Clarus Corporation (CLAR) Q2 2025 Earnings Report, Transcript and Summary

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the second quarter ended June 30, 2025. Joining us today are Clarus Corporation's Executive Chairman, Warren Kanders; CFO, Mike Yates; President of Black Diamond Equipment, Neil Fiske; and the company's External Director of Investor Relations, Matt Berkowitz. Following their remarks, we will open the call for questions. Before we go further, I would now 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 will 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 for joining Clarus' earnings call to review our results for the second quarter of 2025. I am joined today by our Chief Financial Officer, Mike Yates, who will cover our overall performance and our Adventure segment as well as Neil Fiske, who will discuss our Outdoor Segment. During the second quarter, we experienced a mix of positive and negative trends across our individual segments, selling channels and geographies as we continue to manage through the realities of the current global consumer landscape. Overall, I am pleased with our progress against our operational initiatives as we simplify our organizational structure and streamline our product offering. We generated net sales of $55.2 million, consistent with our quarterly expectations, with a slight increase over the same period last year. Mike and Neil will touch on the figures in more detail, but at a high level, the increase reflected solid performances in both European and North American wholesale at Outdoor and improvement to North American wholesale and direct-to-consumer channels at Adventure. On the other hand, our direct-to-consumer performance and overall site traffic at Outdoor softened as consumers continue to pull back following Liberation Day and we saw continued deterioration of our legacy OEM accounts at Adventure. While the macro environment remains uncertain, particularly with respect to evolving tariff policies and consumer behavior, our focus is controlling what we can to position Clarus for sustainable, profitable growth as market conditions normalize. We continue to reduce complexity at Outdoor as evidenced by our improved financial results year-over-year. Sales, margins and adjusted EBITDA all increased in Q2 at Outdoor despite choppy consumer sentiment. We delivered on our commitment to raise our going-in product margins while improving the quality of our inventory and revenue. Specifically, the team has done an outstanding job enhancing our inventory composition with less exposure to discounted merchandise and a healthy concentration in our most profitable A styles, which we believe will position Black Diamond to grow its full price business in the back half of the year. I would also highlight that we completed the sale of our PIEPS snow safety brand and intellectual property rights associated with Avalon Safety Equipment in July for $9.1 million, representing a highly successful outcome after a comprehensive strategic review and competitive process. The divestiture is aligned with Claris' simplification strategy and further bolsters our balance sheet. Turning to our Adventure segment. I am pleased with our progress since we reported our last quarter amid personnel changes within the team. We've reengaged with each key customer and believe we have a good sense where our best-in-class brands can win prospectively. We have taken key measures to simplify the cost structure and flatten the organizational reporting in light of slower demand trends. Our global wholesale and direct-to-consumer businesses increased by approximately 8%, partially driven by bike rack sales and was offset by the continued soft demand at certain legacy retailers. Our sales declined over the prior year quarter, due in part to the drop-off in customer-specific OEM sales, which were down by approximately $3.1 million. We have emphasized reducing overhead, eliminating R&D projects on lower-margin categories and supporting a handful of key product launches that we believe will yield results in the second half of 2025. As we look forward, we are focused on unlocking value at each of Outdoor and Adventure. In connection with the development of 3- year plans for our businesses, we have initiated an internal review to ensure we are evaluating all possible opportunities to create value for shareholders. This includes, but is not limited to, further simplification and further cost reductions, incremental to those taken in July, which Mike will outline. Additionally, we believe that the sum of the parts of our 2 segments exceeds today's market valuation, and we are committed to seeking to maximize long-term value. In terms of near-term capital allocation priorities, we are focused on reinvesting in our existing 2 segments to seek to drive organic growth. Supported by a nearly debt-free balance sheet and our current cash position, our goal is to maintain flexibility and discipline in how we deploy capital with an emphasis on the highest return opportunities. Zooming out the primary question for Clarus and the Outdoor market as a whole continues to be how macro conditions will evolve during the remainder of the year. We have begun implementing countermeasures to mitigate a portion of the impact from tariffs as you will hear more about shortly, but uncertainty around consumer sentiment and demand in the back half of the year makes it very difficult to confidently forecast. In the face of these challenges, we continue to take decisive actions to strengthen our cash position and improve our profitability while maintaining our competitive position in the market. With that, thank you for being with us today, and I will turn the call over to Neil.

