Clarus Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Financial statements are unaudited; amounts below are in millions of dollars except per-share data. Clarus sells outdoor and lifestyle products through its Black Diamond segment and ammunition through Sierra, which includes Barnes.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Sales | $73.3 | $30.0 | $148.6 | $83.6 |
| Gross profit / margin | $28.0 / 38.2% | $10.6 / 35.4% | $55.1 / 37.0% | $29.1 / 34.9% |
| Operating income (loss) | $6.7 | ($4.0) | $12.4 | ($3.1) |
| Net income (loss) | $1.8 | ($2.7) | $7.5 | ($2.7) |
| Diluted EPS | $0.06 | ($0.09) | $0.23 | ($0.09) |
- Q2 sales rose 144.2%; six-month sales rose 77.9%. Growth reflected higher outdoor-product and Sierra sales, the inclusion of Barnes (acquired October 2020), and favorable foreign exchange. Barnes contributed $11.7 million of Q2 sales and $20.2 million for the six-month period.
- Q2 operating income included $0.6 million of transaction costs. Other, net was a $4.5 million expense, primarily reflecting mark-to-market losses on non-designated currency contracts, including contracts tied to the Rhino-Rack purchase price. The company recorded a $4.5 million loss on those contracts in Q2.
- Six-month operating cash flow was $0.4 million, versus $14.4 million a year earlier. Inventory, prepaid assets and other working-capital movements contributed to the cash use. Capital expenditures were $3.2 million, resulting in reported free cash flow of negative $2.9 million, compared with positive $12.4 million in 2020.
Balance sheet, debt and liquidity
- At June 30, cash was $6.8 million, total debt was $27.1 million, and total stockholders’ equity was $215.2 million. Cash had declined from $17.8 million at December 31, 2020. Inventory rose to $82.7 million from $68.4 million.
- At June 30, $10.1 million was drawn on the $60 million revolving facility, with approximately $49.9 million available; $16.0 million remained on the term loan. Clarus reported compliance with its debt covenants at quarter-end.
- Management said existing operating cash flow and revolving availability were expected to cover liquidity needs for at least the next 12 months, while noting uncertainty from COVID-19 and supply-chain disruption.
Material developments and outlook
- On July 1, 2021, after quarter-end, Clarus completed its acquisition of Australian roof-rack maker Rhino-Rack for approximately $205 million, subject to adjustment. Consideration included about $145 million in cash and 2,315,121 Clarus shares; up to approximately $8 million additional consideration is contingent on future sales thresholds. Purchase accounting was incomplete at filing.
- Also on July 1, the credit agreement was amended: the term-loan facility increased to $125 million and was fully borrowed at closing, and the revolving facility maximum increased to $100 million. The agreement permits up to $50 million in additional, currently uncommitted facilities; maturity remains May 3, 2024. The amendment raised the maximum leverage covenant to 4.25:1.00 and removed permission to issue up to $125 million of potentially convertible debt securities.
- Clarus recorded post-closing liabilities of $1.75 million to Kanders & Company for acquisition support and $0.25 million for support with the credit amendment. Executive Chairman Warren Kanders is Kanders & Company’s sole stockholder; investors may wish to review the related-party arrangements and their approvals.
- No quantified revenue or earnings guidance was provided. Management said COVID-19 continued to affect demand and expected effects on sales and profitability to persist, with duration and magnitude uncertain. Risks cited include supply-chain and transport disruption, consumer demand, acquisition integration, currency movements, product liability, and the ammunition regulatory environment.
- The quarterly cash dividend was reinstated in October 2020; the board approved a $0.025-per-share payment for August 2021, subject to board discretion for future dividends.
Key facts for investors to verify
- How much of sales growth and margin improvement is organic versus attributable to Barnes, foreign exchange, and product mix.
- Whether inventory growth and working-capital investment convert into operating cash flow and positive free cash flow.
- Post-Rhino-Rack debt, interest expense, covenant headroom, acquisition integration costs, and the acquired business’s results once reported.
- The final Rhino-Rack purchase-price allocation, contingent consideration, and related-party fees and governance disclosures.
- Potential limits on the use of tax-loss carryforwards following ownership changes, and any material changes in COVID-19, supply-chain, product-liability, or other disclosed risks.