Black Diamond Owner Clarus Reports Third Quarter 2022 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 third quarter ended September 30, 2022.

Third Quarter 2022 Financial Summary vs. Same Year‐Ago Quarter

• Sales of $115.7 million increased 6.0%.
• Gross margin was 34.1% compared to 36.0%.
• Net income of $2.8 million, or $0.07 per diluted share, compared to $4.5 million, or $0.13 per diluted share.
• Adjusted net income before non‐cash items of $10.2 million, or $0.26 per diluted share, compared to $18.1 million, or $0.50 per diluted share.
• Adjusted EBITDA of $15.1 million with an adjusted EBITDA margin of 13.0% compared to $19.2 million with an adjusted EBITDA margin of 17.7%.

Management Commentary

“Our portfolio of ‘Super Fan’ brands were largely resilient amid a challenging consumer backdrop," said Clarus President John Walbrecht. “Demand in both our Outdoor and Precision Sport segments remained intact during the quarter, demonstrating market share gains as activity-based, Super Fan consumer brands can gain market share even when macroeconomic challenges arise.

“In our Adventure segment, limited vehicle deliveries and higher-than-normal inventory in the channel persisted in our home market of Australia, and we began to experience challenging conditions in North America after a strong first half of the year. These headwinds were further exacerbated by volatile foreign currency markets. We believe these issues will be short-lived, and we see more opportunity than ever to ‘Innovate and Accelerate’ these brands on a global basis as overlanding continues to expand its addressable market.

“In total, we estimate foreign currency headwinds reduced our sales and Adjusted EBITDA by over $3.3 million in the third quarter. Higher freight costs also continued, lowering our profitability by $2.3 million during the third quarter. We believe higher freight costs to be transitory in nature as we are already experiencing an improved supply chain. As such, we expect to remain well-positioned to drive relative outperformance in this area given our agile approach across our businesses.

“As we look to the remainder of the year and into 2023, we believe we have a portfolio of brands that can continue to grow and gain market share, even in a weaker consumer environment. This is a key attribute of Super Fan brands, and we believe we are laying the foundation for long-term shareholder value creation.”

Third Quarter 2022 Financial Results

Sales in the third quarter increased 6% to $115.7 million compared to $109.0 million in the same year‐ago quarter. The increase includes revenue contribution of $3.7 million from MAXTRAX, an acquisition completed on December 1, 2021. Organic sales were up 6% in the third quarter, MAXTRAX contributed 3% and foreign exchange was a 3% headwind. On a constant currency basis, total sales were up 9%.

Sales in the Outdoor segment increased 7%, or 11% on a constant currency basis, to $62.9 million compared to the same year-ago quarter due to strong demand, slightly offset by supply chain challenges associated with microchips that negatively impacted the Company’s ability to deliver its snow-safety products on time and in full. Precision Sport sales increased 13% to $34.2 million, reflecting continued strong demand and market share gains. Sales in the Adventure segment were $18.6 million, reflecting lower consumer demand given the challenging economic environment and constraints on new vehicle deliveries, which impacted new product sales both in the Australian and North American markets.

Gross margin in the third quarter was 34.1% compared to 36.0% in the year‐ago quarter. Improvements in channel and product mix were more than offset by higher freight costs, as well as unfavorable foreign exchange movements. Higher freight costs had a negative impact on gross margin of 200 basis points, while foreign currency had a 180 basis point impact.  

Selling, general and administrative expenses in the third quarter were $32.3 million compared to $31.3 million in the same year‐ago quarter. The inclusion of MAXTRAX and higher go-to-market investments in the Outdoor segment were partially offset by lower non-cash stock-based compensation for performance awards.

Net income in the third quarter was $2.8 million, or $0.07 per diluted share, compared to net income of $4.5 million, or $0.13 per diluted share, in the prior year quarter.

Adjusted net income in the third quarter, which excludes non‐cash items and transaction costs, was $10.2 million, or $0.26 per diluted share, compared to $18.1 million, or $0.50 per diluted share, in the same year‐ago quarter.

Adjusted EBITDA in the third quarter was $15.1 million, or an adjusted EBITDA margin of 13.0%, compared to $19.2 million, or an adjusted EBITDA margin of 17.7%, in the same year‐ago quarter. The decline in adjusted EBITDA was driven by lower sales in the Adventure segment, as well as heightened freight costs and unfavorable movements in foreign exchange rates, partially offset by lower discretionary spending.

Net cash provided by operating activities for the three months ended September 30, 2022, was $(11.5) million compared to net cash provided of $(17.5) million in the prior year quarter. Capital expenditures in the third quarter of 2022 were $2.1 million compared to $2.4 million in the prior year quarter. Free cash flow for the third quarter of 2022 was $(13.6) million compared to $(19.8) million in the prior year quarter due to higher working capital, specifically accounts receivable.

Liquidity at September 30, 2022 vs. December 31, 2021

• Cash and cash equivalents totaled $10.4 million compared to $19.5 million.
• Total debt of $167.2 million compared to $141.5 million.
• Remaining access to approximately $110 million on the Company’s revolving line of credit.
• Net debt leverage ratio of 2.2x compared to 2.0x

Stock Repurchase Program

During the third quarter, the Company repurchased 527,277 shares of its common stock for approximately $7.2 million, or $13.60 per share, leaving approximately $42.8 million remaining on its $50 million stock repurchase program.

2022 Outlook

Given lower sales in the Adventure segment, as well as the volatile foreign currency market and higher freight costs, Clarus is revising its full-year 2022 outlook. Clarus now expects fiscal year 2022 sales to grow approximately 19% to $445.0 million ($470.0 million prior) compared to 2021. This includes the assumption that the strong U.S. dollar will be a $6 million sales headwind in the fourth quarter of 2022. By segment, the Company now expects Outdoor segment sales to increase 1% to approximately $223.0 million ($237.5 million previously). The Precision Sport segment is now expected to increase 18% to approximately $130.0 million ($127.5 million previously) and the Adventure segment is now expected to contribute approximately $92 million ($105 million previously).

The Company now expects adjusted EBITDA in 2022 to be approximately $64 million ($78 million prior), or an adjusted EBITDA margin of 14.4%. In addition, capital expenditures are now expected to be approximately $8.0 million ($9.0 million previously) and free cash flow is now expected to range between $0 to ($5) million ($30.0 to $40.0 million previously) for the full year 2022.

Net Operating Loss (NOL)

The Company estimates that it has available NOL carryforwards for U.S. federal income tax purposes of approximately $58.4 million, which includes $37.2 million of NOL carryforwards that expire on December 31, 2022. The Company expects to fully utilize the $37.2 million in the current year, prior to expiration. 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 rights agreement will achieve the objective of preserving the value of the NOLs.