Thanks, Warren. Turning to Slide 6. I will review the Outdoor segment's Q2 performance and our expectations for the remainder of 2025. Overall, we delivered solid results in Q2 that were affected by wavering consumer sentiment in a chaotic macro environment. I'm pleased with our progress, the strengthening of the Black Diamond brand and the continued transformation of the business. Revenue, gross margin and adjusted EBITDA were all up as we continue to simplify move toward a more full-price model and improve the quality of revenue along with the quality of our brand execution. We have now completed the sale of our PIEPS snow safety brand, as Warren mentioned, which will further simplify and narrow our focus. My remarks for the quarter, therefore, exclude PIEPS. In addition to the divestment of PIEPS, we're dealing with 2 unusual and somewhat unpredictable factors impacting our results, tariffs and currency. I'll address those at the top of my remarks and then turn to the operating results. First, currency, with 33% of our revenue coming from Europe, the euro-dollar exchange rate has a significant impact on our financials. We began the year at EUR 1.035 euro to the dollar and hedged about half of our revenues for the year at $1.08. Few would have predicted the rise to $1.18 following the initial April tariff announcements. That sharp rise in the euro put our hedge position underwater for the quarter and likely for the remainder of the year. For the quarter, the loss on FX contracts was about $447,000 in both reported revenue and EBITDA. For the year, assuming an exchange rate of $1.15, that loss would be $1.4 million. These FX contracts roll off by year-end. On the flip side, we get a gain from the FX on the translation of our European operating results. For the quarter, FX lifted EU revenues by $1.4 million and EU EBITDA by $64,000. The net of these 2 factors, the negative from FX contracts and the positives of earnings translation, is a hit to earnings of $383,000 for the quarter. The second unusual factor is tariffs. In early May, we initiated our tariff mitigation plan, which included raising prices, negotiating vendor concessions, airfreighting products were necessary and accelerating our exit out of China. Due to these actions and the lag effects of tariffs running through the supply chain, we did not see a material impact from tariffs in Q2. However, looking ahead for the year, we expect the current tariffs, which include the 10% reciprocal tariffs on most countries, 50% on steel and aluminum and 55% on China to have a $3.4 million impact on earnings even after our mitigating measures. And of course, we are all waiting to see how the reciprocal tariff situation plays out. Should these tariffs land above the current 10% level, we expect to see an additional drag on earnings in 2025. Now looking at Black Diamond operating results. Q2 revenue came in at $36.5 million, up 2.1% from prior year. Excluding the impact of FX contracts, revenue is up 3.9% from prior year in current dollars and up 2.3% in constant currency. By region and channel, excluding the impact of FX contracts, North American wholesale, our largest market, was up 1.6%. North America digital direct-to-consumer, which represents about 17% of the region's revenue, was down 20.1%. The result reflects our strategy to tighten up discounting in the pro channel, which was down 27.8%, and reducing off-price sales in e-commerce. We also saw an immediate pullback by consumers post Liberation Day and then softness in May and June as we rolled out our new tariff prices ahead of much of the market. Full price sales for digital D2C were up slightly, while discounted sales were down substantially, a mix shift to full price we expect to build upon in the back half. Europe wholesale was up 4.8% and flat in constant currency. Europe digital D2C was down 10.1% year-over-year and down 14.6% in constant currency. International distributor markets, which represent about 8% of total revenue, were up 81.3%, reflecting a permanent shift in the timing of deliveries as we discussed in our last update. Black Diamond operating gross margin for the quarter came in at 34.9%, up 80 basis points. Excluding the impact of FX contracts, gross margins would have expanded even more, and we expect gross margin to continue to improve relative to last year in the back half even after absorbing the current level of tariffs. The progress we've made in simplifying the business, improving product margins and cleaning up our inventory gives us some cushion against the tariff impacts versus our position a year ago. Black Diamond operating expenses, excluding restructuring charges, were down 0.8% and down even more in constant currency. Inventories ended the quarter in good shape with much less exposure to discounted merchandise and a healthy concentration in our A Styles. We ended Q2 at $64.2 million, up 4.5% to prior period due to our pull forwards for the fall season as part of our tariff mitigation plan. As we look to the back half, we expect that our better inventory composition will position us to grow our full-price business as we continue to shrink discounted sales, both in absolute terms and as a percentage of the mix. Adjusted EBITDA for Outdoor was a loss of $213,000. Excluding the adjusted EBITDA loss from PIEPS in the quarter of $516,000, adjusted EBITDA for Black Diamond in Q2 came in at $303,000 versus a small loss in the same period last year. In sum, we've made good progress this quarter. Sales margin and adjusted EBITDA were all up in the face of a particularly uncertain consumer and market environment. We simplified the business with the sale of our PIEPS snow safety brand. We continue to improve the quality of our inventory and revenue progressing to a more full-price business. Our apparel initiative accelerated with 11.3% growth in the category and a 21% reduction in sales from discontinued merchandise. We continue to reduce our SG&A costs. We implemented our tariff mitigation plan to offset nearly half of the projected tariff impact in 2025 at current levels. We launched our new e-com site on a more cost-effective and scalable Shopify platform and into a more connected digital ecosystem. And we published our annual impact report outlining our 2030 sustainability goals and our progress towards them. As we look to the second half, the greatest challenge remains uncertainty on tariffs, consumer sentiment and macroeconomic conditions. That said, I think we're much better positioned than a year ago to deal with all those factors. I'd like to thank our teams around the world who remain focused on building the brand, serving our sports and winning with our customers. With that, I'll turn it over to Mike.

