Q3 2021 Clarus Corp Earnings Call
Good afternoon, everyone and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the third quarter ended September 32021.
Joining us today are Clarus Corporation's President John Wall brick.
Executive Vice President and CFO, Eric Cooney.
And the company's external director of Investor Relations Codecs law.
Following their remarks, we'll open the call for your questions.
Before we go further I would like to turn the call over to Mr. Islam as he reads the company's safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 995 that provides important cautions regarding forward looking statements.
Please go ahead.
Yeah.
Thank you.
Please note that during this call. The company May use words, such as appears 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 <unk>.
Private Securities Litigation Reform Act.
995.
Forward looking statements are made based on the companys expectations and beliefs concerning future events impacting the company and therefore involve a number of risks and uncertainties.
The company cautions you 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 actual cause the actual results of operations or financial condition of the company to differ materially from those expressed or implied by the forward looking statements used in this call include but are not limited to the overall level of consumer demand on the company's products.
General economic conditions, and other factors affecting consumer confidence preferences and behavior disruption and volatility in the global currency capital and credit markets.
<unk> financial strength of the company's customers company's ability to implement its business strategy the ability of the company to execute and integrate acquisitions the impact that global climate change trends may have on the company and its suppliers and customers the company's exposure to product liability or product warranty claims and other loss contingencies disruptions and other impacts.
The company's business as a result of the COVID-19, global pandemic government actions and restrictive measures implemented in response, the 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 COVID-19 changes in governmental.
Regulation legislation or public opinion relating to the manufacturing sales bullets and ammunition by our Sierra segment, and the position and use of firearms and ammunition by our customers the ability the company's ability to protect patents trademarks and other intellectual property rights any breaches or interruptions in our information systems the ability.
<unk> 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 for tax preparer upgrade our information technology systems, where information security systems or problems with our <unk>.
Transitioning to upgrade or replacement systems.
The impact of adverse publicity about the company or its brands.
<unk> without limitation through social media or in connection with branding damaging events in our public perception fluctuations in the price availability and quality of raw materials and contracted products as well as foreign currency fluctuations.
Going disruptions and delays in the shipping and transportation of our products due to port congestion container ship availability and or other logistical challenges.
<unk> ability to utilize its net operating loss carryforwards changes in tax laws and liabilities tariffs legal regulatory political and economic risks.
The companys ability to maintain our quarterly dividend any material differences in the actual financial results of the <unk> acquisition as compared with expectations, including the impact of the acquisition on the company's future earnings per share.
More information on potential risks that could affect the Companys financial results is included from time to time in the company's public reports filed with the SEC, including the company's annual report on Form 10-K Form 10-Q, and current reports on form 8-K, all forward looking statements in this call are based upon <unk>.
<unk> available to the company as of the date of this call and speak only as of the date hereof. The company assumes no obligation to update any forward looking statements to reflect events or circumstances. After the date of this call I would like to remind everyone. This call will be available for replay through November 20, starting at eight PM Eastern Tonight, a webcast replay will also be.
Available via the link provided in today's press release as well as on the company's website at Clarus Corp, Dot com any redistribution retransmission or rebroadcast of this call in any way without the express written consent of Clarus Corp is strictly prohibited now I'd like to turn the call over to <unk>, President John Wall Bret John.
Thank you Cody and good afternoon, everyone.
Thank you all for joining us today on our third quarter earnings call. We had another exceptional quarter driven by our portfolio of well diversified superfan brands and supported by continued favorable trends in the outdoor industry.
Like to thank our team of colleagues across our brands for their continued hard work and execution towards such a strong and profitable growth.
For the third quarter, we reported sales of approximately $109 million up 69% versus last year and an adjusted EBITDA more than doubled to $19 2 million.
Both metrics set new records and I am happy to share that this was our fifth consecutive quarter reporting revenue and adjusted EBITDA growth.
Despite having to face the toughest supply chain environment in our history.
We increased gross margins by 240 basis points year over year, and by 520 basis points to 38, 8% on an adjusted basis.
This performance was driven by our continued focus on first connecting directly with our community of users through a digital first approach.
