What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-07 compared with 2023-02-27 · 160 added, 96 removed, 247 unchanged (51% of the section changed)

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This discussion should be read in conjunction with our financial statements and the accompanying notes to the financial statements.

A discussion of changes in our financial condition and the results of operations from the year ended December 31, 2021 to December 31, 2020 can be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2021, filed on March 7, 2022.

Forward-Looking Statements

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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 Annual Report on Form 10-K 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;

general economic conditions and other factors affecting consumer confidence, preferences, and behavior, including, without limitation, the impact of inflation;

disruption and volatility in the global currency, capital and credit markets;

the financial strength of the Company’s customers;

the financial strength of retail economies and 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;

the Company’s exposure to product liability or product warranty claims and other loss contingencies, including, without limitation, recalls and liability claims relating to our avalanche beacon transceivers;

disruptions and other impacts to the Company’s business, as a result of an outbreak of disease or similar public health threat, such as the COVID 19 global pandemic, and government actions and restrictive measures implemented in response;

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regulatory or market responses to global climate change;

the Company's ability to protect patents, trademarks and other intellectual property rights;

the Company’s ability to protect patents, trademarks and other intellectual property rights;

any breaches of, or interruptions in, our information systems;

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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;

the impact of adverse publicity about the Company and/or its brands and products, including without limitation, through social media or in connection with brand damaging events and/or public perception;

the potential impact of the Consumer Products Safety Commission’s investigation related to the Company’s reporting obligations under the Consumer Product Safety Act in connection with the Company’s recall of certain models of its avalanche transceivers on our business, results of operations, and financial condition;

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;

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the Company’s ability to maintain a quarterly dividend;

and any material differences in the actual financial results of the Company’s past and future acquisitions, including, without limitation, its previous acquisition of Rhino-Rack as compared with expectations, including the impact of acquisitions and any recognition of impairment or other charges relating to any such acquisitions on the Company’s future earnings per share.

our ability to obtain additional capital and funding on acceptable terms to meet our financial obligations as well as to support our business operations and growth strategy;

and any material differences in the actual financial results of the Company’s past and future acquisitions, including the impact of acquisitions and any recognition of impairment or other charges relating to any such acquisitions on the Company’s future earnings per share.

More information on potential factors that could affect the Company’s financial results can be found under Item 1A.

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We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of this Annual Report on Form 10-K.

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.

The Company’s products are principally sold globally under the Black Diamond®,

Rhino-Rack®, MAXTRAX®, and TRED Outdoors® 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 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.

We focus on enhancing our customers’ performance in the most critical moments.

Each of our brands represents a unique customer value proposition.

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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.

Similarly, TRED, founded in 2012, is a trusted brand for key retailers and distributors in the overlanding and off-road vehicle recovery market.

Clarus, incorporated in Delaware in 1991, acquired Black Diamond Equipment, Ltd.

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On December 1, 2021, the Company completed the acquisition of Australia-based MaxTrax Australia Pty Ltd (“MAXTRAX”).

On October 9, 2023, the Company completed the acquisition of Australia-based TRED Outdoors Pty Ltd.

On February 29, 2024, the Company and Everest/Sapphire Acquisition, LLC, its wholly-owned subsidiary, completed the sale to Bullseye Acquisitions, LLC, an affiliate of JDH Capital Company, of all of the equity associated with the Company’s Precision Sport segment, which is comprised of the Company’s subsidiaries Sierra and Barnes Bullets – Mona, LLC (“Barnes”), pursuant to a Purchase and Sale Agreement dated as of December 29, 2023, by and among, Bullseye Acquisitions, LLC, Everest/Sapphire Acquisition, LLC and the Company (the “Precision Sport Purchase Agreement”).

Under the terms of the Precision Sport Purchase Agreement, the Company received net proceeds of approximately $37,871,000 in cash, after payment of certain fees and settlement of the Restated Credit Agreement, for all of the equity associated with the Company’s Precision Sport segment.

The activities of the Precision Sport segment have been segregated and reported as discontinued operations for all periods presented.

