What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-06 compared with 2024-03-07 · 94 added, 191 removed, 216 unchanged (57% of the section changed)

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Forward-Looking Statements

Please note that in this Annual Report on Form 10-K Clarus Corporation (which may be referred to as the “Company,” “Clarus,” “we,” “our” or “us”) may use words such as “appears,” “anticipates,” “believes,” “plans,” “expects,” “intends,” “future,” and similar expressions which constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Please note that in this Annual Report on Form 10-K Clarus Corporation (which may be referred to herein as the “Company,” “Clarus,” “we,” “our” or “us”) may use words such as “appears,” “anticipates,” “believes,” “plans,” “expects,” “intends,” “future,” and similar expressions which constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are made based on our expectations and beliefs concerning future events impacting the Company and therefore involve a number of risks and uncertainties.

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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, including, without limitation, the impact of inflation;

general economic conditions and other factors affecting consumer confidence, preferences, and behavior;

the potential impact of the uncertain macroeconomic environment on our financial results, including, but not limited to, the effects of sustained global inflationary pressures and interest rates, potential economic slowdowns or recessions, trade restrictions and regulatory changes, and global supply chain disruptions;

the effect of inflation on our business, including any future pricing actions taken in an effort to mitigate the effects of inflation and potential impacts on our revenue, operating margins and net income;

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

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the ability of the Company to execute and integrate acquisitions;

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;

stability of the Company’s manufacturing facilities and suppliers, as well as consumer demand for our products, in light of disease epidemics and health-related concerns such as the COVID 19 global pandemic;

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

stability of the Company’s manufacturing facilities and suppliers, as well as consumer demand for our products, in light of disease epidemics and health-related concerns;

the impact that global climate change trends may have on the Company and its suppliers and customers, increased focus on sustainability issues as a result of global climate change;

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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;

the potential impact of the Consumer Products Safety Commission’s and the U.S.

Department of Justice’s investigations related to BDEL’s reporting obligations under the Consumer Product Safety Act in connection with BDEL’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;

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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®,

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

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On August 21, 2017, the Company acquired Sierra Bullets, L.L.C.

On November 6, 2018, the Company acquired the assets of SKINourishment, Inc.

(“SKINourishment”).

On October 2, 2020, the Company completed the acquisition of certain assets and liabilities constituting the Barnes business (“Barnes”).

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

On December 5, 2024, the Company completed the acquisition of certain assets and liabilities constituting the RockyMounts business (“RockyMounts”).

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”).

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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.

During the years ended December 31, 2024 and 2023, the Company incurred $1,948,000 and $3,223,000, respectively, of restructuring charges related to these actions.

The Company has incurred $5,171,000 of cumulative restructuring charges since the commencement of our 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 consolidated statements of comprehensive (loss) income.

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

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.

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The Company anticipates completing these restructuring activities in 2025.

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 Item 1A.

Risk Factors.

Critical Accounting Policies and Use of Estimates

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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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The relief-from-royalty method is used to estimate the cost savings that accrue to the owner of an intangible asset who would otherwise have to pay royalties or license fees on revenues earned through the use of the asset.

The multi-period excess earnings method supposes that the owner of the intangible asset is able to achieve a return in excess of that received without the intangible asset through enhanced revenues or cost savings.

The multi-period excess earnings method supposes that the owner of the intangible asset is able to achieve a return in excess

of that received without the intangible asset through enhanced revenues or cost savings.

Our discounted cash flow estimates use discount rates that correspond to a weighted-average cost of capital consistent with a market-participant view.

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If the market multiples or EBITDA value assumptions are incorrect, our goodwill impairment evaluation could also be adversely affected, and we may impair a portion or all of our goodwill, which would adversely affect our operating results in the period of impairment.

We also test indefinite-lived intangible assets for impairment annually during the fourth quarter, generally as of December 31 st of each year.

We also test indefinite-lived intangible assets for impairment annually during the fourth quarter, as of December 31 st of each year.

Management may perform an interim indefinite-lived intangible asset 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.

If the carrying value of the indefinite-lived asset is higher than its fair value, then the asset is deemed to be impaired and the impairment charge is estimated as the difference.

