Clarus Corp., the parent of Black Diamond Equipment, Sierra Bulletts and PIEPS, reported sales in the fourth quarter rose 27 percent along with strong earnings improvement.

Fourth Quarter 2017 Financial Highlights vs. Same Year-Ago Quarter

  • Sales of $52.7 million, up 27 percent.
  • Gross margin up 350 basis points to 32.6 percent; adjusted gross margin up 670 basis points to 35.8 percent.
  • Net income improved to $6.0 million or $0.20 per share, compared to a net loss of $1.4 million or $(0.05) per share.
  • Adjusted net income before non-cash items increased to $4.6 million or $0.15 per share, compared to $0.4 million or $0.01 per share.
  • Adjusted EBITDA improved to $5.1 million compared to $0.3 million.

Management Commentary

“We ended 2017 on a strong note, growing fourth quarter sales by 27 percent, with Black Diamond up 11 percent,” said John Walbrecht, president of Clarus. “This performance was broad-based, driven by growth in North America and Europe, and across all of our primary product categories. We attribute these results to the quality and pace of our product innovation, and a clear marketing strategy that speaks to our core consumer. This strategy has not only driven strong sell-through at retail, but is helping to build our retail partners’ support for our brand.

“We believe this strategy has us well-positioned for a strong 2018. In fact, the upcoming spring and fall selling seasons will feature the introduction of 100 new Black Diamond Equipment products across all of our primary categories, and bookings to-date indicate strong support from our retailers.

“In our Sierra business, we are beginning to replicate the playbook that we have been executing at Black Diamond Equipment. We believe Sierra’s authentic brand and best-in-class products will grow with enhancements to distribution, and sales and marketing, as well as the addition of new customer accounts and continued product innovation.”

Fourth Quarter 2017 Financial Results

Sales in the fourth quarter of 2017 increased 27 percent to $52.7 million compared to $41.4 million in the same year-ago quarter. The increase was driven by $6.8 million in sales generated by Sierra Bullets, L.L.C. (“Sierra”), which the company acquired on August 21, 2017, and continued growth in Black Diamond Equipment’s climb, ski and mountain categories. Excluding the Sierra acquisition, sales increased 11 percent. On a constant currency basis, total sales were up 25 percent.

Gross margin increased 350 basis points to 32.6 percent compared to 29.1 percent in the year-ago quarter. The increase was primarily due to a favorable mix of higher margin products, the stabilization of the company’s sourcing strategy, and more normalized levels of discontinued merchandise. Excluding a fair value inventory step-up associated with the Sierra acquisition, adjusted gross margin in the fourth quarter increased 670 basis points to 35.8 percent. Excluding the acquisition of Sierra, gross margin was 35.4 percent.

Selling, general and administrative expenses in the fourth quarter increased to $16.5 million compared to $12.6 million in the year-ago quarter. The increase was attributed to $1.7 million in expenses due to the inclusion of Sierra, which includes $0.9 million of amortization expense associated with the allocation of the Sierra purchase price, and strategic initiatives seeking to increase Black Diamond Equipment’s brand equity and drive new product introductions.

In 2015, Clarus fully valued its net operating loss carryforwards, effectively leaving the company in a deferred tax liability position. As a result of the recently enacted tax law, the revaluation of the company’s deferred tax assets and liabilities, other than its net operating loss carryforwards, drove an increase in the year-over-year tax benefit. As such, an income tax benefit of $6.1 million was recorded in the fourth quarter of 2017 compared to a $0.4 million benefit in the year-ago quarter.

Net income in the fourth quarter improved to $6.0 million, or $0.20 per diluted share, compared to a net loss of $1.4 million, or $(0.05) per diluted share. Net income in the fourth quarter of 2017 included $1.7 million of non-cash items, $0.2 million in transaction costs, $0.1 million in merger and integration costs and minimal restructuring costs, compared to $1.7 million of non-cash items, $0.1 million in restructuring costs and minimal transaction costs in the fourth quarter of 2016.

