Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Please note that in this Quarterly Report on Form 10-Q Clarus Corporation (which may be referred to as the “Company,” “Clarus,” “we,” “our” or “us”) may use words such as “appears,” “anticipates,” “believes,” “plans,” “expects,” “intends,” “future” and similar expressions which constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting the Company and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.
Potential risks and uncertainties that could cause the actual results of operations or financial condition of the Company to differ materially from those expressed or implied by forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, the overall level of consumer demand on our products; general economic conditions and other factors affecting consumer confidence, preferences, and behavior, including, without limitation, the impact of inflation; disruption and volatility in the global currency, capital and credit markets; the financial strength of retail economies and the Company’s customers; the Company’s ability to implement its business strategy; the ability of the Company to execute and integrate acquisitions; the Company’s exposure to product liability or product warranty claims and other loss contingencies, including, without limitation, recalls and liability claims relating to our avalanche beacon transceivers; disruptions and other impacts to the Company’s business, as a result of an outbreak of disease or similar public health threat, such as the COVID 19 global pandemic, and government actions and restrictive measures implemented in response; stability of the Company’s manufacturing facilities and suppliers, as well as consumer demand for our products, in light of disease epidemics and health-related concerns such as the COVID 19 global pandemic; the impact that global climate change trends may have on the Company and its suppliers and customers, increased focus on sustainability issues as a result of global climate change; regulatory or market responses to global climate change; the Company’s ability to protect patents, trademarks and other intellectual property rights; any breaches of, or interruptions in, our information systems; the ability of our information technology systems or information security systems to operate effectively, including as a result of security breaches, viruses, hackers, malware, natural disasters, vendor business interruptions or other causes; our ability to properly maintain, protect, repair or upgrade our information technology systems or information security systems, or problems with our transitioning to upgraded or replacement systems; the impact of adverse publicity about the Company and/or its brands and products, including without limitation, through social media or in connection with brand damaging events and/or public perception; the potential impact of the Consumer Products Safety Commission’s investigation related to the Company’s reporting obligations under the Consumer Product Safety Act in connection with the Company’s recall of certain models of its avalanche transceivers on our business, results of operations, and financial condition; fluctuations in the price, availability and quality of raw materials and contracted products as well as foreign currency fluctuations; ongoing disruptions and delays in the shipping and transportation of our products due to port congestion, container ship availability and/or other logistical challenges; the impact of political unrest, natural disasters or other crises, terrorist acts, acts of war and/or military operations; our ability to utilize our net operating loss carryforwards; changes in tax laws and liabilities, tariffs, legal, regulatory, political and economic risks; the Company’s ability to maintain a quarterly dividend; our ability to obtain additional capital and funding on acceptable terms to meet our financial obligations as well as to support our business operations and growth strategy; and any material differences in the actual financial results of the Company’s past and future acquisitions, including the impact of acquisitions and any recognition of impairment or other charges relating to any such acquisitions on the Company’s future earnings per share. More information on potential factors that could affect the Company’s financial results is included from time to time in the Company’s public reports filed with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to the Company as of the date of this Quarterly Report on Form 10-Q, and speak only as of the date hereof. We assume no
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MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
obligation to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.
Overview
Headquartered in Salt Lake City, Utah, Clarus is a global leader in the design and development of best-in-class equipment and lifestyle products for outdoor enthusiasts. Driven by our rich history of engineering and innovation, our objective is to provide safe, simple, effective and beautiful products so that our customers can maximize their outdoor pursuits and adventures. Each of our brands has a long history of continuous product innovation for core and everyday users alike. The Company’s products are principally sold globally under the Black Diamond®, Rhino-Rack®, MAXTRAX®, and TRED Outdoors® brand names through outdoor specialty and online retailers, our own websites, distributors and original equipment manufacturers. Our portfolio of iconic brands is well-positioned for sustainable, long-term growth underpinned by powerful industry trends across the outdoor and adventure sport end markets.
