(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; 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; and the Company's ability to maintain a quarterly
dividend. 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®, 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 brand, 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.
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").
20
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
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 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 COVID-19
pandemic, its Board of Directors had temporarily replaced its Quarterly Cash
Dividend with a stock dividend and on July 31, 2020, the Company announced that
the stock dividend will continue for the quarter ending September 30, 2020. Each
record holder of shares of the Company's common stock as of the close of
business on August 10, 2020 (the "Record Date") will be entitled to receive
0.0021 of a share of the Company's common stock for each share of common stock
held on the Record Date. The Company will distribute the stock dividend on
August 21, 2020, the distribution date. No fractional shares will be issued, and
stockholders will receive cash for such fractional interests based on the
closing market price of the Company's common stock on the Record Date. The
quarterly stock dividend will have a value of $0.025 per share, based on the
closing market price on July 30, 2020. The dividend reflects an aggregate
distribution of approximately 63 shares with a market value of approximately
$747.
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.
The decline in retail demand within our Black Diamond segment over the second
half of March 2020 and during the three months ended June 30, 2020, negatively
impacted our sales and profitability for the first and second quarters of 2020.
We also expect an adverse 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 Item 1A. Risk Factors of our Quarterly Report for the quarterly
period ended March 31, 2020. We generally expect the second quarter of 2020 to
be the most significantly impacted with sequential improvement throughout the
remainder of the fiscal year.
We are mitigating 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, suspending share
repurchases and cash dividends, postponing non-essential capital expenditures,
reducing operating costs, modulating production in line with demand, initiating
workforce reductions and furloughs, and substantially reducing discretionary
spending. We will continue to adjust mitigation measures as needed related to
health and safety. Those measures have and might continue to include temporarily
suspending manufacturing or retail operations, modifying workspaces, continuing
social distancing policies, implementing new personal protective equipment or
health screening policies at our facilities, or such other industry best
practices needed to continue maintain a healthy and safe environment for our
employees amidst the pandemic.
These countermeasures are expected to partially mitigate the impacts of COVID-19
on our full year 2020 financial results. 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.
Sustained adverse impacts to the Company, certain suppliers, dealers or
customers may also affect the Company's future cash flows, liquidity, and
valuation of certain assets and therefore may increase the likelihood of an
impairment charge, write-off, or reserve associated with such assets, including
goodwill, indefinite and finite-lived intangible assets, property and equipment,
inventories, accounts receivable, tax assets, and other assets.
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
21
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
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 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,
2019.
Accounting Pronouncements Issued Not Yet Adopted
See "Accounting Pronouncements Not Yet Adopted" in Note 1 to the notes to the
unaudited condensed consolidated financial statements.
?
22
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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, 2020 Compared to Condensed
Consolidated Three Months Ended June 30, 2019
The following presents a discussion of condensed consolidated operations for the
three months ended June 30, 2020, compared with the condensed consolidated three
months ended June 30, 2019.
Three Months Ended
June 30, 2020 June 30, 2019
Sales
Domestic sales $ 20,259 $ 28,422
International sales 9,755 18,572
Total sales 30,014 46,994
Cost of goods sold 19,378 31,002
Gross profit 10,636 15,992
Operating expenses
Selling, general and administrative 14,493 17,192
Transaction costs 180 41
Total operating expenses 14,673 17,233
Operating loss (4,037) (1,241)
Other income (expense)
Interest expense, net (257) (315)
Other, net 406 183
Total other income (expense), net 149 (132)
Loss before income tax (3,888) (1,373)
Income tax benefit (1,145) (679)
Net loss $ (2,743) $ (694)
Sales
Consolidated sales decreased $16,980, or 36.1%, to $30,014 during the three
months ended June 30, 2020, compared to consolidated sales of $46,994 during the
three months ended June 30, 2019. We believe lower consumer demand related to
the COVID-19 pandemic drove a decrease in the quantity of new and existing
climb, mountain, and ski products sold during the period. We also experienced a
decrease in sales of $139 due to the strengthening of the U.S. dollar against
foreign currencies during the three months ended June 30, 2020 compared to the
prior period. These decreases were partially offset by an increase in the
quantity of new and existing sport products sold of $663.
Consolidated domestic sales decreased $8,163, or 28.7%, to $20,259 during the
three months ended June 30, 2020, compared to consolidated domestic sales of
$28,422 during the three months ended June 30, 2019. We believe the decrease in
domestic sales was attributable to lower consumer demand related to the COVID-19
pandemic, which drove a decrease in the quantity of new and existing climb,
mountain, and ski products sold during the period. This decrease was partially
offset by an increase in the quantity of new and existing sport products sold of
$2,246.
