Clarus Corp. on Monday reported an adjusted net income increased to $2.6 million, or 9 cents per share, compared to an adjusted net loss of $3.4 million, or (11) cents per share the same quarter a year ago, beating analysts’ consensus estimates by 9 cents.
Clarus, which is focused on the outdoor and consumer industries and owns and operates Black Diamond Equipment, Pieps and Sierra Bullets, reported that sales grew 50 percent to $45.9 million.
Second Quarter 2018 Financial Highlights vs. Same Year-Ago Quarter
- Sales up 50% to a Q2 record of $45.9 million.
- Gross margin up 510 basis points to 34.6 percent.
- Net loss improved to $0.8 million or $(0.03) per share compared to a net loss of $3.7 million or $(0.12) per share.
- Adjusted net income before non-cash items increased significantly to $2.6 million, or $0.09 per share, compared to an adjusted net loss of $3.4 million, or $(0.11) per share.
- Adjusted EBITDA improved significantly to a Q2 record of $2.8 million compared to a loss of $2.7 million.
- Repurchased 417,237 shares for approximately $3.3 million, excluding fees and expenses, in connection with the company’s modified Dutch auction tender offer.
Management Commentary
“The strong results of our second quarter signal the momentum in our brands and reinforce that our strategy is working,” said John Walbrecht, president of Clarus. “Important metrics that confirm this performance include 14 percent sales growth from Black Diamond including an 89 percent increase in apparel and 32 percent pro forma growth in Sierra Bullets.
“We continued to translate these top-line results into significantly improved gross margin, profitability and cash generation. During the second quarter, gross margin improved by 510 basis points, and we increased year-over-year adjusted EBITDA by $5.5 million.
“Given our strong performance in the first half of the year, we are increasing our 2018 outlook. We expect our financial momentum to continue for the remainder of the year based upon key product innovations across all of Black Diamond’s primary product categories, particularly within climb and apparel, and improved demand at Sierra as we continue to increase the exposure of the brand within existing channels.”
Commenting on the initiation of a quarterly cash dividend, Clarus Executive Chairman Warren Kanders said: “We believe this decision demonstrates our confidence in the financial management and strength of our company, our settling into a more natural and consistent rhythm in our business, and provides a platform for a broader investor base. Our high levels of growth, operating leverage and attendant cash flows also make us well-positioned to seek opportunistic acquisitions while returning capital to shareholders. We believe this reinforces our commitment to delivering optimal shareholder value.”
Second Quarter 2018 Financial Results
Sales in the second quarter of 2018 increased 50percent to $45.9 million compared to $30.7 million in the same year-ago quarter. The increase was driven by $10.9 million in sales generated by Sierra, and continued strong growth across the Black Diamond Equipment brand. On a constant currency basis, total sales were up 47 percent.
On a pro forma basis, as if Clarus owned Sierra during the second quarter of 2017, consolidated sales in the second quarter of 2018 increased 18 percent, comprised of 14 percent growth from Black Diamond and 32 percent growth from Sierra Bullets.
Gross margin increased 510 basis points to 34.6 percent compared to 29.5 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.
Selling, general and administrative expenses in the second quarter increased to $15.8 million compared to $12.9 million in the year-ago quarter. The anticipated increase was due to strategic investments that seek to drive innovation and growth in both Sierra and Black Diamond.
Net loss in the second quarter improved to $0.8 million, or $(0.03) per diluted share, compared to a net loss of $3.7 million or $(0.12) per diluted share in the year-ago quarter. Net loss in the second quarter of 2018 included $3.2 million of non-cash items, $0.2 million in transaction costs and minimal restructuring costs compared to $0.2 million of non-cash items and minimal restructuring costs in the second quarter of 2017.
Adjusted net income, which excludes the non-cash items, as well as transaction and restructuring costs, increased significantly to $2.6 million, or $0.09 per diluted share, compared to adjusted net loss of $3.4 million, or $(0.11) per diluted share, in the second quarter of 2017.
Adjusted EBITDA also increased significantly to $2.8 million compared to a loss of $2.7 million in the second quarter of 2017.
At June 30, 2018, cash and cash equivalents totaled $2.6 million compared to $1.9 million at December 31, 2017. Free cash flow during the first six months of 2018 was $6.4 million compared to $(8.8) million in the same period in 2017. The company’s debt balance at June 30, 2018, was $16.1 million compared to $20.8 million at December 31, 2017.
New $150 Million Revolving Credit Facility
On June 28, 2018, Clarus entered into a new $75 million credit facility agreement, plus an uncommitted accordion feature providing for an additional $75 million, for a total of up to $150 million with J.P. Morgan Chase Bank, N.A. The upsized agreement replaces the company’s $40 million revolving credit line at more favorable rates and provides greater international capabilities. The facility bears interest at a LIBOR or an adjusted LIBOR rate plus an applicable margin generally ranging from 1.5% to 2.2% that matures in 2022. The use of proceeds will be to fully pay down the company’s previously existing revolving credit facility, as well as for working capital and general corporate purposes.
Capital Allocation
On August 6, Clarus implemented a quarterly cash dividend of $0.025 per share on the company’s common stock. The dividend will be paid on September 4, 2018, to shareholders of record on the close of business on August 20, 2018.
After multiple extensions and increasing the maximum price from $7.20 to $8.00, on July 12, Clarus announced the results of its $7.5 million modified Dutch auction tender offer. Clarus accepted for purchase 417,237 shares for an aggregate cost of approximately $3.3 million, excluding fees and expenses. The shares accepted for purchase represented approximately 1 percent of Clarus’ total outstanding shares as of June 30, 2018.
The company maintains a $30 million share repurchase program, which still has approximately $14.4 million available.
These various capital allocation measures reflect the company’s confidence in its future and commitment to finding ways to enhance value for all shareholders.
Increased 2018 Outlook
Clarus now anticipates fiscal year 2018 sales to grow 20 percent to 23 percent to approximately $205-$210 million (from $200-$205 million prior) compared to $170.7 million in 2017. On a constant currency basis, that translates to an expected sales range between $202-$207 million, or up 18 percent-21 percent compared to 2017.
The company also now expects adjusted EBITDA margin to be approximately 8.5 percent (from 8 percent prior), 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.
Photo courtesy Clarus Corp.