Our iconic brands are rooted in performance-defining technologies that enable our customers to have their best days outdoors. We have a long history of technical innovation and product development, backed by an extensive patent portfolio that continues to evolve and advance our markets. We focus on enhancing our customers’ performance in the most critical moments. Our commitment to quality, rigorous safety, and ultimately best-in-class design is evidenced by outstanding industry recognition, as we have received numerous product awards across our portfolio of brands.
Each of our brands represents a unique customer value proposition. Supported by six decades of proven innovation, Black Diamond is an established global leader in high-performance, activity-based climbing, skiing, and technical mountain sports equipment. The brand is synonymous with premium performance, safety and reliability. Founded in 1992, our Rhino-Rack brand is a globally-recognized designer and distributor of highly-engineered automotive roof racks and accessories to enhance the outdoor enthusiast’s overlanding experience. Founded in 2005, our MAXTRAX brand offers high-quality overlanding and off-road vehicle recovery and extraction tracks for the overland and off-road market. Similarly, TRED, founded in 2012, is a trusted brand for key retailers and distributors in the overlanding and off-road vehicle recovery market.
Clarus, incorporated in Delaware in 1991, acquired Black Diamond Equipment, Ltd. (“Black Diamond Equipment”) in May 2010 and changed its name to Black Diamond, Inc. in January 2011. In October 2012, we acquired PIEPS Holding GmbH and its subsidiaries (collectively, “PIEPS”). On August 14, 2017, the Company changed its name from Black Diamond, Inc. to Clarus Corporation and its stock ticker symbol from “BDE” to “CLAR” on the NASDAQ stock exchange.
On August 21, 2017, the Company acquired Sierra Bullets, L.L.C. (“Sierra”). On November 6, 2018, the Company acquired the assets of SKINourishment, Inc. (“SKINourishment”). During the first quarter of 2024, the Company ceased operations of SKINourishment. On October 2, 2020, the Company completed the acquisition of certain assets and liabilities constituting the Barnes business (“Barnes”). On July 1, 2021, the Company completed the acquisition of Australia-based Rhino-Rack Holdings Pty Ltd (“Rhino-Rack”). On December 1, 2021, the Company completed the acquisition of Australia-based MaxTrax Australia Pty Ltd (“MAXTRAX”). On October 9, 2023, the Company completed the acquisition of Australia-based TRED Outdoors Pty Ltd. (“TRED”).
On February 29, 2024, the Company completed the sale of all of the equity associated with the Company’s Precision Sport segment, comprised of the Company’s subsidiaries Sierra and Barnes, pursuant to a Purchase and Sale Agreement dated as of December 29, 2023 (the “Precision Sport Purchase Agreement”). Under the terms of the Precision Sport Purchase Agreement, the Company received approximately $175,674 in cash subject to customary working capital adjustments, in exchange for all of the equity associated with the Company’s Precision Sport segment. The activities of the Precision Sport segment have been segregated and reported as discontinued operations for all periods presented. See Note 3 to our condensed consolidated financial statements for financial information regarding discontinued operations.
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
On August 6, 2018, the Company announced that its Board of Directors approved the initiation of a quarterly cash dividend program of $0.025 per share of the Company’s common stock (the “Quarterly Cash Dividend”) or $0.10 per share on an annualized basis. The declaration and payment of future Quarterly Cash Dividends is subject to the discretion of and approval of the Company’s Board of Directors. On July 30, 2024, the Company announced that its Board of Directors approved the payment on August 19, 2024 of the Quarterly Cash Dividend of $0.025 to the record holders of shares of the Company’s common stock as of the close of business on August 9, 2024.
