Good afternoon, everyone, and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the first quarter ended March 31, 2024. Joining us today are Clarus Corporation's Executive Chairman, Warren Kanders; CFO, Mike Yates; President, Black Diamond Equipment, Neil Fiske; Managing Director of Clarus' Adventure segment, Mathew Hayward; and the company's External Director of Investor Relations, Matt Berkowitz. Following remarks, we'll open the call for your questions. Before we go further, I would like to turn the call over to Mr. Berkowitz as he reads the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Matt, please go ahead.

Thank you. Before I begin, I'd like to remind everyone that during today's call, we will be making several forward-looking statements, and we make these statements under the safe harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements reflect our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to potential risks and uncertainties that could cause the actual results of operations or financial condition of Clarus Corporation to differ materially from those expressed or implied by the forward-looking statements. More information on potential factors that could affect the company's operating and financial results is included from time to time in the company's public reports filed with the SEC. I'd like to remind everyone this call will be available for replay starting at 7:00 p.m. Eastern time tonight. A webcast replay will also be available via the link provided in today's press release as well as on the company's website at claruscorp.com. Now I'd like to turn the call over to Clarus' Executive Chairman, Warren Kanders.

Good afternoon, and thank you all for joining Clarus' earnings call to review our results for the first quarter. I am pleased to be joined today by not only our Chief Financial Officer, Mike Yates, but also Neil Fiske and Matt Hayward to lead our outdoor and adventure segments. At our Investor Day this past March, we discussed wanting to deliver a comprehensive segment-level view so that we are excited to have Neil and Matt delivering on this for earnings calls going forward. Last year, we took crucial steps to realign our overall platform and individual brands, and a key component of this strategy was hiring highly experienced and dedicated executives to guide the outdoor and adventure businesses. Since their appointment last year, both have made considerable progress implementing strategic plans to streamline business processes and capitalize on clear long-term growth opportunities. Today, I am confident that we have the right team in place, and we continue to be encouraged by the steps that Neil and Matt are taking to advance our rebased businesses and turnaround. At our Investor Day, we outlined a strategic roadmap, highlighting anticipated multi-year growth and margin expansion targets for both segments that we believe Clarus can achieve. The first quarter of 2024 represented the initial phase of these plans. While Neil and Matt will provide more specific comments, we are encouraged by the incremental progress demonstrated in the first quarter. In outdoor, we continue to prioritize simplification and rightsizing, which we believe is evidenced by a reduction in total outdoor inventory of 15% versus last year. At Adventure, we saw significant year-over-year sales growth driven by the launch of compelling new products and expansion in our OEM channel. Based on the results to date, we are pleased to reaffirm our full-year guidance, which Mike will detail later in the presentation. There is so much more work to be done, but we believe we have laid the foundation to drive increased profitability and unlock new growth opportunities in 2024 and beyond. With that, thank you again for being with us today, and I will turn the call over to Mike.

Thank you, Warren, and good afternoon, everyone. I want to remind people or let people know who are on the call that we've actually provided slides to accompany our presentation. They're available on the webcast, and they are also available on our website. That's something new, so I wanted to make sure all the participants were aware of the addition that we've made to our call today. On today's call, I'll provide a general Q1 update before turning it over to Matt and Neil to review the segment performance. I'll conclude with a more detailed summary of our Q1 financial results, followed by a Q&A session. Beginning on Slide 4, we entered the year focused on initiating our strategic plans with Clarus' next chapter as a pure-play ESG-friendly outdoor business. As we have discussed previously, we completed the sale of our Precision Sports segment in February 2024, which represented a highly successful outcome for Clarus. Today, we have a more streamlined company focused on two consumer segments with broad appeal and attractive long-term tailwinds: outdoor and adventure. In outdoor, our focus is on simplification and solidifying the core. Although the macroeconomic backdrop remained challenging during the first quarter, the stabilization we mentioned during our Q4 and year-end 2023 earnings call was confirmed as our North American wholesale market grew year-over-year. We believe that the work the sales team put in during the second half of 2023 is paying dividends now as we start to listen to our paid accounts and deliver the right product for them on time. From an operational standpoint, we believe that our inventory reduction and SKU rationalization initiatives are on track. In adventure, where our core objective is to invest at scale, we saw a continuation of the strong sales growth momentum we established in the back half of 2023. We may describe both increasing brand awareness through global marketing programs and strengthening our adventure team to ensure we're best positioned to capitalize on strong market tailwinds. Complementing this progress, following the sale of the Precision Sports segment, Clarus has a debt-free balance sheet that we believe provides us with significant optionality to allocate capital for the benefit of shareholders. After retiring all of Clarus' outstanding debt with the proceeds from the sale, we had over $47 million of cash on hand at the end of the first quarter. Importantly, this provides the flexibility in how we seek to pursue our long-term value creation objectives and growth initiatives. In terms of priorities, we are committed to reinvesting in our existing two segments to drive organic growth. We expect to continue to pay our quarterly dividend and also selectively look at smaller bolt-on M&A opportunities that may enhance our venture business in the United States and new geographies. Overall, our focus is on cash generation through the continued rightsizing of inventory and business expansion with the intent of accumulating cash on our balance sheet as we execute our strategic growth plans. Before I turn the call over to Matt, I'll briefly highlight a couple of key figures on Slide 5. Clarus' first quarter revenue of $69.3 million exceeded our guidance of $64 million to $66 million. We also generated adjusted EBITDA of $2 million, which beat our expectations of $1 million to $2 million for the quarter. Overall, we are pleased with our execution in Q1 and with the building blocks in place, and we are ready to continue to meet Clarus' long-term financial targets. I'll now turn the call over to Matt Hayward.