See Note 3 to our consolidated financial statements for financial information regarding discontinued operations.

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 May 1, 2020, the Company announced that, in light of the operational impact of the COVID-19 pandemic, its Board of Directors temporarily replaced its Quarterly Cash Dividend with a stock dividend (the “Quarterly Stock Dividend”).

On October 19, 2020, the Company announced that its Board of Directors approved the reinstatement of its Quarterly Cash Dividend.

In 2023, 2022 and 2021 our total Quarterly Cash Dividends were $3,750,000, $3,721,000, and $3,335,000, respectively.

In 2020, our total Quarterly Stock Dividends were $1,533,000, which combined with our cash dividend of $1,520,000, resulted in total dividends of $3,053,000.

On February 24, 2023, the Company announced that its Board of Directors approved the payment on March 17, 2023 of the Quarterly Cash Dividend to the record holders of shares of the Company’s common stock as of the close of business on March 7, 2023.

On March 5, 2024, the Company announced that its Board of Directors approved the payment on March 18, 2024 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 March 28, 2024.

Restructuring

Starting in 2023, the Company began incurring expenses to facilitate long-term sustainable growth through cost reduction actions, consisting of employee reductions, facility rationalization and contract termination costs.

During the year ended December 31, 2023, the Company incurred $3,223,000 of restructuring charges related to these actions.

The Company accrues for restructuring costs when they are probable and reasonably estimable.

These costs include severance costs, exit costs, and other restructuring costs and are included in Restructuring charges in the consolidated statements of comprehensive (loss) income.

Severance costs primarily consist of severance benefits through payroll continuation, conditional separation costs and employer tax liabilities, while exit costs primarily consist of lease exit and contract termination costs.

Other costs consist primarily of costs related to the discontinuance of certain product lines and are distinguishable and directly attributable to the Company’s restructuring initiative and not a result of external market factors associated with the ongoing business.

We estimate that we will incur restructuring costs related to employee-related costs and facility exit costs during the year 2024;

however, the Company cannot estimate the total amount expected to be incurred as cost reduction actions continue to be evaluated.

The Company anticipates completing these restructuring activities in 2024.

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.

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 worldwide implementing safety measures restricting travel and requiring citizen lockdowns and self-confinements for quarantining purposes.

During the years ended December 31, 2020, 2021, and 2022, this had 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.

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We engage independent third-party valuation specialists to assist us in determining the fair values of certain assets acquired and liabilities assumed.

Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets.

Such valuations require management to make significant estimates and

assumptions, especially with respect to intangible assets.

Different valuation approaches are used to value different types of intangible assets.

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Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.

I f we do not achieve the results reflected in the assumptions and estimates, our goodwill impairment evaluations could be adversely affected, and we may impair a portion or all of our intangible assets, which would adversely affect our operating results in the period of impairment .

If we do not achieve the results reflected in the assumptions and estimates, our goodwill impairment evaluations could be adversely affected, and we may impair a portion or all of our intangible assets, which would adversely affect our operating results in the period of impairment.

● Income taxes – We account for income taxes using the asset and liability method.

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Changes in any of the assumptions, judgments and estimates mentioned above related to the realizability of deferred tax assets, could materially affect our financial position and results of operations.

 Goodwill and indefinite-lived intangible assets – We assess the recoverability of our reporting unit’s carrying value of goodwill by performing a qualitative assessment and/or a quantitative goodwill impairment test.

At a minimum, we perform an annual assessment of possible goodwill impairment as of each December 31.

● Goodwill and indefinite-lived intangible assets – We assess the recoverability of our reporting units’ carrying value of goodwill by performing a qualitative assessment and/or a quantitative goodwill impairment test.

At a minimum, we perform an annual assessment of possible goodwill impairment as of December 31 st of each year.

Management may perform an interim goodwill impairment assessment whenever events or circumstances make it more likely than not that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell or dispose of the reporting unit.

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Otherwise, we are required to perform the quantitative goodwill impairment test which compares the reporting unit’s carrying value including goodwill to its estimated fair value.