Second a high degree of operational excellence.
And finally, our devotion to maintaining and easy to do business with mentality with our partners and of course, our superfan brands, which continue to be highly sought after by our outdoor enthusiasts around the world.
To provide a bit more color on how we are managing the difficult supply chain environment.
We continue to seek to leverage the recognition of our Super fan brands to strengthen our relationships with both retail and our vendor partners.
As an example, and black Diamond, we continue to chase product availability in our seven core product categories.
This allowed us to isolate the needs of our supply chain on the components that move the needle, which enabled us to maximize product availability.
Additionally, we believe that our size relative to some of the larger outdoor players has allowed us to be more nimble when it comes to our supply chain, we have been able to quickly pivot and adapt in a dynamic environment, leading us to these continued strong results.
As this quarter shows.
Suppliers prioritize the formation of long lasting and productive partnerships with Super fan brands like ours.
That our best poised for sustainable long term performance.
We continue to see that in good times and bad times Super fan brands remained resilient.
Our brands are gaining market share across all of our leading categories and bookings remained strong across our portfolio as we head into 2022.
I'd like now to provide a summary of the key drivers that supported our outstanding Q3 results.
And then I'll pass it over to Aaron to cover our third quarter financial results and discuss our increased full year outlook in more detail.
At Black Diamond favorable consumer trends in the outdoor market led to a 20% year over year increase in sales for the quarter.
By category SKU was up 20%.
Mountain was up 18% and <unk> was up 14%.
Hard goods growth of 19% was driven by double digit and triple digit growth across the product portfolio, including particular skis lighting climbing shoes harnesses T pulse and gloves.
Our footwear and apparel businesses, which are included in the business categories above.
We're up 33% and 28% respectively.
Again apparel is our fastest growing category at BD and our apparel as equipment positioned has resonated well with our consumers.
We continue to innovate and accelerate our apparel offerings.
Whether that's through next generation material innovation.
Our advancements in technical aspects of our products.
In fact across the BD brand, we expect to introduce over 150, new products for 2022.
Ranging from award winning ski and snow safety equipment to climb hard goods apparel footwear packs, new headlamps and trekking poles.
Due to the fact that we continue to prioritize inventory allocations to our wholesale partners first and focus on our sacred seven core products heightened demand meant that our direct to consumer business was impacted by the lack of inventory.
So the low double digit growth we experienced in this business during the quarter was lower than we normally expect.
As we activate our digital first strategy.
We continue to refine our activation efforts focusing nonperformance marketing now.
Balancing and approach of search top of funnel paid social and email re targeting <unk>.
These efforts are expected to further position our e-commerce business for accelerated growth once we can fulfill the increasing demand.
We will also continue to accelerate our community centric model through the opening of our black Diamond flagship retail stores in Jackson, Wyoming, Burlington, Vermont, and Bend, Oregon over the coming months.
Moving to our Crs segment, which include both the Sierra and <unk> brands.
We generated sales of $30 3 million up 100% from Q3 2020.
This performance reflects broad based sales growth across both bullets and ammunition.
Strong domestic tailwind in the third quarter continued including growing participation in outdoor hunting and indoor shooting ranges.
For Sierra and bonds, we continue to focus on increasing daily output to meet demand.
Since acquiring bonds a year ago.
We've already doubled bullet production to a run rate of 110 million bullets.
Similarly, Sierra has increased its production by 89% since we acquired the brand in 2017 to a run rate of 350 million bullets a year.
While it has been difficult.
To keep up with the surging demand we've been prioritizing increases are now, but we are now starting to work on commercializing two years of R&D innovation that we have put on pause.
We are pleased to announce that as part of our innovate and accelerate strategy.
We have some new ammo classifications and other innovations coming down the pipeline for late 2022 and 2023.
This strategy continues to be critical as we seek to further reinforce our position in the marketplace as the leading provider of specialty premium bullets and ammunition.
Moving to Rhino rack.
We reported sales of $19 6 million in the quarter.
This is a strong result on its own but when you consider that Australia, the brand's dominant market wasn't severe COVID-19 lockdown the entire quarter.
