Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended: June 30, 2024
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number: 001-34767
CLARUS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
58-1972600
(State or other jurisdiction ofincorporation or organization)
(I.R.S. EmployerIdentification Number)
2084 East 3900 SouthSalt Lake City, Utah
84124
(Address of principal executive offices)
(Zip code)
(801) 278-5552
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $.0001 per share
CLAR
NASDAQ Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Non-accelerated filer
Accelerated filer
☒
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 25, 2024, there were 38,362,162 shares of common stock, par value $0.0001, outstanding.
INDEX
Page
PART I
FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited)
3
Condensed Consolidated Balance Sheets – June 30, 2024 and December 31, 2023
Condensed Consolidated Statements of Comprehensive Loss – Three months ended June 30, 2024 and 2023
4
Condensed Consolidated Statements of Comprehensive Income (Loss) – Six months ended June 30, 2024 and 2023
5
Condensed Consolidated Statements of Cash Flows – Six months ended June 30, 2024 and 2023
6
Condensed Consolidated Statements of Stockholders’ Equity – Three and six months ended June 30, 2024 and 2023
7
Notes to Condensed Consolidated Financial Statements
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
30
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
41
Item 4.
Controls and Procedures
PART II
OTHER INFORMATION
Legal Proceedings
42
Item 1A.
Risk Factors
43
Item 5.
Other information
Item 6.
Exhibits
44
Signature Page
45
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share amounts)
June 30, 2024
December 31, 2023
Assets
Current assets
Cash
$
46,221
11,324
Accounts receivable, less allowance for
credit losses of $1,566 and $1,412
43,721
53,971
Inventories
91,456
91,409
Prepaid and other current assets
6,018
4,865
Income tax receivable
1,371
892
Assets held for sale
-
137,284
Total current assets
188,787
299,745
Property and equipment, net
17,029
16,587
Other intangible assets, net
35,779
41,466
Indefinite-lived intangible assets
57,694
58,527
Goodwill
38,834
39,320
Deferred income taxes
17,199
22,869
Other long-term assets
14,078
16,824
Total assets
369,400
495,338
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
9,533
20,015
Accrued liabilities
23,358
24,580
Income tax payable
805
Current portion of long-term debt
119,790
Liabilities held for sale
5,744
Total current liabilities
32,891
170,934
16,697
18,124
Other long-term liabilities
12,529
14,160
Total liabilities
62,117
203,218
Stockholders’ Equity
Preferred stock, $0.0001 par value per share; 5,000 shares authorized; none issued
Common stock, $0.0001 par value per share; 100,000 shares authorized; 42,940 and 42,761 issued and 38,298 and 38,149 outstanding, respectively
Additional paid in capital
694,194
691,198
Accumulated deficit
(336,261)
(350,739)
Treasury stock, at cost
(33,114)
(32,929)
Accumulated other comprehensive loss
(17,540)
(15,414)
Total stockholders’ equity
307,283
292,120
Total liabilities and stockholders’ equity
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Three Months Ended
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
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
(2,091)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment
1,537
(1,389)
Unrealized gain on hedging activities
25
Other comprehensive income (loss)
1,545
(1,364)
Comprehensive loss
(3,948)
(3,455)
Loss from continuing operations per share:
Basic
(0.14)
(0.12)
Diluted
Net loss per share:
(0.06)
Weighted average shares outstanding:
38,297
37,192
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Six Months Ended
51,218
50,122
74,577
78,093
125,795
128,215
80,538
80,130
45,257
48,085
56,296
56,236
531
65
59
(1,565)
3,401
483
60,168
55,949
(14,911)
(7,864)
Other (expense) income
825
13
(495)
302
330
315
(14,581)
(7,549)
(2,626)
(1,196)
(11,955)
(6,353)
28,346
5,860
Net income (loss)
16,391
(493)
Other comprehensive loss, net of tax:
(2,498)
(2,410)
Unrealized gain (loss) on hedging activities
372
(54)
Other comprehensive loss
(2,126)
(2,464)
Comprehensive income (loss)
14,265
(2,957)
(0.31)
(0.17)
Net income (loss) per share:
0.43
(0.01)
38,253
37,164
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash Flows From Operating Activities:
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation of property and equipment
2,071
3,732
Amortization of other intangible assets
4,900
6,499
Gain on sale of business
(40,585)
Amortization of debt issuance costs
1,209
464
Gain on disposition of property and equipment
(123)
(44)
Noncash lease expense
1,527
1,475
Stock-based compensation
2,711
2,869
4,434
(1,569)
Changes in operating assets and liabilities, net of disposition:
Accounts receivable
11,653
10,495
(4,607)
(1,953)
Prepaid and other assets
295
1,237
(10,848)
1,233
(3,163)
(5,063)
Income taxes
(1,267)
(31)
Net cash (used in) provided by operating activities
(15,527)
17,286
Cash Flows From Investing Activities:
Proceeds from the sale of business, net of cash
175,674
Proceeds from disposition of property and equipment
213
169
Purchase of intangible assets
(250)
Purchases of property and equipment
(3,475)
(3,252)
Net cash provided by (used in) investing activities
172,162
(3,083)
Cash Flows From Financing Activities:
Proceeds from revolving credit facilities
31,205
19,801
Repayments on revolving credit facilities
(41,580)
(26,879)
Repayments on term loans and other debt
(109,463)
(4,837)
Proceeds from issuance of other debt
49
Purchase of treasury stock
(185)
(222)
Proceeds from exercise of options
285
35
Cash dividends paid
(1,913)
(1,860)
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
12,061
Cash, end of period
11,315
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes
1,888
1,010
Cash paid for interest
1,947
5,127
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Property and equipment purchased with accounts payable
224
159
Lease liabilities arising from obtaining right-of-use assets
4,066
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Accumulated
Additional
Other
Total
Common Stock
Paid-In
Treasury Stock
Comprehensive
Stockholders’
Shares
Amount
Capital
Deficit
Loss
Equity
Balance, December 31, 2022
41,637
679,339
(336,843)
(4,589)
(32,707)
(17,685)
292,108
Net income
1,598
(1,100)
Cash dividends ($0.025 per share)
(930)
(12)
(118)
Stock-based compensation expense
1,334
154
Balance, March 31, 2023
41,791
680,673
(336,175)
(4,601)
(32,825)
(18,785)
292,892
(11)
(104)
1,535
Balance, June 30, 2023
41,833
682,243
(339,196)
(4,612)
(20,149)
289,973
Balance, December 31, 2023
42,761
21,884
(3,671)
(956)
(30)
1,183
117
Balance, March 31, 2024
42,878
692,381
(329,811)
(4,642)
(19,085)
310,375
Other comprehensive income
(957)
1,528
62
Balance, June 30, 2024
42,940
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements of Clarus Corporation and subsidiaries (which may be referred to as the “Company,” “Clarus,” “we,” “us” or “our”) as of June 30, 2024 and December 31, 2023 and for the three and six months ended June 30, 2024 and 2023, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), instructions to the Quarterly Report on Form 10-Q, and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments, except otherwise disclosed) necessary for a fair presentation of the unaudited condensed consolidated financial statements have been included. The results for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be obtained for the year ending December 31, 2024. These interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the Securities and Exchange Commission (the “SEC”) on March 7, 2024.