Restructuring
Starting in 2023, the Company began incurring expenses to facilitate long-term sustainable growth through cost reduction actions, consisting of employee reductions, facility rationalization and contract termination costs. During the three months ended June 30, 2024 and 2023, the Company incurred $161 and $736, respectively, and during the six months ended June 30, 2024 and 2023, the Company incurred $531 and $736, respectively, of restructuring charges related to these actions. The Company has incurred $3,754 of cumulative restructuring charges since the commencement of restructuring actions in 2023. The Company accrues for restructuring costs when they are probable and reasonably estimable. These costs include severance costs, exit costs, and other restructuring costs and are included in Restructuring charges in the condensed consolidated statements of comprehensive income (loss). Severance costs primarily consist of severance benefits through payroll continuation, conditional separation costs and employer tax liabilities, while exit costs primarily consist of lease exit and contract termination costs. Other costs consist primarily of costs related to the discontinuance of certain product lines and are distinguishable and directly attributable to the Company’s restructuring initiative and not a result of external market factors associated with the ongoing business. We estimate that we will continue to incur restructuring costs related to employee-related costs and facility exit costs during the year 2024; however, the Company cannot estimate the total amount expected to be incurred as cost reduction actions continue to be evaluated. The Company anticipates completing these restructuring activities in 2025.
Critical Accounting Policies and Use of Estimates
Management’s discussion of our financial condition and results of operations is based on the consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting periods. Our critical accounting policies that require the use of estimates and assumptions were discussed in detail in our Annual Report on Form 10-K for the year ended December 31, 2023. We base our estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.
There have been no significant changes to our critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2023.
Recent Accounting Pronouncements
See “Recent Accounting Pronouncements” in Note 1 to our condensed consolidated financial statements.
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Results of Operations
Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023
The following presents a discussion of operations for the three months ended June 30, 2024, compared with the three months ended June 30, 2023.
Three Months Ended
June 30, 2024
June 30, 2023
Sales
Domestic sales
$
22,934
$
25,925
International sales
33,550
32,012
Total sales
56,484
57,937
Cost of goods sold
36,078
35,360
Gross profit
20,406
22,577
Operating expenses
Selling, general and administrative
28,081
26,882
Restructuring charges
161
736
Transaction costs
27
22
Contingent consideration benefit
(125)
-
Legal costs and regulatory matter expenses
399
355
Total operating expenses
28,543
27,995
Operating loss
(8,137)
(5,418)
Other income
Interest income, net
455
8
Other, net
414
226
Total other income, net
869
234
Loss before income tax
(7,268)
(5,184)
Income tax benefit
(1,775)
(862)
Loss from continuing operations
(5,493)
(4,322)
Discontinued operations, net of tax
-
2,231
Net loss
$
(5,493)
$
(2,091)
Sales
Total sales decreased $1,453, or 2.5%, to $56,484 during the three months ended June 30, 2024, compared to total sales of $57,937 during the three months ended June 30, 2023. The decrease in sales was primarily attributable to a decrease in sales at the Outdoor segment of $3,880, partially offset by an increase in sales at the Adventure segment of $2,427.
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Sales in the Adventure segment were reduced by $230 due to foreign exchange impact from the strengthening of the U.S. dollar against the Australian dollar during the three months ended June 30, 2024, compared to the prior period. Sales in the Outdoor segment were reduced by $28 due to foreign exchange impact from the strengthening of the U.S. dollar primarily against the euro during the three months ended June 30, 2024, compared to the prior period.
Sales in the Outdoor segment decreased due to weakness in our North American direct to consumer markets and softness in our European markets. Sales in the Adventure segment increased due to higher demand from original equipment manufacturer (“OEM”) customers and a $977 increase from the TRED Outdoors acquisition.
Domestic sales decreased $2,991, or 11.5%, to $22,934 during the three months ended June 30, 2024, compared to domestic sales of $25,925 during the three months ended June 30, 2023. The decrease in sales was attributable to decreases at the Outdoor and Adventure segments of $2,984, and $7 respectively.
International sales increased $1,538, or 4.8%, to $33,550 during the three months ended June 30, 2024, compared to international sales of $32,012 during the three months ended June 30, 2023. The increase in sales was primarily attributable to an increase in sales at the Adventure segment of $2,434, partially offset by a decrease in sales at the Outdoor segment of $896.
Cost of Goods Sold
Cost of goods sold increased $718, or 2.0%, to $36,078 during the three months ended June 30, 2024, compared to cost of goods sold of $35,360 during the three months ended June 30, 2023.