We estimate the reporting unit’s fair value using a combination of the income approach based upon projected discounted cash flows of the reporting unit and the market approach based upon the market multiple of comparable publicly traded companies.

We estimate the reporting units’ fair value using a combination of the income approach based upon projected discounted cash flows of the reporting unit and the market approach based upon the market multiple of comparable publicly traded companies.

If the estimated fair value of the reporting entity exceeds the carrying value, the goodwill is not impaired, and no further review is required.

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The market approach identifies the EBITDA multiples of comparable publicly traded companies.

The reporting unit’s current EBITDA is multiplied by the market multiple to estimate its current estimated fair value.

The reporting unit’s EBITDA projections are multiplied by the market multiple to estimate its current estimated fair value.

Key assumptions utilized in estimating the reporting unit’s EBITDA include revenue and cash flow projections.

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The royalty rate used in the analysis is based on an analysis of empirical, market-derived royalty rates for comparable intangible assets.

The net after tax cost savings are discounted using the same weighted-average cost of capital discount rate developed for purposes of the Company's quantitative goodwill impairment test.

The net after tax cost savings are discounted using the same weighted-average cost of capital discount rate developed for purposes of the Company’s quantitative goodwill impairment test.

The key uncertainties in these calculations are the assumptions used in determining the revenue associated with each indefinite-lived intangible asset and the royalty rate.

If we do not achieve the results reflected in the market assumptions and forecasted estimates, our indefinite-lived intangibles impairment evaluations could be adversely affected, and we may impair a portion or all of their carrying values, which would adversely affect our operating results in the period of impairment.

During the year ended December 31, 2022, we recorded $92,311,000 of impairment of goodwill and indefinite-lived intangible assets, specifically the Rhino-Rack trademark, in our Adventure reporting unit.

No impairment was recorded during the years ended December 31, 2023 and 2021.

During the year ended December 31, 2022, we recorded $92,311,000 of impairment of goodwill and indefinite-lived intangible assets, specific to the Adventure reporting unit and the Rhino-Rack trademark.

Recent Accounting Pronouncements

See “Recent Accounting Pronouncements” in Note 1 to the notes to consolidated financial statements.

See “Recent Accounting Pronouncements” in Note 1 of our consolidated financial statements.

Results of Operations (In Thousands)

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Selling, general and administrative

Restructuring charges

Transaction costs

Contingent consideration expense (benefit)

Contingent consideration (benefit) expense

Impairment of goodwill and indefinite-lived intangible assets

Total operating expenses

Operating (loss) income

Operating loss

Other income (expense)

Interest income, net

Total other income (expense), net

Loss before income tax

Income tax benefit

Loss from continuing operations

Discontinued operations, net of tax

Total sales decreased $29,231, or 9.3%, to $286,020 during the year ended December 31, 2023, compared to sales of $315,251 during the year ended December 31, 2022.

The decrease in sales was primarily attributable to a decrease in sales at the Outdoor and Adventure segments of $18,292 and $10,939, respectively.

Sales in the Adventure and Outdoor segments were reduced by $2,786 and $1,561, respectively, due to foreign exchange impacts from the strengthening of the U.S.

dollar against foreign currencies during the year ended December 31, 2023, compared to the prior period.

Sales in the Outdoor segment decreased due to continued weakness at key North American retail accounts, compounded by weakness

in the European market.

This weakness was partially offset by growth in the direct-to-consumer channel.

Sales in the Adventure segment decreased due to lower demand from our wholesale partners in both Australia and the United States.

Domestic sales decreased $20,433, or 15.4%, to $112,385 during the year ended December 31, 2023, compared to domestic sales of $132,818 during the year ended December 31, 2022.

The decrease in sales was primarily attributable to a decrease in sales at the Adventure and Outdoor segments of $11,160 and $9,273, respectively.

International sales decreased $8,798, or 4.8%, to $173,635 during the year ended December 31, 2023, compared to international sales of $182,433 during the year ended December 31, 2022.

