Black Diamond Parent Co Clarus Reports First Quarter 2024 Results

Clarus Corporation reported financial results for the first quarter ended March 31, 2024.

First Quarter 2024 Financial Summary vs. Same Year‐Ago Quarter (adjusted to reflect the reclassification of the Precision Sport segment as discontinued operations)

• Sales of $69.3 million compared to $70.3 million.
• Gross margin was 35.9% compared to 36.3%; adjusted gross margin of 36.9% compared to 36.3%.
• Net income, which includes the impact of discontinued operations, of $21.9 million, or $0.57 per diluted share, compared to $1.6 million, or $0.04 per diluted share.
• Loss from continuing operations of $6.5 million, or $(0.17) per diluted share, compared to loss from continuing operations of $2.0 million, or $(0.05) per diluted share.
• Adjusted EBITDA from continuing operations of $2.0 million with an adjusted EBITDA margin of 2.9% compared to $1.1 million with an adjusted EBITDA margin of 1.6%.

Management Commentary
“We entered 2024 with a strong balance sheet and an experienced leadership team focused on initiating our strategic plan for our next phase as a pure-play, ESG-friendly outdoor business,” said Warren Kanders, Clarus’ Executive Chairman. “We are pleased with our execution in the first quarter, prioritizing simplification and right-sizing in Outdoor, along with the launch of compelling new products and expansion beyond the home market in Adventure. Based on our results to date, we have reaffirmed our full-year guidance and believe we have laid the foundation to drive increased profitability and unlock new growth opportunities going forward.”

Mr. Kanders added, “During the quarter, we saw evidence that our strategic initiatives are yielding incremental near-term benefits. Specifically, at Outdoor, we made progress on our inventory reduction initiatives, highlighted by a decline in apparel inventory of nearly 38% year-over-year. Overall, while we saw continued stabilization of the North American wholesale market, Europe and our independent global distributor markets still face difficult conditions. Building on the momentum we generated in the second half of last year, Adventure sales increased 27% in Q1 driven by strength in OEM customer demand. We are committed to establishing a best-in-class product ecosystem across the Adventure segment, while remaining intensely focused on enhanced product margins as we scale.”

First Quarter 2024 Financial Results
Sales in the first quarter were $69.3 million compared to $70.3 million in the same year‐ago quarter. This decrease was primarily driven by softness in the European wholesale market at Outdoor, partly offset by strength at the Adventure segment due to continued success with new product launches and OEM customers.

Sales in the Adventure segment increased 27% to $22.3 million, or $23.0 million on a constant currency basis, compared to $17.5 million in the year-ago quarter, reflecting higher demand from OEM customers and the impact of the TRED Outdoors acquisition. Sales in the Outdoor segment were $47.0 million, or $46.7 million on a constant currency basis, compared to $52.8 million in the year-ago quarter. The decline primarily reflects weakness in European and independent global distributor markets, partially offset by growth in the North American wholesale channel.

Gross margin in the first quarter was 35.9% compared to 36.3% in the year‐ago quarter. The decrease in gross margin was primarily due to promotional pricing at the Outdoor segment, the increase in PFAS related inventory reserves, as well as unfavorable channel mix at the Adventure segment. Adjusted gross margin in the first quarter was 36.9% compared to 36.3% in the year-ago quarter.

Selling, general and administrative expenses in the first quarter were $28.2 million compared to $29.4 million in the same year‐ago quarter. The decrease was attributable to expense reduction initiatives in the Outdoor segment to manage costs, as well as lower intangible amortization and lower stock compensation expenses. The decrease was partially offset by higher investment in marketing initiatives in the Adventure segment.

The loss from continuing operations in the first quarter of 2024 was $6.5 million, or $(0.17) per diluted share, compared to loss from continuing operations of $2.0 million, or $(0.05) per diluted share in the year-ago quarter. Loss from continuing operations in the first quarter included $3.0 million of charges relating to legal cost and regulatory matter expenses and $0.7 million of PFAS inventory reserve.

Adjusted loss from continuing operations in the first quarter of 2024 was $0.1 million, or $(0.00) per diluted share, compared to adjusted income from continuing operations of $0.4 million, or $0.01 per diluted share, in the year-ago quarter. Adjusted (loss) income from continuing operations excludes legal cost and regulatory matters expenses, PFAS inventory reserves, restructuring charges and transaction costs, as well as non-cash items for intangible amortization and stock-based compensation.

Adjusted EBITDA from continuing operations in the first quarter was $2.0 million, or an adjusted EBITDA margin of 2.9%, compared to $1.1 million, or an adjusted EBITDA margin of 1.6%, in the same year‐ago quarter.

Net cash used in operating activities for the three months ended March 31, 2024, was $16.4 million compared to net cash generated of $3.2 million in the prior year quarter. Capital expenditures in the first quarter of 2024 were $1.9 million compared to $1.5 million in the prior year quarter. Free cash flow for the first quarter of 2024 was an outflow of $18.3 million compared to positive free cash flow of $1.7 million in the prior year quarter. Free cash flow was significantly lower because of a significant reduction in accounts payable.

Liquidity at March 31, 2024 vs. December 31, 2023

• Cash and cash equivalents totaled $47.5 million compared to $11.3 million.
• Total debt of $0.1 million compared to $119.8 million.
• On February 29, 2024, approximately $135.0 million of long-term debt, interest and fees were repaid and the credit agreement was terminated.

Sale of Precision Sport / Discontinued Operations

On December 29, 2023, the Company announced the sale of its Precision Sport segment for $175 million. As the disposition was completed on February 29, 2024, we recognized a gain of $40.6 million, pending customary working capital adjustments, on the disposition during the three months ending March 31, 2024. The activities of the Precision Sport segment have been segregated and reported as discontinued operations for all periods presented.

2024 Outlook
The Company continues to expect fiscal year 2024 sales to range between $270 million to $280 million and adjusted EBITDA of approximately $16 million to $18 million, or an adjusted EBITDA margin of 6.2% at the mid-point of revenue and adjusted EBITDA. In addition, capital expenditures are expected to range between $4 million to $5 million and free cash flow is expected to range between $18 million to $20 million for the full year 2024.

Net Operating Loss (NOL)
The Company has net operating loss carryforwards (“NOLs”) for U.S. federal income tax purposes of $7.7 million. None of the NOLs expire until December 31, 2029.