Clarus (CLAR) Q3 2026 Earnings Call Transcript

DATE

Thursday, Nov. 5, 2026

CALL PARTICIPANTS

• Executive Chairman - Warren Kanders
• Chief Financial Officer - Mike Yates
• President of Black Diamond Equipment - Neil Fiske
• External Director of Investor Relations - Matt Berkowitz

TAKEAWAYS

• Consolidated Sales -- $71.2 million, representing a 2.7% increase year over year driven by growth in the Outdoor segment.
• Outdoor Segment Revenue -- $54.7 million, up 12.4% year over year reflecting strength across global wholesale, independent distribution, and direct-to-consumer channels.
• Adventure Segment Revenue -- $16.5 million, a 20.2% decrease due to a challenging consumer environment and unfavorable wholesale market in Australia for Rhino-Rack and MAXTRAX.
• Consolidated Gross Margin -- 41.0%, an increase from 35.1% in the prior year quarter, including an approximately 80 basis point benefit from IEEPA tariff recovery.
• IEEPA Tariff Recovery -- $600,000, consisting of $495,000 recognized in the Adventure segment and $70,000 in the Outdoor segment.
• Outdoor Segment Adjusted EBITDA -- $8 million, an 80.7% increase year over year driven by higher volume, improved inventory quality, and reduced discounting.
• Adventure Segment Adjusted EBITDA -- $800,000, up from $300,000 in the prior year quarter despite lower sales volume.
• Full-Year Revenue Guidance -- $251 million to $255 million, raised from the previous low end of $245 million.
• Full-Year Adjusted EBITDA Guidance -- $15 million to $17 million, representing an increase from the previous range of $12 million to $13 million.
• Outdoor Inventory -- $73.8 million at quarter end, with a target to reduce the balance to $67 million by the end of the year.
• Mountain Category Growth -- 15.2% for the quarter, aided by a product collaboration with Norda Footwear.
• Climb Category Growth -- 15.1% year over year, supported by the relaunch of the Magnetron carabiner and momentum in rock shoes.
• Apparel Category Growth -- 3.3%, marking the sixth consecutive quarter of growth for the category.
• North America Retail Comparable Sales -- 23.6%, accompanied by gross margin expansion of 580 basis points.
• International Distributor Channel (IGD) Sales -- 31.9% growth, reflecting record levels of at-once order demand.
• EMEA Revenue Growth -- 27% year to date, supported by new distribution capabilities and a facility in the Netherlands.
• New Dealer Incremental Revenue -- $1 million year to date, following the addition of more than 120 new dealers in the Americas.
• Selling, General, and Administrative (SG&A) Expenses -- $25.3 million, down from $26.2 million in the prior year quarter due to lower outside service and corporate employee costs.
• Net Income -- $3.3 million, or $0.09 per diluted share, compared to a net loss of $1.6 million in the prior year quarter.
• Adjusted Net Income -- $5.7 million, or $0.15 per diluted share, up from $400,000 in the prior year quarter.
• Corporate Costs -- $2.0 million for the quarter, with full-year expectations increased to $9 million from the previous $8 million estimate.
• Free Cash Flow -- $7.4 million outflow, compared to a $6.9 million outflow in the prior year quarter, primarily due to higher accounts receivable at Outdoor.
• Liquidity Position -- $20.8 million in cash and cash equivalents as of Sept. 30, 2026, with total debt at zero.
• Q4 Revenue Guidance -- $62 million to $66 million.
• Q4 Adjusted EBITDA Guidance -- Approximately $3 million.

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RISKS

• Fiske stated, "we remain mindful of cautious consumer sentiment and potential adverse macro factors, as well as the potential of a warmer El Niño winter on cold weather categories," noting that warmer temperatures in regions with high population density typically reduce sell-through of insulation and accessories.
• Fiske warned that the company is seeing inflationary pressure in material feedstocks such as oil, polyester, nylon, and metals, along with higher freight costs.