Gross Profit
Gross profit decreased $2,171, or 9.6%, to $20,406 during the three months ended June 30, 2024, compared to gross profit of $22,577 during the three months ended June 30, 2023. Gross margin was 36.1% during the three months ended June 30, 2024, compared to a gross margin of 39.0% during the three months ended June 30, 2023. Gross margin during the three months ended June 30, 2024 decreased compared to the prior year due to an increase in polyfluoroalkyl substances (“PFAS”) related inventory reserve expenses, unfavorable product mix due to increased discontinued merchandise sales at the Outdoor segment, as well as higher inventory and sales return reserve expenses at the Adventure segment.
Selling, General and Administrative
Selling, general, and administrative expenses increased $1,199, or 4.5%, to $28,081 during the three months ended June 30, 2024, compared to selling, general and administrative expenses of $26,882 during the three months ended June 30, 2023. The increase was primarily due to an increase in higher investment in marketing initiatives in the Adventure segment, as well as higher employee-related expenses across the Company. These increases were partially offset by expense reduction initiatives in the Outdoor segment to manage costs as well as lower intangible amortization.
Restructuring Charges
Restructuring charges decreased to $161 during the three months ended June 30, 2024, compared to restructuring charges of $736 during the three months ended June 30, 2023. The restructuring charges incurred during the three months ended June 30, 2024 relate to benefits provided to employees who were terminated due to the Company’s reduction-in-force as part of its continued realignment of resources within the organization of $158 and lease exit and contract termination costs of $3.
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Transaction Costs
Transaction costs increased to $27 during the three months ended June 30, 2024, compared to transaction costs of $22 during the three months ended June 30, 2023, which consisted of expenses related to the Company’s various acquisition efforts.
Contingent Consideration Benefit
Contingent consideration benefit increased to $125 during the three months ended June 30, 2024, compared to a contingent consideration benefit of $0 during the three months ended June 30, 2023, which consisted of changes in the estimated fair value of contingent consideration liabilities associated with our acquisition of TRED in 2023.
Legal Costs and Regulatory Matter Expenses
Legal costs and regulatory matter expenses increased to $399 during the three months ended June 30, 2024, compared to legal costs and regulatory matter expenses of $355 during the three months ended June 30, 2023, which consisted of expenses related to the Company’s specific legal matters. See Note 16 to our condensed consolidated financial statements for financial information regarding specific legal matters.
Interest Income, net
Interest income, net increased to $455 during the three months ended June 30, 2024, compared to interest income, net of $8 during the three months ended June 30, 2023. The increase in interest income recognized during the three months ended June 30, 2024, was due to interest income on higher cash balances.
Other, net
Other, net, changed by $188, or 83.2%, to $414 during the three months ended June 30, 2024, compared to other, net of $226 during the three months ended June 30, 2023. The change in other, net, was primarily attributable to an increase in remeasurement gains recognized on the Company’s foreign denominated accounts receivable and accounts payable. The change was partially offset by a reduction in gains in mark-to-market adjustments on non-hedged foreign currency contracts during the three months ended June 30, 2024.
Income Taxes
Income tax benefit changed by $913, or 105.9%, to $1,775 during the three months ended June 30, 2024, compared to $862 during the same period in 2023. Our effective income tax rate was a benefit of 24.4% for the three months ended June 30, 2024, and differed compared to the statutory tax rates primarily due to the impact of stock compensation and research and experimentation expenditures and credits. For the three months ended June 30, 2023, our effective income tax rate was a benefit of 16.6% and differed compared to the statutory tax rates due to the impact of stock compensation, research and experimentation expenditures and credits, and discrete stock option windfall benefits.
Discontinued Operations
Net income from discontinued operations was $0 during the three months ended June 30, 2024, compared to net income from discontinued operations of $2,231 during the three months ended June 30, 2023. The change in net income from discontinued operations is due to the sale of the Precision Sport segment occurring during the three months ended March 31, 2024. There was no activity in discontinued operations during the three months ended June 30, 2024.