If the carrying value of the indefinite-lived asset is higher than its fair value, then

the asset is deemed to be impaired and the impairment charge is estimated as the difference.

The Company calculates the fair value of its indefinite-lived intangible assets using the income approach, specifically the relief-from-royalty method.

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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.

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

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Year Ended December 31,

December 31, 2024

December 31, 2023

Domestic sales

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Transaction costs

Contingent consideration (benefit) expense

Impairment of goodwill and indefinite-lived intangible assets

Contingent consideration benefit

Legal costs and regulatory matter expenses

Impairment of goodwill

Impairment of indefinite-lived intangible assets

Total operating expenses

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Interest income, net

Total other income (expense), net

Total other (expense) income, net

Loss before income tax

Income tax benefit

Income tax expense (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.

Total sales decreased $21,705, or 7.6%, to $264,315 during the year ended December 31, 2024, compared to total sales of $286,020 during the year ended December 31, 2023.

The decrease in sales was attributable to a decrease in sales at the Outdoor and Adventure segments of $20,485 and $1,220, respectively.

Sales in the Adventure segment were reduced by $524 due to foreign exchange impact, compared to the prior period.

Sales in the Outdoor segment increased by $235 due to foreign exchange impact, compared to the prior period.

Sales in the Outdoor segment decreased due to weakness in our European, independent global distributor (“IGD”), and North American markets, combined with the effects from our product simplification and SKU rationalization strategy.

Sales in the Adventure segment decreased due to lower demand from original equipment manufacturer (“OEM”) and wholesale customers both in Australia and North America, partially offset by a $3,019 increase from the TRED Outdoors acquisition.

Domestic sales decreased $6,640, or 5.9%, to $105,745 during the year ended December 31, 2024, compared to domestic sales of $112,385 during the year ended December 31, 2023.

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.

The decrease in sales was attributable to a decrease in sales at the Outdoor segment of $7,829, partially offset by an increase in sales at the Adventure segment of $1,189.

International sales decreased $15,065, or 8.7%, to $158,570 during the year ended December 31, 2024, compared to international sales of $173,635 during the year ended December 31, 2023.

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.

The decrease in sales was attributable to a decrease in sales at the Outdoor and Adventure segments of $12,656 and $2,409, respectively.

Cost of Goods Sold

Cost of goods sold decreased $16,813, or 8.9%, to $171,696 during the year ended December 31, 2024, compared to cost of goods sold of $188,509 during the year ended December 31, 2023.

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 $4,892, or 5.0%, to $92,619 during the year ended December 31, 2024, compared to gross profit of $97,511 during the year ended December 31, 2023.

Gross margin was 35.0% during the year ended December 31, 2024, compared to a gross margin of 34.1% during the year ended December 31, 2023.

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.

Gross margin during the year ended December 31, 2024, increased compared to the prior year due to favorable channel mix as a result of lower OEM sales at the Adventure segment and favorable product mix due to the simplification and SKU rationalization strategy at the Outdoor segment.

These increases were partially offset by an increase in inventory reserve expenses at the Adventure segment.

Selling, General and Administrative

Selling, general, and administrative expenses decreased $2,655, or 2.3%, to $111,948 during the year ended December 31, 2024, compared to selling, general and administrative expenses of $114,603 during the year ended December 31, 2023.

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.

Selling, general and administrative expenses at the Outdoor segment decreased by $7,176 primarily as a result of lower retail expenses due to store closures and other expense reduction initiatives to manage costs.

Selling, general and administrative expenses at the Adventure segment increased by $3,806 primarily as a result of investments in global marketing, e-commerce initiatives, and organizational leadership to accelerate growth, as well as the full year impact of the TRED Outdoors acquisition.

These increases at the Adventure segment were partially offset by lower intangible amortization expense.

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.

Restructuring charges decreased to $1,948 during the year ended December 31, 2024, compared to restructuring charges of $3,223 during the year ended December 31, 2023.

