(in thousands, except per share amounts)
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; disruption and volatility in the
global currency, capital and credit markets; the financial strength of the
Company's customers; the Company's ability to implement its business strategy;
the ability of the Company to execute and integrate acquisitions; changes in
governmental regulation, legislation or public opinion relating to the
manufacture and sale of bullets and ammunition by our Sierra segment, and the
possession and use of firearms and ammunition by our customers; the Company's
exposure to product liability or product warranty claims and other loss
contingencies; disruptions and other impacts to the Company's business, as a
result of 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; 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, including without limitation, through social media or in connection
with brand damaging events and/or public perception; fluctuations in the price,
availability and quality of raw materials and contracted products as well as
foreign currency fluctuations; 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; and any material differences in the actual financial results of the
Rhino-Rack acquisition as compared with expectations, including the impact of
the acquisition 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, a company focused on the outdoor
and consumer industries, is seeking opportunities to acquire and grow businesses
that can generate attractive shareholder returns. The Company has net operating
tax loss carryforwards which it is seeking to redeploy to maximize shareholder
value. Clarus' primary business is as a leading designer, developer,
manufacturer and distributor of outdoor equipment and lifestyle products focused
on the climb, ski, mountain, sport and skincare markets. The Company's products
are principally sold under the Black Diamond®, Sierra®, Barnes®, PIEPS® and
SKINourishment® brand names through outdoor specialty and online retailers,
distributors and original equipment manufacturers throughout the U.S. and
internationally.
Through our Black Diamond, PIEPS, and SKINourishment brands, we offer a broad
range of products including: high-performance, activity-based apparel (such as
shells, insulation, midlayers, pants and logowear); rock-climbing footwear and
equipment (such as carabiners, protection devices, harnesses, belay devices,
helmets, and ice-climbing gear); technical backpacks and high-end day packs;
trekking poles; headlamps and lanterns; gloves and mittens; and skincare and
other sport-enhancing products. We also offer advanced skis, ski poles, ski
skins, and snow safety products, including avalanche airbag systems, avalanche
transceivers, shovels, and probes. Through our Sierra and Barnes brands, we
manufacture a wide range of high-performance bullets and ammunition for both
rifles and pistols that are used for precision target shooting, hunting and
military and law enforcement purposes.
23
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
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").
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 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 May 1, 2020, the Company announced that, in light of the
operational impact of the COVID-19 pandemic, its Board of Directors temporarily
replaced its Quarterly Cash Dividend with a stock dividend (the "Quarterly Stock
Dividend"). On October 19, 2020, the Company announced that its Board of
Directors approved the reinstatement of its Quarterly Cash Dividend. On July 30,
2021, the Company announced that its Board of Directors approved the payment on
August 20, 2021 of the Quarterly Cash Dividend to the record holders of shares
of the Company's common stock as of the close of business on August 9, 2021.
Impact of COVID-19
The global outbreak of COVID-19 was declared a pandemic by the World Health
Organization and a national emergency by the U.S. government in March 2020, with
governments world-wide implementing safety measures restricting travel and
requiring citizen lockdowns and self-confinements for quarantining purposes.
This has negatively affected the U.S. and global economy, disrupted global
supply chains, and resulted in significant transport restrictions and disruption
of financial markets. The impact of this pandemic has created significant
uncertainty in the global economy and has affected our business, employees,
retail and distribution partners, suppliers, and customers.
We experienced a decline in retail demand within our Black Diamond segment
beginning in the second half of March 2020 through December 2020, which
negatively impacted our sales and profitability during this period. This
continued during the six months ended June 30, 2021, although to a lesser
extent, as certain countries began to ease restrictions. We expect a continued
impact on the Company's sales and profitability in future periods. The duration
of these trends and the magnitude of such impacts cannot be precisely estimated
at this time, as they are affected by a number of factors (some of which are
outside management's control), including those presented in Part I, Item 1A.
Risk Factors of our Annual Report on Form 10-K for the year ended December 31,
2020.
Since the beginning of the pandemic, we have mitigated some of the negative
impacts to our operating results by taking significant actions to improve our
current operating results and liquidity position, including drawing on the
credit facility, temporarily suspending share repurchases, temporarily
suspending cash dividends, postponing non-essential capital expenditures,
reducing operating costs, modulating production in line with demand, and
substantially reducing discretionary spending. As the impact of the COVID-19
pandemic on the economy and our operations evolves, we will continue to assess
the impact on the Company and respond accordingly.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act
("CARES Act") was signed into law. The CARES Act established a program with
provisions to allow U.S. companies to defer the employer's portion of social
security taxes between March 27, 2020 and December 31, 2020 and pay such taxes
in two installments in 2021 and 2022. As permitted by the CARES Act, we have
deferred payment of the employer's portion of social security payroll tax
payments.