Thanks, Mike, and good morning, everyone, from Australia. I'll begin my remarks on Slide 6. I'm very excited to be part of these calls now to address our adventure segment directly. I'll try to tie back to many of the things we touched on during our Investor Day in order to track our progress financially and strategically. 2023 marked a reset and stabilization year for the Adventure segment, and we are pleased to have kicked off 2024 with significant momentum. The first quarter represented the initial phase of our new three-year strategic plan, and we took important steps in launching compelling new products and continuing to expand beyond the home market in Australia. Q1 sales increased 27% year-over-year, supported by two primary drivers. The first in wholesale, we saw strong car count performance across Australia and New Zealand, combined with the onboarding of new key accounts in the U.S. market. This has been supported by strong product portfolio introductions across all of our key categories, inclusive of trade where we have our category-leading pioneer fixed platform, our new cost base with B100 and Rx 200 introductions, and new fit ranges with rooftop tents and storage boxes. Second, we continue to experience strong demand in our OEM channel, a vital channel for us that we believe will drive volume while enhancing our brands in new markets and vehicle models. Following the first deliveries to new OEM customers in 2023 for a product launch, demand has continued to remain robust, which has helped accelerate sales growth. At the same time, our first quarter margins were affected by less favorable channel mix, particularly given the outperformance of OEM as that continues to grow. Q1 gross margins in adventure were 38.4% as compared to 41% last year. We also saw onboarding of new key account programs and locations, which do bring in some lower margins in order to be good partners in our dealer base. We continue to take immediate and intermediate steps expected to improve overall profitability and are committed to seeking to drive better SKU productivity, inventory management, and organizational efficiency. Driving performance outside of regional investors is critical, as is the ramp-up of opportunities across both OEM and trade as we expand brand and category reach across 2024. In terms of market conditions, more generally, positive fundamentals continue to be supported by strong auto sales. The standard for vehicle deliveries in Australia showed all-time record first quarter results for the auto sector with 300,000 sales, a year-over-year increase of 13%. Post home in the U.S., new vehicle sales are expected to have risen 5.6% year-over-year to 3.8 million units volume in the first quarter of 2024. Dialing into collect strategic group initiatives, I'd like to highlight some of the key investments we are making in the U.S. market. During the first quarter, we identified several key positions that we believe will enhance our ability to grow. With our focus on delivering best-in-class products globally, we have recently added a new technician and a national marketing leader that will work with our shared services in Australia to deliver best-in-class content tailored specifically for North America. That will soon be joined by local IT leadership to not only help drive greater DTC transformation but also to support enhanced integration with our key partners locally. Linked to the above is our strategy to grow our OEM opportunities on a global level outside of Australia and New Zealand. To this end, we are very excited to be adding a new global head of OEM sales and development in the U.S. based in our Denver office. In terms of brand investment, we've stepped up investment and support across both trade marketing and parallel digital investment. Within trade support, we've been very excited to launch our first truly global brand and product catalog for Rina, delivered in multiple languages for the very first time for partners across Japan, China, and Germany, and also added presentations with local specifics for the U.S. and Canada. This has been supported by trade investments across Japan, France, and we will continue across markets in 2024. We'll also be introducing a brand-new platform to support the adventure portfolio as a whole across overlaying expected to launch in late 2024. Developments to showcase our ramp-up of new product development delivered comprehensive campaigns for our world-famous and industry-leading products on every platform, and our new focus on showcasing an adventure lifestyle supported by our amazing array of accessories across all brands in our portfolio, including mass tracks and tread in these campaigns. Our focus is clearly aimed at supporting our amazing partners globally, while we're driving greater visibility with investment into digital platforms and media. Lastly, new game-changing products arrive and are on the horizon. As we mentioned during our last earnings call, the new Pioneer 6 platform in Australia marked the first major new product launch in the last 15 months, and we've begun to bring to market a portfolio of accessories that complement it. We also brought to market the first MAX treksport innovation in nearly a decade through the introduction of the light board. We are pleased with the progress of launching four new products in the U.S. as well as new accessories globally, including rooftop tents during the first quarter. We believe that our adventure segment is well positioned to capitalize on strong industry dynamics and a large and growing addressable market across multiple verticals. We have made significant investments in professionalizing the same, process reengineering and product merchandising to ensure we continue to gain market share. Moving forward, we are committed to establishing a best-in-class product ecosystem while remaining intensely focused on enhanced product margins as we scale. At the end of the day, when we engage with our wider community and empower them with the opportunity to make space for adventure in whatever shape and activity that entails with our key partners globally across all key markets, we will win together. I'd like to now turn the call over to Neil, President of Black Diamond. Neil, over to you.