Thank you, Neil, and good afternoon, everyone. On today's call, I'll provide some brief comments on Inventor segment, and we'll then conclude with a detailed summary of our Q2 financial results followed by the question-and-answer session. Beginning on Slide 7. Our second quarter inventory results continue to be affected by near-term pressure on the business. The top line softness at the Adventure segment reflects significantly reduced demand from a global OEM customer and a challenging wholesale market in Australia for Rhino-Rack specifically. These headwinds are partially offset by higher sales in the North American market from RockyMounts, higher sales from D2C revenues including our Amazon channel and higher sales of our promotional slower- moving inventory. While overall market headwinds continue to pose a challenge, we see signs of momentum under the new leadership of Tripp Wyckoff. Tripp and his team recognize the importance of the home market to the success of our Adventure business. And our teams continue to take steps with new customers in Australia and New Zealand across all product categories beyond legacy accounts. We are pleased to highlight a key win with a large new retail customer with 300-plus locations across Australia and New Zealand, which will roll out beginning in the third quarter. We've also taken important action to capitalize on our global brand awareness. In Europe, we are onboarding new OEM and aftermarket customers in the U.K., Sweden, Poland and the Netherlands for the third quarter. We have established a new legal entity and we'll open a third-party warehouse shortly in the Netherlands, which will allow us to better serve EU and U.K. customers directly. MAXTRAX just won a large contract with the German military, and another bright spot has been the positive reception we received regarding our newly launched [ model board ] with BMW. Additionally, we are pleased to announce 2 new distribution partners in China, which also provides local access to vehicle fitments for emerging Chinese car brands that are prevalent outside the U.S. The new global opportunities are a direct result of some of the prior investments we have made in opening new markets for our Adventure brands. As we have mentioned previously, the Americas is our largest addressable region, and we believe that we are only scratching the surface of potential growth opportunities in the U.S., Canada and Latin America. The addition of bike racks via RockyMounts to our product portfolio has already provided introductions to hundreds of specialty dealers in new key accounts. Recent highlights include: the opening of 172 new dealers year-to-date with $420,000 of revenue so far, expanding Latin American sales coverage and adding 3 bicycle channel distributors and launching a nationwide rep force of independent agents to cover specialty outdoor channels. Consistent with our strategic focus on expanding our customer base, we are excited to also announce that MAXTRAX products are now available in Academy Sports and past pro shops online, and we are gaining ground at REI, America's largest specialty rack seller. We've taken control of our brands in the Amazon marketplace, and segment-wide revenue recently hit approximately $200,000 per month. In terms of new product development and product launches, we have tightened our funnel and our focus on foundational base racks and fits. Most importantly, we are prioritizing our highest return initiatives for NPD and increasing the number of fitments we offer. As we have discussed previously, fitments are the backbone of our go-to-market strategy. The more vehicles we can fit, the more racks we can sell. By comparison, in 2024, we delivered an incremental 113 vehicle fitments versus year-to-date. We have increased vehicle fitments to 579 in 2025. From an organizational standpoint, the team has undergone significant changes this year as we work towards an optimal structure to allow us to effectively scale our brands in Australia, the U.S. and international markets while also driving profitability in a lower demand environment. We've taken these steps to flatten the organization to be nimbler and more effective in these challenging times. Specifically, earlier this month, we took action to reduce head count across Adventure with an annual run rate savings of over $1 million. But to be frank, our objective to scale the Adventure segment globally has not come to fruition. However, we are encouraged by the steps Tripp is taking to immediately improve profitability and reduce complexity moving forward. Regarding tariffs and the effects on the Adventure business, I would note that nearly all of the Adventure products are sourced from Australia and China. Based on our full year 2024 revenue, over 80% of Adventure's revenue is outside the United States. So the tariffs have a limited impact on a relative basis. However, recently, we have imported additional RockyMounts inventory into the United States to ensure we have inventory to meet demand. Currently, based on information available, we estimate that the tariff impact to Adventure is $0.5 million in 2025. Let me now turn to the consolidated and segment financial review on Slide 8. Second quarter sales were $55.2 million compared to $56.5 million in the prior year second quarter. The 2% decline in total sales was driven by the decrease in Adventure segment of 8% and an increase in the Outdoor Segment of 1%. FX was a $0.5 million headwind, and the acquisition impact from RockyMounts was a $2.1 million tailwind. The consolidated gross margin rate in the second quarter was 35.6%, compared to 36.1% in prior year quarter. Gross margin was adversely impacted in the quarter by lower sales volumes and an unfavorable product mix at Adventure, driven primarily by promotional sales efforts in North America. This, combined with lower wholesale volume at Rhino-Rack in Australia, drove the decline in gross margin. These decreases were partially offset by higher volumes and favorable mix in Outdoor. Adjusted gross margin, which reflects an inventory reserve adjustment of $490,000 at Black Diamond associated with excess inventory related to our snow safety category was 36.5% for the quarter, compared to 37.4% in the year-ago quarter. Adjusted gross margin at Outdoor was 36.1% for the quarter, compared to 35.8% in the year ago quarter. Adventure's adjusted