Critical Accounting Policies and Use of Estimates
Management's discussion of our financial condition and results of operations is
based on the condensed consolidated financial statements, which have been
prepared in accordance with U.S. generally accepted accounting principles
("GAAP"). The preparation of the condensed consolidated financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent liabilities at the date
of the condensed consolidated financial statements. Estimates also affect the
reported amounts of revenues and expenses during the reporting periods. We
continually evaluate our estimates and assumptions including those related to
derivatives, revenue recognition, income taxes and valuation of long-lived
assets, goodwill and other intangible assets. 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.
24
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
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,
2020.
Accounting Pronouncements Issued Not Yet Adopted
See "Accounting Pronouncements Not Yet Adopted" in Note 1 of the unaudited
condensed consolidated financial statements.
?
25
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Results of Operations
Condensed Consolidated Three Months Ended June 30, 2021 Compared to Condensed
Consolidated Three Months Ended June 30, 2020
The following presents a discussion of condensed consolidated operations for the
three months ended June 30, 2021, compared with the condensed consolidated three
months ended June 30, 2020.
Three Months Ended
June 30, 2021 June 30, 2020
Sales
Domestic sales $ 51,876 $ 20,259
International sales 21,433 9,755
Total sales 73,309 30,014
Cost of goods sold 45,288 19,378
Gross profit 28,021 10,636
Operating expenses
Selling, general and administrative 20,704 14,493
Transaction costs 649 180
Total operating expenses 21,353 14,673
Operating income (loss) 6,668 (4,037)
Other (expense) income
Interest expense, net (212) (257)
Other, net (4,461) 406
Total other (expense) income, net (4,673) 149
Income (loss) before income tax 1,995 (3,888)
Income tax expense (benefit) 155 (1,145)
Net income (loss) $ 1,840 $ (2,743)
Sales
Consolidated sales increased $43,295, or 144.2%, to $73,309, during the three
months ended June 30, 2021, compared to consolidated sales of $30,014 during the
three months ended June 30, 2020. The increase in sales was attributable to the
increase in the quantity of new and existing climb, mountain, and ski products
sold during the period of $23,564. The remaining increase was driven by an
increase in the quantity of new and existing sport products sold by Sierra of
$6,936 and the inclusion of Barnes, which contributed $11,669. We experienced an
increase in sales of $1,126 due to the weakening of the U.S. dollar against
foreign currencies during the three months ended June 30, 2021, compared to the
prior period.
Consolidated domestic sales increased $31,617, or 156.1%, to $51,876 during the
three months ended June 30, 2021, compared to consolidated domestic sales of
$20,259 during the three months ended June 30, 2020. The increase in sales was
attributable to the increase in the quantity of new and existing climb,
mountain, and ski products sold during the period of $13,492. The remaining
increase was driven by the increase in the quantity of new and existing sport
products sold by Sierra of $7,124 and the inclusion of Barnes, which contributed
$11,001.
Consolidated international sales increased $11,678, or 119.7%, to $21,433 during
the three months ended June 30, 2021, compared to consolidated international
sales of $9,755 during the three months ended June 30, 2020. The increase in
sales was primarily attributable to the increase in the quantity of new and
existing climb, mountain, and ski products of $10,072 and the inclusion of
Barnes, which contributed $668. We experienced an increase in sales of $1,126
due to the weakening of the U.S. dollar against foreign currencies during the
three months ended June 30, 2021 compared to the prior period. The increase was
partially offset by a decrease in the quantity
26
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
of new and existing sport products sold by Sierra of $188.
Cost of Goods Sold
Consolidated cost of goods sold increased $25,910 or 133.7%, to $45,288 during
the three months ended June 30, 2021, compared to consolidated cost of goods
sold of $19,378 during the three months ended June 30, 2020. The increase in
cost of goods sold was primarily attributable to an increase in the number of
units sold.
Gross Profit
Consolidated gross profit increased $17,385 or 163.5%, to $28,021 during the
three months ended June 30, 2021, compared to consolidated gross profit of
$10,636 during the three months ended June 30, 2020. Consolidated gross margin
was 38.2% during the three months ended June 30, 2021, compared to a
consolidated gross margin of 35.4% during the three months ended June 30, 2020.