Thanks, Matt. Turning to Slide 7. Overall, results in the Outdoor segment were in line with our expectations for the first quarter of 2024, and we are pleased with the progress we're seeing. At our Investor Day in March, I said that 2023 was a reset year for the industry and for Black Diamond, and that 2024 would be about simplifying the business to solidify our core, improve profitability, and lay the foundation for long-term sustainable growth. This quarter, we are starting to see the early results from the hard work we put in over the last year. Importantly, our biggest region of North America returned to growth with the wholesale channel growing 10% year-over-year. This is one of the first areas of focus in our turnaround plan as we completely rebuilt our sales leadership team. As Warren indicated earlier, in addition to the sales results, we're hearing positive feedback from our retail partners that our service levels have improved, that we are sharper in our brand positioning and execution, and that we are, for the most part, outperforming the market in our core categories as we seek to expand our product leadership. We are pleased with our progress in strengthening our relationships in the specialty channel, which is a top priority for us strategically. We are continuing to rationalize our product line under the direction of fewer, bigger, better. This quarter, for example, we made the decision to exit our distribution of ski bindings, a category which has low margins, high SKU complexity, low term, and high cost to serve. We expect to see further category and SKU reduction over the course of the year as we focus on our core sports and build on positions of strength. As we simplified the business, we've streamlined the organization and taken out costs. Operating costs are down 8.3% year-over-year, and we expect that they will continue to fall as a percentage of sales over the course of 2024. We closed five underperforming stores versus the same period last year. We've also made major strides in both the quality and levels of our inventory. Overall inventory is down 15% versus last year. But equally important, we've moved more of this inventory value into the A styles, which drive 80% of our sales, 59% this year versus 45% last year, and the trend is still improving. Fill rates are up, markdown exposure is down. We've done a lot of work to bring apparel inventories in line with a 38% reduction versus a year ago. Geographically, the regions are in different stages of recovery. We're pleased to see the turnaround in our largest region of North America. However, the Europe and independent global distributor markets still face tough market conditions. The EU was down 17% in wholesale, which was better than our expectations. The smaller D2C segment in the EU was up 33%. EU represents 34% of our revenues in Q1. The International Global Distributor (IGD) market is a different story altogether. Here, we have an added layer of distribution that is still overstocked from the pandemic boom and will likely take all of 2024 to get back in line. For the quarter, IGD was down 44%, and we expect the year to be down 25% to 30% as inventories rebalance across the network. IGD represents 10% of our revenue in Q1. Overall, gross margins per outdoor were flat year-over-year. While we're still carrying through and rightsizing inventory, we believe we are less promotional than the overall market in North America and Europe. We have, however, begun to build a reserve to deal with any PFAS-related inventory that may be more difficult for us to move as a result of new regulations taking effect at the end of this year. By fall of 2025, all of our apparel and packs will be PFAS-free, but there will likely be some residual PFAS inventory to clear in the first half of next year. In summary, we're pleased with our progress and confident in our strategy, knowing there's so much more to do and to demonstrate. I'll now turn the call back over to Mike.

