What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-02 compared with 2023-11-07 · 118 added, 247 removed, 123 unchanged (75% of the section changed)

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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, including, without limitation, recalls and liability claims relating to our avalanche beacon transceivers;

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the Company’s ability to maintain a quarterly dividend;

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;

the Company’s potential responses to the non-binding indication of interest received from Warren B.

Kanders, the Company’s Executive Chairman, to acquire the Company’s Precision Sport segment (the “Precision Sport Proposal”), the exploration of strategic alternatives by the Company in response to the Precision Sport Proposal, and the potential impact of the Precision Sport Proposal on our business, results of operations, and financial condition.

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

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.

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.

CLARUS CORPORATION

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(in thousands, except per share amounts)

on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

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.

Headquartered in Salt Lake City, Utah, Clarus Corporation (which may be referred to as the “Company,” “Clarus,” “we,” “our” or “us”) 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.

obligation to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

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 enthusiast markets.

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®, 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 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

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

On February 29, 2024, the Company completed the sale 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 (the “Precision Sport Purchase Agreement”).

Under the terms of the Precision Sport Purchase Agreement, the Company received approximately $175,674 in cash subject to customary working capital adjustments, 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 condensed consolidated financial statements for financial information regarding discontinued operations.

CLARUS CORPORATION

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(in thousands, except per share amounts)

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 November 3, 2023, the Company announced that its Board of Directors approved the payment on November 24, 2023 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 November 14, 2023.

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 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.

An outbreak of disease or similar public health threat, such as the COVID-19 pandemic, could have, and in the case of the COVID-19 pandemic has had and may continue to have, a significant impact on the global supply chain, with restrictions and limitations on related activities causing disruption and delay, along with increased raw material, storage, and shipping costs.

Any of these disruptions and delays may strain domestic and international supply chains, which could negatively affect the flow or availability of certain critical raw materials and finished good products that the Company relies upon.

Furthermore, the foregoing impacts may significantly increase demand from online sales channels, including our website, and could impact our logistical operations, including our fulfillment and shipping functions, which may result in periodic delays in the delivery of our products.

We expect that an outbreak of disease or similar public health threat, such as the COVID-19 pandemic, could have, and in the case of the COVID-19 pandemic may continue to have, an impact on the Company’s sales and profitability in future periods.

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, 2022.

On April 30, 2024, the Company announced that its Board of Directors approved the payment on May 20, 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 May 10, 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 three months ended March 31, 2024 and 2023, the Company incurred $370 and $0, respectively, of restructuring charges related to these actions.

The Company has incurred $3,593 of cumulative restructuring charges since the commencement of restructuring actions in 2023.

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 condensed consolidated statements of comprehensive 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 continue to 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.

Critical Accounting Policies and Use of Estimates

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Results of Operations

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

The following presents a discussion of operations for the three months ended September 30, 2023, compared with the three months ended September 30, 2022.

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

The following presents a discussion of operations for the three months ended March 31, 2024, compared with the three months ended March 31, 2023.

Three Months Ended

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

Domestic sales

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Transaction costs

Contingent consideration expense

Contingent consideration benefit

Legal costs and regulatory matter expenses

Total operating expenses

Operating income

Other expense

Interest expense, net

Total other expense, net

(Loss) income before income tax

Operating loss

Other (expense) income

Interest income, net

Total other (expense) income, net

Loss before income tax

Income tax benefit

Net (loss) income

Total sales decreased $15,640, or 13.5%, to $100,075 during the three months ended September 30, 2023, compared to total sales of $115,715 during the three months ended September 30, 2022.

The decrease in sales was primarily attributable to a decrease in sales at the Precision Sport and Outdoor segments of $15,434 and $1,800, respectively, partially offset by an increase in sales at the Adventure segment of $1,594.

Sales in the Adventure segment were reduced by $709 due to foreign exchange impact from the strengthening of the U.S.

dollar against the Australian dollar during the three months ended September 30, 2023, compared to the prior period.

Sales in the Outdoor segment were increased by $302 due to foreign exchange impact from the weakening of the U.S.

dollar primarily against the euro during the three months ended September 30, 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

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

in the European and international markets.

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

Sales in the Precision Sport segment decreased due to challenging market conditions, primarily as a result of significantly lower ammunition sales, as well as decreases in OEM and component product sales.

Sales in the Adventure segment increased primarily due to higher OEM sales in the Australian market.