Nature of Business
Headquartered in Salt Lake City, Utah, we are 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.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The more significant estimates relate to the fair value of net assets acquired in business combinations, provision for excess or obsolete inventory, allowance for credit losses, and valuation of contingent consideration liabilities, deferred tax assets, long-lived assets, goodwill and indefinite-lived intangible assets, and other intangible assets. We base our estimates on historical experience, projected future cash flows, and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.
Reclassifications
Certain reclassifications have been made to prior period financial statements to conform to the current period presentation. Specifically, legal costs associated with specific legal matters which were recorded in selling, general, and administrative expenses are now presented in legal costs and regulatory matter expenses in the consolidated statements of comprehensive income (loss). See Note 16 for discussion regarding legal matters.
Recent Accounting Pronouncements
Accounting Pronouncements issued and not yet adopted
In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and provide in interim periods all disclosures about a reportable
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
segment’s profit or loss and assets that are currently required annually. The amendments in ASU 2023-07 are effective for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the enhanced disclosure requirements, however it does not anticipate a material change to the consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires a public entity to disclose in its rate reconciliation table additional categories of information about federal, state and foreign income taxes and provide more details about the reconciling items in some categories if items meet a quantitative threshold. The guidance will require all entities to disclose income taxes paid, net of refunds, disaggregated by federal (national), state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold. The guidance makes several other changes to the disclosure requirements. All entities are required to apply the guidance prospectively, with the option to apply it retrospectively. The guidance is effective for public business entities for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the enhanced disclosure requirements, however it does not anticipate a material change to the consolidated financial statements.
NOTE 2. ACQUISITIONS
TRED
On September 13, 2023, Clarus entered into a Share Purchase Agreement (the “TRED Purchase Agreement”) to acquire TRED Outdoors Pty Ltd. (“TRED”), which subsequently closed on October 9, 2023. All United States dollar amounts contained herein are based on the exchange rates in effect for Australian dollars ($AUD) and the market value of the Company’s common stock at the time of closing of the acquisition of TRED (the “TRED Acquisition”).
The Company acquired TRED for an aggregate purchase price of $AUD 10,741 (approximately $6,849), subject to a post-closing adjustment, comprised of $AUD 8,875 (approximately $5,659) cash, 179 shares of the Company’s common stock valued at $1,069, and additional consideration described below. The TRED Purchase Agreement provides for the payment of additional contingent consideration of up to $AUD 1,000 (approximately $638) in cash upon the satisfaction of certain net sales targets (the “TRED Contingent Consideration”). The Company estimated the initial fair value of the TRED Contingent Consideration to be $AUD 189 (approximately $121) and recorded this liability within accrued liabilities. See Note 11 for discussion regarding the valuation of the TRED Contingent Consideration as of June 30, 2024. The acquisition was accounted for as a business combination.
The Company believes the acquisition of TRED will provide the Company with a greater combined global revenue base, increased gross margins, profitability and free cash flows, and access to increased liquidity to further acquire and grow businesses.
The following table is a reconciliation to the fair value of the purchase consideration and how the purchase consideration is allocated to assets acquired and liabilities assumed which have been estimated at their fair values. The fair value estimates for the purchase price allocation for TRED are based on the Company’s best estimates and assumptions as of the reporting date and are considered preliminary. The fair value measurements of identifiable assets and liabilities, and the resulting goodwill related to the TRED Acquisition are subject to change and the final purchase price allocations could be different from the amounts presented below. We expect to finalize the valuations as soon as practicable, but not later than one year from the date of the acquisition. The excess of purchase consideration over the assets acquired and liabilities assumed is recorded as goodwill. Goodwill for TRED is included in the Adventure segment. The goodwill consists largely of the growth and profitability expected from the acquisition.
9
October 9, 2023
Number of Shares
Estimated Fair Value
Cash paid
5,659
Issuance of shares of Clarus Corporation
179
1,069
Contingent consideration
121
Total purchase consideration
6,849
Assets acquired and liabilities assumed
11
1,000
1,006
Property and equipment
195
Other intangible assets
3,305
2,832
8,360
Liabilities
Accounts payable and accrued liabilities
638
873
1,511
Net Book Value Acquired
The estimated fair value of inventory was recorded at expected sales price less cost to sell plus a reasonable profit margin for selling efforts.