Thank you, Neil. I'm on Slide 8, and I'll begin with a summary of our financial performance in the first quarter. As a reminder, and as we've noted previously, given the sale of the Precision Sports segment for approximately $175 million, which was completed and closed on February 29, 2024, during the first quarter. Our U.S. GAAP results are comprised of our outdoor and adventure segments, and the results I refer to as continuing operations. First quarter sales were $69.3 million compared to $70.3 million in the prior year first quarter, driven largely by the softness in the European wholesale market and the IGD market that Neil just discussed in outdoor, partially offset by strong adventure segment sales growth. On a constant currency basis, sales were down 0.5%. FX was not material in the first quarter. Moving to consolidated gross margin. In the first quarter, gross margin was 35.9% compared to 36.3% in the year-ago quarter. As you heard, the decrease was primarily attributable to promotional pricing at the outdoor segment, the increase in cash-related inventory reserves, as well as unfavorable channel mix in the ventures segment. I'd like to highlight that adjusted gross margin of 36.9% in the first quarter improved 50 basis points versus Q1 of last year. Adjusted gross margin is adjusted for the PFAS reserve that Neil just mentioned. We reserved $729,000 in the first quarter for this exposure. Selling, general and administrative expenses in the first quarter were $28.2 million compared to $29.4 million in the same year-ago quarter. The decrease was attributable to success reducing cost at outdoor as well as lower intangible amortization and lower stock compensation expenses. Higher investments in marketing initiatives in the venture segment partially offset the overall decrease. The loss from continuing operations in the first quarter of 2024 was $6.5 million or $0.17 per diluted share compared to a loss from continuing operations of $2 million or $0.05 per diluted share in the year-ago quarter. Loss from continuing operations in the first quarter included $3 million of charges relating to legal costs and regulatory matter expenses and $700,000 of PFAS inventory reserves. Adjusted loss from continuing operations was $0.1 million or $0.00 per diluted share, this compares to adjusted income from continuing operations of $400,000 or $0.01 per diluted share in the year-ago quarter. Adjusted EBITDA in the first quarter was $2 million or an adjusted EBITDA margin of 2.9% compared to $1.1 million or adjusted EBITDA margin of 1.6% in the same year-ago quarter. Our adjusted EBITDA is adjusted for restructuring charges, transaction costs, stock compensation expense, and this quarter, we began adjusting for the PFAS inventory reserve. Additionally, beginning in the first quarter, we adjusted for the costs associated with the Section 16B litigation and the Consumer Product Safety Commission matter known as the CPC matter. These legal costs were $502,000 in the first quarter. Finally, also included in a separate line on our P&L, legal costs and regulatory matters were a $2.5 million estimate of our liability for the matter outstanding with the CPSC, which we recorded as a liability in the first quarter. We have adjusted our EBITDA for this estimated liability as well. After consideration of these adjustments, the year-over-year improvement in adjusted EBITDA reflects the early results of our efforts to achieve less complexity and focus on the highest margin, highest return opportunities, particularly at the Outdoor segment. First quarter adjusted EBITDA by segment was $2.9 million at Outdoor and $1.9 million at Adventure. Adjusted corporate costs were $2.8 million in the first quarter. We've provided a reconciliation of these adjusted EBITDA numbers by segment and the corporate cost in the back of the presentation included in the material. Next, let me shift to liquidity. At March 31, 2024, cash and cash equivalents were $47.5 million compared to $11.3 million at December 31, 2023. Total debt at March 31, 2024, was $100,000 compared to $119.8 million at the end of 2023. Our reduced debt and substantially improved cash position reflects the closing on the Precision Sports sale in February and the termination and repayment in full of our credit agreement. During the first quarter, we realized a gain on the sale of Precision Sports of $40.6 million, which was recognized through discontinued operations on our statement of income. Consolidated cash tax expense for the full year is expected to be $2 million, which will allow us to maintain most of the net cash realized from the sale of Precision Sports. Free cash flow, defined as net cash provided by operating activities less capital expenditures for the first quarter was an outflow of $18.3 million compared to positive free cash flow of $1.7 million in the prior year quarter. Free cash flow was significantly lower because of the substantial reduction in accounts payable during the first two months of the quarter. As a reminder, we have net operating loss carryforward for U.S. federal income tax purposes of approximately $7.7 billion at December 31, 2023. The company expects to utilize all the remaining NOLs in future years. Before turning to our guidance, I would like to highlight that we continue to proceed in our low-threat trading LLC and Mr. Harsha Padia. Both fact discovery and expert discovery have been concluded. The court set the following schedule for summary judgment motion and challenges for our expert witnesses. Motion papers to be filed by May 9, 2024, opposition papers by July 2024, and reply papers by August 9, 2024. If this matter goes to trial, we would expect the trial to commence in the fourth quarter of 2024 or sometime in 2025. Moving on to our outlook for 2024. I'm on Slide 9. We have reaffirmed our guidance and continue to expect sales to range between $270 million and $280 million and adjusted EBITDA from continuing operations of approximately $16 million to $18 million or an adjusted EBITDA margin of 6.2% at the midpoint of revenue and adjusted EBITDA. We continue to expect capital expenditures to range between $4 million and $5 million and free cash flow to range between $18 million and $20 million for the full year 2024. Consistent with our historical seasonal pattern, the second quarter is expected to decelerate compared to the first quarter; therefore, second quarter sales are expected to be between $58 million and $62 million and adjusted EBITDA is expected to be between $0 and $0.5 million. I want to reiterate that our outlook does not include any expense for ongoing litigation specifically relating to the Section 16B matters, the CPSC matter, or further increases in PFAS-related inventory reserves. As we look forward to the remainder of 2024, we are pleased with the incremental progress we are making in both the outdoor and adventure segments, and we believe the foundation is in place for profitable growth ahead. While hurdles remain, we are confident in the exceptional team we now have in place and our new positioning as a pure-play outdoor company. At this point in the call, operator, we are ready to take questions from the participants.