The decrease in sales was primarily attributable to a decrease in sales at the Outdoor segment of $9,019, partially offset by an increase in sales at the Adventure segment of $221.

Cost of Goods Sold

Cost of goods sold decreased $16,789, or 8.2%, to $188,509 during the year ended December 31, 2023, compared to cost of goods sold of $205,298 during the year ended December 31, 2022.

The decrease in cost of goods sold was primarily attributable to a decrease in the number of units sold during the year ended December 31, 2023.

Gross profit decreased $12,442, or 11.3%, to $97,511 during the year ended December 31, 2023, compared to gross profit of $109,953 during the year ended December 31, 2022.

Gross margin was 34.1% during the year ended December 31, 2023, compared to a gross margin of 34.9% during the year ended December 31, 2022.

Gross margin during the year ended December 31, 2023, decreased compared to the prior year due to promotional pricing and increases of $4,208 in inventory reserves at the Outdoor segment, as well as unfavorable foreign currency exchange movement.

These decreases were partially offset by favorable variances, primarily related to easing freight costs, at both the Outdoor and Adventure segments.

Selling, General and Administrative

Selling, general, and administrative expenses decreased $4,447, or 3.7%, to $116,367 during the year ended December 31, 2023, compared to selling, general and administrative expenses of $120,814 during the year ended December 31, 2022.

The decrease in selling, general and administrative expenses is primarily due to a decrease in stock compensation of $6,057 during the year ended December 31, 2023, compared to the prior year.

The decrease was also driven by expense reduction initiatives to offset challenging market conditions, lower intangible amortization expense, and lower sales commissions due to decreased revenue.

The decrease was partially offset by higher investment in e-com initiatives in the Outdoor segment and higher legal costs.

Restructuring Charges

Restructuring charges increased to $3,223 during the year ended December 31, 2023, compared to restructuring charges of $0 during the year ended December 31, 2022.

The restructuring charges incurred during the year ended December 31, 2023 relate to benefits provided to employees who were or will be terminated due to the Company’s reduction-in-force as part of its continued realignment of resources within the organization of $1,328, lease exit and contract termination costs of $1,125, and other restructuring costs of $770.

Transaction Costs

Transaction expense decreased to $593 during the year ended December 31, 2023, compared to transaction costs of $2,818 during the year ended December 31, 2022.

The 2023 transaction costs primarily related to the TRED Outdoor acquisition and other expenses related to the Company’s various acquisition efforts.

Contingent Consideration (Benefit) Expense

Contingent consideration benefit was $1,565 during the year ended December 31, 2023, compared to a $493 contingent consideration expense during the year ended December 31, 2022, which consisted of changes in estimated fair value of contingent consideration liabilities associated with our acquisition of MAXTRAX in 2021.

Impairment of Goodwill and Indefinite-Lived Intangible Assets

Impairment of goodwill and indefinite-lived intangible assets decreased to $0 during the year ended December 31, 2023, compared to impairment of goodwill and indefinite-lived intangible assets of $92,311 during the year ended December 31, 2022.

Based on the results of the Company’s impairment analysis completed as of December 31, 2022, the Company determined that goodwill at the Adventure reporting unit and certain indefinite-lived intangible assets, specifically the Rhino-Rack trademark, were impaired and recognized a charge of $52,071 and $40,240, respectively, during the year ended December 31, 2022.

Interest Income, net

Interest income, net increased to $67 during the year ended December 31, 2023, compared to interest income, net of $0 during the year ended December 31, 2022.

Other, net changed by $1,996, or 192.9%, to $961 during the year ended December 31, 2023, compared to other, net of ($1,035) during the year ended December 31, 2022.

The change in other, net was primarily attributable to an increase in remeasurement gains recognized on the Company’s foreign denominated accounts receivable and accounts payable, partially offset by changes in mark-to-market adjustments on non-hedged foreign currency contracts during the year ended December 31, 2023.

Income tax benefit decreased $10,425, or 70.8%, to $4,291 during the year ended December 31, 2023, compared to an income tax benefit of $14,716 during the same period in 2022.

