Black Diamond Inc. reported sales reached a record $35.1 million in the second quarter ended June 30, up 2 percent from from the second quarter ended June 30, 2014, or 7 percent in currency-neutral (c-n) terms.
The Salt Lake City-based maker of climbing, ski and other backcountry gear attributed the growth to its sales of Black Diamond apparel and the continued rollout of POC's cycling products, including its new spring 2015 “Race Day” line and expanded assortment of eyewear.
Gross margin in the second quarter of 2015 increased 80 basis points to 36.7 percent compared to 35.9 percent in the year-ago quarter, in spite of a 280 basis point headwind from foreign currency. Excluding the impact of foreign exchange, gross margin increased 360 basis points. The increase was due to a favorable mix of higher margin products and higher margin channel mix, reflecting the margin-enhancing activities contained in the company's strategic pivot following the sale of Gregory Mountain Products.
Selling, general and administrative expenses in the second quarter of 2015 was essentially unchanged at $18.1 million compared to $18.0 million in the year-ago quarter. These expenses include termination benefits provided to former president, Zeena Freeman, offset by the realization of savings from the restructuring plan implemented during 2014 to realign resources within the organization. The company anticipates completing the plan this year.
Adjusted EBITDA in the second quarter of 2015 was a loss of $3.1 million compared to a loss of $3.5 million in the year-ago quarter.
Net loss from continuing operations in the second quarter of 2015 was $5.4 million or $(0.17) per diluted share, compared to a loss of $4.4 million or $(0.14) per diluted share in the year-ago quarter. Net loss from continuing operations in the second quarter of 2015 included $3.6 million of non-cash items, $1.4 million in restructuring costs and $0.7 million in transaction costs, compared to $0.4 million of non-cash items and $0.4 million in restructuring costs in the year-ago quarter.
Adjusted net income from continuing operations, which excludes these non-cash items, increased significantly to $0.2 million or $0.01 per diluted share in the second quarter of 2015, compared to an adjusted net loss from continuing operations of $3.7 million or $(0.11) per diluted share in the second quarter of 2014.
At June 30, 2015, cash and available-for-sale marketable securities totaled $44.3 million compared to $40.9 million at December 31, 2014. Total debt was $22.0 million at June 30, 2015, which includes $19.2 million of 5 percent subordinated notes due in 2017 and $2.6 million in a foreign seasonal working capital credit facility for POC, compared to $22.4 million at December 31, 2014.
Management Commentary
“The second quarter reflects the company's initiatives to grow sales and gross margin while controlling expenses and improving cash flow,” said Peter Metcalf, CEO of Black Diamond. “Our 7 percent currency-neutral sales growth, despite continued headwinds in parts of Europe and Asia, and 360 basis point currency-neutral gross margin expansion demonstrates that our initiatives remain on track. In addition, we exited the quarter with $44.3 million in cash and marketable securities, generating $4.2 million in free cash flow in the first half of 2015.
“Today's results are being driven by POC's successful road bike product line and the addition of women's sportswear for spring '15, making for a more complete seasonal collection of Black Diamond apparel. Our Black Diamond equipment business also continues to gain market share, driven by double-digit sales growth both in the quarter and year-to-date in North America-our largest market. We expect momentum in this market along with our fast-growing POC brand and solid double-digit gains in both POC and Black Diamond's direct-to-consumer channels to drive record results in 2015.”
Exploration of Strategic Alternatives
As previously announced on March 16, 2015, Black Diamond has engaged the financial advisory firms Rothschild Inc. and Robert W. Baird & Co. to lead the exploration of a full range of strategic alternatives, including a sale of the entire company and the potential sales of the company's Black Diamond Equipment (including PIEPS) and POC brands in two separate transactions.
The company anticipates that the results of the strategic review process will be known during the third quarter of 2015. Black Diamond does not intend to comment further regarding the strategic review process unless or until a specific transaction is approved by its board of directors or shareholders, the strategic review process is concluded, or it is otherwise determined that further disclosure is appropriate or required by law. The company provides no assurance that the strategic review process will result in any completed transaction.
2015 Outlook
Black Diamond's guidance for fiscal 2015 remains on track with sales expected to increase 11 percent on a currency-neutral basis. Also on a currency-neutral basis, the company expects gross margin in fiscal year 2015 to be approximately 40 percent.
Net Operating Loss (NOL)
The company estimates that it has available NOL carryforwards for U.S. federal income tax purposes of approximately $167 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 Code. 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.