SUMMARY

Clarus Corporation (NASDAQ:CLAR) reported financial results for the third quarter of 2026, highlighting a shift toward improved profitability through a simplification strategy and focused product prioritization. Management indicated that the Outdoor segment experienced growth across all major categories and regions, while the Adventure segment remained pressured by challenging consumer conditions in its primary Australian market. The company utilized its refined cost structure and higher-margin product mix to drive gross margin expansion, aided by the recovery of previously paid import tariffs. During the call, executives discussed ongoing efforts to explore strategic alternatives with financial advisors to unlock unrecognized market value. Management expressed confidence in its ability to maintain margin improvements while continuing to invest in selective product innovation and international distribution expansion.

• The company continues its review of strategic alternatives with financial advisor Jefferies LLC, which may include the sale of all or part of the business.
• Executive Chairman Kanders stated, "We continue to explore a range of potential actions aimed at unlocking value more effectively than the market is recognizing today."
• Management noted that the Adventure segment is expanding its reach into the automotive OEM market, establishing new relationships with brands including Bentley, Porsche, Jaguar Land Rover, and Mercedes.
• CFO Yates reported that the company is awaiting a decision from the Second Circuit Court following an appeal argued on Feb. 12, 2026, regarding Section 16 litigation for the disgorgement of short-swing profits.
• The company is preparing for the late 2027 launch of its next-generation platform rack, the P7, as part of a multiyear product roadmap aimed at the vehicle-based adventure market.

INDUSTRY GLOSSARY

• ASAP Orders: At-once orders placed by retailers for immediate fulfillment, also known as at-once business.
• D2C: Direct-to-consumer, a retail channel where the company sells directly to customers through its own websites and physical stores.
• EBITDA: Earnings before interest, taxes, depreciation, and amortization, a measure of core operating profitability.
• IGD: Independent Global Distributor, the business division managing sales to third-party distributors outside North America and Europe.
• IEEPA: International Emergency Economic Powers Act, the regulatory framework under which certain tariffs were previously paid and subsequently recovered by the company.
• NPI: New Product Introduction, the process of bringing a new product from concept to market.
• OEM: Original Equipment Manufacturer, a company that produces parts and equipment that may be marketed by another manufacturer.
• UTMB: Ultra-Trail du Mont-Blanc, a prominent mountain running event used as a platform for product launches and brand marketing.

Full Conference Call Transcript

Operator: Good afternoon, everyone, and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the third quarter ended September 30, 2026. 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 the remarks, we will 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.

Matt Berkowitz: Thank you. Before we begin, I would 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. During today's call, we will refer to certain non-GAAP financial measures, which should be considered in addition to and not as a substitute for our results reported in accordance with GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings press release issued earlier today, which was furnished as an exhibit to our current report on Form 8-K filed with the SEC and is also available on the SEC filings section of our website at www.claruscorp.com.

I would 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. Now I would like to turn the call over to Clarus' Executive Chairman, Warren Kanders.

Warren Kanders: Good afternoon, and thank you for joining Clarus' earnings call to review our results for the third quarter. I am joined today by our Chief Financial Officer, Mike Yates, who will provide a financial update, including Adventure segment performance, as well as Neil Fiske, who will discuss our Outdoor segment. We delivered strong third quarter results, reflecting the continued progress we are making to strengthen our businesses and drive sustainable, profitable growth. Our efforts to simplify operations, sharpen our product focus, and improve cost efficiency are translating into meaningful financial improvements, including consolidated gross margin of 41%, up from 35.1% a year ago, and significant year-over-year growth in net income and adjusted EBITDA.

Mike will discuss IEEPA tariff recovery we recognized during the quarter. Excluding that benefit, we believe that the underlying improvement across both segments remains substantial. Building on the momentum we saw in the first half of the year, Black Diamond generated double-digit revenue growth in Q3, with strength across major product categories and geographic markets. Importantly, this growth was accompanied by substantial margin expansion, reflecting our ongoing focus on higher volume, higher-margin products, healthier inventory, and a more disciplined approach to promotional activity. These results underscore the strength of the Black Diamond brand and the effectiveness of our strategy. In Adventure, third quarter sales declined, primarily reflecting a challenging consumer environment in Australia.

