Black Diamond Parent Clarus Reports Second Quarter 2023 Results

Clarus Corporation (NASDAQ: CLAR) (“Clarus” and/or the “Company”), a global company focused on the outdoor and consumer enthusiast markets, reported financial results for the second quarter ended June 30, 2023.

Second Quarter 2023 Financial Summary vs. Same Year‐Ago Quarter

• Sales of $83.7 million compared to $114.9 million.
• Gross margin of 36.7% compared to 38.0%.
• Net loss of $2.1 million, or $(0.06) per diluted share, compared to net income of $3.8 million, or $0.09 per diluted share.
• Adjusted net income before non‐cash items of $4.2 million, or $0.11 per diluted share, compared to $13.1 million, or $0.33 per diluted share.
• Adjusted EBITDA of $7.3 million with an adjusted EBITDA margin of 8.7% compared to $17.6 million with an adjusted EBITDA margin of 15.3%.

Management Commentary

“Our second quarter results were impacted by the continued challenging macroeconomic environment and related headwinds,” said Warren Kanders, Clarus’ Executive Chairman. “Specifically, a more promotional retail environment and inventory de-stocking headwinds impacted our sales velocity and our ability to protect margins. Despite these challenging market conditions, each segment generated positive free cash flow during the second quarter.

"By segment, Outdoor was impacted by lower consumer demand given the inflationary environment and continued lower open-to-buys as retail partners right-size their inventory. Somewhat offsetting this weakness was a 28% increase in our direct-to-consumer channels, which we believe shows the strength of the Black Diamond brand despite the broader retail environment.

“In Precision Sports, we experienced lower sales as competitors and channel partners liquidated inventory through promotional and discounting activities, particularly in ammunition. We expect this promotional environment to recover later this year and anticipate solid demand for the upcoming hunt season.

“In Adventure, we continued to experience sales improvement each month. In our brands’ home market of Australia, inventory levels have improved with our retail partners, and in North America, we continue to right-size our sales channels and began to experience the early signs of recovery that we expected.

“Looking ahead, we will continue to focus on stabilizing revenue, gross margin and EBITDA, while implementing certain cost-out strategies as we prioritize our growth objectives and seek to drive shareholder value through cash flow generation and debt paydown.”

Second Quarter 2023 Financial Results

Sales in the second quarter were $83.7 million compared to $114.9 million in the same year‐ago quarter. Foreign currency exchange was unfavorable to sales by $1.5 million in the second quarter as the U.S. dollar continued to strengthen against the Euro and Australian dollar.

Sales in the Outdoor segment were $40.1 million, or $40.6 million on a constant currency basis, compared to $52.6 million in the year ago quarter. The decrease was due to declines in the Company’s North American and European sales regions, partially offset by strength in the direct-to-consumer channels. Precision Sport sales were $25.8 million compared to $35.2 million in the year-ago quarter due to a more promotional retail environment, particularly in the ammunition product line. Sales in the Adventure segment were $17.9 million compared to $27.1 million in the year-ago quarter, reflecting lower consumer demand given the challenging market conditions and the difficult macro-environment in both Australia and North America.

Gross margin in the second quarter was 36.7% compared to 38.0% in the year‐ago quarter primarily driven by discounting of ammunition in the Precision Sport segment given the more promotional environment. Easing freight costs positively impacted gross margin by 140 basis points, which was more than offset by unfavorable channel and product mix of 160 basis points and a 110 basis point negative impact from foreign currency exchange.

Selling, general and administrative expenses in the second quarter declined 15% to $30.2 million compared to $35.4 million in the same year‐ago quarter. The decline was driven by expense reduction initiatives in the Outdoor, Adventure, and Precision Sport segments, as well as lower non-cash stock-based compensation expense for performance awards at corporate.

Net loss in the second quarter was $2.1 million, or $(0.06) per diluted share, compared to net income of $3.8 million, or $0.09 per diluted share, in the prior year’s second quarter.

Adjusted net income before non-cash items in the second quarter, which excludes non‐cash items and transaction costs, was $4.2 million, or $0.11 per diluted share, compared to $13.1 million, or $0.33 per diluted share, in the same year‐ago quarter.

Adjusted EBITDA in the second quarter was $7.3 million, or an adjusted EBITDA margin of 8.7%, compared to $17.6 million, or an adjusted EBITDA margin of 15.3%, in the same year‐ago quarter. The decline in adjusted EBITDA was driven by lower sales volumes, unfavorable channel and product mix, and a $1.5 million consolidated foreign currency exchange headwind due to the strength of the U.S. dollar. These impacts were partially offset by improvements in SG&A in the quarter.

Net cash provided by operating activities for the three months ended June 30, 2023, was $14.1 million compared to $4.5 million in the prior year quarter. Capital expenditures in the second quarter of 2023 were $1.8 million compared to $2.2 million in the prior year quarter. Free cash flow for the second quarter of 2023 was $12.3 million compared to $2.3 million in the prior year quarter, mainly driven by the collection of outstanding accounts receivables.

Liquidity at June 30, 2023 vs. December 31, 2022

• Cash and cash equivalents totaled $11.3 million compared to $12.1 million.
• Total debt of $127.2 million compared to $139.0 million.
• The Company’s credit facility matures in April of 2027 and bears interest at a variable rate that was approximately 7.5% at June 30, 2023.
• Remaining access to approximately $32 million on the Company’s revolving line of credit.
• Net debt leverage ratio of 2.7x compared to 2.0x

2023 Outlook

The Company now expects fiscal year 2023 sales of $385 million to $400 million and adjusted EBITDA of $42 million to $50 million. In addition, capital expenditures are now expected to range between $6.5 - $7.5 million and free cash flow is now expected to range between $30 - $35 million for the full year 2023.

Net Operating Loss (NOL)

The Company estimates that it has available net operating loss (the “NOLs”) carryforwards for U.S. federal income tax purposes of approximately $17.7 million, which includes $1.8 million of U.S. federal NOL carryforwards that expire on December 31, 2023. The Company’s common stock is subject to a rights agreement dated February 7, 2008, that is intended to limit the number of 5% or more owners and therefore reduce the risk of a possible change of ownership under Section 382 of the Internal Revenue Code of 1986, as amended. Any such change of ownership under these rules would limit or eliminate the ability of the Company to use its existing NOLs for federal income tax purposes. However, there is no guaranty that the Company will be able fully utilize the NOLs to offset current and future earnings or that the rights agreement will achieve the objective of preserving the value of the NOLs.