Consolidated gross margin during the three months ended June 30, 2021, increased
compared to the prior year due to a favorable product mix in higher margin
products and the favorable impacts related to foreign currency. Gross margin
also benefited from the inclusion of Barnes.
Selling, General and Administrative
Consolidated selling, general, and administrative expenses increased $6,211, or
42.9%, to $20,704 during the three months ended June 30, 2021, compared to
consolidated selling, general and administrative expenses of $14,493 during the
three months ended June 30, 2020. The increase in selling, general and
administrative expenses is due to the inclusion of Barnes, which contributed
$1,478, and an increase of stock compensation of $1,210 during the three months
ended June 30, 2021 compared to the prior year. The remaining increase was
attributable to the Company's investments in the brand related activities of
sales, direct-to-consumer, marketing, and warehousing and logistics, focused on
supporting its strategic initiatives around expanding distribution, elevating
brand awareness and being easier to do business with.
Transaction Costs
Consolidated transaction expense increased to $649 during the three months ended
June 30, 2021, compared to consolidated transaction costs of $180 during the
three months ended June 30, 2020, which consisted of expenses related to the
Company's various acquisition efforts.
Interest Expense, net
Consolidated interest expense, net during the three months ended June 30, 2021
remained relatively consistent with consolidated interest expense, net, during
the three months ended June 30, 2020.
Other, net
Consolidated other, net expense changed by $4,867, or 1,198.8%, to $4,461 during
the three months ended June 30, 2021, compared to consolidated other, net income
of $406 during the three months ended June 30, 2020. The decrease in other, net,
was primarily attributable to changes on mark-to-market adjustments on
non-hedged foreign currency contracts, including contracts associated with the
purchase price of Rhino Rack, and a decrease in remeasurement gains recognized
on the Company's foreign denominated accounts receivable and accounts payable.
Income Taxes
Consolidated income tax increased $1,300, or 113.5%, to an expense of $155
during the three months ended June 30, 2021, compared to income tax benefit of
$1,145 during the same period in 2020. Our effective income tax rate was an
expense of 7.8% for the three months ended June 30, 2021, and differed compared
to the statutory tax rates due to a release of a partial valuation allowance of
the deferred tax assets. For the three months ended June 30, 2020, our effective
income tax rate was a benefit of 29.4% and was higher compared to the statutory
tax rates due to permanent book to tax differences primarily related to
incentive stock options.
27
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Condensed Consolidated Six Months Ended June 30, 2021 Compared to Condensed
Consolidated Six Months Ended June 30, 2020
The following presents a discussion of condensed consolidated operations for the
six months ended June 30, 2021, compared with the condensed consolidated six
months ended June 30, 2020.
Six Months Ended
June 30, 2021 June 30, 2020
Sales
Domestic sales $ 99,449 $ 48,807
International sales 49,191 34,762
Total sales 148,640 83,569
Cost of goods sold 93,569 54,421
Gross profit 55,071 29,148
Operating expenses
Selling, general and administrative 41,589 31,863
Transaction costs 1,125 430
Total operating expenses 42,714 32,293
Operating income (loss) 12,357 (3,145)
Other expense
Interest expense, net (450) (568)
Other, net (4,601) (125)
Total other expense, net (5,051) (693)
Income (loss) before income tax 7,306 (3,838)
Income tax benefit (211) (1,131)
Net income (loss) $ 7,517 $ (2,707)
Sales
Consolidated sales increased $65,071, or 77.9%, to $148,640, during the six
months ended June 30, 2021, compared to consolidated sales of $83,569 during the
six months ended June 30, 2020. The increase in sales was attributable to the
increase in the quantity of new and existing climb, mountain, and ski products
sold during the period of $28,418. The remaining increase in sales was driven by
the increase in the quantity of new and existing sport products sold by Sierra
of $14,226 and the inclusion of Barnes, which contributed $20,154. We
experienced an increase in sales of $2,273 due to the weakening of the U.S.
dollar against foreign currencies during the six months ended June 30, 2021,
compared to the prior period.
Consolidated domestic sales increased $50,642, or 103.8%, to $99,449 during the
six months ended June 30, 2021, compared to consolidated domestic sales of
$48,807 during the six months ended June 30, 2020. The increase in sales was
attributable to the increase in the quantity of new and existing climb,
mountain, and ski products sold during the period of $16,564. The remaining
increase was driven by the increase in the quantity of new and existing sport
products sold by Sierra of $15,365 and the inclusion of Barnes, which
contributed $18,713.