It's a tremendous achievement and a compelling case for the resilience of superfan brands.
At Rhino rack, we have identified a clear and defined strategy for growth.
Most importantly, we intend to expand <unk> product penetration in North America.
We can seek to capitalize on our existing network of key distributors and dealers and leverage those relationships to grow the brand domestically.
We also believe we have plenty of opportunities for continued expansion in the home markets.
Today, we believe <unk> has 100.
Number one market share in Australia, and New Zealand, but less than 1% market share in the United States.
That leaves significant white space for us to solidify <unk> as the leading overland brand in North America.
To date, we have had many positive conversations with potential new retail partners in North America.
This has traditionally been a space served by the auto auto aftermarket.
But given the growth of the category. It's a perfect extension for many of our outdoor retailers to include as part of their Assortments.
So it's great to be in this position as our retailers start chasing demand and we believe we have a strong brand to offer.
In the immediate term. However, we are focusing on prioritizing product availability to ensure on time deliveries and better fulfillment amongst our current accounts given supply chain headwinds.
Looking forward. We are also assessing ways to expand the brand's direct to consumer penetration through a digital first initiative and build even stronger OEM partnerships that provide for cross selling opportunities.
Overall, we believe that <unk> is proving to be a great entry point to the growing overland in vehicle accessory category.
Overland in is an incredible popular space right now and an increasing number of people want to go outdoors getting from blacktop do Brown roads.
As the premier provider of highly engineered automotive roof racks trace mounting systems luggage buckets boxes.
Carriers and accessories, we expect <unk> to capitalize on the trends in this category, whether organically or through new product launches.
Through strategic M&A.
Speaking of new product launches at Sema last week.
We launched the new recon pioneer deck.
Versatile truck bed system similar to our over the cap pioneer rack.
Much much anticipation.
Before passing it to Aaron I'd like to state that we believe our third quarter.
<unk>, our superfan brand mission within Claris.
Our well diversified portfolio of brands are resonating well with the core consumer and growing market share on the back of strong innovation and the booming trend in algorithm.
This performance is driving margin expansion and high free cash flow conversion, which we are using to reinvest in our growth and to opportunistically acquire other companies with the same superfan defining characteristics as our current portfolio.
We see this mission continuing to pay dividends for our customers our partners and our shareholders and feel fortunate that the market timing is right.
I'll now turn the call over to Eric Cooney, Our Chief Financial Officer, Our Executive Vice President who will provide additional commentary on the performance in the third quarter and details on our increased 2021 outlook. Thank you Darren Thank you John and good afternoon, everyone.
Sales in the third quarter increased 69% to a record $109 million compared to $64 5 million in the same year ago quarter. The increase includes revenue contribution of approximately $13 $2 million from Barnes acquisition completed on October 2nd of 2020, and $19 6 million.
From Ryan Iraq and acquisition, we completed on July one 2021 third quarter sales increased 18% on a pro forma basis compared to the same year ago quarter.
Q3, 2021 results for Black Diamond experienced growth across all geographies sales channels and categories. As we continue to see more and more more and more of our consumer spending more time outdoors North America experienced the most pronounced growth benefiting from the recovery in the outdoor space and as John mentioned, taking market share by.
Being able to fulfill inventory across our core categories. This was especially true in our national accounts.
With that business growing to at least 82%.
The $2 billion.
For 13% year over year increase in the Sierra brand was due to strong domestic demand for our industrial OEM products and continued strength in ammo I'm sure as ammunition business was up nearly 140% in the quarter, while our while our goal is to achieve 10% of shares sells through ammunition, we were nearly at Ford.
Percent.
Barnes contributed $13 $2 million of sales in the third quarter with domestic black box ammo and OEM, leading pro forma sales growth of 80%.
We continue to work on.
Increasing output levels through new and improved processes in order to in order to fill more orders and meet surging customer demand Barnes continues to be a great success story of our disciplined acquisition strategy as we've reported four straight quarters of revenue growth with expanding gross margins and the increasingly an increasing.
EBITDA levels.