10
In connection with the acquisitions, the Company acquired exclusive rights to TRED’s trademarks, customer relationships, product technologies, and tradenames. The amounts assigned to each class of intangible asset, other than goodwill acquired, and the related average useful lives are as follows:
Average
Gross
Useful Life
Intangibles subject to amortization
Customer relationships
1,249
8.0 years
Product technologies
394
6.0 years
Tradenames
1,662
12.0 years
Intangibles not subject to amortization
Trademarks
N/A
9.8 years
The full amount of goodwill of $2,832 at TRED is expected to be non-deductible for tax purposes. No pre-existing relationships existed between the Company and TRED or its sellers prior to the acquisition. TRED revenue and operating income are included in the Adventure segment. Total revenue and net income of TRED from the date of acquisition to December 31, 2023 were not material to the Company’s condensed consolidated financial statements.
NOTE 3. DISCONTINUED OPERATIONS
On February 29, 2024, the Company and Everest/Sapphire Acquisition, LLC, its wholly-owned subsidiary, completed the sale to Bullseye Acquisitions, LLC, an affiliate of JDH Capital Company, 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, by and among, Bullseye Acquisitions, LLC, Everest/Sapphire Acquisition, LLC and the Company (the “Precision Sport Purchase Agreement”). The Precision Sport segment engaged in the business of designing, developing, manufacturing, and marketing bullets and ammunition to the military, law enforcement, and commercial/consumer markets. Under the terms of the Precision Sport Purchase Agreement, the Buyer agreed to pay $175,000 in cash, which is subject to a customary working capital adjustment. The Company received $175,674 in cash under the terms of the Precision Sport Purchase Agreement, which included a preliminary working capital adjustment. As of June 30, 2024, the working capital adjustment had not been finalized, and the Company is disputing Bullseye Acquisitions, LLC’s proposed determination of the final working capital adjustment. The Company recognized a pre-tax gain on such sale of $40,585. The activities of the Precision Sport segment have been segregated and reported as discontinued operations for all periods presented.
The carrying amounts of the assets and liabilities of the Precision Sport segment were classified as held for sale in our consolidated balance sheets as of December 31, 2023. The asset and liability balances as of December 31, 2023 were classified as current as we anticipated the sale of these assets and liabilities within a one year period. The carrying amounts were as follows:
Accounts receivable, net
9,914
44,208
2,931
Total current assets held for sale
57,053
24,075
4,926
24,500
26,715
15
Total assets held for sale
2,441
3,303
Total current liabilities held for sale
Total liabilities held for sale
Summarized results of discontinued operations for the Precision Sport segment are as follows:
25,791
10,585
52,897
(17,614)
(6,543)
(34,207)
(2,963)
(2,062)
(6,300)
(3)
(37)
(3,440)
(74)
Interest expense, net
(2,865)
(2,455)
(5,616)
(2)
(38)
(Loss) income from operations of discontinued operations
2,310
(3,956)
6,707
Gain on sale of discontinued operations
40,585
Income from discontinued operations before taxes
36,629
Income tax expense
79
8,283
847
Income from discontinued operations, net of tax
12
In connection with the sale of the Precision Sport segment, all interest expense related to outstanding debt that was required to be repaid with the proceeds received from the sale pursuant to the terms of the Company’s credit facility is allocated to discontinued operations in our condensed consolidated financial statements for the three and six months ended June 30, 2024 and 2023.
Summarized cash flow information for the Precision Sport segment discontinued operations are as follows:
1,713
Amortization of intangible assets
1,017
97
Purchase of property and equipment
886
1,406
NOTE 4. INVENTORIES
Inventories, as of June 30, 2024 and December 31, 2023, were as follows:
Finished goods
80,347
78,887
Work-in-process
387
Raw materials and supplies
10,722
12,227
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment, net, as of June 30, 2024 and December 31, 2023, were as follows:
Land
2,850
Building and improvements
6,485
6,476
Furniture and fixtures
6,198
6,195
Computer hardware and software
8,191
8,092
Machinery and equipment
18,623
18,119
Construction in progress
2,763
1,224
45,110
42,956
Less accumulated depreciation
(28,081)
(26,369)
Depreciation expense for continuing operations for the three months ended June 30, 2024 and 2023 was $1,045 and $1,080, respectively, and for the six months ended June 30, 2024 and 2023 was $2,071 and $2,019, respectively.