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023
The following presents a discussion of operations for the six months ended June 30, 2024, compared with the six months ended June 30, 2023.
Six Months Ended
June 30, 2024
June 30, 2023
Sales
Domestic sales
$
51,218
$
50,122
International sales
74,577
78,093
Total sales
125,795
128,215
Cost of goods sold
80,538
80,130
Gross profit
45,257
48,085
Operating expenses
Selling, general and administrative
56,296
56,236
Restructuring charges
531
736
Transaction costs
65
59
Contingent consideration benefit
(125)
(1,565)
Legal costs and regulatory matter expenses
3,401
483
Total operating expenses
60,168
55,949
Operating loss
(14,911)
(7,864)
Other (expense) income
Interest income, net
825
13
Other, net
(495)
302
Total other income, net
330
315
Loss before income tax
(14,581)
(7,549)
Income tax benefit
(2,626)
(1,196)
Loss from continuing operations
(11,955)
(6,353)
Discontinued operations, net of tax
28,346
5,860
Net income (loss)
$
16,391
$
(493)
Sales
Total sales decreased $2,420, or 1.9%, to $125,795 during the six months ended June 30, 2024, compared to total sales of $128,215 during the six months ended June 30, 2023. The decrease in sales was primarily attributable to a decrease in sales at the Outdoor segment of $3,880, partially offset by an increase in sales at the Adventure segment of $2,427.
Sales in the Adventure segment were reduced by $891 due to foreign exchange impact from the strengthening of the U.S. dollar against the Australian dollar during the six months ended June 30, 2024, compared to the prior period. Sales in the
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Outdoor segment increased by $268 due to foreign exchange impact from the weakening of the U.S. dollar primarily against the euro during the six months ended June 30, 2024, compared to the prior period.
Sales in the Outdoor segment decreased due to weakness in our European, independent global distributors (“IGD”), and North American direct to consumer markets. This weakness was partially offset by growth in the North American wholesale channel at the Outdoor segment. Sales in the Adventure segment increased due to higher demand from OEM customers and a $2,236 increase from the TRED Outdoors acquisition.
Domestic sales increased $1,096, or 2.2%, to $51,218 during the six months ended June 30, 2024, compared to domestic sales of $50,122 during the six months ended June 30, 2023. The increase in sales was primarily attributable to an increase in sales at the Adventure segment of $2,016, partially offset by a decrease in sales at the Outdoor segment of $920.
International sales decreased $3,516, or 4.5%, to $74,577 during the six months ended June 30, 2024, compared to international sales of $78,093 during the six months ended June 30, 2023. The decrease in sales was primarily attributable to a decrease in sales at the Outdoor segment of $8,713, partially offset by an increase in sales at the Adventure segment of $5,197.
Cost of Goods Sold
Cost of goods sold increased $408, or 0.5%, to $80,538 during the six months ended June 30, 2024, compared to cost of goods sold of $80,130 during the six months ended June 30, 2023.
Gross Profit
Gross profit decreased $2,828, or 5.9%, to $45,257 during the six months ended June 30, 2024, compared to gross profit of $48,085 during the six months ended June 30, 2023. Gross margin was 36.0% during the six months ended June 30, 2024, compared to a gross margin of 37.5% during the six months ended June 30, 2023. Gross margin during the six months ended June 30, 2024, decreased compared to the prior year due to unfavorable product mix, lower volume, and an increase in PFAS related inventory reserve expenses at the Outdoor segment, as well as an increase in sales return reserve expenses at the Adventure segment.
Selling, General and Administrative
Selling, general, and administrative expenses increased $60, or 0.1%, to $56,296 during the six months ended June 30, 2024, compared to selling, general and administrative expenses of $56,236 during the six months ended June 30, 2023.
