Clarus Corp. reported sales dropped 11.8 percent in the fourth quarter, dragged down by inventory destocking trends at Black Diamond’s key North American retail accounts. Sales grew 10 percent in its Precision Sports segment (Sierra and Barnes). Results were in line with guidance. For 2023, the company forecasted a 6 percent decline.
Sales for the year ended December 31 of $448.1 million compared with guidance of $445.0 million. Adjusted EBITDA of $63.0 million was just below guidance of approximately $64 million.
Fourth Quarter 2022 Financial Summary vs. Same Year-Ago Quarter
- Sales of $104.2 million compared to $118.2 million;
- Gross margin was 34.6 percent compared to 36.1 percent;
- Net loss of $81.6 million, or $(2.20) per diluted share, compared to net income of $14.0 million, or $0.36 per diluted share;
- Net loss in Q4 2022 included a non-cash impairment charge of $92.3 million in the Adventure segment;
- Adjusted net income before non-cash items of $7.3 million, or $0.20 per diluted share, compared to $17.4 million, or $0.45 per diluted share; and
- Adjusted EBITDA of $10.6 million with an adjusted EBITDA margin of 10.2 percent compared to $20.0 million with an adjusted EBITDA margin of 16.9 percent.
2022 Financial Summary vs. 2021
- Sales increased 19 percent to $448.1 million compared to $375.8 million;
- Gross margin was 36.5 percent compared to 36.4 percent; adjusted gross margin was 36.5 percent compared to 37.7 percent;
- Net loss was $69.8 million, or $(1.88) per diluted share, compared to net income of $26.1 million, or $0.73 per diluted share. Net loss in 2022 included the $92.3 million non-cash impairment expense in the Adventure segment;
- Adjusted net income before non-cash items was $45.3 million, or $1.22 per diluted share, compared to $52.5 million, or $1.47 per diluted share; and
- Adjusted EBITDA of $63.0 million with an adjusted EBITDA margin of 14.1 percent compared to $61.5 million with an adjusted EBITDA margin of 16.4 percent.
The Outdoor segment includes Black Diamond, the Adventure segment includes Rhino-Rack and Maxtrax. The Precision Sports segment includes Sierra and Barnes.
Management Commentary
“While 2022 will go down as one of our most challenging years given various macroeconomic headwinds, our brands were largely resilient, and our team was nimble and tenacious,” said Clarus President John Walbrecht. “As the challenges set in, we acted quickly by pivoting to areas of our business experiencing less headwinds, and we prioritized expense reductions, free cash flow generation, and debt reduction.
“Our areas of focus were Precision Sports, as well markets outside of North American wholesale in our Outdoor segment. The results were evident as we drove a record fourth quarter in Precision Sports with sales growth of 10 percent. In Outdoor, our focus on Europe and our International Global Distributor (IGD) markets, which did not experience the magnitude of headwinds as North America, allowed us to drive constant currency growth in the fourth quarter of 15 percent in Europe and 7 percent in our IGD market. Our continued focus on apparel and our direct-to-consumer business in our Outdoor segment also helped to offset broader headwinds, growing 15 percent and 19 percent in the fourth quarter, respectively.
“The pivot towards liquidity improvement was also apparent during the fourth quarter. Our focus on reducing working capital and lowering costs allowed us to generate $30 million in free cash flow which we used to bring our leverage to the bottom end of our 2x to 3x target.
“As we look ahead, we intend to execute on the biggest opportunities within our existing segments and enhance our operational performance. We also plan to focus on our core consumers through community-centric investments in proven areas like our direct-to-consumer business. We expect that these actions will position us to return to sustainable profitable growth and, with that, strong shareholder value creation.
“Finally, we are excited by the recent announcement of Neil Fiske as the new President for Black Diamond. He will be responsible for accelerating growth and lifting profitability by capitalizing on attractive expansion opportunities across various categories, channels, and regions.”
Fourth Quarter 2022 Financial Results
Sales in the fourth quarter were $104.2 million compared to $118.2 million in the same year-ago quarter. The fourth quarter of 2022 included revenue contribution of $3.8 million from Maxtrax, an acquisition completed on December 1, 2021. Organic sales were down 11 percent in the quarter, Maxtrax contributed 2 percent and foreign currency exchange was a 3 percent headwind. Foreign currency exchange was unfavorable to sales by $3.7 million in the fourth quarter as the U.S. dollar continued to strengthen against the Euro and Australian dollar.
Sales in the Outdoor segment were $55.3 million, or $57.7 million on a constant currency basis, compared to $65.1 million in the year-ago quarter. The decline primarily reflected inventory destocking trends at the company’s key North American retail accounts, which were partially offset by growth in the direct-to-consumer channels and European and IGD markets. Precision Sport sales increased 10 percent to $30.3 million, reflecting continued strong demand and market share gains. Sales in the Adventure segment were $18.5 million, reflecting lower consumer demand given the challenging economic environment and constraints on new vehicle deliveries which impacted new product sales in both Australia and North America.
Gross margin in the fourth quarter was 34.6 percent compared to 36.1 percent in the year-ago quarter due to higher freight costs and unfavorable foreign currency exchange movement. Higher freight costs negatively impacted gross margin by 90 basis points and foreign currency exchange had a 220-basis points impact.
Selling, general and administrative expenses in the fourth quarter were $33.1 million compared to $32.6 million in the same year-ago quarter. The inclusion of Maxtrax and higher rent and selling expenses at the Adventure segment were nearly offset by lower non-cash stock-based compensation for performance awards at the corporate level.