However, we continued to make meaningful progress repositioning the business, and excluding the tariff refund, gross margin improved 640 basis points year-over-year. Overall, we believe the Adventure business is in a fundamentally stronger position than it was 18 months ago. We have simplified our operating footprint, improved our cost structure, strengthened key customer relationships, and expanded our international distribution capabilities. With signs of momentum in the Americas and continued growth opportunities internationally, our focus remains on maintaining our margin improvements, exercising cost discipline, and positioning the business to capitalize on a recovery in demand.

Turning to the guidance, supported by our strong performance through the first nine months of the year and constructive outlook for Q4, we are raising the low end of our full-year revenue guidance and raising our adjusted EBITDA outlook. We now expect 2026 adjusted EBITDA to range between approximately $15 million and $17 million. At the midpoint, this represents an increase of approximately 28% versus our prior adjusted EBITDA forecast of $12 million-$13 million. Before passing it over to Neil, I will briefly touch on the review of strategic alternatives we announced in May. We continue to explore a range of potential actions aimed at unlocking value more effectively than the market is recognizing today.

We have retained Jefferies as our financial advisor to assist in this process. Potential alternatives could include the sale of all or part of the business, or other strategic or financial transactions involving the company. Please note that we will not be answering any questions or commenting further on our strategic review process until additional disclosure is appropriate or required. With that, thank you for being with us today, and I will turn the call over to Neil Fiske.

Neil Fiske: Thanks, Warren. Turning to slide six, I will review the Outdoor segment's third quarter performance and our expectations heading into the remainder of 2026. Overall, Black Diamond had a great Q3, with revenue margin and EBITDA all well ahead of prior year, as our strategy of simplification, focus, and business reshaping continues to pay off and build momentum. Total revenues for the quarter were up 12.4%, reflecting accelerating growth in all of our regions and across our major categories. Our big three business categories of mountain, climb, and apparel drove 92% of total revenues and grew 13.1%. As I said on the last call, the core of the business is healthy and growing.

It's great to see the momentum from a strong Q2 build into an even better Q3. For the quarter, mountain was ahead 15.2% versus prior year and saw a nice lift from our collaboration with Norda Footwear, which launched at the UTMB event in Chamonix in August. The climb category posted another strong quarter, growing 15.1%. Apparel was up 3.3% for the quarter, the sixth consecutive quarter of growth. Gross margin is also a very positive story for the quarter. Excluding the small amount of tariff refunds, about $70,000 in the quarter, we received in Q3, gross margin came in at 40.4%, up 440 basis points over the prior year period.

The strong year-over-year improvement reflects the progress we've made in the quality of our inventory, our focus on our most profitable categories, less discounting, and a more full-price premium business model. Operating expenses, including restructuring and transaction costs and legal and regulatory matter expenses, were up 9.6% for the quarter, reflecting the costs of the Salt Lake distribution center move, along with other factors. Restructuring expenses were $200,000. Outdoor adjusted EBITDA for the quarter came in at $8 million, up 80.7% versus prior period. Inventory ended the quarter at $73.8 million versus $62.8 million in the prior period. This was a deliberate effort to invest in growth and identify the potential upside in our key categories and style franchises.

We have seen the benefit of this investment in the strong growth for the quarter and historically high sales from at-once orders, also known as ASAP orders. From here, we'll have a more accurate view of the sales potential, and we'll begin bringing the inventory balance down. We expect to end the year around $67 million in inventory, with less discounted merchandise and concentration in our proven styles. Now, turning to results by region and channel. North America wholesale grew 10.7%. North America digital D2C, which represents 14.3% of the region's revenue, was up 15.7% on the top line, with much healthier margins and less discounting, resulting in a 350 basis point improvement in gross margin for the channel.

North America retail comp store sales were up 23.6%, with gross margins lifting 580 basis points. E.U. wholesale was up 13.1% in dollars and 10.3% in constant currency. E.U. digital D2C, which represents 5.1% of the region's revenue, was up 0.7% in constant currency, as we pulled back on both promotional activity and less profitable transactions. Our international distributor channel was up 31.9% for the quarter. Looking ahead, we are in a good position heading into Q4 and on track to achieve or exceed our goals. We feel good about our progress, our momentum, and our results.