gross margin was 37.3% for the quarter, compared to 40.3% in the year ago quarter. Second quarter selling, general and administrative expenses were $26.9 million compared to $28.1 million or down 4% versus the same year ago quarter. The decrease was primarily due to lower marketing, amortization and employee-related costs, combined with other expense reduction initiatives to manage costs across both segments and at corporate. Adjusted EBITDA in the second quarter was a loss of $2.1 million or an adjusted EBITDA margin of a negative 3.8%. Our adjusted EBITDA is adjusted for restructuring charges, transaction costs, stock compensation expense, impairment of [ indefinite-lived ] intangible assets and other inventory reserves. Additionally, as noted in prior quarters, beginning in the first quarter of 2024, we adjusted legal costs associated with the Section 16B litigation and the Consumer Product Safety Commission DOJ matter known as the CPSC DOJ matter. These legal costs were $1.8 million in the second quarter of 2025 and $2.5 million in total for the first half of 2025. The second quarter adjusted EBITDA by segment was $311,000 in Adventure and a negative $214,000 at Outdoor. Adjusted corporate costs were $2.2 million in the first -- in the second quarter. The decline in free cash flow -- the adjusted corporate costs were $2.2 million in the second quarter. Next, let me shift to liquidity. Free cash flow, defined as net cash provided by operating activities plus capital expenditures for the second quarter of 2025 was a use of $11.3 million, compared to a use of $744,000 for the 3 months ended June 30, 2024. The decline in free cash flow is due to poor working capital performance primarily inventory and AR in the quarter compared to the prior year. Total debt on June 30, 2025, was $1.9 million. As a reminder, this debt is related to an obligation associated with the RockyMounts acquisition and will be paid in December of 2025. We have no other third-party debt outstanding. As of June 30, 2025, cash and cash equivalents were $28.5 million, compared to $45.4 million at December 31, 2024. We used $11 million of free cash flow in the second quarter. Additionally, we grew consolidated inventory to $91.5 million at the end of the second quarter. This increase was intentional as we pulled forward some inventory purchases to mitigate tariffs at both segments. Additionally, in early July, we closed on the sale of PIEPS snow safety brand and realize the cash proceeds from the sale of the brand. Finally, consistent with the seasonal nature of our cash flow, Q4 historically generates most of our positive cash flow for the year. At this point in time, the accumulation of these data points gives us confidence that our cash balance will grow during the remainder of the year. A few final words on tariffs. As I mentioned already, Adventure sources nearly all of its products from China and Australia. Black Diamond sources approximately 25% from China, 31% from Taiwan, 15% from Vietnam and 12% from the Philippines and the remainder from elsewhere. As of today, we estimate that we have a $3.9 million consolidated headwind net of our mitigation efforts from tariffs in 2025 compared to our original guidance issued in March of this year. Now let me spend a moment on our outlook and guidance. Regarding guidance, we have elected to not provide guidance for the third quarter or the full year 2025, consistent with our position last quarter. Currently, based on what we know about our order book and tariffs, we are satisfied that our actions to date are consistent with market conditions. However, due to the ongoing uncertainty related to tariffs, consumer sentiment and the overall macroeconomic conditions, we believe it is best to remain cautious and not provide guidance at this time due to the difficulty to effectively forecast in this current environment. I now would like to provide an update on the outstanding 16B securities litigation -- securities litigation matters that the company is pursuing as well as an update on the open matter with the CPSC and DOJ. We continue to proceed in our lawsuit against HAP Trading, LLC and Mr. Harsh A. Padia. In early 2025, the court granted summary judgment in favor of the defendants. We subsequently filed a notice of appeal and are opening appellate brief. HAP's opposition brief is due this fall, with our reply brief to fall shortly after. The court is expected to schedule oral arguments once briefing is complete, likely in the first quarter of 2026. We also filed lawsuit against Caption Management, and its related entities and control persons. The defendants filed a motion to dismiss, which we opposed and briefing was completed during the summer of 2024. In early 2025, the court denied the motion and instructed the parties to proceed with discovery, which is currently ongoing and expected to continue through the remainder of the year. With respect to the open matters with the CPSC and DOJ, in late 2024, the company was notified by the CPSC that the unresolved matters involving Black Diamond had been referred to the Department of Justice. In early 2025, the DOJ served the company and Black Diamond with grand jury subpoenas requesting various categories of documents related to Black Diamond's avalanche beacons. We are cooperating with the DOJ and responding to discovery request. Additionally, in early 2025, the company received a letter from the CPSC requesting various categories of documents and information in connection with a new investigation into whether Black Diamond sold products that were subject to a recall. The company is cooperating with this investigation and responded to the CPSC's document request. Now turning back to our core 2 segments. We remain confident that we can deliver long-term value for the Clarus shareholders as we continue to progress our goal of building a smaller, more profitable Outdoor business and take steps to turning Adventure business around. Despite this uncertain macro environment, we see Clarus today is far better structured to withstand market headwinds and emerge in a stronger position on the other side of the current disruptions, supported by an incredibly talented team globally in a strong balance sheet, we remain focused on execution and positioning Clarus for long-term sustainable growth. At this point, operator, we are ready to take questions.