The restructuring charges incurred during the year ended December 31, 2024 relate to benefits provided to employees who were terminated due to the Company’s reduction-in-force as part of its continued realignment of resources within the organization of $1,824 and lease exit and contract termination costs of $124.

Transaction Costs

Transaction expense decreased to $576 during the year ended December 31, 2024, compared to transaction costs of $593 during the year ended December 31, 2023.

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.

The 2024 transaction costs primarily related to the RockyMounts and TRED Outdoor acquisitions and other expenses related to the Company’s various acquisition efforts.

Contingent Consideration Benefit

Contingent consideration benefit decreased to $125 during the year ended December 31, 2024, compared to a contingent consideration benefit of $1,565 during the year ended December 31, 2023, which consisted of changes in the estimated fair value of contingent consideration liabilities associated with our acquisitions of MAXTRAX in 2021 and TRED in 2023.

Legal Costs and Regulatory Matter Expenses

Legal costs and regulatory matter expenses increased to $3,842 during the year ended December 31, 2024, compared to legal costs and regulatory matter expenses of $1,764 during the year ended December 31, 2023.

The increase in legal costs and regulatory matter expenses recognized during year ended December 31, 2024 reflects the Company’s accrued liability for the outstanding regulatory matter with the U.S.

Consumer Product Safety Commission (“CPSC”) and increased expenses related to the Company’s specific legal matters.

See Note 16 to our consolidated financial statements for financial information regarding specific legal matters.

Impairment of Goodwill

Impairment of goodwill increased to $36,264 during the year ended December 31, 2024, compared to impairment of goodwill of $0 during the year ended December 31, 2023.

Based on the results of the Company’s annual impairment analysis completed as of December 31, 2024, the Company determined that goodwill at the Adventure reporting unit was impaired and recognized a charge of $36,264.

Impairment of Indefinite-Lived Intangible Assets

Impairment of indefinite-lived intangible assets increased to $8,545 during the year ended December 31, 2024, compared to impairment of indefinite-lived intangible assets of $0 during the year ended December 31, 2023.

Based on the results of the Company’s impairment analysis completed as of December 31, 2024, the Company determined that certain indefinite-lived intangible assets, specifically the Rhino-Rack and MAXTRAX trademarks, were impaired and recognized charges of $3,480 and $5,065, respectively, during the year ended December 31, 2024.

Interest Income, net

Interest income, net increased to $1,467 during the year ended December 31, 2024, compared to interest income, net of $67 during the year ended December 31, 2023.

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

Other, net changed by $2,634, or 274.1%, to ($1,673) during the year ended December 31, 2024, compared to other, net of $961 during the year ended December 31, 2023.

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.

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 increases in gains in mark-to-market adjustments on non-hedged foreign currency contracts during the year ended December 31, 2024.

Income tax expense (benefit) changed by $22,143, or 516.0%, to an income tax expense of $17,852 during the year ended December 31, 2024, compared to an income tax benefit of $4,291 during the same period in 2023.

Our effective income tax rate was an expense of 25.3% for the year ended December 31, 2024, and differed compared to the statutory tax rates primarily due to the impact of recording a valuation allowance on deferred tax assets and the impairment of goodwill and indefinite-lived intangible assets, all of which are non-deductible for tax purposes.

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 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.

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.

Net income from discontinued operations changed by $30,508, to $36,150 during the year ended December 31, 2024, compared to net income from discontinued operations of $5,642 during the year ended December 31, 2023.

The change 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.

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

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Selling, general and administrative

Restructuring charges

Transaction costs

Contingent consideration expense (benefit)

Impairment of goodwill and indefinite-lived intangible assets

Contingent consideration (benefit) expense

Legal costs and regulatory matter expenses

Impairment of goodwill

Impairment of indefinite-lived intangible assets

Total operating expenses

Operating loss

Other expense

Interest expense, net

Total other expense, net

Other income (expense)

Interest income, net

Total other income (expense), net

Loss before income tax

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Discontinued operations, net of tax

Net (loss) income

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 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 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 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 $4,408 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.

dollar against foreign currencies and abnormally high freight costs.

