Clarus(CLAR) - 2023 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Clarus Corporation as of June 30, 2023, and for the three and six-month periods then ended, compared to the prior year Condensed Consolidated Balance Sheets As of June 30, 2023, total assets decreased to $498.0 million, total liabilities decreased to $208.0 million, and total stockholders' equity remained relatively stable at $290.0 million Condensed Consolidated Balance Sheets (in thousands) | | June 30, 2023 | December 31, 2022 | |:---|:---:|:---:| | Total Assets | $497,996 | $518,145 | | Total Liabilities | $208,023 | $226,037 | | Total Stockholders' Equity | $289,973 | $292,108 | Condensed Consolidated Statements of Comprehensive Loss The company reported a net loss of $2.1 million for Q2 2023 and $0.5 million for H1 2023, driven by significant sales declines of 27.2% and 20.6% respectively Financial Performance for the Three Months Ended June 30 (in thousands) | Metric | 2023 | 2022 | |:---|:---:|:---:| | Total Sales | $83,728 | $114,933 | | Gross Profit | $30,754 | $43,682 | | Operating (Loss) Income | $(241) | $7,791 | | Net (Loss) Income | $(2,091) | $3,764 | | Diluted EPS | $(0.06) | $0.09 | Financial Performance for the Six Months Ended June 30 (in thousands) | Metric | 2023 | 2022 | |:---|:---:|:---:| | Total Sales | $181,112 | $228,209 | | Gross Profit | $66,775 | $87,934 | | Operating Income | $4,452 | $15,904 | | Net (Loss) Income | $(493) | $9,073 | | Diluted EPS | $(0.01) | $0.23 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly improved to $17.3 million for the first half of 2023, primarily due to better working capital management, while investing and financing activities used $3.1 million and $14.0 million respectively Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | |:---|:---:|:---:| | Net cash provided by (used in) operating activities | $17,286 | $(6,276) | | Net cash used in investing activities | $(3,083) | $(3,774) | | Net cash (used in) provided by financing activities | $(13,962) | $4,930 | | Change in cash | $(746) | $(5,577) | Notes to Condensed Consolidated Financial Statements Note 1: Nature of Operations and Summary of Significant Accounting Policies Clarus Corporation designs, manufactures, and distributes outdoor equipment and lifestyle products, with financial statements prepared under U.S. GAAP involving significant management estimates for asset valuation - The company's mission is to acquire and grow outdoor "super fan" brands through an "innovate and accelerate" strategy[37] - Significant accounting estimates include fair value of net assets from acquisitions, inventory valuation, allowance for credit losses, and valuation of long-lived and intangible assets[38] Note 2: Inventories Total inventories slightly increased to $149.0 million as of June 30, 2023, primarily driven by a rise in finished goods Inventory Balances (in thousands) | Category | June 30, 2023 | December 31, 2022 | |:---|:---:|:---:| | Finished goods | $111,169 | $107,453 | | Work-in-process | $9,360 | $8,719 | | Raw materials and supplies | $28,434 | $30,900 | | Total | $148,963 | $147,072 | Note 3: Property and Equipment Net property and equipment decreased to $41.9 million as of June 30, 2023, with depreciation expense remaining consistent at $3.7 million for the first six months Property and Equipment, Net (in thousands) | | June 30, 2023 | December 31, 2022 | |:---|:---:|:---:| | Gross Property and Equipment | $81,885 | $79,481 | | Less Accumulated Depreciation | $(39,966) | $(36,471) | | Net Property and Equipment | $41,919 | $43,010 | - Depreciation expense was $3,732 thousand for the six months ended June 30, 2023, compared to $3,709 thousand for the same period in 2022[2] Note 4: Goodwill and Intangible Assets Goodwill and indefinite-lived intangible assets slightly decreased to $62.4 million and $82.0 million respectively as of June 30, 2023, primarily due to foreign currency impacts Goodwill and Intangible Asset Balances (in thousands) | Asset Type | June 30, 2023 | December 31, 2022 | |:---|:---:|:---:| | Goodwill | $62,437 | $62,993 | | Indefinite-Lived Intangible Assets | $81,976 | $82,901 | | Other Intangible Assets, Net | $47,792 | $55,255 | - Amortization expense for other intangible assets was $6.5 million for the first six months of 2023, down from $8.1 million in the prior-year period[84] Note 6: Long-Term Debt Total long-term debt decreased to $114.7 million as of June 30, 2023, primarily composed of a term loan and revolving credit facility, with the company in compliance with all debt covenants