Clarus Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. Amounts below are in U.S. dollars; financial figures are in millions unless otherwise noted.
Business context
Clarus designs, manufactures and distributes outdoor, precision-sport and adventure products under brands including Black Diamond, Sierra, Barnes, Rhino-Rack and MAXTRAX. The company completed its Rhino-Rack acquisition on July 1, 2021 and MAXTRAX on December 1, 2021; Barnes was acquired in 2020. These acquisitions materially expanded the business and affect year-over-year comparability.
Key financial results
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $375.8 | $224.0 | +67.8% |
| Gross profit / margin | $136.9 / 36.4% | $77.8 / 34.7% | Margin +1.7 percentage points |
| Operating income / margin | $21.2 / 5.6% | $3.9 / 1.8% | Improved |
| Income before taxes | $13.9 | $3.6 | Improved |
| Income tax benefit | $12.2 | $2.0 | Benefit increased |
| Net income / diluted EPS | $26.1 / $0.73 | $5.5 / $0.18 | Improved |
Revenue growth reflected higher Outdoor and Sierra sales, the inclusion of Barnes, and the contributions of Rhino-Rack and MAXTRAX. Domestic sales were $225.9 million and international sales $149.9 million; international sales were approximately 40% of reported revenue. Gross-margin improvement reflected product mix, foreign currency and acquired businesses, partly offset by a $4.8 million purchase-accounting inventory step-up effect. Operating expenses included $11.8 million of transaction costs, primarily related to acquisition and financing activity.
Segment revenue and operating income were: Outdoor $220.8 million and $16.2 million; Precision Sport $109.8 million and $34.2 million; Adventure $45.1 million and a $2.2 million operating loss. Segment operating income excludes certain corporate expenses and transaction costs, so it does not equal consolidated operating income.
Cash flow, liquidity and debt
- Operating cash flow was negative $0.3 million, compared with positive $29.4 million in 2020. Working capital rose substantially, including a $34.1 million cash use from inventory growth.
- Capital expenditures were $17.4 million; reported free cash flow, a non-GAAP measure defined as operating cash flow less capital expenditures, was negative $17.7 million.
- Investing cash outflow was $178.1 million, including $161.0 million for acquisitions, net of cash acquired. Financing cash inflow was $180.7 million, including debt borrowings and approximately $79.2 million net proceeds from an equity offering.
- Cash was $19.5 million at year-end. Debt carrying value was $141.5 million, including $121.9 million of term loans and $18.5 million drawn on the revolving facility. Management reported approximately $81.5 million of revolving availability and compliance with debt covenants at year-end.
- The credit agreement matures May 3, 2024. Scheduled term-loan installments increase from $1.6 million quarterly to $3.1 million quarterly beginning September 2022. Management stated that expected operating cash flow and available credit would cover liquidity needs for at least the next 12 months.
Material changes, outlook and risks
The company reported a $12.2 million tax benefit and an 88% effective tax benefit rate, primarily reflecting a partial release of the deferred-tax valuation allowance. This benefit materially increased reported net income relative to pretax income. Clarus reported $60.7 million of U.S. federal net operating loss carryforwards, including $39.5 million scheduled to expire in 2022; management expected to realize those expiring amounts in 2022, subject to applicable limitations.
No numerical revenue or earnings guidance is provided. Management expects the pandemic and related supply-chain disruptions to continue affecting sales and profitability, while noting stronger outdoor participation and sustained higher Precision Sport demand. Australian lockdowns weighed on Adventure results in the third and fourth quarters. Freight, transportation and input costs increased, and inventory investment was elevated to support customer demand.
Key disclosed risks include supply-chain and logistics disruption, demand and inventory forecasting, acquisition integration and valuation, variable-rate debt and covenant restrictions, foreign-exchange movements, and regulation or changes in public sentiment affecting ammunition. Product liability and recall exposure is also relevant; the company does not carry product-recall insurance. Legal proceedings are described as ordinary-course matters, with possible losses above accrued amounts that cannot currently be reasonably estimated. The auditor issued unqualified opinions on the financial statements and internal control; management excluded Rhino-Rack and MAXTRAX from its internal-control assessment while integration continued.
Important facts for investors to verify
- How much of reported growth and future profitability comes from acquired businesses versus organic demand, particularly as full-year acquisition contributions enter the comparison.
- Whether inventory levels, freight costs and operating cash flow normalize; operating cash flow turned negative despite higher net income.
- The assumptions underlying acquisition purchase-price allocations, including preliminary valuations for Rhino-Rack and MAXTRAX, and the acquired businesses’ subsequent performance.
- The sustainability of the tax benefit and the ability to use NOLs, including the 2022 expiration and potential Section 382 restrictions.
- Debt repayment capacity, interest-rate sensitivity and continued compliance with credit-agreement covenants.
- Exposure to unquantified legal contingencies and the integration and internal-control progress at Rhino-Rack and MAXTRAX.