Restructuring Charges
Restructuring charges decreased to $531 during the six months ended June 30, 2024, compared to restructuring charges of $736 during the six months ended June 30, 2023. The restructuring charges incurred during the six months ended June 30, 2024 relate to benefits provided to employees who were terminated due to the Company’s reduction-in-force as part of its continued realignment of resources within the organization of $515 and lease exit and contract termination costs of $16.
Transaction Costs
Transaction costs increased to $65 during the six months ended June 30, 2024, compared to transaction costs of $59 during the six months ended June 30, 2023, which consisted of expenses related to the Company’s various acquisition efforts.
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Contingent Consideration Benefit
Contingent consideration benefit decreased to $125 during the six months ended June 30, 2024, compared to a contingent consideration benefit of $1,565 during the six months ended June 30, 2023, which consisted of changes in the estimated fair value of contingent consideration liabilities associated with our acquisitions of MAXTRAX in 2021 and TRED in 2023.
Legal Costs and Regulatory Matter Expenses
Legal costs and regulatory matter expenses increased to $3,401 during the six months ended June 30, 2024, compared to legal costs and regulatory matter expenses of $483 during the six months ended June 30, 2023. The increase in legal costs and regulatory matter expenses recognized during the six months ended June 30, 2024 reflects the Company’s accrued liability for the outstanding regulatory matter with the United States Consumer Product Safety Commission and increased expenses related to the Company’s specific legal matters. See Note 16 to our condensed consolidated financial statements for financial information regarding specific legal matters.
Interest Income, net
Interest income, net increased to $825 during the six months ended June 30, 2024, compared to interest income, net of $13 during the six months ended June 30, 2023. The increase in interest income recognized during the six months ended June 30, 2024, was due to interest income on higher cash balances.
Other, net
Other, net, changed by $797, or 263.9%, to ($495) during the six months ended June 30, 2024, compared to other, net of $302 during the six months ended June 30, 2023. The change in other, net, was primarily attributable to an increase in remeasurement losses recognized on the Company’s foreign denominated accounts receivable and accounts payable. The change was partially offset by gains in mark-to-market adjustments on non-hedged foreign currency contracts during the six months ended June 30, 2024.
Income Taxes
Income tax benefit changed by $1,430, or 119.6%, to $2,626 during the six months ended June 30, 2024, compared to a benefit of $1,196 during the same period in 2023. Our effective income tax rate was a benefit of 18.0% for the six months ended June 30, 2024, and differed compared to the statutory tax rates primarily due to the impact of stock compensation and research and experimentation expenditures and credits. For the six months ended June 30, 2023, our effective income tax rate was a benefit of 15.8% and differed compared to the statutory tax rates due to the impact of stock compensation, research and experimentation expenditures and credits, and discrete stock option windfall benefits.
Discontinued Operations
Net income from discontinued operations changed by $22,486, to $28,346 during the six months ended June 30, 2024, compared to net income from discontinued operations of $5,860 during the six months ended June 30, 2023. The change in net income from discontinued operations was primarily attributable to the pre-tax gain on the sale of the Precision Sport segment of $40,585. There was no activity in discontinued operations during the three months ended June 30, 2024.
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Liquidity and Capital Resources
Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023
Our primary ongoing funding requirements are for working capital, expansion of our operations (both organically and through acquisitions) and general corporate needs, as well as investing in the various brands. We plan to fund these activities through a combination of our future operating cash flows and cash on hand. Upon the closing of the sale of the Precision Sport segment, the Company terminated and settled all outstanding borrowings on our revolving credit facility and term debt under the Restated Credit Agreement. We believe that our liquidity requirements and contractual obligations for at least the next 12 months will be adequately covered by cash provided by operations and cash on hand. Additionally, long-term contractual obligations are also currently expected to be funded from cash from operations and cash on hand.
At June 30, 2024, we had total cash of $46,221, compared to total cash of $11,324 at December 31, 2023. At June 30, 2024, the Company had $5,660 of the $46,221 in cash held by foreign entities, of which $4,527 is considered permanently reinvested.
The following presents a discussion of cash flows for the condensed consolidated six months ended June 30, 2024 compared with the condensed consolidated six months ended June 30, 2023.
