Clarus Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022, compared primarily with FY2021. This is an annual filing; it does not provide standalone fourth-quarter results. Dollar amounts below are USD millions unless stated otherwise.
Business context
Clarus designs, manufactures and distributes outdoor, precision-sport and adventure products under brands including Black Diamond, Sierra, Barnes, Rhino-Rack and MAXTRAX. FY2022 included a full year of ownership of Rhino-Rack and MAXTRAX, acquired in 2021. Sales were approximately 50% Outdoor, 29% Precision Sport and 21% Adventure.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Sales | $448.1 | $375.8 |
| Gross profit / gross margin | $163.4 / 36.5% | $136.9 / 36.4% |
| Operating income (loss) | ($67.4) | $21.2 |
| Net income (loss) | ($69.8) | $26.1 |
| Diluted EPS | ($1.88) | $0.73 |
| Cash from operations | $14.6 | ($0.3) |
| Free cash flow (company-defined) | $6.4 | ($17.7) |
Sales rose 19.2%. Gross margin was broadly stable, while SG&A increased 28.0% to $135.0 million, including full-year Adventure-brand costs and investment in retail and direct-to-consumer initiatives. The company recorded a $92.3 million non-cash impairment charge: $52.1 million of Adventure goodwill and $40.2 million for the Rhino-Rack trademark. Excluding this major item, the filing does not present an adjusted earnings measure in the results table.
Segment sales were $222.3 million for Outdoor (up 0.7%), $132.9 million for Precision Sport (up 21.0%) and $92.9 million for Adventure (up 105.8%). Adventure’s increase mainly reflected a full year of ownership versus partial-year ownership in FY2021. Segment operating results were $14.7 million, $39.4 million and a loss of $97.2 million, respectively; Adventure’s result includes the impairment.
Operating cash flow improved to $14.6 million, while capital expenditures were $8.3 million. Inventory increased to $147.1 million from $129.4 million; management said it built inventory to support customer demand. Cash was $12.1 million at year-end, versus $19.5 million a year earlier.
Year-end debt carrying value was $139.0 million, including $12.0 million current and $127.1 million long-term; cash less debt implies net debt of approximately $127.0 million. The company reported approximately $98 million available under its revolving facility and compliance with its covenants. The facility matures April 18, 2027. Borrowing rates were approximately 6.3%; management estimated a 100-basis-point rate increase would add about $1.4 million to annual interest expense. The maximum consolidated leverage ratio was 3.75:1 at year-end.
Changes, outlook and material matters
- Domestic sales increased 5.4% and international sales increased 40.1%; the latter included acquisition effects. A stronger U.S. dollar reduced reported sales in Outdoor and Adventure.
- Management reduced 2023-and-beyond sales forecasts for the Adventure reporting unit after weaker-than-expected demand, including in what is typically a peak Australian selling season, and rising interest rates. The filing gives no consolidated numerical revenue or earnings guidance.
- Management stated that cash from operations and the revolving facility should cover liquidity needs and contractual obligations for at least the next 12 months. This is subject to operating performance, borrowing availability and covenant compliance.
- Key risks include consumer demand and inflation, supply-chain and freight disruption, foreign-exchange and variable-rate debt exposure, acquisition integration and further impairment risk, product liability, and regulation or public sentiment affecting ammunition sales. The filing reports no pending product-liability matter believed to be materially adverse.
- For ordinary-course legal disputes, the company said a material adverse outcome was not considered reasonably possible based on available information, but possible losses above recorded accruals could not be reasonably estimated.
- The board authorized a $0.10-per-share annualized cash dividend, subject to quarterly approval and credit-agreement restrictions. The company also had a $50 million repurchase authorization, with $42.8 million remaining at year-end.
- Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective. The Adventure goodwill and Rhino-Rack trademark valuation was identified as a critical audit matter.
Important facts for investors to verify
- Whether Adventure demand and profitability recover, and whether the impairment assumptions or asset values require further revision.
- Inventory quality, sell-through and working-capital conversion, given the year-end inventory build and positive but modest free cash flow.
- Debt, interest expense, covenant headroom and revolving-credit availability as rates and operating results change.
- How much of reported growth reflects acquisitions, currency movements and underlying comparable-business performance.
- The potential effect of unestimable litigation exposures, ammunition regulation, and product-liability or recall events.
- Insider ownership was approximately 24.3%; the filing also notes that 4.8 million shares beneficially owned by the Executive Chairman were pledged as loan collateral.