Our effective income tax rate was a benefit of 21.4% for the year ended December 31, 2023, and differed compared to the statutory tax rates primarily due to the impact of officer compensation limitations, partially offset by the impact of tax credits, and permanent book to tax differences related to incentive stock options.

Our effective income tax rate was a benefit of 13.7% for the year ended December 31, 2022, and differed compared to the statutory tax rates due to the impact of impairment of goodwill as well as officer compensation limitations, partially offset by the impact of foreign earnings taxed at applicable statutory rates, tax credits, and permanent book to tax differences related to incentive stock options.

Discontinued Operations

Net income from discontinued operations decreased $17,380, to $5,642 during the year ended December 31, 2023, compared to net income from discontinued operations of $23,022 during the year ended December 31, 2022.

The decrease in net income from discontinued operations was primarily attributable to a decrease in sales and gross profit at the Precision Sport segment of $20,493, the recording of transaction costs of $2,013 related to the sale of the Precision Sport segment, and an increase in interest expense of $3,542 due to an increase in interest rates during the period compared to the prior year.

These decreases were partially offset by lower amortization, lower sales commissions, and reductions across selling, general and administrative expense at the Precision Sport segment.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

The following presents the Company’s results of operations for the year ended December 31, 2022, compared with the year ended December 31, 2021:

Year Ended December 31,

Domestic sales

International sales

Cost of goods sold

Operating expenses

Selling, general and administrative

Transaction costs

Contingent consideration expense (benefit)

Impairment of goodwill and indefinite-lived intangible assets

Total operating expenses

Operating loss

Other expense

Interest expense, net

Total other expense, net

(Loss) income before income tax

Loss before income tax

Income tax benefit

Loss from continuing operations

Discontinued operations, net of tax

Net (loss) income

Sales increased $72,312, or 19.2%, to $448,106 during the year ended December 31, 2022, compared to sales of $375,794 during the year ended December 31, 2021.

The increase in sales was primarily attributable to an increase in sales at the Adventure, Precision Sport, and Outdoor segments of $50,095, $23,032, and $8,126, respectively.

The increase at the Adventure segment is due to the full year ownership of the Adventure brands during the year ended December 31, 2022, compared to the partial year of ownership in the prior period.

Total sales increased $49,280, or 18.5%, to $315,251 during the year ended December 31, 2022, compared to sales of $265,971 during the year ended December 31, 2021.

The increase in sales was primarily attributable to an increase in sales at the Adventure and Outdoor segments of $47,767 and $1,513, respectively.

Sales increases in the Outdoor and Adventure segments were partially offset by a decrease in sales of $6,613 and $2,328, respectively, due to the strengthening of the U.S.

dollar against foreign currencies during the year ended December 31, 2022, compared to the prior period.

The increase at the Adventure segment is due to the full year ownership of Rhino-Rack and MAXTRAX during the year ended December 31, 2022, compared to the partial year of ownership in the prior period.

Domestic sales increased $7,999, or 6.4%, to $132,818 during the year ended December 31, 2022, compared to domestic sales of $124,819 during the year ended December 31, 2021.

The increase in sales was primarily attributable to an increase in sales at the Adventure and Precision Sport segments of $12,470 and $4,267, respectively.

The increase at the Adventure segment is due to the full year ownership of the Adventure brands during the year ended December 31, 2022, compared to the partial year of ownership in the prior period.

The increase in sales was primarily attributable to an increase in sales at the Adventure segment of $12,470.

This increase was partially offset by a decrease in sales at the Outdoor segment of $4,471.

International sales increased $41,281, or 29.2%, to $182,433 during the year ended December 31, 2022, compared to international sales of $141,152 during the year ended December 31, 2021.

The increase in sales was primarily attributable to an increase in sales at Adventure, Precision Sport, and Outdoor segments of $37,625, $18,765, and $12,597, respectively.

The increase at the Adventure segment is due to the full year ownership of the Adventure brands during the year ended December 31, 2022, compared to the partial year of ownership in the prior period.