Consolidated international sales increased $14,429, or 41.5%, to $49,191 during
the six months ended June 30, 2021, compared to consolidated international sales
of $34,762 during the six months ended June 30, 2020. The increase in sales was
primarily attributable to the increase in the quantity of new and existing
climb, mountain, and ski products of $11,854 and the inclusion of Barnes, which
contributed $1,441. We experienced an increase in sales of $2,273 due to the
weakening of the U.S. dollar against foreign currencies during the six months
ended June 30, 2021 compared to the prior period. The increase was partially
offset by a decrease in the quantity of new and existing sport products sold by
Sierra of $1,139.
28
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Cost of Goods Sold
Consolidated cost of goods sold increased $39,148 or 71.9%, to $93,569 during
the six months ended June 30, 2021, compared to consolidated cost of goods sold
of $54,421 during the six months ended June 30, 2020. The increase in cost of
goods sold was primarily attributable to an increase in the number of units
sold.
Gross Profit
Consolidated gross profit increased $25,923 or 88.9%, to $55,071 during the six
months ended June 30, 2021, compared to consolidated gross profit of $29,148
during the six months ended June 30, 2020. Consolidated gross margin was 37.0%
during the six months ended June 30, 2021, compared to a consolidated gross
margin of 34.9% during the six months ended June 30, 2020. Consolidated gross
margin during the six months ended June 30, 2021, increased compared to the
prior year due to a favorable product mix in higher margin products and the
favorable impacts related to foreign currency. Gross margin also benefited from
the inclusion of Barnes; however, this benefit was offset by a decrease in gross
margin of 0.2% due to the sale of Barnes inventory that was recorded at its fair
value in purchase accounting during the year ended December 31, 2020.
Selling, General and Administrative
Consolidated selling, general, and administrative expenses increased $9,726, or
30.5%, to $41,589 during the six months ended June 30, 2021, compared to
consolidated selling, general and administrative expenses of $31,863 during the
six months ended June 30, 2020. The increase in selling, general and
administrative expenses is due to the inclusion of Barnes, which contributed
$3,330, and an increase of stock compensation of $2,121 during the six months
ended June 30, 2021 compared to the prior year. The remaining increase was
attributable to the Company's investments in the brand related activities of
sales, direct-to-consumer, marketing, and warehousing and logistics, focused on
supporting its strategic initiatives around expanding distribution, elevating
brand awareness and being easier to do business with.
Transaction Costs
Consolidated transaction expense increased to $1,125 during the six months ended
June 30, 2021, compared to consolidated transaction costs of $430 during the six
months ended June 30, 2020, which consisted of expenses related to the Company's
various acquisition efforts.
Interest Expense, net
Consolidated interest expense, net during the six months ended June 30, 2021
remained relatively consistent with consolidated interest expense, net, during
the six months ended June 30, 2020.
Other, net
Consolidated other, net expense increased $4,476, or 3,580.8%, to $4,601 during
the six months ended June 30, 2021, compared to consolidated other, net expense
of $125 during the six months ended June 30, 2020. The decrease in other, net,
was primarily attributable to changes on mark-to-market adjustments on
non-hedged foreign currency contracts, including contracts associated with the
purchase price of Rhino Rack. This decrease was partially offset by a decrease
in remeasurement losses recognized on the Company's foreign denominated accounts
receivable and accounts payable.
Income Taxes
Consolidated income tax benefit decreased $920, or 81.3%, to a benefit of $211
during the six months ended June 30, 2021, compared to income tax benefit of
$1,131 during the same period in 2020. Our effective income tax rate was a
benefit of 2.9% for the six months ended June 30, 2021, and differed compared to
the statutory tax rates due to a release of a partial valuation allowance of the
deferred tax assets and a discrete charge recorded during the period. For the
six months ended June 30, 2020, our effective income tax rate was a benefit of
29.5% and was higher compared to the statutory tax rates due to permanent book
to tax differences primarily related to incentive stock options.