[Operator Instructions] Our first question comes from Anna Glaessgen from B. Riley Securities.

I guess I'd like to start on Adventure. You talked about some actions to rationalize the head count, but also we're growing fitments and expanding the line. I guess where are we in terms of growing the applicable vehicles that can have the roof rack and what's our line of sight into getting to a more stable platform to grow off?

Anna, this is Mike. Very good question. I mean we are focused on the basics. And one of the basics is fit, right? And in my prepared remarks, I talked about increasing the number of new fits to 579 vehicles. We're also focused on fitting the top 10 vehicles, both in the Australian market and the U.S. market. So that is a priority that Tripp is focused on. Obviously, with the goal of fitting more vehicles and fitting the vehicles that sell the most. So again, more of an 80/20 concept there that we're trying to drive into the Adventure mindset, right? But again, very basic. We're also focused on rationalizing NPD. Over the prior quarters, we spoke a lot about investing to scale and a lot of money was being spent on NPD. We're trying to really rein some of that in and focus on specific NPD that we believe has the highest returns. And then the other thing that we're really focused on is the team, right? We've taken some of the head count actions that I mentioned with the annual savings rate of $1 million, a couple of weeks ago that was done. We're trying to really focus on instead of professional managers and more of a structure that was built or being built for a $200 million business. We're trying to focus on a structure where we have player coaches, people who can telescope out and lead and then dive into the detail and kind of bring a little -- the entrepreneurial spirit, the nimbleness back to the business and really plan for the business to be a $50 million, $70 million business and have people getting their hands dirty in the details. So we're trying to be a little more nimble, a little more entrepreneurial. So those are the real priorities that Tripp is focused on. And that's what we're trying to get reset that foundation. I think once we have that done, that's when we'll be in a position to really start to grow again.

Got it. And then following up on 1 of the comments. It was nice to see the domestic sales and collect in Adventure. Can you expand a little bit more on the promotional actions you took in the quarter and the consumer retailer response?

Yes, sure. So if you go back and look at the fourth quarter release, we rolled off a couple of million dollars of Adventure inventory back at year-end, right? And we've taken the effort to actually dispose of that inventory, right, as inventory that had built up over since COVID, since middle of COVID that never sold and we wrote that off. During that process, though, last December and early in January, we identified a couple of million dollars of additional inventory that we said, "Hey, no, this is -- we're selling this stuff. We just have a lot of it. We're selling it above our cost, but we have a lot of it. So I challenged the team last January to say, we have to move that inventory, right? Let's turn that into cash. So the team has done a great job moving some of that inventory. I think we've moved about half of it here through the first 6 months, a lot of it going in April and May when the season started here in North America. And that's -- but -- it is a drag on margin. We're recovering our costs, but it's not normal price inventory or full price margin.

Got it. And then just one follow-up for me on Outdoor. Just trying to parse the year-over-year commentary on this discontinued merchandise sales. To what extent is that a like-for-like comparison? Or was that impacted by PFAS inventory clearance in the prior year quarter?

It definitely is impacted by the PFAS, right? We sold the last -- we have a little PFAS inventory left, but we sold the vast majority of it -- the last of it in Q1. So we didn't nearly move as much in Q2, that's compared to what we sold a year ago in Q2 from PFAS. But the other point though, and I'll let Neil comment is our mix of our inventory is in much better shape here as of June 30. Our DM inventory is down significantly compared to a year ago. So we're just selling less discount. And that's consistent -- we're selling less discontinued merchandise, and that's consistent with Neil's statements where he was saying, hey, we're moving towards a full price model. We want to -- we don't want to sell a lot of discounted inventory, obviously. So that's our objective, and the team is executing on that. Neil, anything you want to add to that? Anything you can add?

No, I think you captured it well, Mike. So a big chunk clearly was less -- less PFAS this year than in the prior year, but also non-PFAS DM is down year-over-year versus the same period. And also, the depth of our promotions on things like map breaks and holiday windows are much shallower than they were a year ago. So really, all 3 of those factors. And I think one of the things we're thinking about is as we go forward in a world of higher tariffs moving towards full price margin as much as we can, it's going to be really important to give us more buffer to offset any or some of the impact of tariffs.