NOTE 6. GOODWILL AND INTANGIBLE ASSETS
The following table summarizes the balances in goodwill by segment:
Outdoor
Adventure
29,507
91,375
120,882
Accumulated goodwill impairments
(29,507)
(52,071)
(81,578)
Balance at December 31, 2023
Impact of foreign currency exchange rates
(486)
Balance at June 30, 2024
Indefinite-Lived Intangible Assets
The following table summarizes the changes in indefinite-lived intangible assets:
(833)
Trademarks classified as indefinite-lived intangible assets by brand as of June 30, 2024 and December 31, 2023, were as follows:
Black Diamond
19,600
PIEPS
2,990
3,080
Rhino-Rack
25,232
25,767
MAXTRAX
9,872
10,080
Other Intangible Assets, net
The following table summarizes the changes in gross other intangible assets:
Gross balance at December 31, 2023
82,103
Disposal of fully amortized other intangible assets
(163)
(1,330)
Gross balance at June 30, 2024
80,610
14
Other intangible assets, net of amortization as of June 30, 2024 and December 31, 2023, were as follows:
Accumulated Amortization
Net
Weighted Average Useful Life
60,297
(33,654)
26,643
13.8 years
17,628
(10,127)
7,501
10.0 years
1,738
(103)
1,635
Core technologies
947
(947)
(44,831)
12.9 years
61,215
(30,478)
30,737
18,003
(9,014)
8,989
1,938
(198)
1,740
11.4 years
(40,637)
Amortization expense for continuing operations for the three months ended June 30, 2024 and 2023, was $2,451 and $2,714, respectively, and for the six months ended June 30 2024 and 2023 was $4,900 and $5,482, respectively. Future amortization expense for other intangible assets as of June 30, 2024 is as follows:
Years Ending December 31,
Amortization Expense
2024 (excluding the six months ended June 30, 2024)
4,814
2025
8,183
2026
6,394
2027
4,659
2028
3,432
2029
2,575
Thereafter
5,722
NOTE 7. ACCRUED LIABILITIES AND OTHER LONG-TERM LIABILITIES
Accrued liabilities as of June 30, 2024 and December 31, 2023, were as follows:
Accrued payroll and related items
3,834
3,964
Accrued bonus
1,966
2,047
Designated forward exchange contracts
221
Accrued warranty
1,796
1,648
Current lease liabilities
3,294
3,179
Accrued commissions
416
344
Contingent consideration liabilities
129
Accrued CPSC regulatory matter
2,500
Restructuring liabilities
123
1,246
9,429
11,802
Other long-term liabilities as of June 30, 2024 and December 31, 2023, were as follows:
Long-term lease liability
11,403
13,030
1,126
1,130
NOTE 8. LONG-TERM DEBT
Long-term debt as of June 30, 2024 and December 31, 2023, was as follows:
Revolving credit facility (a)
10,375
Other debt (b)
40
Term loan (c)
109,375
Less current portion
(119,790)
16
NOTE 9. DERIVATIVE FINANCIAL INSTRUMENTS
The Company’s primary exchange rate risk management objective is to mitigate the uncertainty of anticipated cash flows attributable to changes in foreign currency exchange rates. The Company primarily focuses on mitigating changes in cash flows resulting from sales denominated in currencies other than the U.S. dollar. The Company manages this risk primarily by using currency forward and option contracts. If the anticipated transactions are deemed probable, the resulting relationships are formally designated as cash flow hedges. The Company accounts for these contracts as cash flow hedges and tests effectiveness by determining whether changes in the expected cash flow of the derivative offset, within a range, changes in the expected cash flow of the hedged item.
At June 30, 2024, the Company’s derivative contracts had remaining maturities of less than one year. The counterparties to these transactions had both long-term and short-term investment grade credit ratings. The maximum net exposure of the Company’s credit risk to the counterparties is generally limited to the aggregate unrealized loss of all contracts with that counterparty. As of June 30, 2024, there was no such exposure to the counterparties. The Company’s exposure of counterparty credit risk is limited to the aggregate unrealized gain of $344 on all contracts as of June 30, 2024. The Company’s derivative counterparties have strong credit ratings and as a result, the Company does not require collateral to facilitate transactions.
The Company held the following contracts designated as hedging instruments as of June 30, 2024 and December 31, 2023:
Notional
Latest
Maturity
Foreign exchange contracts - Canadian Dollars
$4,956
February 2025
Foreign exchange contracts - Euros
€ 9,404
$7,925
€ 20,612
For contracts that qualify as effective hedge instruments, the effective portion of gains and losses resulting from changes in fair value of the instruments are included in accumulated other comprehensive loss and reclassified to sales in the period the underlying hedged transaction is recognized in earnings. Gains (losses) of $136 and ($43) were reclassified to sales during the three months ended June 30, 2024 and 2023, respectively, and $217 and ($59) were reclassified to sales during the six months ended June 30, 2024 and 2023, respectively.
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The following table presents the balance sheet classification and fair value of derivative instruments as of June 30, 2024 and December 31, 2023:
Classification
Derivative instruments in asset positions:
Derivative instruments in liability positions:
NOTE 10. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss (“AOCI”) primarily consists of foreign currency translation adjustments and changes in our forward foreign exchange contracts. The following table sets forth the changes in AOCI, net of tax, for the three months ended June 30, 2024:
Foreign Currency Translation Adjustments
Unrealized Gains (Losses) on Cash Flow Hedges
Balance as of March 31, 2024
(19,258)
173
Other comprehensive income before reclassifications
113
1,650
Amounts reclassified from other comprehensive loss
(105)
Net current period other comprehensive income
Balance as of June 30, 2024
(17,721)
181
The following table sets forth the changes in AOCI, net of tax, for the three months ended June 30, 2023:
Balance as of March 31, 2023
(18,649)
Other comprehensive loss before reclassifications
(9)
(1,398)
34
Net current period other comprehensive (loss) income
Balance as of June 30, 2023
(20,038)
(111)
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The following table sets forth the changes in AOCI, net of tax, for the six months ended June 30, 2024:
Balance as of December 31, 2023
(15,223)
(191)
Other comprehensive (loss) income before reclassifications
539
(1,959)
(167)
The following table sets forth the changes in AOCI, net of tax, for the six months ended June 30, 2023:
Balance as of December 31, 2022
(17,628)
(57)
(100)
(2,510)
46
Net current period other comprehensive loss
The effects on net income of amounts reclassified from unrealized gains (losses) on cash flow hedges for foreign exchange contracts for the three and six months ended June 30, 2024 and 2023, were as follows:
Gains (losses) reclassified from AOCI to the Consolidated Statements of Comprehensive Income (Loss)
Affected line item in the Consolidated
Statements of Comprehensive Income (Loss)
Foreign exchange contracts:
136
(43)
217
(59)
Less: Income tax expense (benefit)
31
50
(13)
Amount reclassified, net of tax
105
(34)
167
(46)
Total reclassifications from AOCI
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NOTE 11. FAIR VALUE MEASUREMENTS
We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
Level 1 - inputs to the valuation methodology are quoted market prices for identical assets or liabilities in active markets.
Level 2 - inputs to the valuation methodology include quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.
Level 3 - inputs to the valuation methodology are based on prices or valuation techniques that are unobservable.
Items Measured at Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis at June 30, 2024 and December 31, 2023 were as follows:
Level 1
Level 2
Level 3
256
385
Derivative financial instruments are recorded at fair value based on current market pricing models. No nonrecurring fair value measurements existed at June 30, 2024 and December 31, 2023.