Domestic sales decreased $11,388, or 20.5%, to $44,152 during the three months ended September 30, 2023, compared to domestic sales of $55,540 during the three months ended September 30, 2022.

The decrease in sales was primarily attributable to a decrease in sales at the Precision Sport, Outdoor, and Adventure segments of $10,883, $489, and $16, respectively.

International sales decreased $4,252, or 7.1%, to $55,923 during the three months ended September 30, 2023, compared to international sales of $60,175 during the three months ended September 30, 2022.

The decrease in sales was primarily attributable to a decrease in sales at the Precision Sport and Outdoor segments of $4,551 and $1,311, respectively, partially offset by an increase in sales at the Adventure segment of $1,610.

Cost of Goods Sold

Cost of goods sold decreased $11,764, or 15.4%, to $64,527 during the three months ended September 30, 2023, compared to cost of goods sold of $76,291 during the three months ended September 30, 2022.

The decrease in cost of goods sold was primarily attributable to a decrease in the number of units sold.

Gross profit decreased $3,876, or 9.8%, to $35,548 during the three months ended September 30, 2023, compared to gross profit of $39,424 during the three months ended September 30, 2022.

Gross margin was 35.5% during the three months ended September 30, 2023, compared to a gross margin of 34.1% during the three months ended September 30, 2022.

Gross margin during the three months ended September 30, 2023, increased compared to the prior year due to changes in channel and product mix of 0.8% and favorable variances, primarily related to easing freight costs, of 0.9%.

These increases were partially offset by unfavorable foreign currency exchange movement of 0.3%.

Selling, General and Administrative

Selling, general, and administrative expenses decreased $550, or 1.7%, to $31,790 during the three months ended September 30, 2023, compared to selling, general and administrative expenses of $32,340 during the three months ended September 30, 2022.

The decrease is primarily due to a decrease in stock compensation of $1,052, lower intangible amortization expense, and lower sales commissions during the three months ended September 30, 2023, compared to the prior year.

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

Restructuring Charges

Restructuring charges increased to $1,099 during the three months ended September 30, 2023, compared to restructuring charges of $0 during the three months ended September 30, 2022, which consisted of severance costs, exit costs, and other costs related to the Company’s restructuring initiatives.

Transaction Costs

Transaction costs decreased to $842 during the three months ended September 30, 2023, compared to transaction costs of $858 during the three months ended September 30, 2022.

The 2023 transaction costs related to the TRED Outdoor acquisition and costs related to the ongoing process undertaken by the Special Committee of the Board of Directors in connection with its evaluation of the potential sale of the Precision Sport segment.

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Contingent Consideration Expense

Contingent consideration expense decreased to $0 during the three months ended September 30, 2023, compared to a contingent consideration expense of $104 during the three months ended September 30, 2022, which consisted of changes in the estimated fair value of contingent consideration liabilities associated with our acquisition of MAXTRAX in 2021.

Interest Expense, net

Interest expense, net increased to $2,842 during the three months ended September 30, 2023, compared to interest expense, net of $2,216 during the three months ended September 30, 2022.

The increase in interest expense recognized during the three months ended September 30, 2023 was primarily associated with the increase in interest rates during the period compared to the prior year.

Other, net, changed by $795, or 64.2%, to ($443) during the three months ended September 30, 2023, compared to other, net of ($1,238) during the three months ended September 30, 2022.

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 and changes in mark-to-market adjustments on non-hedged foreign currency contracts during the three months ended September 30, 2023.

Income tax benefit changed by $121, or 145.8%, to $204 during the three months ended September 30, 2023, compared to a benefit of $83 during the same period in 2022.

Our effective income tax rate was a benefit of 13.9% for the three months ended September 30, 2023, and differed compared to the statutory tax rates primarily due to the impact of stock compensation, research and experimentation expenditures and credits, transaction costs, and discrete stock option shortfalls.

For the three months ended September 30, 2022, our effective income tax rate was a benefit of 3.1% and differed compared to the statutory tax rates due to the impact of discrete stock option windfall benefits.

Loss from continuing operations

Discontinued operations, net of tax

Total sales decreased $967, or 1.4%, to $69,311 during the three months ended March 31, 2024, compared to total sales of $70,278 during the three months ended March 31, 2023.

The decrease in sales was primarily attributable to a decrease in sales at the Outdoor segment of $5,753, partially offset by an increase in sales at the Adventure segment of $4,787.

