Clarus Corp. reported earnings on an adjusted basis surged 97 percent in the third quarter ended September 30 as sales grew 69 percent in the third quarter.
Third Quarter 2021 Financial Highlights vs. Same Year‐Ago Quarter
- Sales increased 69 percent to a record $109.0 million;
- Gross margin improved 240 basis points to 36.0 percent; adjusted gross margin up 520 basis points to 38.8 percent;
- Net income increased to $4.5 million, or $0.13 per diluted share, compared to net income of $1.2 million, or $0.04 per diluted share;
- Adjusted net income before non‐cash items increased 97 percent to $18.1 million, or $0.50 per diluted share, compared to $9.2 million, or $0.30 per diluted share;
- Adjusted EBITDA more than doubled to a record $19.2 million, an Adjusted EBITDA margin of 17.7 percent, compared to $9.1 million; and
- Adjusted EBITDA margin of 14.1 percent.
Public Offering
On October 29, 2021, the company closed its public offering of 2.75 million shares of the company’s common stock at a price to the public of $27.00 per share, providing gross proceeds of $74.3 million. In addition, on November 2, 2021, the company closed the option exercise by the underwriters in the offering to purchase an additional 412,500 shares of the company common stock on the same terms and conditions. With the addition of the full exercise of the underwriters’ option to purchase additional shares, the total number of shares sold by Clarus in the offering increased to 3,162,500 shares, and the gross proceeds before underwriting fees and estimated offering expenses were approximately $85.4 million.
The company intends to use a portion of the net proceeds of the offering for the repayment in full of approximately $65.0 million in aggregate principal amount under its revolving loan facility. This will provide a remaining pro forma net debt leverage of less than 2.0x. The remaining portion of the net proceeds from the offering for general corporate purposes, including capital expenditures and potential acquisitions.
Management Commentary
“As previously announced in our third quarter preliminary results, we’ve seen continued strong growth among our portfolio of well-diversified ‘Super Fan’ brands,” said Clarus President John Walbrecht. “For the second consecutive quarter, we reported record sales and Adjusted EBITDA with significant gross margin expansion. These results reflect the continued execution of our ‘Innovate and Accelerate’ strategy, underpinned by our focus on strong supplier partnerships and operational excellence.
“Our Black Diamond, Sierra and Rhino-Rack segments all continue to benefit from the increase in the number of new and existing consumers spending more time outdoors, a trend we’ve termed ‘outdoorism.’ It is in the outdoors where our brands are uniquely positioned to deliver an enhanced consumer experience. Bookings remain strong and our team has done a tremendous job fulfilling orders and staying aligned with our retail and vendor partners despite the supply chain headwinds we have mitigated. This, along with our ease of doing business mentality, we continue to reap market share gains across all of our leading categories.”
Third Quarter 2021 Financial Results
Sales in the third quarter increased 69 percent to a record $109.0 million compared to $64.5 million in the same year‐ago quarter. The increase includes a revenue contribution of approximately $13.2 million from Barnes, an acquisition Clarus completed on October 2, 2020, and $19.6 million from Rhino-Rack, an acquisition completed on July 1, 2021. Third-quarter sales increased 18 percent on a pro forma basis compared to the same year-ago quarter.
Black Diamond sales were up 20 percent and Sierra sales were up 100 percent, or 13 percent excluding Barnes. The increase across both segments is attributed to continued strong consumer demand. On a constant currency basis, total sales increased 67 percent compared to the same year-ago quarter.
Gross margin in the third quarter improved 240 basis points to 36.0 percent compared to 33.6 percent in the year‐ago quarter due mostly to improvements in channel and product mix. Excluding a fair value inventory step-up associated with the Rhino-Rack acquisition, adjusted gross margin in the third quarter increased 520 basis points to 38.8 percent.
Selling, general and administrative expenses in the third quarter were $31.3 million compared to $18.7 million in the same year‐ago quarter, primarily due to the significant increase in sales and the inclusion of Rhino-Rack, which contributed $7.7 million, and Barnes, which contributed $1.7 million. The remaining increase was attributable to the company’s investments in the brand-related activities of sales, direct-to-consumer, marketing, and warehousing and logistics, focused on supporting its strategic initiatives around expanding distribution, elevating brand awareness and being easier to do business with. The increase was partially offset by a decrease of stock compensation of $1.1 million during the three months ended September 30, 2021 compared to the prior year.
Net income in the third quarter improved to $4.5 million, or $0.13 per diluted share, compared to net income of $1.2 million or $0.04 per diluted share, in the same year‐ago quarter.
Adjusted net income in the third quarter, which excludes non‐cash items and transaction costs, increased 97 percent to $18.1 million, or $0.50 per diluted share, compared to an adjusted net income of $9.2 million, or $0.30 per diluted share, in the same year‐ago quarter.
Adjusted EBITDA in the third quarter increased to a record $19.2 million, or an Adjusted EBITDA margin of 17.7 percent, compared to $9.1 million, or an Adjusted EBITDA margin of 14.1 percent, in the same year‐ago quarter.
Net cash provided by operating activities for the three months ended September 30, 2021 was $(17.5) million compared to $6.6 million in the prior year. Capital expenditures in the third quarter were $2.4 million compared to $1.6 million in the same year-ago quarter. Free cash flow, defined as net cash provided by operating activities less capital expenditures, for the quarter ended September 30, 2021 was $(19.8) million compared to $5.0 million in the same year‐ago period. The decline reflects proactive inventory increases to mitigate supply chain constraints and transaction expenses related to Rhino-Rack.
Liquidity At September 30, 2021 vs. December 31, 2020
- Cash and cash equivalents totaled $10.2 million compared to $17.8 million;
- Total debt of $190.0 million compared to $34.6 million;
- Remaining access to $34.6 million on the company’s revolving line of credit; and
- Net debt leverage ratio 2.7x compared to 0.6x at the end of 2020.
Increased 2021 Outlook
As revised in the company’s preliminary third-quarter 2021 results, Clarus anticipates fiscal year 2021 sales to grow approximately 62 percent to $362.5 million ($350 million prior) compared to 2020. By brand, the company expects sales for Black Diamond to increase 27 percent to $217.5 million ($215 million prior) and Sierra and Barnes combined to increase 99 percent to $105 million ($95 million prior) compared to 2020. The company continues to expect sales for Rhino-Rack to be $40 million for the second half of 2021.
The company expects adjusted EBITDA in 2021 to increase approximately 155 percent to $57 million ($52 million prior) compared to 2020. Included in this assumption is the continued expectation for Rhino-Rack to contribute approximately $6 million in adjusted EBITDA for the second half of 2021. Capital expenditures are expected to be approximately $8.5 million in 2021.
Net Operating Loss (NOL)
The company estimated that it has available NOL carryforwards for U.S. federal income tax purposes of approximately $120 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 Black Diamond