Clarus(CLAR) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the periods ended June 30, 2021 Condensed Consolidated Balance Sheets Details the company's assets, liabilities, and stockholders' equity as of June 30, 2021, and December 31, 2020 Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :----------------------------- | :------------ | :------------------ | | Total Assets | $294,209 | $280,691 | | Total Liabilities | $79,029 | $76,097 | | Total Stockholders' Equity | $215,180 | $204,594 | | Cash | $6,782 | $17,789 | | Inventories | $82,656 | $68,356 | Condensed Consolidated Statements of Comprehensive Income (Loss) – Three months ended June 30, 2021 and 2020 Summarizes revenues, expenses, and net income for the three-month period ending June 30, 2021, compared to 2020 Comprehensive Income (Loss) Highlights (Three Months Ended June 30, in thousands, except per share amounts) | Metric | June 30, 2021 | June 30, 2020 | Change (YoY) | | :----------------------- | :------------ | :------------ | :----------- | | Total Sales | $73,309 | $30,014 | +144.2% | | Gross Profit | $28,021 | $10,636 | +163.5% | | Operating Income (Loss) | $6,668 | $(4,037) | N/A | | Net Income (Loss) | $1,840 | $(2,743) | N/A | | Basic EPS | $0.06 | $(0.09) | N/A | | Diluted EPS | $0.06 | $(0.09) | N/A | Condensed Consolidated Statements of Comprehensive Income (Loss) – Six months ended June 30, 2021 and 2020 Summarizes revenues, expenses, and net income for the six-month period ending June 30, 2021, compared to 2020 Comprehensive Income (Loss) Highlights (Six Months Ended June 30, in thousands, except per share amounts) | Metric | June 30, 2021 | June 30, 2020 | Change (YoY) | | :----------------------- | :------------ | :------------ | :----------- | | Total Sales | $148,640 | $83,569 | +77.9% | | Gross Profit | $55,071 | $29,148 | +88.9% | | Operating Income (Loss) | $12,357 | $(3,145) | N/A | | Net Income (Loss) | $7,517 | $(2,707) | N/A | | Basic EPS | $0.24 | $(0.09) | N/A | | Diluted EPS | $0.23 | $(0.09) | N/A | Condensed Consolidated Statements of Cash Flows – Six months ended June 30, 2021 and 2020 Outlines the cash inflows and outflows from operating, investing, and financing activities for the six-month periods Cash Flow Highlights (Six Months Ended June 30, in thousands) | Metric | June 30, 2021 | June 30, 2020 | | :------------------------------------------ | :------------ | :------------ | | Net cash provided by operating activities | $362 | $14,442 | | Net cash used in investing activities | $(3,200) | $(2,018) | | Net cash (used in) provided by financing activities | $(8,031) | $7,397 | | Change in cash | $(11,007) | $19,835 | | Cash, end of period | $6,782 | $21,538 | Condensed Consolidated Statements of Stockholders' Equity – Three and six months ended June 30, 2021 and 2020 Details the changes in the company's equity accounts over the three and six-month periods ended June 30, 2021 Stockholders' Equity Highlights (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :----------------------------- | :------------ | :------------------ | | Total Stockholders' Equity | $215,180 | $204,594 | | Accumulated Deficit | $(280,148) | $(286,100) | | Additional Paid-In Capital | $518,981 | $513,979 | | Accumulated Other Comprehensive Income | $783 | $500 | - Stock-based compensation expense for the six months ended June 30, 2021, was $3,350 thousand, compared to $1,229 thousand for the same period in 2020[18][19] Notes to Condensed Consolidated Financial Statements Provides detailed explanations for the financial statements, covering accounting policies, acquisitions, and segment data NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Outlines the company's primary business activities, brands, and recent acquisitions - Clarus' primary business is as a leading designer, developer, manufacturer, and distributor of outdoor equipment and lifestyle products focused on the climb, ski, mountain, sport, and skincare markets[26] - The Company's products are principally sold under the Black Diamond®, Sierra®, Barnes®, PIEPS®, and SKINourishment® brand names[26] - Recent acquisitions include Barnes (October 2020) and Australia-based Rhino-Rack Holdings Pty Ltd (July 2021)[24][25] NOTE 2. ACQUISITIONS Details the financial impact and strategic rationale behind the recent acquisition of Barnes - The acquisition of Barnes was completed on October 2, 2020, for a purchase price of $30,500 thousand[31] - The Barnes acquisition is expected to provide a greater combined global revenue base, increased gross margins, profitability, free cash flows, and access