That said, we remain mindful of cautious consumer sentiment and potential adverse macro factors, as well as the potential of a warmer El Niño winter on cold weather categories. Once again, I'd like to congratulate and thank our teams around the world for all their hard work, passion, and skill in driving these results. With that, I'll turn it over to our CFO, Mike Yates.

Mike Yates: Thank you, Neil, and good afternoon, everyone. On today's call, I'll provide an update on the Adventure segment and then conclude with a summary of our Q3 financial results, followed by the Q&A session. Starting with Adventure on slide seven. Third quarter results reflected continued pressure on the top line, particularly in our home market in Australia, where challenging consumer conditions and softer demand across key product categories continued to weigh on the market. However, we are encouraged by the progress we are making to strengthen the underlying business, with significant improvements in gross margin and cost discipline enabling us to maintain profitability despite lower sales volumes.

Excluding the $0.5 million tariff refund at Adventure, Q3 adjusted EBITDA was in line with Q3 2025 adjusted EBITDA on 20% less revenue. Gross margin improved 640 basis points year-over-year, excluding the tariff refund, reflecting the benefits of pricing actions and improved customer and product mix, and reduced promotional activity. We are also navigating the impact of changes to our distribution network as we prioritize stronger, more profitable customer relationships. While these factors have weighed on sales, we continue to make progress strengthening our position with key retail partners, including Supercheap Auto in Australia, where we were recently recognized as the most engaged trade partner.

In the Americas, we are beginning to see the benefits of our commercial initiatives, with an improving sales trend during the third quarter. Growth in RockyMounts, MAXTRAX, and continued expansion of our dealer network are helping offset softness among certain larger accounts. We have added more than 120 dealers this year, generating approximately $1 million in incremental year-to-date revenue. We are particularly encouraged by the performance of Rhino-Rack in the U.S., where we believe margins have improved significantly because of our pricing and channel initiatives. Our international expansion efforts also continue to gain traction.

EMEA revenue increased 27% year to date, supported by new customer and dealer relationships and improved distribution capabilities following the opening of our new facility in the Netherlands. In Japan, our decision to expand beyond an exclusive distribution arrangement has contributed to strong growth. We are also making encouraging progress with European automotive OEMs, including new relationships with Bentley, Porsche, Jaguar Land Rover, and Mercedes, which we believe can support incremental growth in the years ahead. At the same time, we continue to invest selectively in product innovation to position Adventure for the next cycle. The recently launched MAXTRAX Recovery Shovel has been well received, and our acquisition of ONWRD has expanded our portfolio of high-margin vehicle accessories.

Looking ahead to 2027, we have an exciting pipeline of new products across our brands, including the next generation of our platform rack, the P7, expanded vehicle fitments, and a new MAXTRAX recovery board, the MK3. With that, now let me turn to the consolidated and segment financial review on slide eight. Consolidated Clarus third quarter sales were $71.2 million compared to $69.3 million in the third quarter of the prior year. On a reported basis from a segment perspective, Outdoor was up 12.4% and Adventure was down 20.2%. Sales were up in nearly every market for Outdoor, as Neil mentioned, and the weaknesses at Adventure was primarily in the Australian markets for Rhino-Rack and MAXTRAX.

The consolidated reported gross margin rate in the third quarter was 41.0% compared to 35.1% in the prior year quarter. The gross profit includes a benefit of $600,000 from the recovery of IEEPA tariffs in the third quarter of 2026. The vast majority of these tariff refunds in the third quarter were at Adventure. Specifically, Adventure received $495,000 and Outdoor received approximately $70,000. Gross margins excluding the tariff benefit for the two segments are as follows. Outdoor gross margins were 40.4%, up 440 basis points compared to the third quarter in the prior year. Adventure gross margins were 39.6%, up 640 basis points compared to third quarter in the prior year.

