Clarus Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Financial amounts below are in thousands of dollars, except per-share data. Clarus sells outdoor, precision-sport and adventure products under brands including Black Diamond, Sierra, Barnes, Rhino-Rack and MAXTRAX.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Sales | $113,276 | $75,331 | Up 50.4%; includes $28,636 from Rhino-Rack and MAXTRAX, acquired in 2021. |
| Gross profit / margin | $44,252 / 39.1% | $27,050 / 35.9% | Margin improved 3.2 percentage points, attributed to favorable product mix and the acquired businesses. |
| Operating income | $8,113 | $5,689 | Higher gross profit was partly offset by increased operating expenses. |
| Net income | $5,309 | $5,677 | Down despite higher sales and operating income; higher interest and income-tax expense contributed. |
| Diluted EPS | $0.13 | $0.17 | Weighted-average diluted shares increased to 39,802 from 32,750. |
| Operating cash flow | $(10,795) | $(2,518) | Greater cash use, primarily from increased operating assets, including inventory. |
| Free cash flow | $(12,695) | $(3,865) | Company-defined as operating cash flow less capital expenditures. |
Revenue by segment
- Outdoor: $51,522 versus $51,796; segment operating income $1,888 versus $3,445.
- Precision Sport: $33,118 versus $23,535; segment operating income $11,780 versus $5,962.
- Adventure: $28,636, including Rhino-Rack and MAXTRAX; segment operating income $2,124. No comparable Q1 2021 segment sales were reported.
Domestic sales were $62,307 and international sales $50,969. Management cited higher precision-sport unit sales and acquired Adventure revenue as principal growth drivers; stronger U.S. dollar exchange rates reduced sales by $527.
Liquidity, debt and balance sheet
- Cash was $16,451 at March 31, 2022, down from $19,465 at year-end 2021. Of quarter-end cash, $11,577 was held by foreign entities; $9,375 was considered permanently reinvested.
- Total debt was $151,932, comprising $12,103 current and $139,829 long-term, compared with $141,533 at December 31, 2021. The company had drawn $30,481 of its $100,000 revolving commitment and reported approximately $69,519 available. It reported compliance with debt covenants at quarter-end.
- Current assets were $251,795 and current liabilities $78,221. Inventory rose to $152,718 from $129,354 at year-end.
- Financing activities provided $8,467, principally reflecting net revolving-credit borrowings. Capital expenditures were $1,900; dividends paid were $930.
Material changes, outlook and risks
- Acquisitions materially affect comparability: Rhino-Rack and MAXTRAX contributed $28,636 of Q1 2022 sales. Amortization expense rose to $4,120 from $1,197, and interest expense to $1,116 from $238.
- SG&A increased 63.6% to $34,175, reflecting the acquired businesses, brand and distribution investments, and higher stock compensation. The quarter also included $1,201 of transaction costs and $763 of contingent-consideration expense.
- Management expected liquidity needs and obligations for at least the next 12 months to be covered by operating cash flows and available credit. The filing provides no numerical sales or earnings guidance.
- Management cited continuing COVID-related supply-chain delays, logistics constraints, and higher raw-material, storage and shipping costs, which could affect sales and profitability. Other cited risks include consumer demand, acquisition integration, foreign exchange, product liability, and regulation affecting ammunition and firearms markets.
- The company disclosed ordinary-course legal matters and possible losses above accrued amounts that could not be reasonably estimated; it did not expect currently known matters to have a material adverse effect. It reported no material change in risk factors from its 2021 Form 10-K.
- Subsequent event: On April 18, 2022, Clarus entered a new credit agreement with a $300,000 revolving facility and a $125,000 term loan facility, maturing in 2027. The term loan was fully drawn on that date. This post-quarter refinancing should be distinguished from debt and availability reported at March 31.
Important facts for investors to verify
- How much future growth and profitability comes from acquired Rhino-Rack and MAXTRAX versus organic sales, particularly given the lack of a comparable Adventure segment base.
- Whether inventory growth and negative operating and free cash flow reverse as supply and demand conditions evolve.
- The effect of higher SG&A, acquisition-related amortization, interest expense and contingent-consideration remeasurement on future earnings and cash generation.
- Borrowings, interest costs, covenant headroom and permitted dividends under the April 2022 credit agreement.
- Whether supply-chain disruption, shipping costs, foreign exchange movements, and any unestimable legal or product-related losses materially affect results.