to increased liquidity[32] Barnes Acquisition Pro Forma Results (Six Months Ended June 30, 2020, in thousands, except per share amounts) | Metric | Pro Forma (with Barnes) | Actual (without Barnes) | | :----------------------- | :---------------------- | :---------------------- | | Sales | $94,024 | $83,569 | | Net loss | $(1,515) | $(2,707) | | Net loss per share - basic | $(0.05) | $(0.09) | | Net loss per share - diluted | $(0.05) | $(0.09) | NOTE 3. INVENTORIES Presents a breakdown of inventory components and property and equipment balances Inventories (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :------------------- | :------------ | :------------------ | | Finished goods | $55,520 | $50,132 | | Work-in-process | $7,550 | $6,429 | | Raw materials and supplies | $19,586 | $11,795 | | Total Inventories | $82,656 | $68,356 | Property and Equipment, Net (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :-------------------------- | :------------ | :------------------ | | Total Property and Equipment | $54,882 | $51,796 | | Less accumulated depreciation | $(27,387) | $(24,840) | | Property and equipment, net | $27,495 | $26,956 | NOTE 5. GOODWILL AND INTANGIBLE ASSETS Discloses the carrying amounts of goodwill and other intangible assets by segment Goodwill by Segment (in thousands) | Segment | June 30, 2021 | December 31, 2020 | | :-------------- | :------------ | :------------------ | | Black Diamond | - | - | | Sierra | $26,715 | $26,715 | | Total Goodwill | $26,715 | $26,715 | Indefinite-Lived Intangible Assets (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :---------------------------------- | :------------ | :------------------ | | Balance | $47,415 | $47,523 | | Impact of foreign currency exchange rates | $(108) | N/A | Other Intangible Assets, Net (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :-------------------------------- | :------------ | :------------------ | | Gross balance | $40,685 | $40,840 | | Less accumulated amortization | $(23,722) | $(21,424) | | Other intangible assets, net | $16,963 | $19,416 | NOTE 6. LONG-TERM DEBT Provides a detailed breakdown of the company's outstanding long-term debt obligations and credit facilities - As of June 30, 2021, the Company had drawn $10,112 thousand on its $60,000 thousand revolving credit commitment, with an interest rate of 1.6250%[45] - The Company was in compliance with all debt covenants under the Credit Agreement as of June 30, 2021[46] Long-Term Debt (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :-------------------------- | :------------ | :------------------ | | Revolving credit facility | $10,112 | $15,579 | | Foreign credit facilities | $1,010 | $1,042 | | Term note | $16,000 | $18,000 | | Total Long-Term Debt | $27,122 | $34,621 | | Less current portion | $(5,010) | $(4,000) | | Net Long-Term Debt | $22,112 | $30,621 | NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS Explains the use of derivative instruments to manage foreign currency exchange rate risk - The Company uses currency forward and option contracts to mitigate exchange rate risk, primarily for sales denominated in non-U.S. dollar currencies[49] - Losses of $(4,513) thousand were recorded in other, net expense during the three and six months ended June 30, 2021, related to non-designated currency forward contracts for the Rhino-Rack acquisition[50] Fair Value of Derivative Instruments (in thousands) | Classification | June 30, 2021 | December 31, 2020 | | :------------------------------------ | :------------ | :------------------ | | Designated forward exchange contracts (asset) | $184 | $0 | | Designated forward exchange contracts (liability) | $355 | $1,629 | | Undesignated forward exchange contracts (liability) | $4,513 | $0 | NOTE 8. ACCUMULATED OTHER COMPREHENSIVE INCOME Details the components and changes in Accumulated Other Comprehensive Income (AOCI) - AOCI primarily consists of foreign currency translation adjustments and changes in forward foreign exchange contracts[55] Changes in Accumulated Other Comprehensive Income (AOCI) (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :------------------------------------ | :------------ | :------------------ | | Balance as of period end | $783 | $500 | | Foreign currency translation adjustment (6 months) | $(721) | N/A | | Unrealized gain on hedging activities (6 months) | $1,004 | N/A | NOTE 9. FAIR VALUE MEASUREMENTS Describes the methodology for measuring financial assets and liabilities at fair value - The Company measures certain financial assets and liabilities at fair value on a recurring