Selling, General and Administrative

Selling, general, and administrative expenses increased $30,154, or 33.3%, to $120,814 during the year ended December 31, 2022, compared to selling, general and administrative expenses of $90,660 during the year ended December 31, 2021.

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 $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.

Transaction Costs

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 associated with our acquisition of Rhino-Rack and MAXTRAX in 2021.

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 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.

Income tax benefit decreased $4,518, or 23.5%, to $14,716 during the year ended December 31, 2022, compared to an income tax benefit of $19,234 during the same period in 2021.

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 primarily 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.

Our effective income tax rate was a benefit of 112.4% for the year ended December 31, 2021, and differed compared to the statutory tax rates due to the partial release of a valuation allowance offsetting deferred tax assets and discrete charges recorded during the period.

This release of the valuation allowance is primarily due to a change in accounting method which increased taxable income and the ability to utilize NOLs.

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.

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.

For a discussion of our results of operations for the year ended December 31, 2023, compared to the year ended December 31, 2022, please see Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 7, 2024.

Liquidity and Capital Resources (In Thousands)

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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.

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.

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.

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At December 31, 2024, the Company had $6,477 of the $45,359 in cash held by foreign entities, of which $4,665 is considered permanently reinvested.

The following presents a discussion of cash flows for the year ended December 31, 2023 compared with the year ended December 31, 2022.

The following presents a discussion of cash flows for the year ended December 31, 2024 compared with the year ended December 31, 2023, inclusive of continuing and discontinued operations.

Year Ended December 31,

Net cash provided by operating activities

Net cash used in investing activities

Net cash (used in) provided by operating activities

Net cash provided by (used in) investing activities

Net cash used in financing activities

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Net Cash From Operating Activities

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.

Net cash used in operating activities was $7,300 during the year ended December 31, 2024, compared to net cash provided by operating activities of $31,924 during the year ended December 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, an increase in net loss of $42,141, and an increase in cash outflows related to working capital of $19,202, compared to the same period in 2023.

These were partially offset by an increase in impairment of goodwill and indefinite-lived intangible assets at the Adventure segment of $44,809, as well as an increase in deferred income taxes of $22,530 during the year ended December 31, 2024, compared to the same period in 2023.

Free cash flow, defined as net cash (used in) provided by operating activities less capital expenditures, of ($14,039) was used during the year ended December 31, 2024 compared to $26,207 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 comparable GAAP financial measures is set forth below:

A reconciliation of free cash flows to comparable GAAP financial measures is set forth below, inclusive of continuing and discontinued operations:

Year Ended December 31,

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Purchase of property and equipment

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Net Cash From Investing Activities

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 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 provided by investing activities was $165,160 during the year ended December 31, 2024 compared to net cash used in investing activities of $11,416 during the year ended December 31, 2023.

The change in net cash provided by (used in) investing activities during the year ended December 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 $123,239 during the year ended December 31, 2024, compared to net cash used in financing activities of $20,255 during the year ended December 31, 2023.

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.

The increase in cash used during the year ended December 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

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federal income tax purposes of $0 and $5,439, 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.

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.

As of December 31, 2024, the Company’s gross deferred tax asset was $35,658.

The Company has recorded a valuation allowance of $23,344, resulting in a net deferred tax asset of $12,314, before deferred tax liabilities of $24,488.

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.

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.

The Company has provided a full valuation allowance against all of the net U.S.

deferred tax assets as of December 31, 2024, 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 research and experimentation credits and capitalized costs for federal tax purposes.

These deferred tax assets are expected to reverse into NOL carryforwards that can be used to offset taxable income and reduce income taxes payable in future periods.

If a change in control were to occur, these future NOLs could be limited under Section 382 of the Internal Revenue Code of 1986 (“Code”), as amended.

Credit Agreement

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.

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

The Restated Credit Agreement provides for borrowings of up to $300,000 under a secured revolving credit facility (the “Revolving Loans”) (including up to $5,000 for letters of credit), and borrowings of up to $125,000 under a secured term loan facility (the “Term Loans”).

The Restated Credit Agreement also permits the Borrowers, subject to certain requirements, to arrange with lenders for an aggregate of up to $175,000 of additional revolving and/or term loan commitments (both of which are currently uncommitted), for potential aggregate revolving and term loan commitments under the Restated Credit Agreement of up to $600,000.

