Clarus Corp. reported sales grew 24 percent in the fourth quarter ended December 31.

Fourth Quarter 2020 Financial Summary vs. Same Year‐Ago Quarter

  • Sales increased 24 percent to $75.9 million.
  • Gross margin was unchanged at 35.5 percent; adjusted gross margin up 50 basis points to 36.0 percent.
  • Net income was $7.1 million, or $0.22 per diluted share, compared to $12.4 million, or $0.40 per diluted share. The fourth quarter of 2019 included a $10.4 million net benefit associated with the partial release of the company’s valuation allowance on its deferred tax assets.
  • Adjusted net income before non‐cash items increased 64 percent to $11.2 million, or $0.34 per diluted share, compared to $6.8 million, or $0.22 per diluted share.
  • Adjusted EBITDA increased 56 percent to $11.0 million.
  • Free cash flow (net cash provided by operating activities less capital expenditures) increased significantly to $6.5 million compared to $2.6 million.
  • At December 31, 2020, cash and cash equivalents totaled $17.8 million compared to $1.7 million at December 31, 2019, and debt was $34.6 million compared to $22.7 million at December 31, 2019.

2020 Financial Summary vs. 2019

  • Sales were $224.0 million compared to $229.4 million.
  • Gross margin was 34.7 percent compared to 35.0 percent; adjusted gross margin of 34.9 percent.
  • Net income was $5.5 million, or $0.18 per diluted share, compared to $19.0 million, or $0.61 per diluted share. 2019 included the aforementioned $10.4 million net tax benefit.
  • Adjusted net income before non‐cash items increased 3 percent to $21.9 million, or $0.70 per diluted share, compared to $21.3 million, or $0.69 per diluted share.
  • Adjusted EBITDA was $22.4 million compared to $22.7 million.
  • Free cash flow increased significantly to $24.0 million compared to $5.4 million.

Management Commentary
“Our momentum from the third quarter carried through to the end of the year, demonstrating the strength of our brand portfolio and the resilience of our ‘super-fan’ brand strategy,” said Clarus President John Walbrecht. “The strong year-over-year sales growth we generated during the fourth quarter of 2020 outperformed our previously stated outlook and drove an even more robust improvement in our fourth quarter adjusted EBITDA. This performance in a dynamic retail environment is a testament to the hard work of our team and our commitment to our strategic priorities.

“Within Black Diamond, we remained dedicated to preserving brand equity as we executed on our ‘innovate and accelerate’ playbook across our portfolio. This approach allowed us to successfully navigate the COVID-19 related retail demand freeze in the first half of 2020 and drive consistent improvements in the brand’s performance throughout the second half of the year. In our Sierra segment, demand for Sierra has continued to accelerate, and Barnes’ performance has exceeded our expectations in its first few months on our platform. This momentum will allow us to continue advancing the integration process and we are well on our way to building a leading, specialty premium bullet and ammunition platform.

“As we look to 2021, we intend to maximize the growth and profitability of our brands, as well as the value we create for our shareholders. We expect to continue leveraging the strong demand trends underlying our brands, our fast-growing direct-to-consumer channel and our ‘innovate and accelerate’ strategy to continue the momentum across our well-diversified brand portfolio.”

Fourth Quarter 2020 Financial Results

  • Sales in the fourth quarter increased 24 percent to $75.9 million compared to $61.0 million in the same year‐ago quarter. The increase includes a revenue contribution of approximately $6.6 million from Barnes, an acquisition Clarus completed on October 2, 2020. Excluding Barnes, the company’s fourth-quarter sales increased 14 percent on an organic basis compared to the same year-ago quarter.
  • Black Diamond sales were flat and Sierra sales were up 167 percent. Black Diamond sales continued to improve and experienced a recovery in consumer demand. The increase in Sierra was due to continued sales improvements across most product channels and regions. On a constant-currency basis, total sales were up 23 percent.
  • Gross margin in the fourth quarter was unchanged at 35.5 percent compared to the same year‐ago quarter. Improvements in product mix, low levels of discounting and foreign exchange benefits offset unfavorable impacts on the company’s supply chain and logistics due to the COVID-19 pandemic. Excluding a fair value inventory step-up associated with the Barnes acquisition, adjusted gross margin in the fourth quarter increased 50 basis points to 36.0 percent.
  • Selling, general and administrative (SG&A) expenses in the fourth quarter were $20.9 million compared to $17.5 million in the year‐ago quarter, primarily due to the inclusion of Barnes, which contributed $1.7 million, and an increase in stock-based compensation given Clarus’ stock price appreciation during the quarter.
  • Net income in the fourth quarter was $7.1 million, or $0.22 per diluted share, compared to $12.4 million or $0.40 per diluted share, in the same year‐ago quarter. The decrease included $3.5 million of non‐cash charges and $0.6 million in transaction costs compared to $5.6 million of non‐cash benefits and minimal transaction costs in the same year‐ago quarter. Net income in the fourth quarter of 2019 included a $10.4 million net benefit associated with the partial release of the company’s valuation allowance on its deferred tax assets.
  • Adjusted net income in the fourth quarter, which excludes the non‐cash items and transaction costs, increased 64 percent to $11.2 million, or $0.34 per diluted share, compared to an adjusted net income of 6.8 million, or $0.22 per diluted share, in the same year‐ago quarter.
  • Adjusted EBITDA in the fourth quarter increased 56 percent to $11.0 million compared to $7.0 million in the same year‐ago quarter.
  • Net cash provided by operating activities for the three months ended December 31, 2020 increased significantly to $8.3 million compared to $3.9 million in the year-ago quarter. Capital expenditures for the three months ended December 31, 2020 were $1.8 million compared to $1.3 million in the same year‐ago period. Free cash flow, defined as net cash provided by operating activities less capital expenditures, for the three months ended December 31, 2020 increased significantly to $6.5 million compared to $2.6 million in the same year‐ago period.