basis, categorized into a three-tier hierarchy (Level 1, 2, 3)[58] Assets and Liabilities Measured at Fair Value (June 30, 2021, in thousands) | Category | Level 1 | Level 2 | Level 3 | Total | | :------------------------------------ | :------ | :------ | :------ | :------ | | Designated forward exchange contracts (assets) | $0 | $184 | $0 | $184 | | Designated forward exchange contracts (liabilities) | $0 | $355 | $0 | $355 | | Undesignated forward exchange contracts (liabilities) | $0 | $4,513 | $0 | $4,513 | NOTE 10. STOCKHOLDERS' EQUITY Discloses information regarding the company's dividend program - The Company reinstated its quarterly cash dividend program of $0.025 per share in October 2020, after temporarily replacing it with a stock dividend in May 2020 due to the COVID-19 pandemic[62] - A quarterly cash dividend of $0.025 per share was approved on July 30, 2021, payable on August 20, 2021[62] NOTE 11. EARNINGS (LOSS) PER SHARE Provides a reconciliation of the numerators and denominators used to calculate basic and diluted earnings per share Net Income (Loss) Per Share | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | $0.06 | $(0.09) | $0.24 | $(0.09) | | Diluted EPS | $0.06 | $(0.09) | $0.23 | $(0.09) | | Weighted average shares outstanding - basic | 31,367 | 29,817 | 31,325 | 29,789 | | Weighted average shares outstanding - diluted | 33,190 | 29,817 | 32,970 | 29,789 | NOTE 12. STOCK-BASED COMPENSATION PLAN Details the expenses and awards related to the company's stock-based compensation plans - During the six months ended June 30, 2021, the Company issued stock options for 500 shares under the 2015 Plan, generally vesting over one to three years[67] - On May 28, 2021, a restricted stock award of 500 shares was granted to the Executive Chairman, vesting if the common stock price equals or exceeds $35.00 per share for twenty consecutive trading days by May 28, 2024[71] Total Non-Cash Stock Compensation Expense (in thousands) | Period | 2021 | 2020 | | :------------------------------------ | :----- | :----- | | Three months ended June 30 | $1,826 | $616 | | Six months ended June 30 | $3,350 | $1,229 | NOTE 13. COMMITMENTS AND CONTINGENCIES Discloses potential liabilities from legal proceedings and other commitments - The Company faces product liability and related lawsuits, including claims for substantial money damages and product recall actions[74] - Based on currently available information, the Company does not believe that any ongoing legal disputes will have a material adverse effect on its consolidated financial condition, results of operations, or cash flows[75] NOTE 14. INCOME TAXES Explains the company's effective tax rate and deferred tax assets, including net operating loss carryforwards - As of December 31, 2020, the Company had U.S. federal net operating loss carryforwards (NOLs) of $120,309 thousand and research and experimentation credit of $1,889 thousand[81] - A valuation allowance of $22,348 thousand was recorded against a portion of deferred tax assets as of December 31, 2020, due to uncertainty of realization[79] Effective Income Tax Rates | Period | Effective Tax Rate | | :------------------------------- | :----------------- | | Three months ended June 30, 2021 | 7.8% expense | | Three months ended June 30, 2020 | 29.4% benefit | | Six months ended June 30, 2021 | 2.9% benefit | | Six months ended June 30, 2020 | 29.5% benefit | NOTE 15. SEGMENT INFORMATION Provides a breakdown of financial performance by the company's operating segments and product categories - The Company operates in two segments: Black Diamond (outdoor equipment and apparel) and Sierra (high-performance bullets and ammunition)[84][85] Sales to External Customers by Segment (in thousands) | Segment | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | | :-------------- | :------------------------------- | :----------------------------- | | Black Diamond | $44,892 | $96,688 | | Sierra | $28,417 | $51,952 | | Total Sales | $73,309 | $148,640 | Segment Operating Income (Loss) (in thousands) | Segment | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | | :-------------- | :------------------------------- | :----------------------------- | | Black Diamond | $657 | $4,102 | | Sierra | $10,017 | $15,979 | | Total Segment Operating Income (Loss) | $10,674 | $20,081 | Revenue by Product Category (% of Total Consolidated Revenues) | Category | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Climb | 30% | 38% | 28% | 38% | | Mountain | 25% | 22% | 26% | 27% | | Ski | 6% | 7% | 11% | 14% | | Sport | 39% | 33% | 35% | 