29
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Liquidity and Capital Resources
Condensed Consolidated Six Months Ended June 30, 2021 Compared to Condensed
Consolidated Six Months Ended June 30, 2020
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 activities associated with the expansion into new
product categories. We plan to fund these activities through a combination of
our future operating cash flows and revolving credit facility which had
approximately $49,900 available to borrow at June 30, 2021. We believe that our
liquidity requirements for at least the next 12 months will be adequately
covered by cash provided by operations and our existing revolving credit
facility. However, as the impact of the COVID-19 pandemic on the economy and our
operations evolves, we will continue to assess our liquidity needs. The COVID-19
pandemic has negatively affected the U.S. and global economies, disrupted global
supply chains, and resulted in significant travel and transport restrictions and
disruption of financial markets. An extended period of global supply chain and
economic disruption could materially affect our business, results of operations,
ability to meet debt covenants, access to sources of liquidity and financial
condition. Given the economic uncertainty as a result of the pandemic, we have
taken actions to improve our current liquidity position, including drawing on
the credit facility, suspending share repurchases and cash dividends, postponing
nonessential capital expenditures, reducing operating costs, modulating
production in line with demand, initiating workforce reductions and furloughs,
and substantially reducing discretionary spending.
Further, subsequent to the balance sheet date, the Company and certain of its
direct and indirect subsidiaries (each, a "Loan Party" and, collectively, the
"Loan Parties") entered into Amendment No. 3 ("Amendment No. 3") to that certain
Credit Agreement, dated May 3, 2019, as amended by Amendment No. 1 dated May 28,
2019 and Amendment No. 2 dated November 12, 2020, with JPMorgan Chase Bank,
N.A., as administrative agent, and the lenders from time to time party thereto
(collectively, the "Credit Agreement"). The Credit Agreement increased the
aggregate amount of the term loan facility thereunder to $125,000 and increased
the maximum amount of the revolving loan facility thereunder to $100,000. The
term loan facility was fully borrowed at the closing of Amendment No. 3 on July
1, 2021. The Company is required to repay the term loan through quarterly
payments of $1,563 each beginning with September 30, 2021, increasing to $3,125
beginning September 30, 2022, and any remaining obligations will be repaid in
full on the maturity date of the Credit Agreement of May 3, 2024. Amendment No.
3 also removed the previously agreed upon ability of the Company to issue debt
securities that may be convertible into equity interests of the Company in an
aggregate principal amount of up to $125,000 and also increased the maximum
consolidated total leverage ratio permitted under the Credit Agreement to
4.25:1.00.
At June 30, 2021, we had total cash of $6,782, compared to a cash balance of
$17,789 at December 31, 2020, which was substantially controlled by the
Company's U.S. entities. At June 30, 2021, the Company had $1,949 of the $6,782
in cash held by foreign entities, of which $399 is considered permanently
reinvested.
The following presents a discussion of cash flows for the condensed consolidated
six months ended June 30, 2021 compared with the condensed consolidated six
months ended June 30, 2020.
Six Months Ended
June 30, 2021 June 30, 2020
Net cash provided by operating activities $ 362 $ 14,442
Net cash used in investing activities (3,200) (2,018)
Net cash (used in) provided by financing activities (8,031) 7,397
Effect of foreign exchange rates on cash (138) 14
Change in cash (11,007) 19,835
Cash, beginning of year 17,789 1,703
Cash, end of period $ 6,782 $ 21,538
Net Cash From Operating Activities
Consolidated net cash provided by operating activities was $362 during the six
months ended June 30, 2021, compared to consolidated net cash provided by
operating activities of $14,442 during the six months ended June 30, 2020. The
decrease in net cash provided by operating activities during 2021 is primarily
due to an increase in net operating assets, or non-cash working capital, of
$28,428, partially offset by an increase in net income during the six months
ended June 30, 2021, compared to the same period in 2020.
30
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Free cash flow, defined as net cash provided by operating activities less
capital expenditures, of ($2,863) was used during the six months ended June 30,
2021 compared to $12,421 generated during the same period in 2020. 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 comparable GAAP financial measures is set forth below:
Six Months Ended
June 30, 2021 June 30, 2020
Net cash provided by operating activities $ 362 $ 14,442
Purchase of property and equipment (3,225) (2,021)
Free cash flow $ (2,863) $ 12,421Net Cash From Investing Activities
Consolidated net cash used in investing activities was $3,200 during the six
months ended June 30, 2021, compared to $2,018 during the six months ended June
30, 2020. The increase in cash used during the six months ended June 30, 2021 is
due to an increase in purchases of property and equipment, compared to the same
period in 2020.
Net Cash From Financing Activities
Consolidated net cash used in financing activities was $8,031 during the six
months ended June 30, 2021, compared to net cash provided of $7,397 during the
six months ended June 30, 2020. The increase in cash used during the six months
ended June 30, 2021 compared to the same period in 2020 was primarily due to the
net repayments to the revolving line of credit and repayments of the term loan.