Six Months Ended
June 30, 2024
June 30, 2023
Net cash (used in) provided by operating activities
$
(15,527)
$
17,286
Net cash provided by (used in) investing activities
172,162
(3,083)
Net cash used in financing activities
(121,602)
(13,962)
Effect of foreign exchange rates on cash
(136)
(987)
Change in cash
34,897
(746)
Cash, beginning of year
11,324
12,061
Cash, end of period
$
46,221
$
11,315
Net Cash From Operating Activities
Net cash used in operating activities was $15,527 during the six months ended June 30, 2024, compared to net cash provided by operating activities of $17,286 during the six months ended June 30, 2023. The change in net cash (used in) provided by operating activities during 2024 is primarily due to the gain on sale of $40,585 related to the disposition of the Precision Sport segment and an increase in cash outflows related to working capital of $13,855. These were partially offset by an increase in net income and a decrease in contingent consideration benefit during the six months ended June 30, 2024, compared to the same period in 2023.
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Free cash flow, defined as net cash (used in) provided by operating activities less capital expenditures, of ($19,002) was used during the six months ended June 30, 2024 compared to $14,034 generated during the same period in 2023. The Company believes that the non-GAAP measure, free cash flow, provides an understanding of the capital required by the Company to expand its asset base. A reconciliation of free cash flows to the nearest comparable GAAP financial measure is set forth below:
Six Months Ended
June 30, 2024
June 30, 2023
Net cash (used in) provided by operating activities
$
(15,527)
$
17,286
Purchase of property and equipment
(3,475)
(3,252)
Free cash flow
$
(19,002)
$
14,034
Net Cash From Investing Activities
Net cash provided by investing activities was $172,162 during the six months ended June 30, 2024, compared to net cash used in investing activities of $3,083 during the six months ended June 30, 2023. The increase in cash provided during the six months ended June 30, 2024 is primarily due to the cash received related to the disposition of the Precision Sport segment, compared to the same period in 2023.
Net Cash From Financing Activities
Net cash used in financing activities was $121,602 during the six months ended June 30, 2024, compared to net cash used in financing activities of $13,962 during the six months ended June 30, 2023. The change in net cash used in financing activities during the six months ended June 30, 2024, compared to the same period in 2023 was primarily due to the settlement of all outstanding borrowings on our revolving credit facility and term debt under the Restated Credit Agreement.
Net Operating Loss
As of December 31, 2023, the Company had net operating loss carryforwards (“NOLs”) and research and experimentation credit for U.S. federal income tax purposes of $7,699 and $2,997, respectively. The Company believes its U.S. Federal NOLs will offset a portion of its future U.S. Federal income taxes. The Company has $7,699 of NOLs, of which, $0 expire on December 31, 2024. These NOLs are subject to compliance with Section 382 of the Internal Revenue Code of 1986, as amended.
As of December 31, 2023, the Company’s gross deferred tax asset was $39,893. The Company has recorded a valuation allowance of $714, resulting in a net deferred tax asset of $39,179, before deferred tax liabilities of $34,434. The Company has provided a valuation allowance against a portion of the net deferred tax assets as of December 31, 2023, because the ultimate realization of those assets does not meet the more-likely-than-not criteria. Part of the Company’s deferred tax assets consist of net operating loss carryforwards for federal tax purposes. If a change in control were to occur, these could be limited under Section 382 of the Internal Revenue Code of 1986 (“Code”), as amended.
Credit Agreement
Upon the closing of the sale of the Precision Sport segment on February 29, 2024, the Company terminated and settled all outstanding borrowings on our revolving credit facility and term debt under the Restated Credit Agreement.
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Off-Balance Sheet Arrangements
We do not engage in any transactions or have relationships or other arrangements with unconsolidated entities. These include special purpose and similar entities or other off-balance sheet arrangements. We also do not engage in energy, weather or other commodity-based contracts.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has not been any material change in the market risk disclosure contained in our Annual Report on Form 10-K for the year ended December 31, 2023.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.