The Company estimated the initial fair value of the contingent consideration liabilities primarily using the Monte-Carlo pricing model. Significant unobservable inputs used in the valuation included a discount rate of 11.5%. Contingent consideration liabilities are subsequently remeasured at the estimated fair value at the end of each reporting period using financial projections of the acquired company, such as sales-based milestones and estimated probabilities of achievement,
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with the change in fair value recognized in contingent consideration benefit in the accompanying consolidated statements of comprehensive income (loss) for such period. We measure the initial liability and remeasure the liability on a recurring basis using Level 3 inputs as defined under authoritative guidance for fair value measurements.
The following table summarizes the changes in contingent consideration liabilities:
Fair value adjustments
(4)
As the contingent consideration liabilities are remeasured to fair value each reporting period, significant increases or decreases in projected sales, discount rates or the time until payment is made could have resulted in a significantly lower or higher fair value measurement. Our determination of fair value of the contingent consideration liabilities could change in future periods based on our ongoing evaluation of these significant unobservable inputs. As of June 30, 2024, the net sales threshold required for the payment of the TRED contingent consideration is not expected to be met.
NOTE 12. STOCKHOLDERS’ EQUITY
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.
NOTE 13. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing earnings (loss) by the weighted average number of common shares outstanding during each period. Diluted earnings (loss) per share is computed by dividing earnings (loss) by the total of the weighted average number of shares of common stock outstanding during each period, plus the effect of dilutive outstanding stock options and unvested restricted stock grants. Potentially dilutive securities are excluded from the computation of diluted earnings (loss) per share if their effect is anti-dilutive to the loss from continuing operations.
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The following table is a reconciliation of basic and diluted shares of common stock outstanding used in the calculation of earnings (loss) per share:
Weighted average shares outstanding - basic
Effect of dilutive stock awards
Weighted average shares outstanding - diluted
Income from discontinued operations per share:
0.06
0.74
0.16
Net (loss) income per share:
For the three months ended June 30, 2024 and 2023, equity awards of 5,762 and 6,082, respectively, and for the six months ended June 30, 2024 and 2023, equity awards of 5,405 and 6,058, respectively, were excluded from the calculation of earnings (loss) per share for these periods as they were anti-dilutive.
NOTE 14. STOCK-BASED COMPENSATION PLAN
Under the Company’s current 2015 Stock Incentive Plan (the “2015 Plan”), the Company’s Board of Directors has flexibility to determine the type and amount of awards to be granted to eligible participants, who must be employees, directors, officers or consultants of the Company or its subsidiaries. The 2015 Plan allows for grants of incentive stock options, nonqualified stock options, restricted stock awards, stock appreciation rights, and restricted units. The aggregate number of shares of common stock that may be granted through awards under the 2015 Plan to any employee in any calendar year may not exceed 500 shares. The 2015 Plan will continue in effect until December 2025 unless terminated sooner.
Options Granted:
During the six months ended June 30, 2024, the Company issued stock options for an aggregate of 1,240 shares under the 2015 Plan to directors and employees of the Company. Of the 1,240 options, 1,140 options vest and become exercisable over a period of two years and 100 vest in four equal consecutive quarterly tranches from the date of grant. All of the issued stock options expire ten years from the date of the grant.
For computing the fair value of the stock-based awards, the fair value of each option grant has been estimated as of the date of grant using the Black-Scholes option-pricing model with the following assumptions:
Options Granted During the Six Months Ended June 30, 2024
Number of options
1,240
Option vesting period
1 - 2 Years
Grant price (per share)
$6.75 - $6.81
Dividend yield
1.47% - 1.48%
Expected volatility (a)
50.3% - 51.9%
Risk-free interest rate
4.08% - 4.57%
Expected life (years) (b)
5.31 - 5.75
Weighted average fair value (per share)
$3.06 - $3.12
The grant date fair value of the stock options granted during the six months ended June 30, 2024 was $3,798, which will be recognized over the vesting period of the options.
Restricted Stock Awards Granted:
On March 11, 2024, the Company issued and granted employees restricted stock awards of 100 restricted shares under the 2015 Plan, of which 50 and 50 shares will vest and become nonforfeitable on each March 11, 2025 and March 11, 2026, respectively. As these restricted stock awards vest over time, the fair value of the restricted stock was estimated as of the date of grant using the grant price of $6.75 per share. The grant date fair value of the restricted stock awards was approximately $675 which will be amortized over the expected term of 2 years.
The total non-cash stock compensation expense for continuing operations related to restricted stock, stock options and stock awards recorded by the Company for the three months ended June 30, 2024 and 2023 was $1,528 and $1,486, respectively, and for the six months ended June 30, 2024 and 2023 was $2,706 and $2,772, respectively. For the three and six months ended June 30, 2024 and 2023, the majority of stock-based compensation costs were classified as selling, general and administrative expenses.
As of June 30, 2024, there were 1,176 unvested stock options and unrecognized compensation cost of $3,604 related to unvested stock options, as well as 1,600 unvested restricted stock awards and unrecognized compensation costs of $6,159 related to unvested restricted stock awards.
NOTE 15. 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
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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.
The following table summarizes the restructuring charges, payments and the remaining liabilities related to restructuring costs at June 30, 2024, which are included within accrued liabilities in the condensed consolidated balance sheets:
Corporate
Charges to expense:
Employee termination benefits
160
515
Exit costs
Total restructuring charges
371
Cash payments and non-cash charges:
Cash payments
(1,471)
(160)
(1,631)
Asset impairments
(23)
NOTE 16. COMMITMENTS, CONTINGENCIES AND LEGAL MATTERS
As a consumer goods manufacturer and distributor, the Company faces the risk of product liability and related lawsuits involving claims for substantial money damages, product recall actions and higher than anticipated rates of warranty returns or other returns of goods. The Company is therefore vulnerable to various personal injury and property damage lawsuits relating to its products and incidental to its business.