Sales increases in the Outdoor and Adventure segments were partially offset by a decrease in sales

of $6,613 and $2,328, respectively, due to the strengthening of the U.S.

dollar against foreign currencies during the year ended December 31, 2022, compared to the prior period.

The increase in sales was primarily attributable to an increase in sales at Adventure and Outdoor segments of $35,297 and $5,984, respectively.

Cost of Goods Sold

Cost of goods sold increased $27,201, or 15.3%, to $205,298 during the year ended December 31, 2022, compared to cost of goods sold of $178,097 during the year ended December 31, 2021.

The increase in cost of goods sold was primarily attributable to an increase in the number of units sold and a full year of ownership of the Adventure brands during the year ended December 31, 2022.

The increase in cost of goods sold was primarily attributable to an increase in the number of units sold and a full year of ownership of Rhino-Rack and MAXTRAX during the year ended December 31, 2022.

Gross profit increased $22,079, or 25.1%, to $109,953 during the year ended December 31, 2022, compared to gross profit of $87,874 during the year ended December 31, 2021.

Gross margin was 34.9% during the year ended December 31, 2022, compared to a gross margin of 33.0% during the year ended December 31, 2021.

Gross margin during the year ended December 31, 2022, increased compared to the prior year as gross margin was negatively impacted by $4,769 due to the sale of Barnes, Rhino-Rack, and MAXTRAX inventory that was recorded at its fair value in purchase accounting during the year ended December 31, 2021.

Gross margin during the year ended December 31, 2022, increased compared to the prior year as gross margin was negatively impacted by $4,408 due to the sale of Rhino-Rack and MAXTRAX inventory that was recorded at its fair value in purchase accounting during the year ended December 31, 2021.

The 2022 increase was partially offset by the $269 MAXTRAX fair value inventory charge due to purchase accounting during the year ended December 31, 2022, as well as unfavorable foreign exchange impacts due to a strong U.S.

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The increase in selling, general and administrative expenses is primarily due to the inclusion of Rhino-Rack and MAXTRAX for the full year in 2022, which included incremental expenditure of $16,634 and $4,526 in 2022 for Rhino-Rack and MAXTRAX, respectively.

Additionally, the Company incurred higher Corporate costs of $4,083 primarily related to increased payroll and stock compensation of $3,546 during the year ended December 31, 2022, compared to the prior year.

Additionally, the Company incurred higher Corporate costs of $3,920 primarily related to increased payroll and stock compensation during the year ended December 31, 2022, compared to the prior year.

The remaining increase was primarily attributable to the Company’s investments in retail and direct-to-consumer initiatives at the Outdoor segment.

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Transaction expense decreased to $2,818 during the year ended December 31, 2022, compared to transaction costs of $11,520 during the year ended December 31, 2021, which consisted of expenses related to the Company’s various acquisition efforts.

The decrease in transaction costs was primarily attributable to transaction costs incurred during the year ended December 31, 2021 related to the acquisition of Rhino-Rack and MAXTRAX that did not recur during the same period in 2022.

Contingent Consideration Expense (Benefit)

Contingent consideration expense was $493 during the year ended December 31, 2022, compared to a $1,605 contingent consideration benefit during the year ended December 31, 2021, which consisted of changes in estimated fair value of contingent consideration liabilities.

Impairment of Goodwill and Indefinite-Lived Intangible Assets

Impairment of goodwill and indefinite-lived intangible assets increased to $92,311 during the year ended December 31, 2022, compared to impairment of goodwill and indefinite-lived intangible assets of $0 during the year ended December 31, 2021.

Interest Expense, net

Interest expense, net increased to $7,895 during the year ended December 31, 2022, compared to interest expense, net of $2,939 during the year ended December 31, 2021.

The increase in interest expense recognized during the year ended December 31, 2022, was primarily associated with the increase in the average outstanding debt amounts during the period compared to the prior year, higher interest rates, and the recording of certain debt issuance costs.