<unk> contributed $19 $6 million of sales in Q3, which as John mentioned is a great outcome given the COVID-19 lockdown imposed throughout its home market of Australia, we experienced strong year over year growth in New Zealand as well in the U S, albeit from a small base.
Consolidated gross margin in the third quarter improved 240 basis points to 36% compared to 33, 6% in the year ago period, and up 520 basis points to 38, 8% with stripping out the inventory step up associated with the <unk> acquisition.
<unk> in channel and product mix drove the bulk of this margin performance.
In Q3, we experienced.
And the inclusion of Ryan, Iraq, which contributed $7 $7 million and bonds, which contributed $1 7 million.
The remaining increase was attributable to the company's investments in brand related activities and sells direct to consumer marketing and warehousing and logistics all focused on supporting strategic initiatives around expanding distribution elevating brand awareness and being easy to do but being easier to.
To do business with the increase was partially offset by a decrease in stock compensation of $1 1 million. During the three months ended September 32021 compared to the prior year.
Net income in the third quarter increased to $4 5 million or <unk> 13 per diluted share compared to a net income of $1 2 million or <unk> <unk> per <unk>.
Diluted share in the year ago quarter. The improvement is primarily attributable attributed to a profitable sales growth along with a $6 million net benefit associated with the partial release of our valuation allowance on our net operating loss deferred tax assets.
Adjusted net income in the third quarter increased to $18 1 million or <unk> 50 per diluted share compared to an adjusted net income of $99 2 million or <unk> 30 per diluted share in the year ago quarter adjust.
Adjusted EBITDA in the third quarter increased to a record $19 $2 million or an adjusted EBITDA margin of 17, 7% compared to $9 $1 million or a margin of 14, 1% in the third quarter of 2020.
Now I'll shift to our asset efficiency and liquidity.
Inventory levels were at $118 7 million up 44% from where we ended last quarter and roughly 74% higher than where we ended 2020.
However, please keep in mind that this number includes $25 $9 million of incremental rental inventory.
Inventory that isn't reflected in the comparative figures, we continue to work with our supply chain partners to dynamically manage our inventory levels to seek to meet demand. We are using our strength our strong balance sheet to increase product availability to keep pace with the elevated demand for context where care.
Being an additional $5 million of inventory at Black Diamond and an effort to offset the current elongated process of moving in inventory from our supply chain partners to our warehouses. Although it has resulted in higher levels of working capital. We are confident that our strategy of increasing the size of our pipeline will better position us to satisfy demand.
With higher levels of fulfillment and in a timelier manner. Our past two quarters results proved this strategy is working within.
Within CRM bonds, we are purposely increased our baseline inventory levels by an additional $8 million focusing on raw material and component availability.
This has enabled us to protect our supply chains and corresponding production of core items, while opportunistically hedging the cost of rising commodities such benefits are partially reflected in our reported growth in our reported gross margins.
At September 32021, cash and cash equivalents were $10 2 million compared.
Compared to $17 8 million as of December 31, 2020 during the third quarter, we had free cash flow defined as net cash utilized or provided by operating activities less capex of a utilization of $19 8 million compared to a.
Generation of $5 million in the year ago quarter.
The decline primarily reflects the proactive inventory increases to mitigate supply chain constraints as well as transaction expenses related to rental rack, we expect free cash flow to rebound in the fourth quarter as product moves out and the cadence of our inventory purchases normalize.
As September two at September 32021, total debt was $190 million, putting us in a net debt position of $179 $8 million net debt leverage was two seven times on a trailing 12 month adjusted EBITDA basis.
This provides a nice lead into some important topics, we want to reiterate related to our capital structure.
Overall, the strength of our brand portfolio continues to be supported by a strategic and disciplined allocation policy. We are extremely pleased with the direction of our businesses, which inherently provides us with additional growth.
Opportunities for us to evaluate.
Both organically and through M&A.
As we have historically shown we will continue to seek to utilize our balance sheet is the first and foremost way to grow.
We are a business with increasing levels of EBITDA and strong reoccurring free cash flow.
We also have great relationships with our banking partners, who are extremely supportive of our strategic initiatives.
We are owners and operators that are committed to being shareholder friendly and responsible in how we run the business, including the amount of leverage we take on.