The Company is involved in various legal disputes and other legal proceedings that arise from time to time in the ordinary course of business. Anticipated costs related to litigation matters are accrued when it is both probable that a liability has been incurred and the amount can be reasonably estimated. Based on currently available information, the Company does not believe that it is reasonably possible that the disposition of any of the legal disputes the Company or its subsidiaries is currently involved in will have a material adverse effect upon the Company’s consolidated financial position, results of operations or cash flows, except for the U.S. Consumer Product Safety Commission (“CPSC”) matter discussed below. There is a reasonable possibility of loss from contingencies in excess of the amounts accrued by the Company in the accompanying condensed consolidated balance sheets; however, the actual amounts of such possible losses cannot currently be reasonably estimated by the Company. It is possible that, as additional information becomes available, the Company may subsequently determine that it may incur losses from such contingencies materially in excess of the amounts initially accrued by the Company which could have a material adverse effect on the Company’s liquidity, stock price, consolidated financial position, results of operations and/or cash flows.
Legal expenses incurred in the ordinary course of business are included in selling, general, and administrative expenses in the consolidated statements of comprehensive income (loss) except as described below. See Part II, Item 1. “Legal Proceedings.”
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U.S. Consumer Product Safety Commission
In January 2021, Black Diamond Equipment, Ltd. (“BDEL”) wrote to the U.S. Consumer Product Safety Commission (“CPSC”) outlining its new cradle solution for certain models of its avalanche beacon transceivers to prevent such transceivers from switching unexpectedly out of “send” mode. The proposed new cradle solution was designed to improve transceiver safety by locking the transceiver into “send” mode prior to use so that it would not switch unexpectedly out of “send” mode. BDEL also requested approval for the CPSC Fast-Track Program for a voluntary product recall to implement this cradle solution. The CPSC approved the recall and entered into a Corrective Action Plan agreement with BDEL in March 2021. BDEL received a letter from the CPSC, dated October 28, 2021, stating that the CPSC is investigating whether BDEL has timely complied with the reporting requirements of Section 15(b) of the Consumer Protection Safety Act and related regulations regarding certain models of avalanche transceivers switching unexpectedly out of “send” mode.
Separately, on April 21, 2022, BDEL filed a Section 15(b) report and applied for Fast-Track consideration for a voluntary recall, consisting of free repair or replacement of such malfunctioning models of avalanche transceivers, which would not switch from “send” mode to “search” mode due to an electronic malfunction in the reed switch or foil. The CPSC approved the recall and entered into a Corrective Action Plan agreement with BDEL in August 2022. BDEL received a letter from the CPSC, dated January 17, 2023, stating that the CPSC is investigating whether BDEL has timely complied with the reporting requirements of Section 15(b) of the Consumer Protection Safety Act and related regulations regarding the malfunction in the reed switch or foil in certain models of avalanche transceivers switching out of “search” mode. BDEL responded to the CPSC’s investigation by letter dated March 31, 2023, accompanied with documents responsive to the CPSC’s requests. The CPSC asked for further clarification and documents, and BDEL sent a responsive letter accompanied by additional documents on June 23, 2023. On September 6, 2023, the CPSC requested further clarification and information regarding the reed switch issue, to which BDEL responded on October 6 and 13, 2023.
By letters dated October 12, 2023 and December 18, 2023, BDEL was notified by the CPSC that the agency staff has concluded we failed to timely meet our statutory reporting obligations under the Consumer Product Safety Act with respect to certain models of BDEL’s avalanche transceivers switching unexpectedly out of “send” mode and certain models of BDEL’s avalanche transceivers not switching from “send” mode into “search” mode, that we made a material misrepresentation in a report to the CPSC, and that the agency staff intends to recommend that the CPSC impose civil monetary penalties of $16,135 and $9,000, respectively, for the two matters described above.
On November 20, 2023 and February 8, 2024, respectively, we submitted a comprehensive response disputing the CPSC’s findings and conclusions in the October 12, 2023 and December 18, 2023 letters, including the amount of any potential penalties. The CPSC ultimately disagreed with our position and the agency staff has restated their recommendation for the monetary penalties which the Company intends to strongly contest and vigorously defend against.
John C. Walbrecht, the former President of BDEL and the Company, received a letter from the CPSC dated June 25, 2024 alleging that in his personal capacity he knowingly violated the Consumer Product Safety Act by failing to timely report that the beacons in question contained a defect. The staff of the CPSC recommended a $5,000 fine against Mr. Walbrecht personally. Pursuant to the Company’s by-laws, the Company has agreed to indemnify Mr. Walbrecht and advance his legal fees, and he has provided an undertaking to the Company that the Company will be entitled to recover those expenses if it is ultimately determined that he was not entitled to indemnification.
Based on currently available information, the Company believes an unfavorable outcome is probable, however, we cannot reasonably estimate on what terms or if this matter will be resolved. During the six months ended June 30, 2024, the Company recorded a liability of $2,500 representing the low end of the range of our estimated exposure. The Company does not have a better estimate of the loss; therefore the low-end of the range was recorded as an accrued liability during the first quarter of 2024 and a corresponding expense is included in legal costs and regulatory matter expenses in the consolidated statements of comprehensive income (loss).
We believe it is reasonably possible that a change in our ability to estimate the amount of loss could occur in the near term and that the change in the estimate could be material. In addition, as this matter is ongoing, the Company is currently unable to predict its duration, resources required or outcome, or the impact it may have on the Company’s liquidity, financial condition, results of operations and/or cash flows. Any penalties imposed by the CPSC or other regulators, could be costly to us and could damage our business and reputation as well as have a material adverse effect on the Company’s liquidity, stock price, consolidated financial position, results of operations and/or cash flows. During the three months ended June 30, 2024 and 2023, the Company incurred legal expenses of $180 and $107, respectively, and during the six months ended June 30, 2024 and 2023, the Company incurred legal expenses of $385 and $163, respectively, in efforts to resolve this matter. These legal expenses are included in legal costs and regulatory matter expenses in the consolidated statements of comprehensive income (loss).
