolving credit facility (the “Revolving Loans”) (including up to $5,000 for letters of credit), and borrowings of up to $125,000 under a secured term loan facility (the “Term Loans”). The Restated Credit Agreement also permits the Borrowers, subject to certain requirements, to arrange with lenders for an aggregate of up to $175,000 of additional revolving and/or term loan commitments (both of which are currently uncommitted), for potential aggregate revolving and term loan commitments under the Restated Credit Agreement of up to $600,000. The proceeds of loans made under the Restated Credit Agreement may be used for working capital and general corporate purposes, including acquisitions 29 CLARUS CORPORATION MANAGEMENT DISCUSSION AND ANALYSIS (in thousands, except per share amounts) permitted under the Restated Credit Agreement. The Restated Credit Agreement matures on April 18, 2027 (the “Maturity Date”), at which time the revolving commitments thereunder will terminate and all outstanding Revolving Loans and Term Loans, together with all accrued and unpaid interest thereon, must be repaid. The Term Loans were fully drawn on the Effective Date and cannot be reborrowed. The Restated Credit Agreement provides for quarterly amortization payments of the Term Loans on the last business day of each March, June, September and December, commencing on June 30, 2022. Through and including the payment due on March 31, 2023, the scheduled amortization payment is $1,563 per quarter, and each scheduled amortization payment due thereafter through the Maturity Date is $3,125 per quarter. The Borrowers may elect to have the Revolving Loans and Term Loans under the Restated Credit Agreement bear interest at an applicable rate plus either: (i) in the case of alternate base rate borrowings, a rate per annum generally equal to the greatest of: (a) the prime rate in effect on such day; (b) 0.50% plus the greater of the Federal Reserve Bank of New York’s effective federal funds rate or the Federal Reserve Bank of New York’s overnight bank funding rate in effect on such day; and (c) 1.00% plus the adjusted term SOFR rate for a 1-month interest period; provided that, in certain circumstances where the alternate base rate is being used as an alternate rate of interest, the alternate base rate shall be determined only according to (a) and (b), and shall be subject to a 1.00% floor; or (ii) in the case of term benchmark borrowings, a rate per annum as follows: (a) for borrowings denominated in U.S. Dollars, the term SOFR rate (based on one, three or six-month interest periods) plus 0.10%, subject to a 0.00% floor; or (b) for borrowings denominated in a Foreign Currency, the applicable rate for such Foreign Currency set forth in the Restated Credit Agreement. The applicable rate for these borrowings will range from 0.50% to 1.625% per annum, in the case of alternate base rate borrowings, and 1.50% to 2.625% per annum, in the case of term benchmark borrowings. The applicable rate was initially 0.875% per annum, in the case of alternate base rate borrowings, and 1.875% per annum, in the case of term benchmark borrowings, however, these initial applicable rates may be adjusted from time to time based upon the level of the Company’s consolidated total leverage ratio, which is more fully discussed in the Restated Credit Agreement. If one or more of the above interest rates are not determinable, or under certain other circumstances set forth in the Restated Credit Agreement, a substitute or alternative interest rate may apply under the Restated Credit Agreement. The Restated Credit Agreement also requires the Borrowers to pay a commitment fee on the unused portion of the revolving loan commitments. Such commitment fee will range between 0.15% and 0.30% per annum, and is also based upon the level of the Company’s consolidated total leverage ratio, which is more fully discussed in the Restated Credit Agreement. The Company is also obligated to pay other customary closing fees, arrangement fees, administration fees and letter of credit fees for a credit facility of this size and type. The Restated Credit Agreement contains customary affirmative and negative covenants, including limitations on the ability of the Company and its subsidiaries to perform the following, subject to certain customary exceptions, qualifications and “baskets”: (i) incur additional debt; (ii) create liens; (iii) engage in mergers, consolidations, certain divisions, liquidations or dissolutions other than in certain permitted instances as described in the Restated Credit Agreement; (iv) substantially change the business conducted by the Company and its subsidiaries; (v) make certain investments, loans, advances, guarantees and acquisitions other than in certain permitted instances as described in the Restated Credit Agreement; (vi) sell assets; (vii) pay dividends or make distributions or other restricted payments if certain conditions in the Restated Credit Agreement are not fulfilled; (viii) prepay other indebtedness; (ix) engage in certain transactions with affiliates; (x) enter into agreements that restrict dividends from subsidiaries or the ability of subsidiaries to grant liens upon their assets; (xi) amend certain charter documents and material agreements governing subordinated indebtedness; (xii) permit the consolidated total leverage ratio, which is to be determined for each quarter end on a trailing twelve month basis, from exceeding a limit of 3:75 to 1, provided, that, subject to certain terms and conditions set forth in the Restated Credit Agreement, so long as no Event of Default (as defined in the Restated Credit Agreement) exists at such time or would result therefrom, the Company may elect to increase the maximum consolidated total leverage ratio permitted under the Restated Credit Agreement to 4.25:1.00 for a period of four 30 CLARUS CORPORATION MANAGEMENT DISCUSSION AND ANALYSIS (in thousands, except per share amounts) consecutive fiscal quarters in connection with any acquisition permitted under the Restated Credit Agreement for which the aggregate consideration is greater than or equal to $60,000; and (xiii) permit the consolidated fixed charge coverage ratio, which is to be determined for each quarter end on a trailing twelve month basis, to be less than 1.25 to 1. The Restated Credit Agreement also contains customary events of default, including, but not limited to: (i) failure to pay amounts due under the Restated Credit Agreement; (ii) materially incorrect representations and warranties; (iii) failure to comply with covenants; (iv) change of control; and (v) default under other indebtedness aggregating at least $3,000. The obligations of each Loan Party under the Restated Credit Agreement are guaranteed by each other Loan Party. All obligations under the Restated Credit Agreement, and the guarantees of those obligations (as well as banking services obligations and certain swap agreements), are secured by pledges and liens on 100% of the equity interests of domestic subsidiaries, either 100% or 65% of the equity interests of certain foreign subsidiaries, and the accounts receivable, inventory, intellectual property and certain real property or other assets of the Loan Parties pursuant to (i) a Pledge and Security Agreement, dated as of May 3, 2019, by and among certain of the Loan Parties and the Administrative Agent (as amended from time to time prior to the Effective Date, the “PSA”), (ii) a General Security Deed, dated as of August 30, 2021, by and among certain of the Loan Parties and the Administrative Agent (the “Oscar GSD”), (iii) a General Security Deed, dated as of January 31, 2022, by and among certain of the Loan Parties and the Administrative Agent (the “Simpson GSD”) or (iv) a mortgage or other applicable security agreement or instrument. Each of the PSA, the Oscar GSD and the Simpson GSD was reaffirmed by the Loan Parties on the Effective Date pursuant to a Reaffirmation Agreement dated as of the Effective Date by and among the Administrative Agent and the Loan Parties (the “Reaffirmation Agreement”) pursuant to which each Loan Party ratified and reaffirmed its obligations to the Lenders in connection with entering into the Restated Credit Agreement. Off-Balance Sheet Arrangements We do not engage in any transactions or have relationships or other arrangements with unconsolidated entities. These include special purpose and similar entities or other off-balance sheet arrangements. We also do not engage in energy, weather or other commodity-based contracts. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has not been any material change in the market risk disclosure contained in our Annual Report on Form 10-K for the year ended December 31, 2021.