Consolidated international sales decreased $8,817, or 47.5%, to $9,755 during
the three months ended June 30, 2020, compared to consolidated international
sales of $18,572 during the three months ended June 30, 2019. We believe the
decrease in international sales was attributable to lower consumer demand
related to the COVID-19 pandemic, which drove a decrease in the quantity of new
and existing climb, mountain, and ski products sold during the period. We also
experienced a decrease in the quantity of new and existing
23
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
sport products sold of $1,583 and a decrease in sales of $139 due to the
strengthening of the U.S. dollar against foreign currencies during the three
months ended June 30, 2020 compared to the prior period.
Cost of Goods Sold
Consolidated cost of goods sold decreased $11,624, or 37.5%, to $19,378 during
the three months ended June 30, 2020, compared to consolidated cost of goods
sold of $31,002 during the three months ended June 30, 2019. The decrease in
cost of goods sold was primarily attributable to a decrease in the number of
units sold due to lower consumer demand related to the COVID-19 pandemic.
Gross Profit
Consolidated gross profit decreased $5,356 or 33.5%, to $10,636 during the three
months ended June 30, 2020, compared to consolidated gross profit of $15,992
during the three months ended June 30, 2019. Consolidated gross margin was 35.4%
during the three months ended June 30, 2020, compared to a consolidated gross
margin of 34.0% during the three months ended June 30, 2019. Consolidated gross
margin during the three months ended June 30, 2020, increased compared to the
prior year due to a favorable product mix in higher margin products all the
while experiencing unfavorable impacts on our supply chain and logistic
activities due to the COVID-19 pandemic, along with negative impacts from
foreign currency and tariffs.
Selling, General and Administrative
Consolidated selling, general, and administrative expenses decreased $2,699, or
15.7%, to $14,493 during the three months ended June 30, 2020, compared to
consolidated selling, general and administrative expenses of $17,192 during the
three months ended June 30, 2019. The decrease in selling, general and
administrative expenses reflect the cost-saving initiatives implemented in
response to the COVID-19 pandemic, primarily related to reductions within sales,
marketing, and logistics.
Transaction Costs
Consolidated transaction expense increased to $180 during the three months ended
June 30, 2020, compared to consolidated transaction costs of $41 during the
three months ended June 30, 2019, which consisted of expenses related to the
Company's efforts to acquire S.K.B. Corporation.
Interest Expense, net
Consolidated interest expense, net during the three months ended June 30, 2020
remained consistent with consolidated interest expense, net, during the three
months ended June 30, 2019.
Other, net
Consolidated other, net, income increased $223, or 121.9%, to $406 during the
three months ended June 30, 2020, compared to consolidated other, net income of
$183 during the three months ended June 30, 2019. The increase in other, net,
was primarily attributable to an increase in remeasurement gains recognized on
the Company's foreign denominated accounts receivable and accounts payable. This
decrease was partially offset by losses on mark-to-market adjustments on
non-hedged foreign currency contracts.
Income Taxes
Consolidated income tax benefit increased $466, or 68.6%, to $1,145 during the
three months ended June 30, 2020, compared to a consolidated income tax benefit
of $679 during the same period in 2019. Our effective income tax rate was 29.4%
for the three months ended June 30, 2020, and was higher compared to the
statutory tax rates due to permanent book to tax differences primarily related
to incentive stock options. For the three months ended June 30, 2019, our
effective income tax rate was 49.5% and was higher compared to the statutory tax
rates due to a stock compensation windfall.
24
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Results of Operations
Condensed Consolidated Six Months Ended June 30, 2020 Compared to Condensed
Consolidated Six Months Ended June 30, 2019
The following presents a discussion of condensed consolidated operations for the
six months ended June 30, 2020, compared with the condensed consolidated six
months ended June 30, 2019.
Six Months Ended
June 30, 2020 June 30, 2019
Sales
Domestic sales $ 48,807 $ 59,011
International sales 34,762 49,201
Total sales 83,569 108,212
Cost of goods sold 54,421 70,164
Gross profit 29,148 38,048
Operating expenses
Selling, general and administrative 31,863 34,772
Restructuring charge - 13
Transaction costs 430 87
Total operating expenses 32,293 34,872
Operating (loss) income (3,145) 3,176
Other expense
Interest expense, net (568) (625)
Other, net (125) 160
Total other expense, net (693) (465)
(Loss) income before income tax (3,838) 2,711
Income tax benefit (1,131) (382)
Net (loss) income $ (2,707) $ 3,093
Sales
Consolidated sales decreased $24,643, or 22.8%, to $83,569 during the six months
ended June 30, 2020, compared to consolidated sales of $108,212 during the six
months ended June 30, 2019. We believe lower consumer demand related to the
COVID-19 pandemic drove a decrease in the quantity of new and existing climb,
mountain, and ski products sold during the period. We also experienced a
decrease in the quantity of new and existing sport products sold of $394 and a
decrease in sales of $577 due to the strengthening of the U.S. dollar against
foreign currencies during the six months ended June 30, 2020 compared to the
prior period.