Gross margin growth has been realized through pricing and our simplification strategy, along with better product and customer mix. Third quarter consolidated selling general administrative expenses were $25.3 million compared to $26.2 million in the same year ago quarter. Third quarter 2026 expenses reflect lower outside services and employee-related costs at the corporate level and other expense reduction initiatives at Adventure to manage costs, offset by slight increase at the Outdoor segment, primarily due to higher selling expenses. Adjusted EBITDA in the third quarter was $6.8 million on a consolidated basis, or an adjusted EBITDA margin of 9.6%. The third quarter adjusted EBITDA by segment was $800,000 at Adventure and $8 million at Outdoor.

Adjusted corporate costs were $2 million in the third quarter. Let me shift over to liquidity in the balance sheet. Free cash flow, defined as net cash provided by operating activities less capital expenditures for the third quarter of 2026, was a $7.4 million outflow compared to a $7 million outflow for the three months ended September 30, 2025.

Despite the significant improvements in net income in the third quarter, the negative free cash flow in the quarter was due to increased working capital needs, specifically an increase in inventory at Outdoor that Neil mentioned to fulfill ASAP orders, and higher accounts receivable driven by slower collections and much higher sales at the Outdoor segment in the month of September of 2026 compared to the month of September 2025. We do expect free cash flow to be positive in the fourth quarter as inventory and accounts receivable normalize. Neil mentioned we expect inventory to reduce to $67 million at Outdoor by the end of the fourth quarter. At September 30, 2026, total debt was zero.

At September 30, 2026, cash and cash equivalents were $20.8 million compared to $36.7 million at December 31, 2025. Moving on to our 2026 outlook on slide nine. We now expect fiscal year 2026 sales to range between $251 million and $255 million, and we now expect full-year revenue at Adventure to be approximately $65 million and full-year Outdoor revenue to be approximately $188 million. We have revised our full-year 2026 adjusted EBITDA to be in the range of $15 million-$17 million, or an adjusted EBITDA margin of 6.3% at the midpoint of our revenue and adjusted EBITDA ranges. The revision to our full-year adjusted EBITDA guidance compared to our prior guidance of $12 million-$13 million is as follows.

Assuming the midpoint of the two guides, the primary difference between the $12.5 million and the $16 million is the third quarter beat in adjusted EBITDA compared to our prior guidance, partially offset by corporate costs now expected to be $9 million rather than $8 million a quarter ago. Turning to the fourth quarter, sales are expected to range between $62 million and $66 million, and at the midpoint of our full-year guidance of $16 million of adjusted EBITDA, adjusted EBITDA is expected to be approximately $3 million for the fourth quarter of 2026. Let me give an update on legal. I would like to provide an update on the company's Section 16 litigation with HAP Trading, LLC.

In the company's action against HAP Trading, LLC and Mr. Harsh A. Padia for disgorgement of short-swing profits under Section 16, the district court granted summary judgment to the defendants on March 14, 2025, based on the market-making exemption under Section 16. The company's timely appealed, and the appeal was argued before the Second Circuit Court on February 12, 2026. The SEC has declined the court's invitation to submit an amicus brief, and the company is still waiting on the Second Circuit Court's decision. In closing, we are focused on unlocking the intrinsic value of our Outdoor and Adventure segments and maximizing long-term value for our shareholders.

With more focused businesses, a simplified operating structure, a debt-free balance sheet, we believe we have the foundation in place to drive sustainable, profitable growth. At this point, operator, we are ready to take any questions.

Operator: Thank you. At this time, we will conduct the question-and-answer session. To ask a question, you will need to press star one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Mark Smith of Lake Street. Your line is now open.

Mark Smith: Hey, guys. I wanted to ask just within Outdoor first. I know that you guys have focused on simplification in the business, but I am curious kind of how sales of new products have been trending, any bump that you have gotten from new products, and kind of how your pipeline of new products looks.

Neil Fiske: I can take that. Thanks, Mark. I'd say overall, we're quite pleased with our new product introductions and what we've got in the pipeline across all the categories, climb, mountain, apparel. We've had some great successes in the quarter. The collaboration launch with Norda, where we had special trekking poles, special mountain running pack, carabiner, was far and away above our expectations and Norda's. Just one example of very creative collaborations driving innovation. Another example, we brought back, by popular demand, our Magnetron carabiner. It was a huge launch, sold out immediately. We took back orders, got re-plan, sold out again. That's a good example in climb.