We believe there is an optimal balance here with the leverage to range between two to three times.
At times, we might extend this a bit higher.
However, it will always be with a clear path of how we bring it back down to within this range over the course of a 12 month period.
There might come a time, where we will look to access the capital markets for additional liquidity, but it will be with the expectation of activating what I've. Just described in terms of pursuing our strategic initiatives being shareholder friendly and running a disciplined business with a responsible amount of leverage.
To this point on October 29, we closed a public offering for $2 75 million shares of common stock at $27 per share plus.
400000 of additional shares in the over a lot and the over allotment option.
Providing gross proceeds of $85 $4 million.
We intend to use a portion of the net proceeds to fully repay approximately $65 million in the aggregate principal amount under our revolving closed under our revolving loan facility. This will provide remaining pro forma net debt leverage of less than two times. The remaining portion of the net proceeds will be used for general <unk>.
Corporate purposes, including capital expenditures and potential acquisitions.
Given our strong performance during the quarter and as communicated in our pre announcement. We are pleased to have announced that we are raising our full year financial outlook. We are now expecting consolidated 2021 cells to grow 62% to $362 5 million compared to 2020. This.
Is an increase from the guidance that we shared last quarter of $350 million by.
By segment, we now expect 2021, black Diamond sales to increase 27% to $217 $5 million.
This is an increase from the guidance, we shared last quarter of $215 million, we expect see ourselves, which includes barnes to increased 99% to $105 million compared to 2020.
This is up from the $95 million, we guided to last quarter.
We continue to expect from Ryan Iraq to contribute approximately $40 million to the second half of 2021.
On a consolidated basis, we now expect adjusted EBITDA in 2021 to grow approximately 155% to $57 million compared to 2020 last quarter, we had guided to $52 million. We continue to expect <unk> to contribute approximately $6 million to our consol.
Sedated adjusted EBITDA outlook.
In addition, we continue to expect capital expenditures of approximately $8 $5 million.
We are proud of the strong operational and five.
We are proud of the strong operational and financial Foundation, we've built as an organization over the years and once again, we've shown that our innovate and accelerate playbook and our commitment to superfan brands is the key to our success and allows us to spot to for us to prosper, regardless of the external market environment opera.
Later, we are now ready for Q&A.
Thank you Sir.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
That is star then the number one on your telephone keypad.
We'll pause for just a moment to compile the Q&A roster.
We have our first question coming from the line of Jim Duffy with Stifel. Your line is open.
Yes, Hi, guys, Hi, John Hi, Aaron Hey, Jim how are you doing.
Well, thank you great execution during the quarter congratulations on the successful offering.
I wanted to start with a question on the Sierra in barns business. Thanks for the detail on the contribution of ammo looking at the annual guide the fourth quarter implies a sequential decline from the third quarter or are there some timing dynamics, we should be considering that would explain that.
Yes, Jim This is Aaron hope all is well one of the things that.
We are working through.
Not only have we increased our capacity and being able to to continue to.
To continue to demonstrate strong progression in that regard and meeting the demand that Emily we need to be able to provide some preventative maintenance as we worked through.
The quarter end to provide ourselves with a little bit of <unk>.
Breathing room or headroom here as we head into the new year.
As we know.
Historically as well.
Q4 has been a little bit.
A little bit softer as people are just kind of recalibrated inventory levels with our OEM partners, but then also as we come out of the hunting season, and we've done a really good job of also fulfilling orders as we headed into the holiday season.
But more importantly, once again, so that we can provide ourselves with a little bit of breathing room as it relates to this.
So maintenance Capex, sorry, some maintenance on our on our machinery and also on the platform. So that we can be ready to go again as we head into 2022 and so that's what's being reflected here is just a little bit of.
A little bit of a breather just to give ourselves a little bit of cushion to take care of some of these maintenance topics.
Understood.
As it relates to the ammo contribution $12 million in the quarter.
Ed.
A good figure to think about for future quarters would you expect to continue to build on that ammo contribution.
Yes, I think that.
The 40% to 50% range based off of the way that the order book is developing and where were on how we're.
Positioned with continued to be a solid.