Long-Term Debt Composition (in thousands) | Component | June 30, 2023 | December 31, 2022 | |:---|:---:|:---:| | Revolving credit facility | $11,884 | $18,049 | | Term loan | $115,625 | $120,311 | | Total Debt | $127,228 | $139,034 | | Less current portion | $(12,543) | $(11,952) | | Long-term debt, net | $114,685 | $127,082 | - The Restated Credit Agreement provides for up to $300 million in revolving loans and a $125 million term loan, maturing April 18, 2027[91] - As of June 30, 2023, approximately $32 million was available to borrow on the revolving loan, and the interest rate was approximately 7.5%[93] Note 16: Segment Information All three segments—Outdoor, Precision Sport, and Adventure—experienced sales declines for the six months ended June 30, 2023, with Precision Sport remaining the most profitable and Adventure reporting an operating loss Segment Sales for Six Months Ended June 30 (in thousands) | Segment | 2023 | 2022 | |:---|:---:|:---:| | Outdoor | $92,842 | $104,126 | | Precision Sport | $52,897 | $68,305 | | Adventure | $35,373 | $55,778 | | Total | $181,112 | $228,209 | Segment Operating Income (Loss) for Six Months Ended June 30 (in thousands) | Segment | 2023 | 2022 | |:---|:---:|:---:| | Outdoor | $266 | $3,359 | | Precision Sport | $12,488 | $24,015 | | Adventure | $(1,651) | $2,768 | | Total Segment Operating Income | $11,103 | $30,142 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses significant sales and profitability declines for Q2 and H1 2023 due to challenging market conditions and lower demand, while highlighting strong liquidity and positive operating cash flow Results of Operations Sales declined across all segments and geographies for the three and six-month periods ended June 30, 2023, due to weak demand, impacting gross margins despite lower operating expenses - Q2 2023 total sales decreased 27.2% YoY to $83.7 million, primarily due to weakness in the Outdoor, Precision Sport, and Adventure segments[71] - H1 2023 total sales decreased 20.6% YoY to $181.1 million, with declines in the Adventure, Precision Sport, and Outdoor segments[66] - Gross margin for H1 2023 decreased to 36.9% from 38.5% in H1 2022, driven by unfavorable product mix and currency effects, partially offset by easing freight costs[228] - Selling, general, and administrative expenses for H1 2023 decreased by 9.5% to $63.0 million, mainly due to lower stock compensation and cost-saving measures[67] Liquidity and Capital Resources The company maintained solid liquidity with $11.3 million in cash and $32 million available on its credit facility, with net cash from operations significantly improving to $17.3 million for the first half of 2023 - As of June 30, 2023, the company had $11.3 million in cash and $32 million available to borrow under its revolving credit facility[235][236] Free Cash Flow (Non-GAAP) for Six Months Ended June 30 (in thousands) | | 2023 | 2022 | |:---|:---:|:---:| | Net cash provided by (used in) operating activities | $17,286 | $(6,276) | | Purchase of property and equipment | $(3,252) | $(4,072) | | Free cash flow | $14,034 | $(10,348) | - The company was in compliance with all debt covenants as of June 30, 2023, including a consolidated total leverage ratio limit of 3.75 to 1[249][261] Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the company's market risk disclosures, including foreign currency and interest rate risks, from its 2022 Annual Report on Form 10-K - There has been no material change in the market risk disclosure from the company's 2022 Annual Report on Form 10-K[282] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the quarter - The Executive Chairman and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[267] - No material changes to internal control over financial reporting were identified during the six months ended June 30, 2023[268] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is involved in routine legal proceedings, but management does not anticipate any material adverse effect on its financial condition or operations - The company is involved in routine litigation incidental to its business but does not expect any material adverse impact from current proceedings[270][271] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - There have been no material changes in risk factors from those disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022[274] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications and XBRL data files - Exhibits filed include Sarbanes-Oxley certifications (31.1, 31.2, 32.1, 32.2) and XBRL interactive data files[277]