Clarus Corporation against HAP Trading, LLC and Harsh A. Padia
On September 23, 2022, the Company filed a lawsuit in the United States District Court for the Southern District of New York against HAP Trading, LLC and Harsh A. Padia (“HAP Trading”), seeking disgorgement of profits from transactions in the Company’s common stock and related derivative securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended.
Clarus Corporation v. Caption Management, LLC, et al.
On March 8, 2024, the Company filed a lawsuit in the United States District Court for the Southern District of New York against Caption Management, LLC, Caption Partners II LP, Caption GP, LLC, William Cooper and Jason Strasser (“Caption Management”), seeking disgorgement of profits from transactions in the Company’s stock and related derivative securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended.
During the three months ended June 30, 2024, and 2023, the Company incurred legal expenses of $219 and $248, respectively, and during the six months ended June 30, 2024 and 2023, the Company incurred legal expenses of $516 and $320, respectively, in the efforts to bring the cases against HAP Trading and Caption Management to trial. These legal expenses are included in legal costs and regulatory matter expenses in the consolidated statements of comprehensive income (loss).
NOTE 17. INCOME TAXES
The Company’s U.S. federal statutory tax rate of 21% and its foreign operations have statutory tax rates of approximately 23% in Austria, 28% in New Zealand, and 30% in Australia.
The difference between the Company’s estimated effective tax rate benefit of 24.4% for the three months ended June 30, 2024, and the U.S. federal statutory tax rate of 21% was primarily due to the impact of stock compensation and research and experimentation expenditures and credits in the second quarter of 2024.
The difference between the Company’s estimated effective tax rate benefit of 18.0% for the six months ended June 30, 2024, and the U.S. federal statutory tax rate of 21% was primarily due to the impact of stock compensation and research and experimentation expenditures and credits in the first half of 2024.
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 deferred tax assets as of June 30, 2024 and December 31, 2023, because the ultimate realization of those assets did not meet the more-likely-than-not criteria. Part of the Company’s
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deferred tax assets consist of net operating loss carryforwards (“NOLs”) 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.
In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and net operating loss and credit carryforwards expire. The estimates and judgments associated with the Company’s valuation allowance on deferred tax assets are considered critical due to the amount of deferred tax assets recorded by the Company on its consolidated balance sheet and the judgment required in determining the Company’s future taxable income. The need for a valuation allowance is reassessed at each interim reporting period.
As of June 30, 2024, we had approximately $17,000 in U.S. net deferred tax assets. These deferred tax assets are estimated to reverse into NOL carryforwards that can be used to offset taxable income and reduce income taxes payable in future periods. At this time, we consider it more likely than not that we will have sufficient taxable income in future periods that will allow us to realize these deferred tax assets. However, unless we can generate sufficient taxable income from our future operations, a valuation allowance to reduce our U.S. deferred tax assets may be required, which would materially increase our expenses in the period the allowance is recognized and have a material adverse effect on our results of operations and consolidated financial position.
As of December 31, 2023, the Company had 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.
NOLs available to offset taxable income, subject to compliance with Section 382 of the Code, begin to expire based upon the following schedule:
Net Operating Loss Carryforward Expiration Dates
Expiration Dates December 31,
Net Operating Loss Amount
2024
2027 and beyond
7,699
NOTE 18. SEGMENT INFORMATION
We operate our business structure within two segments. These segments are defined based on the internal financial reporting used by our chief operating decision maker to allocate resources and assess performance. Certain significant selling and general and administrative expenses are not allocated to the segments including non-cash stock compensation expense. Each segment is described below:
As noted above, the Company has a wide variety of technical outdoor equipment and lifestyle products that are sold to a variety of customers in multiple end markets. While there are multiple products sold, the terms and nature of revenue recognition policy is similar for all segments.
Financial information for our segments, as well as revenue by geography, which the Company believes provides a meaningful depiction how the nature, timing and uncertainty of revenue are affected by economic factors, is as follows:
Sales to external customers:
18,885
21,869
42,514
43,434
17,302
18,198
40,695
49,408
Total Outdoor
36,187
40,067
83,209
92,842
4,049
4,056
8,704
6,688
16,248
13,814
33,882
28,685
Total Adventure
20,297
17,870
42,586
35,373
Total sales to external customers
Segment operating (loss) income:
(2,395)
(1,224)
(4,106)
266
(502)
(2,037)
Total segment operating (loss) income
(3,662)
(1,726)
(6,143)
166
Corporate costs
(4,475)
(3,692)
(8,768)
(8,030)
There were no intercompany sales between the Outdoor and Adventure segments for the periods presented.
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Total assets by segment, as of June 30, 2024 and December 31, 2023, were as follows:
156,113
163,083
173,518
185,023
39,769
9,948
358,054
Capital expenditures, depreciation and amortization by segment is as follows.
Capital expenditures:
787
1,507
778
776
659
1,067
1,068
Total capital expenditures
1,563
1,114
2,574
1,846
Depreciation:
661
740
1,413
384
340
737
606
Total depreciation
1,045
1,080
2,019
Amortization:
571
514
2,166
2,458
4,329
4,968
Total amortization
2,451
2,714
5,482
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MANAGEMENT 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
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.
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.
See “Recent Accounting Pronouncements” in Note 1 to our condensed consolidated financial statements.
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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.
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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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.
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, 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.
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.
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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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 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 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 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 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 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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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 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 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, 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 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.
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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Liquidity and Capital Resources
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.
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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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:
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.