Liquidity at December 31, 2020 vs. December 31, 2019

  • Cash and cash equivalents totaled $17.8 million compared to $1.7 million.
  • Total debt of $34.6 million compared to $22.7 million.
  • Remaining access to $44.4 million on the company’s revolving line of credit.
  • Net debt leverage ratio of 0.6x compared to 0.9x.

Full Year 2020 Financial Results

  • Sales in 2020 were $224.0 million compared to $229.4 million in 2019. The decrease was driven by a 14 percent decline in Black Diamond sales due to the impacts of the COVID-19-related retail demand freeze in the first half of the year, partially offset by a 57 percent increase in Sierra sales due to strong demand tailwinds throughout the year. On a constant currency basis, total sales were down 3 percent.
  • Gross margin in 2020 was 34.7 percent compared to 35.0 percent in 2019. The decrease was primarily due to the unfavorable impacts on the company’s supply chain and logistics due to the COVID-19 pandemic, partially offset by improved product and channel mix. Excluding a fair value inventory step-up associated with the Barnes acquisition, the adjusted gross margin in 2020 was 34.9 percent.
  • Selling, general and administrative expenses in 2020 were $71.4 million compared to $68.7 million in 2019. The increase was primarily due to higher levels of stock-based compensation in line with the company’s stock price appreciation along with the inclusion of Barnes, which contributed $1.7 million, partially offset by the cost-saving initiatives implemented during the first half of the year in response to the COVID-19 pandemic.
  • Net income in 2020 was $5.5 million, or $0.18 per diluted share, compared to $19.0 million, or $0.61 per diluted share, in 2019. Net income in 2020 included $14.0 million of non-cash charges and $2.4 million of transaction costs, compared to net income in 2019 that included $2.1 million of non‐cash charges and $0.2 million in transaction and restructuring costs.
  • Adjusted net income in 2020, which excludes the non‐cash items and transaction costs, increased 3 percent to $21.9 million, or $0.70 per diluted share, compared to $21.3 million, or $0.69 per diluted share, in 2019.
  • Adjusted EBITDA in 2020 was $22.4 million compared to $22.7 million in 2019.
  • Net cash provided by operating activities for the year ended December 31, 2020 increased significantly to $29.4 million compared to $9.5 million in the prior year. Capital expenditures for 2020 were $5.4 million compared to $4.1 million in the same year‐ago period. Free cash flow, defined as net cash provided by operating activities less capital expenditures, for the year ended December 31, 2020 increased significantly to $24.0 million compared to $5.4 million in the same year‐ago period.

Capital Allocation
In 2020, the company temporarily suspended its share repurchase program as a proactive measure in response to the COVID-19 pandemic, leaving approximately $10.8 million remaining on its $30 million share repurchase program as of December 31, 2020. During the year, the company paid $1.5 million in cash dividends ($0.10 per share annually) compared to $3.0 million in 2019. Beginning on May 1, 2020, Clarus’ board of directors temporarily replaced the company’s quarterly cash dividend with a stock dividend, which remained in effect for the first and second quarter of 2020. Clarus’ regular quarterly cash dividend was restored on October 19, 2020 and remained in place for the third and fourth quarter of 2020. The company’s quarterly dividend was initiated in August 2018.

2021 Outlook
Clarus anticipates fiscal year 2021 sales to grow approximately 25 percent to $280 million compared to 2020. By brand, the company expects sales for Black Diamond to increase 17 percent to $200 million and Sierra and Barnes combined to increase 52 percent to $80 million compared to 2020.

The company expects adjusted EBITDA in 2021 to increase approximately 56 percent to $35 million compared to 2020 with capital expenditures of approximately $7.5 million and free cash flow of approximately $15 million.

Net Operating Loss (NOL)
The company estimates that it has available NOL carryforwards for U.S. federal income tax purposes of approximately $120 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.

Photo courtesy Sierra Bullets