CLARUS CORPORATION

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(in thousands, except per share amounts)

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

The following presents a discussion of operations for the nine months ended September 30, 2023, compared with the nine months ended September 30, 2022.

Nine Months Ended

September 30, 2023

September 30, 2022

Domestic sales

International sales

Sales in the Adventure segment were reduced by $661 due to foreign exchange impact from the strengthening of the U.S.

dollar against the Australian dollar during the three months ended March 31, 2024, compared to the prior period.

Sales in the Outdoor segment increased by $296 due to foreign exchange impact from the weakening of the U.S.

dollar primarily against the euro during the three months ended March 31, 2024, compared to the prior period.

Sales in the Outdoor segment decreased due to weakness in our European and IGD markets.

This weakness was partially offset by growth in the North American wholesale channel.

Sales in the Adventure segment increased due to higher demand from OEM customers and the impact of the TRED Outdoors acquisition.

Domestic sales increased $4,087, or 16.9%, to $28,284 during the three months ended March 31, 2024, compared to domestic sales of $24,197 during the three months ended March 31, 2023.

The increase in sales was attributable to increases at the Outdoor and Adventure segments of $2,064, and $2,023 respectively.

International sales decreased $5,054, or 11.0%, to $41,027 during the three months ended March 31, 2024, compared to international sales of $46,081 during the three months ended March 31, 2023.

The decrease in sales was primarily attributable to a decrease in sales at the Outdoor segment of $7,817, partially offset by an increase in sales at the Adventure segment of $2,763.

Cost of Goods Sold

Operating expenses

Cost of goods sold decreased $310, or 0.7%, to $44,460 during the three months ended March 31, 2024, compared to cost of goods sold of $44,770 during the three months ended March 31, 2023.

Gross profit decreased $657, or 2.6%, to $24,851 during the three months ended March 31, 2024, compared to gross profit of $25,508 during the three months ended March 31, 2023.

Gross margin was 35.9% during the three months ended March 31, 2024, compared to a gross margin of 36.3% during the three months ended March 31, 2023.

Gross margin during the three months ended March 31, 2024, decreased compared to the prior year due to promotional pricing at the Outdoor segment, the increase in PFAS related inventory reserves, as well as unfavorable overall foreign currency exchange movement.

Selling, General and Administrative

Selling, general, and administrative expenses decreased $1,139, or 3.9%, to $28,215 during the three months ended March 31, 2024, compared to selling, general and administrative expenses of $29,354 during the three months ended March 31, 2023.

The decrease was primarily due to expense reduction initiatives in the Outdoor segment to manage costs, as well as lower intangible amortization, and stock compensation expenses.

The decrease was partially offset by higher investment in marketing initiatives in the Adventure segment.

Restructuring Charges

Transaction costs

Contingent consideration (benefit) expense

Total operating expenses

Operating income

Other expense

Interest expense, net

Total other expense, net

(Loss) income before income tax

Income tax (benefit) expense

Net (loss) income

Total sales decreased $62,737, or 18.2%, to $281,187 during the nine months ended September 30, 2023, compared to total sales of $343,924 during the nine months ended September 30, 2022.

The decrease in sales was primarily attributable to a decrease in sales at the Precision Sport, Adventure, and Outdoor segments of $30,842, $18,811, and $13,084, respectively.

Sales in the Adventure and Outdoor segments were reduced by $2,593 and $1,630, respectively, due to foreign exchange impact from the strengthening of the U.S.

dollar against foreign currencies during the nine months ended September 30, 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.

Restructuring charges increased to $370 during the three months ended March 31, 2024, compared to restructuring charges of $0 during the three months ended March 31, 2023.

The restructuring charges incurred during the three months ended March 31, 2024 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 $358 and lease exit and contract termination costs of $12.

CLARUS CORPORATION

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(in thousands, except per share amounts)

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

Domestic sales decreased $46,196, or 25.4%, to $135,724 during the nine months ended September 30, 2023, compared to domestic sales of $181,920 during the nine months ended September 30, 2022.

The decrease in sales was primarily attributable to a decrease in sales at the Precision Sport, Adventure, and Outdoor segments of $24,069, $12,150, and $9,977, respectively.

International sales decreased $16,541, or 10.2%, to $145,463 during the nine months ended September 30, 2023, compared to international sales of $162,004 during the nine months ended September 30, 2022.