In apparel, we've got a number of our franchise styles, like the Dirtbag Pant, that have sold out multiple times. We're investing in inventory really to find out how high is high on some of these key franchise styles. So, I think we're hitting it. You never bat 1,000, as you know, on NPI, but across the three major business units, really strong success. Even in footwear, where we've narrowed our focus to rock shoes, our Momentum climb shoe, which we introduced this year, is doing very well. So, very happy with our new product introductions. We have an amazing design and engineering team, good merchants, and I'm really pleased with the progress.

I think that will sustain itself as we look into what we've got on deck for 2027 and 2028. We plan pretty far out, as you know, in this business, and we've got a really good three-year product roadmap, and I think it's going to continue to lift the business and also hopefully be accretive to our gross margin profile.

Mark Smith: Perfect. Then sticking in Outdoor, I wanted to ask just about kind of the international sales. I know that you guys called out Europe and quantified kind of some growth there. Curious kind of other regions that may be doing well, or if there's anywhere that maybe is a drag.

Neil Fiske: Yeah.

Mike Yates: Mark, go ahead.

Neil Fiske: Right.

Mike Yates: Yeah.

Neil Fiske: Was that for Outdoor or for Adventure, or both?

Mike Yates: No, sorry. It was for Outdoor.

Mark Smith: Outdoor primarily, yeah.

Neil Fiske: We basically have three regions, North America, Europe, and then our Independent Global Distributor group, which surfaces pretty much the rest of the world. That division, IGD, is having a great year, and we are seeing really strong growth and ahead of expectations there. Importantly, one of the things I look at as kind of an immediate short-term leading indicator of the business is how strong the at-once order business is. It is strong across all regions, by the way, which is one of the things that gives us confidence going into Q4.

If I look in particular at IGD, I think by the beginning of September, we had done more at-once orders than we have ever done in any other year. That just tells you sort of the strength of the demand that we are seeing. Also, as Mike mentioned, the payback that we are getting from investing a little bit more inventory in our best styles so that we can fulfill that at-once demand. I think as an indicator of strength in the business and IGD in particular, that is a pretty good one. Also looking forward to the order book for 2027 and the kind of response we have gotten to the product from those rest of the world markets.

We feel very good about that. There are some places that I think we need to accelerate a little bit more than we have. We have a great distributor in Korea, one of our biggest and best international markets. China is growing, but probably under its potential, just given what we have seen with the success of other Outdoor brands, and we would like to accelerate even faster in China. In Japan, we have changed over our distributor, really a succession plan from the owner of the prior distributor to his management team as he retired. I think Japan has a lot more upside for us than what we are seeing today. Business is strong.

ASAP is the best indicator of that, but I think we are just at the beginning of realizing a lot of growth in those markets.

Mike Yates: Mark, just to reiterate what Neil shared in the prepared remarks, North American wholesale is up over 10%. Our North American D2C was up over 15%. EU wholesale was up over 13%. IGD, our international business, was up over 31%. So, as I summarize that, nearly in every market, we were up across the BD business.

Mark Smith: Yeah. Mike, can you just clarify and maybe repeat? I apologize that I missed it. I think that you gave some of the sales guidance for Outdoor and Adventure.

Mike Yates: Yeah, I did. For the full year, we raised the low end of our range to $251 million and to the high end of $255 million for the consolidated business. But by segment, we said that kind of breaks down at the midpoint of $188 million for the Outdoor business and $65 million for the Adventure business. The $188 million and the $65 million kind of hits you right in that midpoint of the $251 million-$255 million, or $188 million and $65 million is $253 million.

Mark Smith: Excellent. Thank you.

Operator: Thank you. Our next question comes from the line of Laurent Vasilescu of BNP Paribas. Your line is now open.

Laurent Vasilescu: Oh, good afternoon. Thank you very much for taking my question. I wanted to follow up, I think, Neil, you made a point about El Niño. That is obviously a pressing concern out there for the overall industry. I am curious to know if you are seeing any order book cancellations or if you are seeing anything on that front, and with regards to variability for the fourth quarter.