21% | NOTE 16. SUBSEQUENT EVENTS Discloses significant events that occurred after the balance sheet date, including the Rhino-Rack acquisition - On July 1, 2021, the Company completed the acquisition of Australia-based Rhino-Rack for an aggregate purchase price of approximately AUD 273,000 thousand (approximately $205,000 thousand)[93][94] - The purchase price for Rhino-Rack included approximately AUD 194,000 thousand (approximately $145,000 thousand) cash and 2,315,121 shares of the Company's common stock[94] - In connection with the Rhino-Rack acquisition, the Credit Agreement was amended (Amendment No. 3) to increase the term loan facility to $125,000 thousand and the revolving loan facility to $100,000 thousand[97][99] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on financial performance, liquidity, capital resources, and operational results Forward-Looking Statements Cautions that the report contains statements about future expectations that are subject to risks and uncertainties - The report contains forward-looking statements that involve risks and uncertainties, and actual results could differ materially from those expressed or implied[104] - Potential risks include consumer demand, economic conditions, market volatility, ability to execute and integrate acquisitions, regulatory changes, product liability, COVID-19 impacts, supply chain stability, and intellectual property protection[105] Overview Describes the company's business strategy, core operations, and use of tax assets - Clarus is focused on acquiring and growing businesses in the outdoor and consumer industries to generate attractive shareholder returns[106] - The Company's primary business involves designing, developing, manufacturing, and distributing outdoor equipment and lifestyle products under brands like Black Diamond®, Sierra®, Barnes®, PIEPS®, and SKINourishment®[106] - Clarus utilizes net operating tax loss carryforwards to maximize shareholder value[106] Impact of COVID-19 Discusses the adverse effects of the COVID-19 pandemic on business operations and the mitigation measures taken - The COVID-19 pandemic negatively impacted retail demand in the Black Diamond segment from March 2020 through December 2020, continuing into the first half of 2021, affecting sales and profitability[115] - Mitigation actions included drawing on credit facilities, temporarily suspending share repurchases and cash dividends, postponing non-essential capital expenditures, and reducing operating costs[116] Critical Accounting Policies and Use of Estimates Confirms that no significant changes have been made to the company's critical accounting policies - There have been no significant changes to the Company's critical accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2020[121] Results of Operations Analyzes the key drivers of sales, gross margin, and other income/expenses for the reporting periods - Sales increases were driven by new and existing climb, mountain, and ski products, increased sport product sales by Sierra, and the inclusion of Barnes[127][144] - Gross margin improved due to a favorable product mix in higher-margin products, positive foreign currency impacts, and the inclusion of Barnes[134][150] - Other, net expense increased significantly due to mark-to-market adjustments on non-hedged foreign currency contracts, including those related to the Rhino-Rack acquisition[138][154] Consolidated Sales Performance (in thousands) | Period | June 30, 2021 | June 30, 2020 | Change (YoY) | | :------------------------------- | :------------ | :------------ | :----------- | | Three Months Ended June 30 | $73,309 | $30,014 | +144.2% | | Six Months Ended June 30 | $148,640 | $83,569 | +77.9% | Consolidated Gross Profit and Margin (in thousands) | Period | Gross Profit (2021) | Gross Profit (2020) | Gross Margin (2021) | Gross Margin (2020) | | :------------------------------- | :------------------ | :------------------ | :------------------ | :------------------ | | Three Months Ended June 30 | $28,021 | $10,636 | 38.2% | 35.4% | | Six Months Ended June 30 | $55,071 | $29,148 | 37.0% | 34.9% | Liquidity and Capital Resources Assesses the company's cash position, cash flows, debt facilities, and ability to meet future obligations - Subsequent to June 30, 2021, the Credit Agreement was amended (Amendment No. 3) to increase the term loan facility to $125,000 thousand and the revolving loan facility to $100,000 thousand, with the term loan fully borrowed on July 1, 2021, to partially fund the Rhino-Rack acquisition[159] - The Company believes its liquidity requirements