Thank you. Our first question comes from Laurent Vasilescu of BNP.

As well as thank you for a detailed presentation this afternoon as well at the Investor Day a couple of weeks ago. It was good, good. It was very detailed, and I appreciate having the team on the call today. I wanted to ask Mike about the guidance for revenues starting off the midpoint for Q2 with mid-single-digit growth, which is great. But the guidance on the back half which suggests that 2 revenues are down high single digits by my rough math. Can you just kind of walk through what's happening there? Is that a level of conservatism, or is there something that we should consider separate from that?

It's a bit of a mixed situation. Last year, we generated around $59 million in Q2, and now we're seeing about a 60% increase from that midpoint. If we maintain this momentum, the second half could generate approximately $145 million to $150 million in revenue, averaging about $75 million in Q3 and Q4. Last year, we recorded about $83 million in Q3 and $76 million in Q4, indicating a slight decrease. As we adjust the business, slower revenue may occur. However, I believe there may be some conservative estimates at play. We have set a budget and aim for a backend-loaded performance, which aligns with our business model. Our Black Diamond outdoor segment primarily operates in Q3 and Q4 during the winter months, while our venture business peaks in the summer in the Southern Hemisphere, which aligns with Q3 and Q4 as well. We anticipate a return to profitability and growth in the second half, but this is currently how our projections look. I see it trending towards flat year-over-year, and this will be the source of our revenue in the latter half.

Very helpful. I have a second question regarding the EBITDA margin of 6.2% for the full year. If I'm not mistaken, this will primarily derive from gross margin, so I would like to inquire about gross margins. I believe they increased by 60 basis points on an adjusted basis. How significant is the impact of promotional pricing this quarter? Additionally, how should we view the evolution of gross margin, especially in Q2 and for the remainder of the year?

Gross margin should be a little better in Q2, but not a whole lot. I mean, maybe 37%. You should be right, kind of around where we're at 36.9%, 37%, 37.2%. I mean it's probably in that range. The promotional pricing, there's still some of that going on for sure. And as Neil highlighted in his comments, the market is still requiring promotional pricing, but we don't think we're participating at the same level of the market is. But that doesn't mean we're not using promotional pricing. To answer your question specifically, I think there's 30 or 40 bps of pressure from promotional pricing is our best estimate in our margin.

