Clarus Corp., parent company of Black Diamond, Sierra Bullets and Pieps, reported net income for the first quarter ended March 31 improved to $0.4 million, or 1 cent per share, compared to a net loss of $1.5 million, or a loss of 5 cents per share, the same quarter a year ago.
Adjusted net income before non-cash items increased to $3.8 million, or 13 cents per share, compared to $0.5 million, or 2 cents per share, a year ago. Income missed analyst expectations by 2 cents a share.
The company’s revenue of $53.3 million was up 28 percent compared to first-quarter 2017, boosted by $8.2 million in sales from the Sierra Bullets acquisition. Clarus beat analyst revenue expectations by $1.2 million. Gross margin was up 390 basis points to 33.5 percent, while adjusted gross margin was up 580 basis points to 35.4 percent.
“During the first quarter, we continued to gain momentum across all of our key growth drivers at Black Diamond as demonstrated by strong increases in sales, gross margin and adjusted EBITDA,” said John Walbrecht, president of Clarus. “As promised to our retail partners, we also continued to outpace our competition through product innovation, aggressive marketing impressions, on-time delivery, strong fulfillment and ease of doing business with. We have also continued to make great progress integrating Sierra Bullets LLC onto the Clarus platform and are well underway in our plan to develop the brand into its full potential.
“Given our momentum, we believe our strategy is working. Product innovation for the remainder of 2018 will be highlighted by key introductions across all of Black Diamond’s primary categories, including the first full season of our rock shoe collection, and our new, innovative rainwear apparel line. At Sierra, we expect to drive continual product innovation and strengthened sales and marketing efforts as we look to increase the exposure and momentum of the brand in a year that has kicked off with strong consumer demand.”
First Quarter 2018 Financial Results
Sales in the first quarter of 2018 increased 28 percent to $53.3 million compared to $41.6 million in the same year-ago quarter. The increase was driven by $8.2 million in sales generated by Sierra, which the company acquired on August 21, 2017, and continued strong growth in Black Diamond Equipment’s climb category. Excluding the Sierra acquisition, sales increased 8 percent. On a constant currency basis, total sales were up 24 percent.
Gross margin increased 390 basis points to 33.5 percent compared to 29.6 percent in the year-ago quarter. The increase was primarily due to a favorable mix of higher margin products and distribution channels, 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 first quarter increased 580 basis points to 35.4 percent. Excluding the acquisition of Sierra, gross margin was 33.8 percent.
Selling, general and administrative expenses in the first quarter increased to $17.1 million compared to $12.5 million in the year-ago quarter. The increase was attributed to $1.8 million in expenses due to the inclusion of Sierra, which includes $0.7 million of amortization expense associated with the allocation of the Sierra purchase price, and higher selling expenses in the company’s European operations, which were in direct correlation to 30 percent sales growth in the region, and general costs related to initiatives seeking to increase Black Diamond Equipment’s brand equity and drive new product introductions.
Net income in the first quarter improved to $0.4 million or $0.01 per diluted share, compared to a net loss of $1.5 million or $(0.05) per diluted share in the year-ago quarter. Net income in the first quarter of 2018 included $3.2 million of non-cash items, $0.2 million in transaction costs, and minimal restructuring costs, compared to $1.9 million of non-cash items and minimal restructuring costs in the first quarter of 2017.
Adjusted net income, which excludes the non-cash items, as well as transaction and restructuring costs, increased significantly to $3.8 million or $0.13 per diluted share, compared to adjusted net income of $0.5 million or $0.02 per diluted share in the first quarter of 2017
Adjusted EBITDA also increased to $4.3 million compared to $0.6 million in the first quarter of 2017.
At March 31, 2018, cash and cash equivalents totaled $2.2 million compared to $1.9 million at December 31, 2017. During the first quarter of 2018, Clarus generated $6.4 million in free cash flow, which was partially used to pay down the company’s debt balance to $14.9 million compared to $20.8 million at December 31, 2017.
Unchanged 2018 Outlook
Clarus continues to anticipate 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, that translates to an expected sales range between $197.5 to $202.5 million, or up 16 percent-19 percent compared to 2017.
The company also continues to expect 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.