Mileposts or our guard rail for us as we think about the next.
The coming months et cetera, and remember that Jim is a balance between a higher percentage of that in the bonds brand and a lesser percentage of that in the Sierra brand in the marketplace today, and obviously as Aaron said chasing up with components.
Into 2022 and beyond.
Mentioned in previous calls it hasnt slowed down at all and we don't anticipate it based on order demand in the book going well deep into 2022 and beyond.
Great. Thanks, and then one more if I may and I'll, let someone else jump in <unk> I'm just curious the key milestones we should be watching for as you look to realize your full potential in the U S.
Yes, I think I think part of it is as we go through the integration of this the first form.
Driver of this is building up inventories coming out of 2021, and the Covid Lockdown in Australia and building up our inventories to ensure on time delivery and strong fulfillment with our current retailers. That's number one and we will see growth associated with just <unk>.
Supply against the increased demand.
I think second of that will be new accounts as we expand with this growing overland outdoors and blacktop Brown roads initiatives.
And outdoor retailers participating in this growing over lending segment and then the third milestone as we start to accelerate through the innovate and accelerate strategy and you start to see even more.
<unk>, winning new products.
We're still to see this last week winning.
Shell award for this distillate.
So we will follow the similar playbook that we've always done deliver on time have good fulfillment be easy to do business with and then start to accelerate that through innovation.
Thank you guys.
We have our next question coming from the line of Laurent <unk> with Exane BNP Paribas. Please proceed.
Good afternoon, and thank you for taking my question Hi, guys. How are you congrats on that.
Great quarter I have to ask.
We've been hearing from other outdoor companies talking about the shift in revenues between <unk> and <unk> just due to the supply chain constraints I just love to hear if that was the case for you. If you had any if youre anticipating <unk> revenue potentially falling into <unk>.
Due to the supply chain issues out there.
I mean, obviously as we chase this and it's a very dynamic market today.
We would be wrong to say that we didn't have revenue in Q3 that trailed into Q4, just in order to meet supply our fulfillment and the same will be true.
Obviously, we take all that into account when we give you quarterly and annual guidance.
Our goal is to try and accelerate through our scrap venous and wins that Aaron and his team have been able to do from a supply chain perspective to accelerate to that and capture as much as we can.
I think because of our are scrapping. This we've seen an increase in our demand as we become more.
More valuable are gaining more market share.
Through this transition and the growth of outdoor has them and so yes. Some has moved it will always keep shifting out until the day supply can meet all the demand in the market and at this moment, we don't see that happening in 2022, though as we said.
And of note here, we have a strong order book for 2022.
Okay, Great and then on the BD front with the direct to consumer initiative <unk> got a great website, but as you mentioned John.
Alluding to new store openings of three store openings on your website they showcase those store openings.
I'd love to hear how many stores you think you can get to on the BD side, how much do you think direct to consumer revenues could represent for BD overtime.
Yes, I mean it.
Always say, yes, and yes philosophy.
So obviously today's market of what we call consumer centric message.
What we really refer to it.
Black Diamond is community centric, that's really what's driven the initiatives behind the flagship retail store, especially in towns like Burlington Jackson, Wyoming Park City Bend, Oregon.
Big Sky, Montana Boulder, Colorado.
When we finished 2021 will be at approximately eight stores in the U S and one in Europe, we've already got plans for expansion in 2022.
Long term I think we probably there are.
20% to 25 Super fan communities out there that align with our brand and our activities.
And long term, we think that while continuing to grow all aspects of our business in all channels and all regions. We think that there is probably.
30% opportunity indirect to consumer.
And that is greatly driven by this new consumer outdoors Amit.
What deflation COVID-19 and more and more online engagement with the brand.
That's great to hear and then the last question.
Erinn I would love to ask you about Reiner rack in the 10-Q release Tonight shows that wine rack had a.
EBIT loss of $3 million, which I believe includes the $8 million in transaction call and say tell me if I'm wrong here, but I think the unadjusted basis generated $5 million of EBIT on $19 million in sales, which I think implies a 20% EBIT margin.