Our next question comes from Matt Koranda from ROTH Capital.

So just trying to get a better sense for the outdoor revenue trend and maybe trends in growth for the rest of the year for outdoor. So I guess if I take it apart for the second quarter, it sounds like the bulk of the growth was probably driven by the international distribution shift, the core direct channels are maybe down high single digits to low double digits year-over-year, just given sort of the lower promotional posture, but you're getting, I guess, lift in full price selling. Maybe could you confirm that, that's sort of the right way to think about what happened in the second quarter and then for the back half of the year as we think about getting back to growth in those scores. How do we think about that and sort of I guess, what's the reaction from your wholesale customers then in terms of your price actions that you've taken recently?

Yes, number since that...

Go ahead, Neil.

Matt, good questions. I think maybe let me just break down the channels and sort of our view of H1 and H2, really zooming out for a little bit, the business is still primarily a wholesale-based business. And roughly 80% of our business is wholesale and distributor markets. And so start there, wholesale is in very good shape. Wholesale was up for the first half, and we expect wholesale to be up low single digits in the second half. In particular, if you look at North America wholesale, which is kind of our largest wholesale segment, saw pretty good growth there, 1.9% year-over-year. Europe was flat on a constant currency basis. And then IGD, as you pointed out, the distributor markets had a little bit of a shift from Q3 into Q2, but that's not really the factor driving the overall growth in wholesale. It's a relatively minor impact, about $0.5 million. So we feel pretty good about the organic -- the return to organic growth in wholesale. And then as we look forward, based on the order book that we're seeing, we feel pretty confident in the order book as it stands now versus a year ago. So the order book in Europe is up about 5% year-over-year to the same point last year and up double digits in North America. Now the order book is one thing, what we actually realized from that order book is another. And that latter factors, particularly in North America, critically dependent on how the market plays out, how the consumer holds up. But I would say the wholesale business is quite healthy. The margins are up. And we feel good about the back half based on the order book. With regard to the -- and I'll come back to D2C in a minute. With regard to how the wholesale channel has reacted to our price changes, you may recall, our philosophy on this was to be transparent, get out early, give the wholesale channel enough time to adjust. So we went with our price increases in early May, which was well ahead of most of the competition. And I think in the end, that was a good move and benefited us with our wholesale accounts. I think it's been as well received as to possibly have been. And while they didn't all take prices up immediately, that extra bit of time gives them time to plan, adjust and also confirm their fall 2025 orders. Whereas now, I think, with a lot of our peer group, they've taken prices up in July, and there's quite a bit of commotion now in the wholesale channel about how to adjust to those price changes right at the beginning of the season. So all in all, I think the price increases have gone as well as we could have hoped, but we really are at the beginning -- the beginning to see how that plays out. And frankly, we remain cautious about the price increases in this consumer environment. Nobody has a crystal ball on that. But at least from an underlying order book, across all the regions. We feel confident that we can deliver some low single-digit organic growth in the back half. Then turning to D2C. It's quite a different story D2C, one from a strategy standpoint, two from a timing perspective. From a strategy standpoint, we have moved D2C even more aggressively to a full price position. And we rolled out prices early -- new prices early in North America on D2C. And so the combination of less discounting and less promotion and higher prices, we saw a pretty sharp pullback in the D2C channel, 20% in North America, a little bit more modest in Europe. And it's always difficult to gauge how much volume you're going to lose when you take prices up and you reduce discounting. I think that because we went ahead of the market with our prices and Amazon and other retailers didn't go as quickly, that naturally tended to suppress the sales in our D2C channel. That being said, I think the outlook for the back half in D2C is still going to be soft, likely will be down year-over-year, but deliberately so as we really try to move that channel to much more full price. And then lastly, within D2C, as you know, there's a pretty big component of that, that is our pro channel. And we've really tightened up the discounting in the pro channel, given that discount out to fewer pros and then shallowing out the amount of discounting overall that goes to anybody who's in the program. So quite a different set of dynamics, I think, in D2C versus wholesale. But again, in kind of an 80-20 perspective, where wholesale is still 80% of our business, we feel quite good about the strength of our relationships with key retailers or growth in big accounts as well as specialty and our position heading into what we think is going to be a pretty turbulent second half.

Okay. I appreciate you unpacking a pretty complicated question there, Neil. Very clear. The other thing I was curious about was just on the PIEPS front, was that included in the first and second quarter results, remind me sort of what was included for this year before the sale? And then what's the full year headwind, I guess, if you were to think about what it contributed in '24, what we're missing out on for '25?