The decrease in sales was primarily attributable to a decrease in sales at the Precision Sport, Adventure, and Outdoor segments of $6,773, $6,661, and $3,107, respectively.

Cost of Goods Sold

Cost of goods sold decreased $37,702, or 17.4%, to $178,864 during the nine months ended September 30, 2023, compared to cost of goods sold of $216,566 during the nine months ended September 30, 2022.

The decrease in cost of goods sold was primarily attributable to a decrease in the number of units sold.

Gross profit decreased $25,035, or 19.7%, to $102,323 during the nine months ended September 30, 2023, compared to gross profit of $127,358 during the nine months ended September 30, 2022.

Gross margin was 36.4% during the nine months ended September 30, 2023, compared to a gross margin of 37.0% during the nine months ended September 30, 2022.

Gross margin during the nine months ended September 30, 2023, decreased compared to the prior year due to changes in channel and product mix of 1.1% and unfavorable foreign currency exchange movement of 0.9%.

Channel and product mix were primarily impacted by discounting of ammunition in the Precision Sport segment, as well as promotional pricing in the Outdoor segment, which negatively impacted gross margin.

These decreases were partially offset by favorable variances, primarily related to easing freight costs, of 1.4%.

Selling, General and Administrative

Selling, general, and administrative expenses decreased $7,150, or 7.0%, to $94,809 during the nine months ended September 30, 2023, compared to selling, general and administrative expenses of $101,959 during the nine months ended September 30, 2022.

The decrease is primarily due to a decrease in stock compensation of $5,106 during the nine months ended September 30, 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 $1,835 during the nine months ended September 30, 2023, compared to restructuring charges of $0 during the nine months ended September 30, 2022, which consisted of severance costs, exit costs, and other costs related to the Company’s restructuring initiatives.

Transaction Costs

Transaction costs decreased to $975 during the nine months ended September 30, 2023, compared to transaction costs of $2,880 during the nine months ended September 30, 2022.

The 2023 transaction costs related to the TRED Outdoor

Transaction costs increased to $38 during the three months ended March 31, 2024, compared to transaction costs of $37 during the three months ended March 31, 2023, which consisted of expenses related to the Company’s various acquisition efforts.

Contingent Consideration Benefit

Contingent consideration benefit decreased to $0 during the three months ended March 31, 2024, compared to a contingent consideration benefit of $1,565 during the three months ended March 31, 2023, which consisted of changes in the estimated fair value of contingent consideration liabilities associated with our acquisition of MAXTRAX in 2021.

Legal Costs and Regulatory Matter Expenses

Legal costs and regulatory matter expenses increased to $3,002 during the three months ended March 31, 2024, compared to legal costs and regulatory matter expenses of $128 during the three months ended March 31, 2023.

The increase in legal costs and regulatory matter expenses recognized during the three months ended March 31, 2024 reflects the Company’s accrued liability for the outstanding regulatory matter with the United States Consumer Product Safety Commission.

Interest Income, net

Interest income, net increased to $370 during the three months ended March 31, 2024, compared to interest income, net of $5 during the three months ended March 31, 2023.

The increase in interest income recognized during the three months ended March 31, 2024, was due to interest income on higher cash balances.

Other, net, changed by $985, or 1,296.1%, to ($909) during the three months ended March 31, 2024, compared to other, net of $76 during the three months ended March 31, 2023.

The change in other, net, was primarily attributable to an increase in remeasurement losses recognized on the Company’s foreign denominated accounts receivable and accounts payable.

The change was partially offset by gains in mark-to-market adjustments on non-hedged foreign currency contracts during the three months ended March 31, 2024.

Income tax benefit changed by $517, or 154.8%, to $851 during the three months ended March 31, 2024, compared to a benefit of $334 during the same period in 2023.

Our effective income tax rate was 11.6% for the three months ended March 31, 2024, and differed compared to the statutory tax rates primarily due to the impact of stock compensation, research and experimentation expenditures and credits, and discrete stock option shortfalls.

For the three months ended March 31, 2023, our effective income tax rate was 14.1% and differed compared to the statutory tax rates due to the impact of stock compensation, research and experimentation expenditures and credits, and discrete stock option windfall benefits.

Discontinued Operations

Net income from discontinued operations increased $24,717, to $28,346 during the three months ended March 31, 2024, compared to net income from discontinued operations of $3,629 during the three months ended March 31, 2023.