Just trying to reconcile that versus the June 1st press release, which implied the EBITDA margin in the high teens any color on how we think about EBIT or EBITDA margins for the full year would be very helpful. Thank you.
Yeah, you bet, so similar and consistent with the guidance that we provided we knew that there was going to be some integration noise associated with that business and so our guide was $40 million of top line plus another $6 million or so of adjusted EBITDA, which puts it.
Right in line with the with the mid teens, if you will and that's still consistent with how it's performing naturally we did see a little bit of.
Softness just from an efficiency standpoint, because of the lockdown that we had in Australia.
But nothing has come off where nothing has deviated from our long term targets as far as getting back to where the business was in terms of those high teens low 20% adjusted EBITDA margins. It's just that what you see in the 10-Q also reflects inventory step ups of it was $3 1 million in the quarter. It is.
B another million to $1 million one in Q4, obviously, some pretty decent step ups in terms of amortization and depreciation so to look at it from an adjusted EBITDA perspective is really the right way to look at this business, especially when you factor in all of the different inputs associated with the transaction and purchase price.
Accounting adjustments and so.
Once again.
For the quarter it represented.
Call it mid teens adjusted EBITDA levels, but it is really a function of just being in a lockdown situation and not being able to really leverage the flow through of that business that currently exists and just is masked because of the noise with with the lockdown and associated impacts.
Very helpful. Thank you very much sir.
We have our next question coming from the line of Andrew <unk> with Jefferies. Your line is open.
Hi, Anna.
Hey, How's it going thanks for taking my question.
First one can you expand a little bit on your point about being nimble I property navigate the current supply chain landscape do you have.
Be greater flexibility in sourcing versus some of the larger players multiplicity along the chain with any perspective here would be really helpful.
Yes. This is Aaron.
I think this really highlights.
One of the many elements of the secret sauce that we have within the <unk> portfolio in terms of one we're very.
Consumer centric in terms of we're very focused on being easy to do business with but we also employ that same report that same approach with our vendor partners and we purposely use the word partnership because that's exactly what we've been able to develop over the years with each of our vendor partners in terms of how do we truly grow this.
Business together, but also because of our capital structure the way that these <unk>.
Brands operate on a standalone basis.
These decisions one can be quickly made or the.
<unk> can be quickly assess but then decisions can be made quick in a quick manner that enables us to be able to unlock the different opportunities within the various supply chain to be able to move.
Inventory at a faster rate, but also to increase capacity at a faster rate to be able to offset the elongated supply chain challenges with port congestion container availability et cetera et cetera.
Instead, some of our competition may actually be.
May not experienced the same flexibility because it has to go through a centralized or synergize view in terms of a function that overseas supply chain for the entire portfolio for much.
A much larger organization, but also because of the way that we we manage these businesses. We also have a very flexible.
Balance sheet that we can we can leverage versus needing to go through multiple layers of approval just to get some additional open to buy if you will for the different for the different brands and for the different supply chains that.
For us becomes a pretty easy discussion in a pretty easy.
Pretty easy and nimble move that we can that we can activate.
I think the other side is when you have superfan brands that every corner continue.
Provide improve sustainable long term growth, it's really easy per year as Aaron said your vendor partners to allocate time resources space capacity to those brands that continue to meet or exceed their expectation and we'll be with them long term through this process now.
Now Covid tomorrow economic challenges in the supply challenges or whatever they may be and look at it and say Wow. These guys are really long term with us and therefore, we should lean into them as they continue to lean into us.
Great. Thanks.
And then it's really good to hear bookings remained strong across the segment and maybe put that into historical context, where you'd be at this point in the year or maybe put another way how does go forward visibility compare as you think about land.
Yes, I mean, obviously every with each of these brands.
Start off each quarter is a new record setting quarter for us.
With each of these brands.
Each quarter is a record setting bookings as we look out we continue and I think one of the secret sauce successes.
<unk> comment there is our ability to continue to innovate despite the.
Crazy last 18 months.
Or be ready with even more innovation when things start to stabilize <unk> and Barnes.
I think our engagement with our retail partners similarly to that of our vendor partners has given us a strong insight and rarely strong bookings through 2022.