Consolidated domestic sales decreased $10,204, or 17.3%, to $48,807 during the
six months ended June 30, 2020, compared to consolidated domestic sales of
$59,011 during the six months ended June 30, 2019. We believe the decrease in
domestic sales was attributable to lower consumer demand related to the COVID-19
pandemic, which drove a decrease in the quantity of new and existing climb,
mountain, and ski products sold during the period. This decrease was partially
offset by an increase in the quantity of new and existing sport products sold of
$2,049.
Consolidated international sales decreased $14,439, or 29.3%, to $34,762 during
the six months ended June 30, 2020, compared to consolidated international sales
of $49,201 during the six months ended June 30, 2019. We believe the decrease in
international sales was attributable to lower consumer demand related to the
COVID-19 pandemic, which drove a decrease in the quantity of new and existing
climb, mountain, and ski products sold during the period. We also experienced a
decrease in the quantity of new and existing sport products sold of $2,443 and a
decrease in sales of $577 due to the strengthening of the U.S. dollar against
foreign currencies during
25
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
the six months ended June 30, 2020 compared to the prior period.
Cost of Goods Sold
Consolidated cost of goods sold decreased $15,743, or 22.4%, to $54,421 during
the six months ended June 30, 2020, compared to consolidated cost of goods sold
of $70,164 during the six months ended June 30, 2019. The decrease in cost of
goods sold was primarily attributable to a decrease in the number of units sold
due to lower consumer demand related to the COVID-19 pandemic.
Gross Profit
Consolidated gross profit decreased $8,900 or 23.4%, to $29,148 during the six
months ended June 30, 2020, compared to consolidated gross profit of $38,048
during the six months ended June 30, 2019. Consolidated gross margin was 34.9%
during the six months ended June 30, 2020, compared to a consolidated gross
margin of 35.2% during the six months ended June 30, 2019. Consolidated gross
margin during the six months ended June 30, 2020, decreased compared to the
prior year due to unfavorable impacts on our supply chain and logistic
activities due to the COVID-19 pandemic, along with negative impacts from
foreign currency and tariffs.
Selling, General and Administrative
Consolidated selling, general, and administrative expenses decreased $2,909, or
8.4%, to $31,863 during the six months ended June 30, 2020, compared to
consolidated selling, general and administrative expenses of $34,772 during the
six months ended June 30, 2019. The decrease in selling, general and
administrative expenses reflect the cost-saving initiatives implemented in
response to the COVID-19 pandemic, primarily related to reductions within sales,
marketing, and logistics.
Restructuring Charges
Consolidated restructuring expense decreased to $0 during the six months ended
June 30, 2020, compared to consolidated restructuring expense of $13 during the
six months ended June 30, 2019. Restructuring expenses incurred during the six
months ended June 30, 2019, related to costs associated with the formal closure
and liquidation of the Company's Black Diamond Equipment manufacturing
operations in Zhuhai, China.
Transaction Costs
Consolidated transaction expense increased to $430 during the six months ended
June 30, 2020, compared to consolidated transaction costs of $87 during the six
months ended June 30, 2019, which consisted of expenses related to the Company's
efforts to acquire S.K.B. Corporation.
Interest Expense, net
Consolidated interest expense, net during the six months ended June 30, 2020
remained consistent with consolidated interest expense, net, during the six
months ended June 30, 2019.
Other, net
Consolidated other, net, decreased $285, or 178.1%, to expense of $125 during
the six months ended June 30, 2020, compared to consolidated other, net income
of $160 during the six months ended June 30, 2019. The decrease in other, net,
was primarily attributable to an increase in remeasurement losses recognized on
the Company's foreign denominated accounts receivable and accounts payable. This
decrease was partially offset by gains on mark-to-market adjustments on
non-hedged foreign currency contracts.
