Business context and reporting period
Black Diamond, Inc. (the filing supplied under Clarus Corp metadata) reported unaudited results for the three months ended March 31, 2013, compared with the same quarter of 2012. The company designs, manufactures, and markets outdoor and action-sports products under Black Diamond, Gregory, POC, and PIEPS brands. POC and PIEPS were acquired in 2012, so reported year-over-year results include changes in the scope of the business.
Financial performance and position
Unless stated otherwise, amounts are in thousands of dollars.
- Revenue: $51,000, up 9.9% from $46,419. Domestic sales rose 6.9% to $20,110; international sales rose 11.9% to $30,890.
- Gross profit and margin: Gross profit was $19,216, up 3.2%; gross margin declined to 37.7% from 40.1%.
- Operating results: Operating loss was $2,034 versus operating income of $4,729. Net loss was $3,032, or $0.10 per share, compared with net income of $2,590, or $0.10 per share.
- Expenses and interest: SG&A increased 51.6% to $20,878. The quarter included $175 of restructuring charges and $143 of merger and integration costs. Net interest expense increased to $826 from $730.
- Cash flow: Operating cash flow was $2, compared with $519. Investing cash outflow was $1,889, including $750 to acquire Gregory’s Japanese distribution assets and $1,139 of property and equipment purchases. Free cash flow, as defined by the company, was negative $1,137 versus negative $1,087.
- Cash and liquidity: Cash was $4,127 at March 31, 2013, down from $5,111 at year-end 2012. Current assets were $102,481 and current liabilities were $23,458.
- Debt: Total debt was $41,493, compared with $40,488 at year-end 2012. The company had $13,374 drawn on its $30,000 revolving line, $10,000 drawn on the $15,000 term facility, and none drawn on the $10,000 acquisition facility. It reported compliance with debt covenants.
- Other: Total assets were $317,404 and stockholders’ equity was $245,195. The income tax benefit was $223; the reported effective tax rate was 6.9%.
Material changes and management commentary
- Sales growth reflected the inclusion of POC and PIEPS and increased sales of climbing products. Growth was partly offset by lower Gregory sales in Japan during the distributor transition, delayed spring/summer orders after an extended winter, and a $188 foreign-currency impact.
- Management attributed lower gross margin to product mix, increased close-outs and promotions on winter inventory following a slow start to the winter season, and yen weakness.
- Higher SG&A reflected the acquired businesses and investment in strategic initiatives, including apparel, and infrastructure to support current and anticipated growth. Management expected additional POC and PIEPS integration costs during 2013.
- On March 8, 2013, the company refinanced its credit arrangements with Zions First National Bank, extending the revolving facility maturity to March 8, 2016 and adding term and acquisition facilities. Management said existing cash, operating cash flow, and the revolver should cover liquidity needs for at least the next 12 months.
Outlook, risks, contingencies, and unusual items
The filing provides no quantified revenue or earnings guidance. Management cautioned that first-quarter results are not necessarily indicative of full-year results. Disclosed risks include consumer demand and economic conditions, customer financial strength, acquisition integration and growth, product liability and warranty claims, suppliers and manufacturing stability, raw-material costs, foreign exchange, intellectual property, international-market risks, and use of tax carryforwards. The company reported no pending product-liability matters it believed would have a material adverse effect and did not expect ordinary-course litigation, in aggregate, to have a material adverse effect based on information then available.
Unusual items included the POC facility relocation restructuring charge, integration costs for POC and PIEPS, foreign-exchange remeasurement losses, and a $230 discrete tax benefit related to the reinstated 2012 federal research credit. The company disclosed approximately $214.2 million of federal net operating loss carryforwards at year-end 2012, subject to limitations including Section 382. It also paid interest on subordinated notes to entities affiliated with executive directors, including $275 in aggregate interest disclosed for the quarter.
Important facts for investors to verify
- How much of revenue growth is organic versus attributable to POC and PIEPS, and how the Gregory Japan distribution transition is progressing.
- Whether gross margin recovers from 37.7% and whether winter promotions or delayed orders continue to affect results.
- Whether higher SG&A and planned integration spending translate into improved operating profitability and cash generation.
- Cash needs, debt levels, covenant compliance, and the terms and remaining availability of the credit facilities.
- The realization and limitations of tax assets and NOL carryforwards, and any changes in litigation, product-liability, or foreign-exchange exposures.