The proceeds of loans made under the Restated Credit Agreement may be used for working capital and general corporate purposes, including acquisitions permitted under the Restated Credit Agreement.

The Restated Credit Agreement matures on April 18, 2027 (the “Maturity Date”), at which time the revolving commitments thereunder will terminate and all outstanding Revolving Loans and Term Loans, together with all accrued and unpaid interest thereon, must be repaid.

The Term Loans were fully drawn on the Effective Date and cannot be reborrowed.

The Restated Credit Agreement provides for quarterly amortization payments of the Term Loans on the last business day of each March, June, September and December, commencing on June 30, 2022.

Through and including the payment due on March 31, 2023, the scheduled amortization payment is $1,563 per quarter, and each scheduled amortization payment due thereafter through the Maturity Date is $3,125 per quarter.

The Borrowers may elect to have the Revolving Loans and Term Loans under the Restated Credit Agreement bear interest at an applicable rate plus either:

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

(a) the prime rate in effect on such day;

(b) 0.50% plus the greater of the Federal Reserve Bank of New York’s effective federal funds rate or the Federal Reserve Bank of New York’s overnight bank funding rate in effect on such day;

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:

(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;

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

The applicable rate for these borrowings will range from 0.50% to 1.625% per annum, in the case of alternate base rate borrowings, and 1.50% to 2.625% per annum, in the case of term benchmark borrowings.

The applicable rate was initially 0.875% per annum, in the case of alternate base rate borrowings, and 1.875% per annum, in the case of term benchmark borrowings, however, these initial applicable rates may be adjusted from time to time based upon the level of the Company’s consolidated total leverage ratio, which is more fully discussed in the Restated Credit Agreement.

If one or more of the above interest rates are not determinable, or under certain other circumstances set forth in the Restated Credit Agreement, a substitute or alternative interest rate may apply under the Restated Credit Agreement.

The Restated Credit Agreement also requires the Borrowers to pay a commitment fee on the unused portion of the revolving loan commitments.

Such commitment fee will range between 0.15% and 0.30% per annum, and is also based upon the level of the Company’s consolidated total leverage ratio, which is more fully discussed in the Restated Credit Agreement.

The Company is also obligated to pay other customary closing fees, arrangement fees, administration fees and letter of credit fees for a credit facility of this size and type.

The Restated Credit Agreement contains customary affirmative and negative covenants, including limitations on the ability of the Company and its subsidiaries to perform the following, subject to certain customary exceptions, qualifications and “baskets”:

(i) incur additional debt;

(ii) create liens;

(iii) engage in mergers, consolidations, certain divisions, liquidations or dissolutions other than in certain permitted instances as described in the Restated Credit Agreement;

(iv) substantially change the business conducted by the Company and its subsidiaries;

(v) make certain investments, loans, advances, guarantees and acquisitions other than in certain permitted instances as described in the Restated Credit Agreement;

(vi) sell assets;

(vii) pay dividends or make distributions or other restricted payments if certain conditions in the Restated Credit Agreement are not fulfilled;

(viii) prepay other indebtedness;

(ix) engage in certain transactions with affiliates;

(x) enter into agreements that restrict dividends from subsidiaries or the ability of subsidiaries to grant liens upon their assets;

(xi) amend certain charter documents and material agreements governing subordinated indebtedness;

(xii) permit the consolidated total leverage ratio, which is to be determined for each quarter end on a trailing twelve month basis, from exceeding a limit of 3.75 to 1, provided, that, subject to certain terms and conditions set forth in the Restated Credit Agreement, so long as no Event of Default (as defined in the Restated Credit Agreement) exists at such time or would result therefrom, the Company may elect to increase the maximum consolidated total leverage ratio permitted under the Restated Credit Agreement to 4.25:1.00 for a period of four 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 pursuant to which each Loan Party ratified and reaffirmed its obligations to the Lenders in connection with entering into the Restated Credit Agreement.

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.

Off-Balance Sheet Arrangements

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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