Adjusted net income, which excludes the non-cash items, as well as transaction, merger and integration, and restructuring costs, increased significantly to $4.6 million or $0.15 per diluted share, compared to adjusted net income of $0.4 million or $0.01 per diluted share in the fourth quarter of 2016.

Adjusted EBITDA also increased significantly to $5.1 million compared to $0.3 million in the fourth quarter of 2016.

Due to the acquisition of Sierra and repayment of the company’s subordinated notes, at December 31, 2017, cash and cash equivalents declined to $1.9 million compared to $94.7 million at December 31, 2016. To help finance the acquisition, Clarus drew down its line of credit in the third quarter of 2017 by $27.4 million. During the fourth quarter of 2017, Clarus paid down the line by $6.5 million, ending the year with $20.8 million in debt compared to $21.9 million at the end of 2016.

Full Year 2017 Financial Results

Sales in 2017 increased 15 percent to $170.7 million compared to $148.2 million in 2016. The increase was driven by the inclusion of Sierra, which contributed $10.4 million in sales during the year, and growth in Black Diamond climb, ski and mountain product categories. Excluding the Sierra acquisition, sales increased 8 percent. On a constant currency basis, total sales were up 14 percent.

Gross margin in 2017 increased 200 basis points to 31.5 percent compared to 29.5 percent in 2016. The increase was due to a favorable mix of higher margin products and channel distribution, as well as lower manufacturing costs. Excluding a fair value inventory step-up associated with the Sierra acquisition, adjusted gross margin in the 2017 increased 330 basis points 32.8 percent. Excluding the acquisition of Sierra, gross margin was 32.3 percent.

Selling, general and administrative expenses in 2017 increased 13 percent to $56.3 million compared to $49.9 million in 2016. This increase was due to $2.4 million in expenses due to the inclusion of Sierra, which includes $1.3 million of amortization expense associated with the allocation of the Sierra purchase price, and strategic initiatives seeking to increase Black Diamond Equipment’s brand equity and drive new product introductions.

Income tax benefit in 2017 was $5.1 million compared to a $0.7 million income tax expense in 2016. The improvement was driven by the aforementioned dynamics associated with the recently-enacted tax law.

Net loss in 2017 improved to $0.7 million or $(0.02) per diluted share, compared to a net loss of $9.0 million or $(0.30) per diluted share in 2016. Net loss in 2017 included $3.2 million of non-cash items, $2.1 million in transaction costs, $0.2 million in restructuring costs and $0.1 million in merger and integration costs, compared to a net loss in 2016 that included $6.8 million of non-cash items, $1.4 million in restructuring costs and $0.3 million in transaction costs, partially offset by a $2.0 million arbitral award related to certain claims against the former owner of the company’s PIEPS™ brand.

Adjusted net income, which excludes these non-cash items as well as restructuring, merger and integration and transaction costs, as well as the arbitral award, increased to $4.7 million, or $0.16 per diluted share, compared to an adjusted net loss of $2.6 million, or $(0.09) per diluted share, in 2016.

Adjusted EBITDA in 2017 increased significantly to $6.1 million compared to $(2.7) million in 2016.

2018 Outlook

Clarus anticipates fiscal year 2018 sales to grow 17 percent-20 percent to approximately $200-$205 million compared to $170.7 million in 2017. On a constant currency basis, the company expects sales to range between $197.5 to $202.5 million, or up 16 percent-19 percent compared to 2017.

The company also expects adjusted EBITDA margin to be approximately 8 percent, which includes $5 million of cash corporate overhead expenditures, compared to 3.6 percent in 2017.

Net Operating Loss (NOL)

The company estimates that it has available NOL carryforwards for U.S. federal income tax purposes of approximately $157 million. The company’s common stock is subject to a rights agreement dated February 7, 2008 that is intended to limit the number of 5 percent 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.