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.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Executive Chairman and Chief Financial Officer, its principal executive officer and principal financial officer, respectively, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15I and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of June 30, 2024, pursuant to Exchange Act Rule 13a-15. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the appropriate management on a basis that permits timely decisions regarding disclosure. Based upon that evaluation, the Company’s Executive Chairman and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of June 30, 2024, were effective.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the six months ended June 30, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal disputes and other legal proceedings that arise from time to time in the ordinary course of business. Based on currently available information, and except as disclosed herein, the Company does not believe that the existence of any of the legal disputes the Company or its subsidiaries is currently involved in will have a material adverse effect upon the Company’s consolidated financial position, results of operations or cash flows. It is possible that, as additional information becomes available, the impact on the Company of an adverse determination could have a different effect. See also Part II, Item 1A. “Risk Factors.”.
Litigation
The Company is involved in various lawsuits arising from time to time that the Company considers ordinary routine litigation incidental to its business. Amounts accrued for litigation matters represent the anticipated costs (damages and/or settlement amounts) in connection with pending litigation and claims and related anticipated legal fees and other expenses or costs for defending such actions, which legal fees and expenses or costs are expensed as incurred. The costs are accrued when it is both probable that a liability has been incurred and the amount can be reasonably estimated. The accruals are based upon the Company’s assessment, after consultation with counsel (if deemed appropriate), of probable loss based on the facts and circumstances of each case, the legal issues involved, the nature of the claim made, the nature of the damages sought and any relevant information about the plaintiffs and other significant factors that vary by case. When it is not possible to estimate a specific expected cost to be incurred, the Company evaluates the range of probable loss and records the minimum end of the range. Based on currently available information, the Company does not believe that it is reasonably possible that the disposition of any of the legal disputes the Company or its subsidiaries is currently involved in will have a material adverse effect upon the Company’s consolidated financial position, results of operations or cash flows, except for the U.S. Consumer Product Safety Commission (“CPSC”) matter discussed below. There is a reasonable possibility of loss from contingencies in excess of the amounts accrued by the Company in the accompanying condensed consolidated balance sheets; however, the actual amounts of such possible losses cannot currently be reasonably estimated by the Company at this time. It is possible that, as additional information becomes available, the impact on the Company could have a different effect.
Product Liability
Except as disclosed herein, there are no pending product liability claims and lawsuits of the Company, which the Company believes in the aggregate, will have a material adverse effect on the Company’s business, brand reputation, liquidity, stock price, consolidated financial position, results of operations and/or cash flows. See also Part II, Item 1A. “Risk Factors.”.
In January 2021, Black Diamond Equipment, Ltd. (“BDEL”) wrote to the U.S. Consumer Product Safety Commission (“CPSC”) outlining its new cradle solution for certain models of its avalanche beacon transceivers to prevent such transceivers from switching unexpectedly out of “send” mode. The proposed new cradle solution was designed to improve transceiver safety by locking the transceiver into “send” mode prior to use so that it would not switch unexpectedly out of “send” mode. BDEL also requested approval for the CPSC Fast-Track Program for a voluntary product recall to implement this cradle solution. The CPSC approved the recall and entered into a Corrective Action Plan agreement with BDEL in March 2021. BDEL received a letter from the CPSC, dated October 28, 2021, stating that the CPSC is investigating
whether BDEL has timely complied with the reporting requirements of Section 15(b) of the Consumer Protection Safety Act and related regulations regarding certain models of avalanche transceivers switching unexpectedly out of “send” mode.
By letters dated October 12, 2023 and December 18, 2023, BDEL was notified by the CPSC that the agency staff had concluded we failed to timely meet our statutory reporting obligations under the Consumer Product Safety Act with respect to certain models of BDEL’s avalanche transceivers switching unexpectedly out of “send” mode and certain models of BDEL’s avalanche transceivers not switching from “send” mode into “search” mode, that we made a material misrepresentation in a report to the CPSC, and that the agency staff intends to recommend that the CPSC impose civil monetary penalties of $16,135,000 and $9,000,000, respectively, for the two matters described above.
John C. Walbrecht, the former President of BDEL and the Company, received a letter from the CPSC dated June 25, 2024 alleging that in his personal capacity he knowingly violated the Consumer Product Safety Act by failing to timely report that the beacons in question contained a defect. The staff of the CPSC recommended a $5,000,000 fine against Mr. Walbrecht personally. Pursuant to the Company’s by-laws, the Company has agreed to indemnify Mr. Walbrecht and advance his legal fees, and he has provided an undertaking to the Company that the Company will be entitled to recover those expenses if it is ultimately determined that he was not entitled to indemnification.
Based on currently available information, the Company believes an unfavorable outcome is probable, however, we cannot be sure on what terms or if this matter will be resolved. During the six months ended June 30, 2024, the Company recorded a liability of $2,500,000 representing the low end of the range of our estimated exposure. The Company does not have a better estimate of the loss; therefore the low-end of the range was recorded as an accrued liability during the first quarter of 2024 and a corresponding expense is included in legal costs and regulatory matter expenses in the consolidated statements of comprehensive income (loss).
ITEM 1A. RISK FACTORS
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
ITEM 5. OTHER INFORMATION
During the three month period ended June 30, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K, nor did the Company during such fiscal quarter adopt or terminate any “Rule 10b5-1 trading arrangement”.
ITEM 6. EXHIBITS
Exhibit
Description
31.1
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
101.INS
XBRL Instance Document *
101.SCH
XBRL Taxonomy Extension Schema Document *
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB
XBRL Taxonomy Extension Label Linkbase Document *
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document *
104
Cover Page Interactive Data File – formatted as Inline XBRL and contained in Exhibit 101
*
Filed herewith
**
Furnished herewith
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 1, 2024
By:
/s/ Warren B. Kanders
Name:
Warren B. Kanders
Title:
Executive Chairman
(Principal Executive Officer)
/s/ Michael J. Yates
Michael J. Yates
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)