Income Taxes
Consolidated income tax benefit increased $749, or 196.1%, to $1,131 during the
six months ended June 30, 2020, compared to a consolidated income tax benefit of
$382 during the same period in 2019. Our effective income tax rate was 29.5% for
the six months ended June 30, 2020, and was higher compared to the statutory tax
rates due to permanent book to tax differences primarily related to incentive
stock options. For the six months ended June 30, 2019, our effective income tax
rate was 14.1% and is lower compared to the statutory tax rates due to a
discrete benefit associated with a release of a tax reserve. Factors that could
cause our annual effective tax rate to differ materially from our quarterly
effective tax rates include changes in the geographic mix of taxable income and
discrete events that may occur.
26
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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, 2020 Compared to Condensed
Consolidated Six Months Ended June 30, 2019
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 $50,400 available to borrow at June 30, 2020. 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, we borrowed $20,000
under the term loan portion of the Credit Agreement to increase our overall
liquidity. The proceeds borrowed on the term loan were used to pay down amounts
outstanding on our revolving loan commitment. 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.
At June 30, 2020, we had total cash of $21,538, compared to a cash balance of
$1,703 at December 31, 2019, which was substantially controlled by the Company's
U.S. entities. At June 30, 2020, the Company had $5,793 of the $21,538 in cash
held by foreign entities, of which $1,281 is considered permanently reinvested.
The following presents a discussion of cash flows for the condensed consolidated
six months ended June 30, 2020 compared with the condensed consolidated six
months ended June 30, 2019.
Six Months Ended
June 30, 2020 June 30, 2019
Net cash provided by operating activities $ 14,442 $ 9,672
Net cash used in investing activities (2,018) (1,993)
Net cash provided by (used in) financing activities 7,397 (8,195)
Effect of foreign exchange rates on cash 14 (1)
Change in cash 19,835 (517)
Cash, beginning of period 1,703 2,486
Cash, end of period $ 21,538 $ 1,969
Net Cash From Operating Activities
Consolidated net cash provided by operating activities was $14,442 during the
six months ended June 30, 2020, compared to $9,672 during the six months ended
June 30, 2019. The increase in net cash provided by operating activities during
2020 is primarily due to an increase in net operating assets, or non-cash
working capital, of $12,254, partially offset by a decrease in net income and
change in deferred taxes during the six months ended June 30, 2020, compared to
the same period in 2019.
27
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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 $12,421 was generated during the six months ended
June 30, 2020 compared to $7,678 generated during the same period in 2019. 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, 2020 June 30, 2019Net cash provided by operating activities $ 14,442 $ 9,672
Purchase of property and equipment
(2,021) (1,994)
Free cash flow $ 12,421 $ 7,678
Net Cash From Investing Activities
Consolidated net cash used in investing activities was $2,018 during the six
months ended June 30, 2020, compared to $1,993 during the six months ended
June 30, 2019. The increase in cash used during the six months ended June 30,
2020 is due to an increase in purchases of property and equipment, compared to
the same period in 2019.
Net Cash From Financing Activities
Consolidated net cash provided by financing activities was $7,397 during the six
months ended June 30, 2020, compared to consolidated net cash used of $8,195
during the six months ended June 30, 2019. The increase in cash provided during
the six months ended June 30, 2020 compared to the same period in 2019 was
primarily due to the proceeds of $20,000 borrowed under the term loan partially
offset by net repayments to the revolving line of credit.
Net Operating Loss
As of December 31, 2019, the Company had net operating loss and research and
experimentation credit for U.S. federal income tax purposes of $131,621 and
$4,250, respectively. The Company believes its U.S. Federal NOL will offset some
of its future U.S. Federal income taxes. 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 NOL. $131,621 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, 2019, the Company's gross deferred tax asset was $43,945. The
Company has recorded a valuation allowance of $28,632, resulting in a net
deferred tax asset of $15,313, before deferred tax liabilities of $8,633. The
Company has provided a valuation allowance against a portion of the net deferred
tax assets as of June 30, 2020 and December 31, 2019, 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 together with certain of its direct and indirect
domestic subsidiaries (the "Borrowers") and the other loan parties party thereto
entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as
administrative agent, and the lenders from time to time party thereto, 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.
The Borrowers may elect to have the revolving and term loans under the Credit
Agreement bear interest at an alternate base rate or a 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
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CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
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.
As of June 30, 2020, the Company had drawn approximately $9,566 of the $60,000
revolving loan commitment, and $20,000 of the $40,000 term loan commitment, that
was available for borrowing under the Credit Agreement. As of June 30, 2020, the
interest rate for such loans was 1.7500% and 1.6875%, respectively. 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.
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 also
includes other 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, 2020.
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 