Matt, it's Mike. So in the 10-Q, the published results today in our press release and earnings release, that all includes PIEPS, okay? So the assets and liabilities have been pulled out of the balance sheet and added as of June 30 presented as assets held for sale and liabilities held for sale on the balance sheet. But the P&L for the quarter and for the 6 months includes PIEPS. Neil's commentary today in the prepared remarks, he spoke just to BD because that's the way he's been managing the business, right? So -- but the official filings in the numbers presented include PIEPS. From a headwind perspective, there is no headwind. The sale of PIEPS is accretive. I think in my prepared remarks, I highlighted that PIEPS lost $600,000 of EBITDA in the quarter, right? So it will be accretive by addition through subtraction. And in '24 numbers, we lost money as well.

Yes. Okay. No, I understood. I was just trying to make sure we didn't, I guess, over model revenue in the back half as we kind of compare to last year. Any help on what PIEPS, I guess, contributed from a sales perspective in the second half of '24. That way we can kind of strip that out?

It's a couple of million dollars.

Yes. Okay. Not a huge contribution. Got it. Understood. And then maybe just if I could ask another one on the Adventure segment. I guess we've been going through this downturn, especially in the Australian market with the OEM customer? And then I think a retailer that you guys have called out a few times as sort of a bit of a headwind on results in the Australian market. But just remind us, when does that headwind -- when do we start to lap that headwind? It's been a few quarters now, I think, I'm trying to remember if it was third quarter from last year where it started or if it was more of a fourth quarter event? I'm just trying to get a beat on sort of when we kind of see inflection in the Australian market?

I think we've done -- this quarter, we anniversary, meaning the third quarter, we anniversary the OEM sales. So just to be specific, the OEM sales Q2 of '25 versus Q2 of '24 were down $3.1 million. In the third and fourth quarter, OEM sales last year were less than $1 million, I believe. So you're not going to see nearly as large impact. So I think we've essentially anniversaried that here as of June 30, right? With regards to the weakness in the other large customer, we're probably able to anniversary that here in the back half of this year, right? That was a very significant customer in '22 and '23, shrunk '24, it's getting even smaller here in '25.

Yes. Okay. All right. Got it. So that anniversary is probably a third into the fourth quarter, I would assume.

Yes.

Okay. That helps a bit. And then maybe just lastly, just can you talk about sort of cash flow for the remainder of the year. It sounds like the message was working capital source of cash for the back half most likely. So it seems like an opportunity to flush some inventory and build a little cash from working capital, then you get the net proceeds from PIEPS, which I assume there's not too much friction from the total amount that you guys quoted from the press release, but maybe just talk about if there's any gap in terms of the headline number and maybe some net cash proceeds from that. And maybe just lastly, if you could speak to sort of priorities for the rest of the year in terms of cash. It sounds like organic reinvestment was kind of the main message from the prepared remarks, but any consideration given the sort of share buyback, more deployment on that? Just kind of given you guys talked about the sum of the parts being undervalued, maybe just thought process there.

Okay. So from a cash standpoint, yes, cash is a priority for us. We'll be very -- I don't anticipate us doing a buyback because we want to protect our cash and invest it organically back into the business in the best opportunities. So with regards to the sales proceeds from PIEPS, there is a little bit of friction there, about $1.5 million. So the $9.1 million probably feels a little bit more like $7.5 million, actually hitting the count here in July because some of that cash was on their balance sheet and that got sold as part of the transaction. With regards to working capital being a use in the second quarter, it was, right? About $4 million of working capital was negative and was directly result of inventory. I highlighted that we -- inventories are over about $91 million. We pulled some inventory in at both Adventure for RockyMounts and at Black Diamond in advance to mitigate some of the tariff impact on both those businesses, right? So it's more of a timing that we received some inventory in June that we would normally get in July or August, right? So with that being said, I think cash is a priority. We'll be very disciplined around FX, right? We'll invest in CapEx that will help grow the business, necessary CapEx. CapEx that would be nice to have. We're going to be very prudent with. So going forward, consistent with the prepared remarks, our objective is to definitely see cash grow in the back half of the year.

Our next question comes from Mark Smith from Lake Street.

First, Mike, just wondering if you can just clarify and go through quickly the country exposure on tariffs again and kind of your mix?

Sure. Sure. At Adventure, most of -- they source everything from China with a little bit coming from Australia -- made in region in Australia, okay? For Black Diamond, the majority of our inventory comes from Southeast Asia, I'm looking for the exact piece here, 25% from China, 31% from Taiwan, 15% from Vietnam and 12% from the Philippines with the remainder coming from elsewhere. We've moved all manufacturing essentially out of the U.S. effective at the beginning of this year. So the team is still focused on moving inventory out of China, like we talked about in our last call, our production out of China, sourcing out of Chine, but that won't take place until 2026.

Okay. And that was my next question, just if there's any other near-term moves in the mitigation plans that we should expect? Or is this just kind of wait and see where things end up for everybody before we see any movement?

Right. I think that is our strategy. The stuff that we make in China is mostly our electronics, I think our BD headlamps. We're waiting for that to -- everything to settle to see what the proper move is with regards to that because -- with the update -- with the tariffs update on Vietnam, we thought that was going to be a solution. As we dug into that further, I think we're less enamored with that as a solution, but we're waiting to see.