Other, net expense decreased by $2,540, or 58.0%, to $1,842 during the year ended December 31, 2022, compared to other, net expense of $4,382 during the year ended December 31, 2021.

The decrease in other, net was primarily attributable to losses from non-hedged foreign currency contracts during the year ended December 31, 2021, not repeating in the current period.

Interest expense, net decreased to $0 during the year ended December 31, 2022, compared to interest expense, net of $17 during the year ended December 31, 2021.

Other, net changed by $3,358, or 76.4%, to ($1,035) during the year ended December 31, 2022, compared to other, net of ($4,393) during the year ended December 31, 2021.

The change in other, net was primarily attributable to losses from non-hedged foreign currency contracts during the year ended December 31, 2021, not repeating in the current period.

The decrease was partially offset by an increase in remeasurement losses recognized on the Company’s foreign denominated accounts receivable and accounts payable.

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Factors that could cause our annual effective tax rate to differ materially from our quarterly effective tax rates include changes in the geographic mix of taxable income and discrete events that may occur.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

The following presents the Company’s results of operations for the year ended December 31, 2021, compared with the year ended December 31, 2020:

Year Ended December 31,

Domestic sales

International sales

Cost of goods sold

Operating expenses

Selling, general and administrative

Contingent consideration benefit

Transaction costs

Total operating expenses

Operating income

Other income (expense)

Interest expense, net

Total other expense, net

Income before income tax

Income tax benefit

Discontinued Operations

Net income from discontinued operations decreased $948, to $23,022 during the year ended December 31, 2022, compared to net income from discontinued operations of $23,970 during the year ended December 31, 2021.

The decrease in net income from discontinued operations was primarily attributable to an increase in interest expense of $4,973 due to an increase in the average outstanding debt amounts, higher interest rates, and the recording of certain debt issuance costs during the period compared to the prior year and a net decrease in the direct results of the Precision Sport segment.

This decrease was partially offset by an increase in sales and gross profit at the Precision Sport segment of $4,405.

Liquidity and Capital Resources (In Thousands)

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

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 with the various brands.

We plan to fund these activities through a combination of our future operating cash flows and borrowings on our revolving credit facility which had approximately $98,000 available to borrow at December 31, 2022, while currently maintaining compliance with the consolidated total leverage ratio per the Restated Credit Agreement of 3.75 to 1.

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.

For additional information regarding the Company’s existing credit facilities, see the section titled “Credit Agreement” below.

We plan to fund these activities through a combination of our future operating cash flows and net proceeds from the sale of our Precision Sport segment.

Subsequent to year end and upon the closing of the sale of the Precision Sport segment, the Company terminated and settled all outstanding borrowings on our revolving credit facility and term debt under the Restated Credit Agreement.

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 the net proceeds from the sale of the Precision Sport segment after the settlement of the Restated Credit Agreement.

Additionally, long-term contractual obligations are also currently expected to be funded from cash from operations and net proceeds from the sale of the Precision Sport segment after

the settlement of the Restated Credit Agreement.

For additional information regarding the Company’s credit facilities, see the section titled “Credit Agreement” below.

At December 31, 2023, we had total cash of $11,324, compared to cash of $12,061 at December 31, 2022.

2 unchanged sentences

Year Ended December 31,

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

Net cash used in financing activities

Effect of foreign exchange rates on cash

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Net Cash From Operating Activities

Net cash provided by operating activities was $14,610 during the year ended December 31, 2022, compared to net cash used in operating activities of $304 during the year ended December 31, 2021.

The change in net cash provided by (used in) operating activities during 2022 is primarily due to increases in depreciation and amortization expenses, as well as improvements in working capital and increases in stock compensation and contingent consideration expense during the year ended December 31, 2022, compared to the same period in 2021.

Free cash flow, defined as net cash provided by (used in) operating activities less capital expenditures, of $6,360 was generated during the year ended December 31, 2022 compared to ($17,687) of negative free cash flow during the same period in 2021.

Net cash provided by operating activities was $31,924 during the year ended December 31, 2023, compared to net cash provided by operating activities of $14,610 during the year ended December 31, 2022.