Last question, if I may. Any comments around inventory levels at your key retail partners in the U.S. within the outdoor category? I know it's been challenging for many key retailers, but I’m curious about your sense of their inventories. Are we finally at the de-stock level and potentially nearing a re-stock point?

Well, I think the short answer is yes, but there are categories where some of our partners, categories of inventory that they're still overstocked. But as we mentioned, we saw a 10% increase in our North American wholesale, which is a good sign that they are restocking, especially in the categories that we're a market leader in. So that's been specifically the decline. Neil's comments also highlighted, though, that the channel is over in Asia, which was only 10% of revenue. They're still struggling with too much inventory. But fortunately, that's only 10% of our revenue.

One moment for our next question. And our next question comes from Matt Koranda of Roth MKM.

Just one of the prior Mike. I just wanted to take off the prior question for sort of the consolidated outlook and just wanted to understand or make sure you put a finer point on for the second half with the implied growth rate dropping off. Is that largely because we have tougher comps in Adventure? Or is that because we just still sort of lack an inflection point in demand and outdoor? Maybe if you could just take a segment by segment and just kind of give us the rationale there.

It's a bit of both. Internally, we were exceeding $150 million, which I mentioned for the latter half of the year, but I don’t want to commit to that until we progress further into the year. One quarter doesn’t define an entire year. We need to execute over the next 90 days to gain better visibility for the second half, but we are confident in our preseason orders for the fall and winter seasons. The outdoor and adventure sectors showed significant growth in the fourth quarter, which may be challenging to replicate. We experienced 43% growth last quarter and 27% growth this quarter, reflecting the team's efforts. However, we need to advance further into the year to feel confident about the second half.

Okay. Fair enough. And then I've got one question for each of the segment leaders, so maybe just outdoor and Neil first. The positive 10% in North America wholesale is definitely an encouraging data point. Just wondering if you could maybe unpack for us the categories that are working, where you're seeing some growth, the types of retailers that are participating in that growth, and then where is there still room for improvement in North America?

Yes. Thanks, Matt. So the good news is, I think the places that we're seeing the growth are in our core categories where we've really put the focus on building on our positions of strength where we're #1, 2 or 3 in those categories, things like trekking poles, lighting, and a number of our climbing categories. I think that's a combination of marketing programs that we've put in place, importantly, reallocating our inventory dollars to get behind our core categories and our top styles, which has really led to a big improvement in fill rate year-over-year and kept down a lot on that friction that we've had in the retail channel with our retail partners over the last couple of years. So I think it's good to see the fill rates coming up. It's good to see the friction going down. I think our retail partners are much happier with our performance in both sell-through and the ability to support that sell-through for service. The other thing I would just say, as sort of an addendum to Mike's comments around revenue for the outlook for the year, bear in mind, too, that some of the revenue outlook for Black Diamond includes the exit of categories such as ski binding and other things that we'll be getting out of over the course of the year. So bear that in mind as you think about factors that affect year-over-year comparables on the top line, less stores this year than we had last year, et cetera. Does that answer your question?

Okay. Yes. Yes, that's helpful. Neil, I appreciate that. Maybe just turning to Adventure and that. I guess you called out operating margins being a little bit impacted by mix and the OEM business that you're pursuing and winning. Just curious, I guess, one, why pursue that business if it isn't sort of accretive to margins for the segment, just given the margin goals that you have over the next several years? And then I assume that probably means that you see a path to improving those. And maybe just if you could highlight for us what levers you have to kind of improve margins on the OEM side of the business to get them back up to kind of that aftermarket sort of cadence?