The increase in net income from discontinued operations was primarily attributable to the pre-tax gain on the sale of the Precision Sport segment of $40,585.

The increase was partially offset by an increase in income tax expense, a decrease in sales and gross profit at the Precision Sport segment of $6,471 and the recording of transaction costs of $3,440 related to the sale of the Precision Sport segment.

CLARUS CORPORATION

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(in thousands, except per share amounts)

acquisition and costs related to the ongoing process undertaken by the Special Committee of the Board of Directors in connection with its evaluation of the potential sale of the Precision Sport segment.

Contingent Consideration (Benefit) Expense

Contingent consideration changed to a benefit of $1,565 during the nine months ended September 30, 2023, compared to $493 contingent consideration expense during the nine months ended September 30, 2022, which consisted of changes in the estimated fair value of contingent consideration liabilities associated with our acquisition of MAXTRAX in 2021.

Interest Expense, net

Interest expense, net increased to $8,445 during the nine months ended September 30, 2023, compared to interest expense, net of $5,060 during the nine months ended September 30, 2022.

The increase in interest expense recognized during the nine months ended September 30, 2023 was primarily associated with the increase in interest rates during the period compared to the prior year.

Other, net, changed by $2,514, or 94.9%, to ($134) during the nine months ended September 30, 2023, compared to other, net of ($2,648) during the nine months ended September 30, 2022.

Income tax (benefit) expense changed by $3,047, or 122.2%, to a benefit of $553 during the nine months ended September 30, 2023, compared to income tax expense of $2,494 during the same period in 2022.

Our effective income tax rate was a benefit of 23.9% for the nine months ended September 30, 2023, and differed compared to the statutory tax rates primarily due to the impact of stock compensation, research and experimentation expenditures and credits, and discrete stock option shortfalls.

For the nine months ended September 30, 2022, our effective income tax rate was 17.4% and differed compared to the statutory tax rates due to the impact of discrete stock option windfall benefits in the third quarter, partially offset by the impact of foreign earnings taxed at applicable statutory rates and permanent book to tax differences related to incentive stock options and officer compensation limitations.

Liquidity and Capital Resources

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 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 activities associated 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 $17,000 available to borrow at September 30, 2023, 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.

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

At September 30, 2023, we had total cash of $8,024, compared to a cash balance of $12,061 at December 31, 2022.

At September 30, 2023, the Company had $5,062 of the $8,024 in cash held by foreign entities, of which $3,325 is considered permanently reinvested.

The following presents a discussion of cash flows for the condensed consolidated nine months ended September 30, 2023 compared with the condensed consolidated nine months ended September 30, 2022.

Nine Months Ended

September 30, 2023

September 30, 2022

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

We plan to fund these activities through a combination of our future operating cash flows and cash on hand.

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 cash on hand.

Additionally, long-term contractual obligations are also currently expected to be funded from cash from operations and cash on hand.

At March 31, 2024, we had total cash of $47,484, compared to total cash of $11,324 at December 31, 2023.

At March 31, 2024, the Company had $6,796 of the $47,484 in cash held by foreign entities, of which $5,546 is considered permanently reinvested.

The following presents a discussion of cash flows for the condensed consolidated three months ended March 31, 2024 compared with the condensed consolidated three months ended March 31, 2023.

Three Months Ended

March 31, 2024

March 31, 2023

Net cash (used in) provided by operating activities

Net cash provided by (used in) investing activities

Net cash used in financing activities

Effect of foreign exchange rates on cash

3 unchanged sentences

Net Cash From Operating Activities

Net cash provided by operating activities was $17,428 during the nine months ended September 30, 2023, compared to net cash used in operating activities of $17,746 during the nine months ended September 30, 2022.

The change in net cash provided by (used in) operating activities during 2023 is primarily due to a decrease in cash outflows related to working capital of $60,318, partially offset by a decrease in stock compensation and amortization of other intangible assets, and an increase in contingent consideration benefit during the nine months ended September 30, 2023, compared to the same period in 2022.

Free cash flow, defined as net cash provided by (used in) operating activities less capital expenditures, of $12,933 was generated during the nine months ended September 30, 2023 compared to ($23,962) used during the same period in 2022.

Net cash used in operating activities was $16,361 during the three months ended March 31, 2024, compared to net cash provided by operating activities of $3,199 during the three months ended March 31, 2023.

The change in net cash (used in) provided by operating activities during 2024 is primarily due to the gain on sale of $40,585 related to the disposition of the Precision Sport segment and an increase in cash outflows related to working capital of $6,554.