for the next 12 months will be adequately covered by operating cash flows and the existing revolving credit facility[158] Cash and Cash Flow from Operations (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :------------------------------------ | :------------ | :------------------ | | Cash, end of period | $6,782 | $17,789 | | Net cash provided by operating activities (6 months) | $362 | $14,442 | Free Cash Flow (in thousands) | Period | Free Cash Flow | | :------------------------------- | :------------- | | Six Months Ended June 30, 2021 | $(2,863) | | Six Months Ended June 30, 2020 | $12,421 | Net Operating Loss Details the company's significant net operating loss carryforwards and their expected impact on future taxes - As of December 31, 2020, the Company had U.S. federal net operating loss carryforwards (NOLs) of $120,309 thousand and research and experimentation credit of $1,889 thousand[169] - These NOLs are expected to substantially offset future U.S. Federal income taxes until expiration, with the majority expiring in 2022 or later[169] - A gross deferred tax asset of $40,538 thousand was recorded as of December 31, 2020, with a valuation allowance of $22,348 thousand[170] Credit Agreement Outlines the terms, conditions, and security arrangements of the company's primary credit facilities - The Credit Agreement, maturing on May 3, 2024, provides for borrowings of up to $60,000 thousand under a revolving credit facility and up to $40,000 thousand under a term loan facility (prior to Amendment No. 3)[171] - Amendment No. 2 (November 12, 2020) increased the maximum consolidated total leverage ratio to 4.00:1.00 and permitted the issuance of up to $125,000 thousand in convertible debt securities[172] - All obligations under the Credit Agreement are secured by 100% of domestic and 65% of foreign subsidiary equity interests, as well as accounts receivable, inventory, intellectual property, and other assets[176] Off-Balance Sheet Arrangements Confirms the absence of any off-balance sheet arrangements with unconsolidated entities - The Company does not engage in any off-balance sheet arrangements with unconsolidated entities[178] Item 3. Quantitative and Qualitative Disclosures About Market Risk States there are no material changes in market risk disclosures from the previous annual report - There has been no material change in the market risk disclosure from the Company's Annual Report on Form 10-K for the year ended December 31, 2020[179] Item 4. Controls and Procedures Confirms the effectiveness of disclosure controls and procedures as of the reporting date - The Company's disclosure controls and procedures were effective as of June 30, 2021[180] - The Barnes business, acquired on October 2, 2020, was excluded from the assessment of the effectiveness of internal control over financial reporting, representing 16% of total assets and 14% of total sales[181] - Internal controls over financial reporting for acquisition-related accounting and disclosures have been implemented for Barnes[182] PART II. OTHER INFORMATION Item 1. Legal Proceedings Discloses ongoing legal disputes and confirms no expected material adverse financial impact - The Company is involved in various legal disputes and other legal proceedings that arise from time to time in the ordinary course of business[191] - As a consumer goods manufacturer and distributor, the Company faces the risk of product liability and related lawsuits[193] - Based on currently available information, no pending legal disputes or product liability claims are believed to have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows[191][194] Item 1A. Risk Factors Indicates no material changes to the risk factors disclosed in the last annual report - There have been no material changes in the Company's risk factors from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020[195] Item 6. Exhibits Lists all exhibits filed with the report, including key agreements and officer certifications - Exhibit 2.1 is the Share Sale and Purchase Agreement for the Rhino-Rack acquisition[197] - Exhibit 10.1 is Amendment No. 3 to the Credit Agreement, dated July 1, 2021[197] - The exhibits include certifications of the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2)[197] SIGNATURES Contains the official certifications of the report by the company's principal executive and financial officers - The report was signed by Warren B. Kanders, Executive Chairman (Principal Executive Officer), and Aaron J. Kuehne, Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer), on August 2, 2021[201]