The change in net cash provided by operating activities during 2023 is primarily due to a decrease in cash outflows related to working capital of $56,604, partially offset by a decrease in stock compensation and amortization of other intangible assets, and an increase in contingent consideration benefit during the year ended December 31, 2023, compared to the same period in 2022.

Free cash flow, defined as net cash provided by operating activities less capital expenditures, of $26,207 was generated during the year ended December 31, 2023 compared to $6,360 of free cash flow during the same period in 2022.

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.

1 unchanged sentence

Year Ended December 31,

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Purchase of property and equipment

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Net cash used in investing activities was $11,416 during the year ended December 31, 2023 compared to net cash used in investing activities of $7,751 during the year ended December 31, 2021.

The decrease in cash used during the year ended December 31, 2022 is due to the acquisition of Rhino-Rack and MAXTRAX during the year ended December 31, 2021, as well as a decrease in purchases of property and equipment, primarily due to the purchase of the Barnes facility during the year ended December 31, 2021.

The increase in cash used during the year ended December 31, 2023 is due to the acquisition of Tred, partially offset by a decrease in purchases of property and equipment during the year ended December 31, 2023.

Net Cash From Financing Activities

Net cash used in financing activities was $13,858 during the year ended December 31, 2022 , compared to net cash provided by financing activities of $180,677 during the year ended December 31, 2021 .

The decrease in cash provided during the year ended December 31, 2022, compared to the same period in 2021 was primarily due to a decrease in net proceeds to the revolving line of credit and term loan, a decrease in proceeds from the sale of common stock, and an increase in purchases of treasury stock.

Net cash used in financing activities was $20,255 during the year ended December 31, 2023, compared to net cash used in financing activities of $13,858 during the year ended December 31, 2022.

The increase in cash used during the year ended December 31, 2023, compared to the same period in 2022 was primarily due to a decrease in net proceeds from the revolving line of credit and term loan, partially offset by a decrease in purchases of treasury stock.

Net Operating Loss

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as Subpart F income and will be offset with the NOLs.

The Company has $17,663 of NOLs, of which, $1,851 expire on December 31, 2023.

The Company has $7,669 of NOLs, none of which will expire until December 31, 2027.

These NOLs are subject to compliance with Section 382 of the Internal Revenue Code of 1986, as amended.

5 unchanged sentences

Credit Agreement

As of December 31, 2022, the Company had drawn approximately $18,049 of the approximately $98,000 available to borrow on the revolving loan commitment at December 31, 2022, while maintaining compliance with the consolidated total leverage ratio per the Restated Credit Agreement (as defined below) of 3.75 to 1, and $120,311 was outstanding under the term loan commitment.

As of December 31, 2022, the interest rates on the revolving loan and term loan commitments were approximately 6.3%.

The Company was in compliance with the debt covenants set forth in the Restated Credit Agreement as of December 31, 2022.

As of December 31, 2023, the Company had drawn approximately $10,375 on the revolving loan commitment at December 31, 2023 and $109,375 was outstanding under the term loan commitment.

As of December 31, 2023, the interest rates on the revolving loan and term loan commitments ranged between approximately 7.7% and 9.8%.

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, each a “Loan Party”, and collectively, 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.

9 unchanged sentences

(i) in the case of alternate base rate borrowings, a rate per annum generally equal to the greatest of:

the prime rate in effect on such day;

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;

1.00% plus the adjusted term SOFR rate for a 1-month interest period;

(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;

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;

(ii) in the case of term benchmark borrowings, a rate per annum as follows:

for borrowings denominated in U.S.

(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;

for borrowings denominated in a Foreign Currency, the applicable rate for such Foreign Currency set forth in the Restated Credit Agreement.

(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.

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The obligations of each Loan Party under the Restated Credit Agreement are guaranteed by each other Loan Party.

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.

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 pursuant to which each Loan Party ratified and reaffirmed its obligations to the Lenders in connection with entering into the Restated Credit Agreement.

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis