Clarus Corp. on Monday reported fourth-quarter adjusted net income before non-cash items increased 27 percent to $5.9 million, or 19 cents per share, which beat Wall Street targets by 11 cents and was up from $4.6 million, or 15 cents per share, in the year-ago quarter.

Sales in Q4 increased 9 percent to $57.3 million, beating estimates by $0.7 million and up from $52.7 million in the year-ago fourth quarter. The increase was driven by 8 percent growth in Black Diamond and 14 percent from Sierra. On a constant currency basis, total sales were up 9 percent.

Fourth Quarter 2018 Financial Highlights vs. Same Year-Ago Quarter

  • Sales increased 9 percent to $57.3 million.
  • Gross margin increased 300 basis points to 35.6 percent.
  • Net income was $3.5 million or 12 cents per share, compared to $6 million or 20 cents per share. The fourth quarter of 2017 included an income tax benefit of $6.1 million related to the implementation of the Tax Cuts and Jobs Act.
  • Adjusted net income before non-cash items increased 27 percent to $5.9 million or 19 cents per share, compared to $4.6 million or 15 cents per share.
  • Adjusted EBITDA increased 30 percent to $6.6 million and as a percentage of sales, adjusted EBITDA increased 190 basis points to 11.6 percent.
  • Repurchased 101,833 shares of its common stock for approximately $1 million ($9.60 per share), bringing the total amount purchased during 2018 to 519,070 shares or $4.3 million ($8.31 per share). The Company maintains a $30 million share repurchase program, which still has approximately $13.5 million available.

Full Year 2018 Financial Highlights vs. 2017

  • Sales increased 24 percent to $212.1 million.
  • Gross margin increased 340 basis points to 34.9 percent.
  • Net income was $7.3 million or 24 cents per share, compared to $(0.7) million or (2) cents per share. Net loss in 2017 included the aforementioned income tax benefit of $6.1 million.
  • Adjusted net income before non-cash items increased significantly to $19.3 million or 64 cents per share, compared to $4.7 million or 16 cents per share.
  • Adjusted EBITDA increased significantly to $20.8 million, compared to $6.1 million, and as a percentage of sales, adjusted EBITDA increased 630 basis points to 9.8 percent.
  • Free cash flow, defined as net cash provided by operating activities less capital expenditures, was $8 million compared to $(11.7) million.

Management Commentary

“As indicated in our preliminary results, our brand momentum led to a record fourth quarter and full year that well-exceeded our outlook,” said John Walbrecht, president of Clarus. “Our brands and products continue to resonate with our consumers across all markets, and this was driven by innovation throughout our entire product portfolio, an accelerated go-to-market strategy and the execution of our growth strategy.

“These results are also showing in our financial results. For the year, we grew sales 24 percent and more than tripled adjusted EBITDA, generating a $20 million increase in free cash flow versus 2017. This has allowed us to enhance shareholder-friendly capital allocation measures, including the initiation of a quarterly dividend and share repurchases. It has also afforded us the means to continue an accelerated product R&D and innovation strategy, which we believe sets us up well for 2019.

“In fact, we expect that 2019 will see the introduction of approximately 300 new products across all of Black Diamond’s primary product categories, and the continuation of our enhanced go-to-market strategy at Sierra and SKINourishment focused on new product introductions, expanded distribution, and better consumer engagement. We believe that our current playbook of ‘innovate and accelerate’ will continue to provide us with strong organic growth in 2019, enabling us to further scale and leverage our portfolio. We also remain opportunistic in an M&A strategy that seeks to find other ‘super-fan brands’ in which we can deploy our unique brand strategy playbook.”

Fourth Quarter 2018 Financial Results

Sales in the fourth quarter of 2018 increased 9 percent to $57.3 million compared to $52.7 million in the same year-ago quarter. The increase was driven by 8 percent growth in Black Diamond and 14 percent from Sierra. On a constant currency basis, total sales were up 9 percent.

Gross margin increased 300 basis points to 35.6 percent compared to 32.6 percent in the year-ago quarter. The increase was primarily due to favorable channel and product mix across the portfolio, including strong product margins in Black Diamond apparel and Sierra Bullets.

Selling, general and administrative expenses in the fourth quarter were $16.5 million, unchanged versus the year-ago quarter. As a percentage of sales, selling, general and administrative expenses declined 260 basis points to 28.7 percent as the Company drove cost efficiencies despite strong brand growth, partially offset by the continued strategic investments in demand creation and product innovation within Black Diamond and Sierra.

Net income in the fourth quarter was $3.5 million or 12 cents per diluted share, compared to $6 million or 20 cents per diluted share in the year-ago quarter. Net income in the fourth quarter of 2018 included $2.2 million of non-cash charges and $0.2 million of transaction and restructuring costs, compared to a $1.7 million non-cash benefit, $0.2 million in transaction costs, $0.1 million in merger and integration costs, and minimal restructuring costs in the fourth quarter of 2017.

Adjusted net income, which excludes the non-cash items, as well as transaction, merger and integration, and restructuring costs, increased 27 percent to $5.9 million or 19 cents per diluted share, compared to $4.6 million or $0.15 per diluted share in the fourth quarter of 2017.

Adjusted EBITDA increased 30 percent to $6.6 million compared to $5.1 million in the fourth quarter of 2017. As a percentage of sales, adjusted EBITDA increased 190 basis points to 11.6 percent compared to 9.7 percent in the year-ago period.

Full Year 2018 Financial Results

Sales in 2018 increased 24 percent to $212.1 million compared to $170.7 million in 2017. The increase was driven by the inclusion of Sierra, which contributed $35.4 million in total sales and $25 million in incremental sales during the year, and growth in Black Diamond apparel, climb and mountain product categories. Excluding the Sierra acquisition, sales increased 10 percent. On a constant currency basis, total sales were up 23 percent.

Gross margin in 2018 increased 340 basis points to 34.9 percent compared to 31.5 percent in 2017. The increase was primarily due to favorable channel and product mix, the positive impact from foreign exchange, and more normalized levels of discontinued merchandise. Excluding a fair value inventory step-up associated with the Sierra acquisition, adjusted gross margin in 2018 increased 260 basis points to 35.4 percent.

Selling, general and administrative expenses in 2018 increased 16 percent to $65.2 million compared to $56.3 million in 2017. As a percentage of sales, selling, general and administrative expenses declined 230 basis points to 30.7 percent as the Company drove cost efficiencies despite strong brand growth, partially offset by the continued strategic investments in demand creation and product innovation within Black Diamond and Sierra.

Income tax benefit in 2018 was $0.8 million compared to a $5.1 million benefit in 2017. The higher income tax benefit in 2017 was largely due to the implementation of the Tax Cuts and Jobs Act of 2017.

Net income in 2018 improved significantly to $7.3 million or 24 cents per diluted share, compared to a net loss of $0.7 million or (2) cents per diluted share in 2017. Net income in 2018 included $11.4 million of non-cash charges, $0.5 million of transaction costs, and $0.1 million of restructuring costs, compared to a net loss in 2017 that included $3.2 million of non-cash charges, $2.1 million in transaction costs, $0.2 million in restructuring costs, and $0.1 million in merger and integration costs.

Adjusted net income in 2018, which excludes the non-cash charges as well as transaction, merger and integration, and restructuring costs, increased significantly to $19.3 million or 64 cents per diluted share, compared to $4.7 million or 16 cents per diluted share in 2017.

Adjusted EBITDA in 2018 increased significantly to $20.8 million compared to $6.1 million in 2017. As a percentage of sales, adjusted EBITDA improved 630 basis points to 9.8 percent.

Net cash provided by (used in) operating activities for 2018 and 2017 were $11.4 million and $(8.9) million, respectively. Capital expenditures for 2018 was $3.4 million compared to $2.8 million in 2017. Free cash flow, defined as net cash provided by operating activities less capital expenditures, for 2018 was $8 million compared to $(11.7) million in 2017.

At December 31, 2018, cash and cash equivalents totaled $2.5 million compared to $1.9 million at December 31, 2017. The Company’s debt balance at December 31, 2018, was $22.1 million compared to $20.8 million at December 31, 2017.

2019 Outlook

Clarus anticipates fiscal year 2019 sales to grow approximately 8 percent to $230 million compared to 2018.  The Company also expects adjusted EBITDA to increase approximately 20 percent to $25 million compared to 2018.

Additionally, in fiscal year 2019 the Company expects capital expenditures to be approximately $4.5 million and free cash flow to be approximately $10 million.

Net Operating Loss (NOL)

The Company estimates that it has available 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.