Cash provided by financing activities during the six months ended June 30, 2020
was primarily due to the proceeds of $20,000 borrowed under the term loan offset
by net repayment to the revolving line of credit.
Net Operating Loss
As of December 31, 2020, the Company had net operating loss carryforwards
("NOLs") and research and experimentation credit for U.S. federal income tax
purposes of $120,309 and $1,889, respectively. The Company believes its U.S.
Federal NOLs will substantially offset its future U.S. Federal income taxes
until expiration. The majority of the Company's pre-tax income is currently
earned and expected to be earned in the U.S., or taxed in the U.S. as Subpart F
income and will be offset with the NOLs. $120,309 of net operating losses
available to offset taxable income does not expire until 2022 or later, subject
to compliance with Section 382 of the Internal Revenue Code of 1986, as amended.
As of December 31, 2020, the Company's gross deferred tax asset was $40,538. The
Company has recorded a valuation allowance of $22,348, resulting in a net
deferred tax asset of $18,190, before deferred tax liabilities of $8,304. The
Company has provided a valuation allowance against a portion of the net deferred
tax assets as of December 31, 2020, because the ultimate realization of those
assets does not meet the more-likely-than-not criteria. The majority 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
On May 3, 2019, the Company, Borrowers and the other loan parties party thereto
entered into the Credit Agreement for borrowings of up to $60,000 under a
revolving credit facility (including up to $5,000 for letters of credit), and
borrowings of up to $40,000 under a term loan facility that is available to be
drawn until May 3, 2020. The Credit Agreement also permits the Borrowers,
subject to certain requirements, to arrange with lenders for an aggregate of up
to $50,000 of additional revolving and/or term loan commitments (both of which
are currently uncommitted), for potential aggregate revolving and term loan
commitments under the Credit Agreement of up to $150,000. The Credit Agreement
matures on May 3, 2024.
On November 12, 2020, the Borrowers entered into Amendment No. 2 of the Credit
Agreement. Amendment No. 2 increased the maximum consolidated total leverage
ratio permitted under the Credit Agreement to 4.00:1.00 from 3.00:1.00. In
addition, Amendment No. 2 permits, among other things, the issuance by the
Company of debt securities, that may be convertible into equity interests of the
Company, in an aggregate principal amount of up to $125,000, and eliminates the
requirement that the proceeds therefrom be used to prepay any revolving loans or
term loans under the Credit Agreement.
The Borrowers may elect to have the revolving and term loans under the Credit
Agreement bear interest at an alternate base rate or a
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Eurodollar rate plus an applicable rate. The applicable rate for these
borrowings will range from 0.50% to 1.25% per annum, in the case of alternate
base rate borrowings, and 1.50% to 2.25% per annum, in the case of Eurodollar
borrowings. The applicable rate was initially 0.875% per annum, in the case of
alternate base rate borrowings, and 1.875% per annum, in the case of Eurodollar
borrowings; however, it may be adjusted from time to time based upon the level
of the Company's consolidated total leverage ratio. The Credit Agreement also
requires the Borrowers to pay a commitment fee on the unused portion of the
revolving and term loan commitments. Such commitment fee will range between
0.15% and 0.25% per annum, and is also based upon the level of the Company's
consolidated total leverage ratio.
All obligations under the Credit Agreement are secured by 100% of our domestic,
and 65% of our foreign, subsidiary equity interests, as well as accounts
receivable, inventory, intellectual property and certain other assets owned by
the Company. The Credit Agreement contains restrictions on the Company's ability
to pay dividends or make distributions or other restricted payments if certain
conditions in the Credit Agreement are not fulfilled. The Credit Agreement
includes customary affirmative and negative covenants, including financial
covenants relating to the Company's consolidated total leverage ratio and fixed
charge coverage ratio. The Company was in compliance with the debt covenants set
forth in the Credit Agreement as of June 30, 2021.
As of June 31, 2021, the Company had drawn approximately $10,112 of the $60,000
revolving loan commitment that was available for borrowing under the Credit
Agreement, and $16,000 outstanding under the term loan commitment. As of
June 30, 2021, the interest rate for each loan was 1.6250%. On April 30, 2020,
the Company borrowed $20,000 under the term loan facility and used the proceeds
to pay down amounts outstanding under the revolving portion of the Credit
Agreement. The Company is required to repay the term loan through quarterly
payments of $1,000 each beginning with September 30, 2020, and any remaining
obligations will be repaid in full on the maturity date of the Credit Agreement
of May 3, 2024.
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.
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CLARUS CORPORATION 