Net loss in the fourth quarter was $81.6 million, or $(2.20) per diluted share, compared to net income of $14.0 million, or $0.36 per diluted share, in the prior-year quarter. Net loss in the fourth quarter of 2022 included a non-cash impairment charge of $92.3 million in the Adventure segment due to the decline in the company’s stock price and lower sales and profitability in the segment compared to expectations.
Adjusted net income before non-cash items in the fourth quarter, which excludes non-cash items and transaction costs, was $7.3 million, or $0.20 per diluted share, compared to $17.4 million, or $0.45 per diluted share, in the same year-ago quarter.
Adjusted EBITDA in the fourth quarter was $10.6 million, or an adjusted EBITDA margin of 10.2 percent, compared to $20.0 million, or an adjusted EBITDA margin of 16.9 percent, in the same year-ago quarter. The decline in adjusted EBITDA was driven by lower sales in the Adventure segment, as well as unfavorable movements in foreign currency exchange rates and higher freight costs.
Net cash provided by operating activities for the three months ended December 31, 2022, was $32.4 million compared to $16.8 million in the prior year’s quarter. Capital expenditures in the fourth quarter of 2022 were $2.0 million compared to $11.8 million in the prior year’s quarter, which included $9.5 million for the purchase of the existing Barnes facility in Mona, Utah. Free cash flow for the fourth quarter of 2022 was $30.3 million compared to $5.0 million in the prior year’s quarter due to the collection of accounts receivable and reduced inventory levels compared to September 30, 2022.
Liquidity At December 31, 2022 vs. December 31, 2021
- Cash and cash equivalents totaled $12.1 million compared to $19.5 million;
- Total debt of $139.0 million compared to $141.5 million;
- The company’s credit facility matures in April of 2027 and bears interest at a variable rate that was approximately 6.3 percent at December 31, 2022;
- Remaining access to approximately $98 million on the company’s revolving line of credit; and
- Net debt leverage ratio of 2.0x compared to 2.0x
Full Year 2022 Financial Results
Sales in 2022 increased 19 percent to a record $448.1 million compared to $375.8 million in 2021. The increase includes a revenue contribution of $77.0 million from Rhino-Rack, an acquisition completed on July 1, 2021, and $15.9 million from MAXTRAX, an acquisition completed on December 1, 2021. Full-year 2022 sales increased by 1 percent on a proforma basis compared to 2021. Full-year 2022 sales were negatively impacted by unfavorable foreign currency exchange movements of nearly $9 million compared to 2021.
From a segment perspective, Outdoor sales were up 1 percent to $222.3 million compared to 2021, Precision Sport sales were up 21 percent to $132.9 million and Adventure sales were $92.9 million.
Gross margin in 2022 improved to 36.5 percent compared to 36.4 percent in 2021 primarily due to the fair value inventory adjustment from the 2021 acquisitions not repeating in 2022, partially offset by unfavorable foreign currency exchange and higher freight costs. Adjusted gross margin in 2022 was 36.5 percent compared to 37.7 percent in the year-ago quarter.
SG&A expenses in 2022 were $135.0 million compared to $105.5 million in 2021. The increase was primarily due to the inclusion of Rhino-Rack and Maxtrax for the full year along with higher costs related to payroll and stock compensation expenses at the corporate level and higher investment in the retail and direct-to-consumer initiatives in the Outdoor segment.
Net loss in 2022 was $69.8 million, or $(1.88) per diluted share, compared to net income of $26.1 million, or $0.73 per diluted share, in the prior year. Net loss in 2022 included the $92.3 million non-cash impairment charge in the Adventure segment discussed above.
Adjusted net income before non-cash items in 2022, which excludes non-cash items and transaction costs, was $45.3 million, or $1.22 per diluted share, compared to an adjusted net income before non-cash items of $52.5 million, or $1.47 per diluted share, in 2021.
Adjusted EBITDA in 2022 was $63.0 million, or an adjusted EBITDA margin of 14.1 percent, compared to $61.5 million, or an adjusted EBITDA margin of 16.4 percent, in 2021.
Net cash provided by operating activities for the year ended December 31, 2022, was $14.6 million compared to $(0.3) million in 2021. Capital expenditures in 2022 were $8.2 million compared to $17.4 million in the prior year. Free cash flow for the year ended December 31, 2022, was $6.4 million compared to $(17.7) million in the same year-ago period. This increase is primarily due to lower capital expenditures in 2022.
2023 Outlook
The company expects the fiscal year 2023 sales of approximately $420 million and adjusted EBITDA of approximately $60 million, or an adjusted EBITDA margin of 14.3 percent. In addition, capital expenditures are expected to range between $7 million to $8 million and free cash flow is expected to range between $35 million to $40 million for the full year 2023. Implicit in these expectations are caution and conservatism considering the challenging macro environment, higher interest rates and the uncertain impact these challenges might have on the consumer.
Net Operating Loss (NOL)
The company estimates that it has an available net operating loss (NOLs) carryforwards for U.S. federal income tax purposes of approximately $17.7 million, which includes $1.8 million of U.S. federal NOL carryforwards that expire on December 31, 2023. 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 guarantee that the company will be able to fully utilize the NOLs to offset current and future earnings or that the rights agreement will achieve the objective of preserving the value of the NOLs.
Photo courtesy Clarus/Black Diamond