Clarus Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021, compared with the three months ended March 31, 2020. Balance-sheet comparisons are with December 31, 2020. Amounts below are in millions unless otherwise noted. Clarus sells outdoor and lifestyle products under brands including Black Diamond and PIEPS, and bullets and ammunition through Sierra and Barnes.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $75.331 | $53.555 |
| Gross profit | $27.050 | $18.512 |
| Gross margin | 35.9% | 34.6% |
| Operating income | $5.689 | $0.892 |
| Net income | $5.677 | $0.036 |
| Diluted earnings per share | $0.17 | $0.00 |
| Operating cash flow | $(2.518) | $3.499 |
| Capital expenditures | $1.347 | $1.302 |
| Free cash flow | $(3.865) | $2.197 |
Revenue increased 40.7%. Domestic sales rose 66.6% to $47.573 million; international sales rose 11.0% to $27.758 million. Growth reflected higher quantities of outdoor and sport products, foreign-exchange effects, and $8.485 million of Barnes sales. Barnes was acquired in October 2020, so the year-over-year comparison does not include Barnes in the prior-year reported results.
Gross margin improved by 1.3 percentage points, which management attributed mainly to favorable product mix. Barnes contributed to margin, partly offset by a 0.5 percentage-point impact from sales of acquired inventory recorded at fair value. SG&A increased 20.2% to $20.885 million, including Barnes costs, higher stock compensation, and investment in sales, direct-to-consumer, warehousing, and logistics. The income tax line was a $0.366 million benefit, versus $0.014 million expense in Q1 2020; the reported 2021 effective tax rate was a 6.9% benefit.
Financial position and liquidity
- Cash was $6.525 million at March 31, down from $17.789 million at year-end. Operating cash use was primarily associated with a $12.7 million increase in net operating assets, or non-cash working capital.
- Current assets were $138.819 million and current liabilities were $36.661 million. Inventory was $69.980 million, up from $68.356 million at year-end.
- Total debt was $28.648 million, comprising $10.651 million drawn on the revolving facility, $0.997 million of foreign credit facilities, and a $17.000 million term note. Debt was $34.621 million at year-end.
- The $60 million revolving facility had approximately $49.3 million available. The facilities mature in 2022 for the foreign revolver and May 2024 for the main credit agreement. The main agreement is secured and includes leverage and fixed-charge coverage covenants; Clarus reported compliance at March 31.
- Financing cash outflow was $7.196 million, including net repayments on revolving borrowings, $1.000 million of term-loan repayment, treasury-share purchases, and cash dividends.
Changes, outlook, and risks
- Both reporting segments grew: Black Diamond sales were $51.796 million versus $45.795 million; Sierra sales, including Barnes, were $23.535 million versus $7.760 million. Sport products accounted for 31% of revenue, compared with 14% a year earlier.
- Management said COVID-19 continued to affect Black Diamond retail demand in Q1, though to a lesser extent as some countries eased restrictions. It expected effects on future sales and profitability to continue, with duration and magnitude uncertain.
- Management believed operating cash flow and the existing revolving facility would cover liquidity needs for at least the next 12 months, while noting that prolonged pandemic-related economic or supply-chain disruption could affect results, covenant compliance, and access to liquidity. No numerical earnings or revenue guidance was provided.
- The company had resumed its quarterly cash dividend after temporarily replacing it with a stock dividend in 2020. The board approved a $0.025-per-share payment for May 2021; future dividends remain subject to board approval and credit-agreement restrictions.
- Other stated risks include consumer demand, supply-chain and raw-material availability and costs, foreign exchange, acquisition integration, ammunition-related regulation and public opinion, product liability, and realization or potential Section 382 limitation of tax-loss carryforwards. The filing notes possible losses from contingencies above accrued amounts, but says they cannot currently be reasonably estimated; management did not expect current legal matters to have a material adverse effect.
- Management reported effective disclosure controls. Barnes was excluded from the internal-control effectiveness assessment; its financial statements represented 15% of total assets and 11% of Q1 sales.
Important facts for investors to verify
- Whether sales growth and improved gross margin persist, particularly after separating Barnes contributions, product mix, and foreign-exchange effects.
- Whether working-capital investment, negative operating cash flow, and cash depletion reverse in subsequent quarters.
- Debt levels, covenant headroom, and the effect of any further borrowing, acquisitions, or dividend payments on liquidity.
- The continuing impact of COVID-19 and supply-chain conditions on demand, production, costs, and margins.
- Realizability of deferred tax assets and NOLs, including possible Section 382 limitations, and the eventual exposure from unquantified contingencies.