Clarus Corp. on Monday reported sales for the first quarter ended March 31 of $61.2 million, up 15 percent from the year-ago period and ahead of Wall Street’s estimates by $3.3 million.
Net income increased to a record $3.8 million, or 12 cents per diluted share, compared to $0.4 million or 1 cent per diluted share in last year’s first quarter. Adjusted net income before non-cash items increased 82 percent to a record $6.9 million, or 23 cents per diluted share, compared to $3.8 million or 13 cents per diluted share a year ago.
“The momentum of 2018 continued into the first quarter of 2019 with sales growth across every brand, category, geography, and channel,” said John Walbrecht, president, Clarus. “This performance was the result of our continued dedication to product innovation, as well as better order fulfillment and effective marketing campaigns. This led to continued gross margin expansion and was combined with 350 basis points of selling, general, and administrative expense leverage resulting in adjusted EBITDA margin increasing 370 basis points to 11.8 percent.”
“A significant driver of our strong performance in the first quarter was the favorable winter weather that extended late into the season in both the U.S. and Europe which drove 49 percent year-over-year growth within ski hardgoods. Aiding in this growth was the shipment of the new Black Diamond Beacon product, which moved from the fourth quarter of last year into the first quarter of this year. Additionally, hardgoods in mountain and climb were both up 12 percent, further supporting a quarter that experienced solid performance across the board. Looking towards the remainder of the year, we are reiterating our 2019 financial outlook, and I am confident in our team’s ability to successfully execute on our plan and continue to drive our brands forward.”
First Quarter 2019 Financial Results
Sales in the first quarter increased 15 percent to $61.2 million compared to $53.3 million in the same year-ago quarter. The increase was driven by 16 percent growth in Black Diamond and 7 percent growth in Sierra. On a constant currency basis, total sales were up 16 percent.
Gross margin in the first quarter increased 250 basis points to 36.0 percent compared to 33.5 percent in the year-ago quarter. The increase was primarily due to a favorable brand mix and an inventory fair value adjustment that was incurred in the first quarter of 2018. This was partially offset by foreign exchange headwinds from the strengthening of the U.S. dollar, as well as impacts from channel mix. Gross margin in the first quarter of 2019 increased 60 basis points compared to an adjusted gross margin of 35.4 percent in the first quarter of 2018 which included a fair value inventory step-up associated with the Sierra acquisition.
Selling, general and administrative expenses in the first quarter were $17.6 million compared to $17.1 million in the year-ago quarter. As a percentage of sales, selling, general and administrative expenses declined 350 basis points to 28.7 percent. The Company continued its focus on the re-allocation and scaling of its selling, general and administrative expenses to drive strong brand growth and allow it to strategically allocate investments into demand creation and product innovation within Black Diamond and Sierra.
Net income in the first quarter increased significantly to $3.8 million or $0.12 per diluted share, compared to $0.4 million or $0.01 per diluted share in the year-ago quarter. Net income in the first quarter of 2019 included $3.1 million of non-cash charges and $0.1 million of transaction and restructuring costs, compared to $3.2 million of non-cash charges and $0.2 million in transaction and restructuring costs in the first quarter of 2018.
Adjusted net income, which excludes the non-cash items, as well as transaction, merger and integration, and restructuring costs, increased 82 percent to $6.9 million or $0.23 per diluted share, compared to $3.8 million or $0.13 per diluted share in the first quarter of 2018.
Adjusted EBITDA in the first quarter increased 69 percent to $7.3 million compared to $4.3 million in the year-ago quarter. As a percentage of sales, adjusted EBITDA increased 370 basis points to 11.8 percent compared to 8.1 percent in the year-ago quarter.
Net cash provided by operating activities for the first quarter of 2019 was $5.7 million compared to $7.3 million in the year-ago quarter. Capital expenditures in the first quarter were $1.0 million compared to $0.9 million in the first quarter of 2018. Free cash flow, defined as net cash provided by operating activities less capital expenditures for the first quarter was $4.7 million compared to $6.4 million in the year-ago quarter. The decrease in free cash flow was solely driven by timing differences associated with the changes in working capital as profitability increased significantly in the first quarter of 2019.
At March 31, 2019, cash and cash equivalents totaled $2.5 million, unchanged from December 31, 2018. The Company’s debt balance at March 31, 2019, was $18.3 million compared to $22.1 million at December 31, 2018.
Additionally, on May 3, 2019, Clarus converted its ABL facility with JP Morgan Chase Bank, N.A. into a $100 million cash flow facility. The facility includes syndication with two additional banks and will provide increased flexibility, capacity and aid in driving the Company’s capital allocation strategy.
Clarus still anticipates fiscal year 2019 sales to grow approximately 8 percent to $230 million compared to 2018. The Company also continues to expect adjusted EBITDA to increase approximately 20 percent to $25 million compared to 2018.
Additionally, in fiscal year 2019, the Company still expects capital expenditures to be approximately $4.5 million and free cash flow to be approximately $10 million.
Net Operating Loss
The Company estimates that it has available Net Operating Loss (NOL) carryforwards for U.S. federal income tax purposes of approximately $141 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 Clarus Corp.