These were partially offset by an increase in net income and a decrease in contingent consideration benefit during the three months ended March 31, 2024, compared to the same period in 2023.

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Free cash flow, defined as net cash (used in) provided by operating activities less capital expenditures, of ($18,258) was used during the three months ended March 31, 2024 compared to $1,728 generated during the same period in 2023.

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 the nearest comparable GAAP financial measure is set forth below:

Nine Months Ended

September 30, 2023

September 30, 2022

Net cash provided by (used in) operating activities

Three Months Ended

March 31, 2024

March 31, 2023

Net cash (used in) provided by operating activities

Purchase of property and equipment

1 unchanged sentence

Net Cash From Investing Activities

Net cash used in investing activities was $4,549 during the nine months ended September 30, 2023, compared to $5,778 during the nine months ended September 30, 2022.

The decrease in cash used during the nine months ended September 30, 2023 is primarily due to a decrease in purchases of property and equipment, compared to the same period in 2022.

Net cash provided by investing activities was $173,608 during the three months ended March 31, 2024, compared to net cash used in investing activities of $1,383 during the three months ended March 31, 2023.

The increase in cash provided during the three months ended March 31, 2024 is primarily due to the cash received related to the disposition of the Precision Sport segment, compared to the same period in 2023.

Net Cash From Financing Activities

Net cash used in financing activities was $16,191 during the nine months ended September 30, 2023, compared to net cash provided by financing activities of $15,327 during the nine months ended September 30, 2022.

The change in net cash

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

(used in) provided by financing activities during the nine months ended September 30, 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 cash used in financing activities was $120,848 during the three months ended March 31, 2024, compared to net cash used in financing activities of $3,138 during the three months ended March 31, 2023.

The change in net cash used in financing activities during the three months ended March 31, 2024, compared to the same period in 2023 was primarily due to the settlement of all outstanding borrowings on our revolving credit facility and term debt under the Restated Credit Agreement.

Net Operating Loss

As of September 30, 2023, the Company had net operating loss carryforwards (“NOLs”) and research and experimentation credit for U.S.

As of December 31, 2023, the Company had net operating loss carryforwards (“NOLs”) and research and experimentation credit for U.S.

federal income tax purposes of $7,699 and $2,997, respectively.

The Company believes its U.S.

Federal NOLs will substantially offset its future U.S.

Federal income taxes until expiration.

The majority of the Company’s pre-tax income is currently earned and expected to be earned in the U.S., or taxed in the U.S.

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

Federal NOLs will offset a portion of its future U.S.

Federal income taxes.

The Company has $7,699 of NOLs, of which, $0 expire on December 31, 2024.

3 unchanged sentences

The Company has provided a valuation allowance against a portion of the net deferred tax assets as of December 31, 2023, 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.

Part 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 September 30, 2023, the Company had drawn $10,380 on the revolving loan and $112,500 was outstanding under the term loan.

Approximately $17,000 in additional funds were available to borrow on the revolving loan at September 30, 2023, while maintaining compliance with the consolidated total leverage ratio per the Restated Credit Agreement (as defined below) of 3.75 to 1.

As of September 30, 2023, the interest rates on the revolving loan and term loan commitments were approximately 7.7%.

The Company was in compliance with the debt covenants set forth in the Restated Credit Agreement as of September 30, 2023.

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.

Each of the Loan Parties, other than the Company, is a direct or indirect subsidiary of the Company.

Effective as of June 30, 2023, Maxtrax Australia Trading Pty Ltd., and effective as July 7, 2023, each of MAXTRAX USA, LLC, Clarus Real Estate LLC, and Black Diamond Retail – Colorado, LLC, were joined to the Restated Credit Agreement as Loan Parties thereto.

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 permitted under the Restated Credit Agreement.

The Restated Credit Agreement matures on April 18, 2027 (the “Maturity Date”), at which time the revolving

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

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 June 30, 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:

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;

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.

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.

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

Upon the closing of the sale of the Precision Sport segment on February 29, 2024, the Company terminated and settled all outstanding borrowings on our revolving credit facility and term debt under the Restated Credit Agreement.

CLARUS CORPORATION

1 unchanged sentence

(in thousands, except per share amounts)

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 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

4 unchanged sentences

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, 2023.

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

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-Q

Item 2. Management’s Discussion and Analysis