Okay. And then the other question I had was just on RockyMounts. Just curious, thoughts here on that performance, how that business has been operating?

We're thrilled with it. We think, at $2.1 million of revenue here in the quarter, it's a fantastic product. It's just a matter of getting more traction with the specialty distributors, specifically the bike shops because historically, we haven't had that relationship, but we're building on that. I highlighted that in the prepared remarks. So we think there's -- we're excited about what that can bring in coming years.

Our next question comes from Peter McGoldrick from Stifel.

This is Alex Douglas on for Peter. A couple for me. I think -- so the first one is on gross margin. It's down close to 100 bps gross margin in 2Q. You mentioned tariffs didn't really impact the second quarter. So then is it fair to assume that there would be more gross margin headwinds in the back half than the first half? Or are there other kind of like tailwinds that would kind of like offset from that? I know you said you can mitigate some of the tariff exposure, but not all of it. I would just like your thoughts there.

Sure. Sure. So if you look at our gross margin, our consolidated gross margin was down. I gave the details by segment. I think the Adventure segment was down 300 basis points on an adjusted basis quarter over quarter. Black Diamond was up 30 basis points on an adjusted basis. And I should say Outdoor, the full segment was up 30 basis points, inclusive of the drag from PIEPS. Included in that 30 basis points up is $0.5 million from FX. So it would have been up even more if kind of in the constant currency without the FX headwind that Neil mentioned. Over at Adventure, so tariffs didn't hit yet in Q2 but we did have that headwind from FX. Also there have been from PIEPS in the published results. Over at adventure, we're down 300 basis points, in that is volume, the volume specifically form the OEM business in Australia and the wholesales business in Australia compounded frankly by some of the lower margin sales that Anna just asked about the promotional sale activity in North America that occured. I mentioned that we sold that above cost but not much above cost. So those things all combined brought adjusted margins at Adventure down 300 basis points. So that's the headwind. Going forward, yes, we have the tariff impact in the back half, but we don't have the PIEPS, et cetera. So gross margin will be challenging compared to our original plan at the beginning of the year and prior to Liberation Day, But all of the work that we had done in advance of tariffs being announced in April, a lot of that good work is going to be offset by the tariffs. But I believe, and I think in Neil's prepared remarks, he -- we still believe margins on a year-over-year basis in the back half for Black Diamond will be up regardless of that.

One other point just to add. So the other factor here is we push pretty hard to get inventory clean in the first half, and we were actually ahead of our pace in terms of clearing discontinued merchandise. So that obviously was a little bit of a drag on the margin in H1, but we should get some pickup from that in H2. So that would be the -- I think the other thing to keep in mind.

More so in the first quarter than the second quarter, but yes, I totally agree with that.

And then just kind of a question on the longer-term margin structure. It looks like pre-COVID, you guys -- gross margin was kind of like around 35% adjusted EBITDA margin was like high singles, once we get past some of these transitory headwinds, is that kind of the right way to think about kind of the margin structure in the midterm?

It's reasonable. It might be -- I would think it's a little higher than that, but it's reasonable.

Okay. Got it.

A point or two, a point higher, right? That's kind of how -- like I said, I would have thought we'd be closer to the high 39% -- 39%, but some of the tariff pressures bringing us back down to that 36%, 36.5 type percent.

Okay. That's helpful. And then I guess my last question if there's time would just be on inventory. As we're kind of modeling inventory, how should we think about inventory growth through the remainder of the year and specifically like related to sales?

Well, I'll comment on inventory with regards to the -- I mentioned it was over $91 billion here at the end of June. I expect that to be $10 million lower by the end of the year, right? That's what we're managing towards, right? So that will help drive the positive cash flow, I've mentioned. That's also consistent with historical performance, including our historical performance where our revenue is much stronger in the back half of the year. Of course, we are a little cautious on revenue right, consumer sentiment, the macroeconomic, all the reasons we're not giving guidance, right? But I would add, I still -- we still believe that the historical trends on the top line hold, right? We did -- we still believe that there's a 45%/55% split between first half and second half in revenue. So, I think as you look at your model or as you kind of look at the business, those historical truths, I think, are still reasonable as we progress here in 2025, the 45-55 split first half, second half on a consolidated basis and actually by segment basis, both these businesses, Adventure and the Outdoor, the second half of the year is 55% of the full year revenue.

The question-and-answer session is now closed. I will now turn it over to Mike Yates for closing remarks.

Thank you. Thank you, everyone. Thank you very much. I want to express our appreciation for your continued interest in Clarus and spending this time this afternoon on the call. We look forward to updating you on our results again next quarter and see the -- out at the conferences and any other questions. We look forward to spend time with you. So take care, and thank you again. Bye.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.