Neil Fiske: No change yet, Laurent, in order book or even the pace of at-once, but I think it is too early to tell. We will know more in late November and December. The thing I think we are cautious about, that El Niño could cut both ways. We could get better snow in the Rocky Mountain West and West Coast ski areas. That would be a benefit. But the thing to watch out for is just if it is a warmer winter in the Northeast and Midwest and areas of a lot of population density. Those are typically good markets for cold weather accessories like gloves and outerwear insulation.

And if it is a warm winter there, we could see some slower sell-through and less ASAP, and we could see some impact on our D2C. Way too early to tell, but we look at that weather effect as kind of having both a positive and a negative, and just wanted to call that out for investors to be cognizant of.

Laurent Vasilescu: Very helpful, Neil. Thank you very much for that. As we look out to 2027, I know you are not prepared to comment about 2027 guidance, but I think we talked about this last quarter about raw material inflation. Now that it is 90 days later, just curious to know updated thoughts there. Should we assume kind of like the mid-single-digit increase in cost of goods sold just from raw materials, particularly from oil-based derivatives? Any color there would be super helpful. Thank you.

Neil Fiske: Yeah. There are two things that sort of work against each other and, to some extent, offset each other. There is no question we are seeing some inflationary pressure in material feedstocks, oil, polyester, turning into polyester costs, nylon costs, higher freight costs, and even impacting the metals market. That is out there. That, of course, is very much linked to the price of oil and the outcome of the situation in the Middle East. That is a bit of a headwind for us in 2027. On the flip side, we have some improvement in our underlying product margins from the work that we have done.

If you look on a like-for-like basis on tariffs, the tariffs at the beginning of the year and the tariffs now, we have some favorability from the way the latest tariffs have been implemented that hopefully can offset those raw material costs. We do not think there will be a drag on margins in 2027. If anything, there might be a little bit of upside as we look ahead.

Laurent Vasilescu: Very helpful. The last question here is a broader question on the Adventure side. I think Adventure was down, I think, about 20% this quarter. I appreciate, Mike, that you gave us color on the segments for the full year. When do you expect a rebasing of that business so that it can return to growth? I understand the Australian market is difficult, but I am just curious to know, aside from the macro, when do you think the work that you have done leads to growth going forward for this segment? Thank you.

Mike Yates: Yeah, Laurent, great question. I appreciate that. Obviously, we are very happy with the work we've done on what we can control, specifically cost. You can see the improvement in gross margins during the quarter. We think that's built into our business now, right? We have better terms, better pricing, better relationships with customers, et cetera. That gross margin we think is real, and that should carry forward into future years. Same with on our SG&A side. We've controlled our cost. Cost was down, as I mentioned, at Adventure year-over-year. We've positioned the company or the Adventure business from a cost standpoint to really perform once growth comes back, right? What are we doing around growth?

We talked about some of the new products. We have a litany of new products that we are teeing up to come out across 2027 that are actually Some of them are being introduced this week at the SEMA Automotive Show out in Las Vegas. Our team's out there sharing some of that. But I mentioned one of them on the call, the new MAXTRAX board that nests with a shovel. That's been tremendously successful. So lots of efforts around NPI, lots of effort around fitment to make our own luck, essentially, on the sales side. Obviously, we are defending the core and the big product that we expect to introduce next year.

When I say defend the core, that's the Australian business, the new P7 platform rack. That's expected to come out late in 2027, I think in the third quarter. With all that comes to, if we can continue to drive the gross margins, continue to manage our SG&A costs with the NPI that is teed up, I would expect the business to grow in 2027.

Laurent Vasilescu: Well, that's great to hear. Thank you very much, and best of luck with the balance of the year.

Mike Yates: Thank you, Laurent.

Operator: Thank you. I am showing no further questions at this time. I would now like to turn it back to Mike Yates for closing remarks.

Mike Yates: Thank you. I want to thank everyone very much for their interest in attending the call this afternoon and your continued support and interest in Clarus. We look forward to updating you on our results again next quarter. Thank you again, everyone.

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

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