And look, great question. I'll start by saying that historically, our OEM business has been very much focused on our backyard in Australia. When I outlined the opportunity at the investment session, it really is about the growth opportunities in the U.S. and outside of Australia and New Zealand. So part of that is establishing a team that's facing the growth opportunities that exist in the U.S. and directly with the likes of the co-operations increasing our partnership with Polaris, our motorcycle offering in the U.S. in 2024. So it's about finding that opportunity. Now the reason OEM is so important is it does give you access to accelerated aftermarket programs. A good example is we are the global partner from an AMD point of view for the launch of the new Land Cruiser, which is returning to the U.S. We had great success in Australia with that and its approximately 4,000 units. The challenge is when you don't have that on a global level, the size and scale is a lot bigger in the U.S. So the investment with the new global head of OEM based in the U.S. is actually partnered directly with the larger market and one of the driving forces in order. That's where the growth opportunity lies. And that's the right sizing of the margins as well, just getting that scale. So it does give us access and first-in-class kind of our positioning to have new products hit the market at the same time as the new vehicles because the development timelines can range from 2 to 5 to 7 years depending on delays in auto production, and then it gives us the readiness for aftermarket programs. Outside of that was margin improvement, and it really is also about bringing the size and scale outside of OEM and, but also making sure we're seeing improvements in the direct to consumer (DTC) side, as in the second half of this year, we'll be launching new platforms across digital – new websites that we haven't really focused on, and we have not done direct to consumer. And this is getting done in line with supporting key wholesale that lends to seeing margin improvements as well. So, it's a number of different levers and I guess that's kind of the good thing as we go throughout this year; we’re adding a lot more firepower across multiple growth opportunities versus relying on a single aftermarket product or a single OEM partner. Matt, does that help kind of give you a high level on that?

Yes, that's a great area. I appreciate that, Matt. I'll take the rest of my questions offline. I appreciate you guys.

Thank you. And our next question comes from Mark Smith of Lake Street.

First, I want to ask on the PFAS products on kind of where we are, kind of what we got through here in industries or in this quarter and kind of how you feel that's coming along.

Good question, Mark. No, we're progressing well with that. We're working with all the opportunities to move the inventory that we have that has PFAS in it. There's actually some exceptions we're looking into to take advantage of for some extreme weather here that will give us another year to move that inventory as well. And then there are also regions where they're still acceptable to sell that. But with all that being said, like I think I mentioned in the last call, we said there's $3 million to $5 million of exposure. And I think that number is probably very similar, still $3 million or $4 million of exposure, but that's why we've gone ahead and booked the small 25% of that number here in the quarter.

Perfect. And then another question for me. Just as we think about inventory in general today and primarily within outdoor, how do you feel about the improvements are positive, but how do you feel about that total inventory number today? Are we in a good place? How much is there to kind of move what's a good level where you'd like to be?

I'm very pleased. In 2023, we aimed to reduce inventory, and in 2024, we will continue this reduction with a clear purpose. Last year, the focus was on lowering inventory to generate cash and pay down debt. This year, our strategy is more tactical, as we're now categorizing inventory into A, B, and C. We're adding back inventory that meets demand and helps improve our fill rate. This focus is on high-margin products that our customers want. Overall, I expect inventory to keep decreasing. By the end of Q2, it may increase slightly as we prepare for the fall and winter, but I anticipate that by year-end, our inventory will be significantly lower compared to last year, with a much healthier mix.

And our next question comes from James Duffy of Stifel.

Yes, I wanted to discuss your investment plans as you build your strategies for replatforming outdoor DTC, updating systems and otherwise simplifying the business. So how should we be thinking of SG&A dollar growth on a year-over-year basis as 2024 progresses?

Good question. I think Neil mentioned that we are being very careful with SG&A. Our operating costs have actually decreased by 8% compared to last year. It's all about simplifying our processes and making the best investments that offer high returns, whether that involves hiring new employees or investing in capital expenditures, like installing new systems that we will capitalize on our balance sheet. That's the lens through which we evaluate all investments, whether related to operating costs or capital. Neil, Warren, and I are all aligned on this approach. When we consider SG&A, I don’t anticipate a significant increase. It's primarily about how we allocate the available funds and directing them toward the most promising opportunities.

Okay. And then as we think about gross margin drivers for the year, the BD Asia office is a meaningful driver long-term. Can you provide some expectations for timing of the BD Asia sourcing and product development office to influence gross margin?

Yes. Great question, Jim. That's the investment we're making this year, and we won't see the full benefit of that until next year.

Thank you. I'd like to turn it back to Mike Yates for his closing remarks.

Great. Great. Well, I want to thank everyone very much for participating in our call today and your interest in Clarus and your continued support. We look forward to updating you at investor conferences over the coming months, I'll be on the road at three or four conferences and then again in 90 days when we report the second quarter. Again, thank you very much, and we'll talk soon.

This concludes today's conference call. Thank you for participating, and you may now disconnect.