We're now in the midst of fall 'twenty two bookings.
And already starting pre lining for spring 'twenty three so we feel really good we will obviously stay very close to our retailers and continue to revise our plans.
And find ways to meet the increasing demand at each of the brand levels.
We exit 2021 and.
Kick off 2022.
Great. Thanks.
Thank you we have our next question coming from the line of Matt Koranda with Roth Capital. Your line is open.
And Matt Hey, guys. Thanks.
Gone.
Ah runs well.
Just wanted to start mbd.
You guys mentioned I think John you mentioned, the 150, new product introductions in 2022, maybe could you give some context on how that compares to 2020 in 2019 in terms of new product intros that sounded relatively high and then how much of a growth tailwind does that provide in 'twenty. Two and then just any more commentary you can provide.
And sort of the product mix, we should expect in 'twenty, two if it's going to be relatively different than prior years in terms of apparel or footwear or whatnot that would be helpful.
Yes, so upon initiating the innovate and accelerate strategy on the brand starting fall 2017.
If we go back to exiting outdoor retailer 2020 that year. We had finished the year a little over 350, new products to 150 this year.
Not as strong as we've done in the past, but we have been a lot more strategic and the alignment of where those are specifically chasing down what we call Ms acreage, Kevin categories, and those categories, where we continue to see growing dominant market share and are chasing to ensure that we are staying at the front of that.
And aligning with the continued opportunity despite COVID-19 and supply chain challenges required by our retail partners.
As we look into the rest of the year, obviously, we continue to see both through our direct to consumer initiatives at retail and on E. Com, we continue to see really strong growth for apparel and footwear.
Those being entry categories, along with gloves and tax that consumers don't.
Intimidated by.
Walt camps Camelot. Some example, and we continue to see a stronger growth in those categories.
The airline with the more inclusive nature of this exploding outdoor as them.
Long term I think our mix hopefully will be less equipment, a little more and soft goods.
But at the same time, we continue to innovate and accelerate in equipment just as rapidly as we do in the soft goods side of the business.
Okay makes sense and then on Ryan Iraq.
Two part question I guess any anticipated near term impact or hangover I guess.
From the Australia locked down, but we've just come out of either supply chain or just sort of hesitant.
Hesitancy on wholesale stocking orders related and then it was good to get an update on the progress.
Progress and you guys moving into the North American retail channels and it sounds like a great opportunity, but I'm wondering if maybe you could put a finer point on when we should expect to see more meaningful North American distribution for Iran. Iraq I mean is it.
It sounds like Youre signaling it is not in the very immediate term just given you want to keep up with existing customers, but is it more like a mid to late 2022 event, where we should see some some north American distribution build or just given kind of the near term to medium term supply chain tightness, it's probably more likely a 2023 of that.
Yes so.
I think where we believe that in the integration and what took place with a lockdown in Australia up until literally weeks ago.
Yes, there was obviously some impact we took that into account as we planned for.
For the remaining of Q4 in our guidance, we are accelerating that now in the marketplace.
As we chase both what we anticipate similar to North America, Australia. It comes out of the Lockdown will see an acceleration, especially as they now leading into spring and summer and the overland in market in the U S market. Our real goal here is ensuring that we catch up on supply for what is an increasing demand.
Supply in the North American market and set ourselves up with our current key retail partners to deliver on time have good fulfillment be easy to do business with and accelerate the business plan opportunities and find the ceiling with them to your final point.
We have started discussions with.
Expanded retail opportunities in North America.
At this point, we're probably planning for the second half of 2022.
Again, depending upon how much availability of product, we can supply and how much that gets allocated first and foremost to our current retail partners.
At the worst case, we will be able to plan, even better for that as of 2023, but we anticipate to start to accelerate that growth in 2022.
Okay, very clear I'll leave it there guys. Thank you.
We have our next question coming from the line of Joe <unk> with Raymond James Your line is open.
Thanks, Hey, guys good afternoon.
Kind of following up on that line of questioning.
The lack of inventory.
It's not new and it doesn't sound like.
It's going to get better anytime soon it's probably going to be with us for some time does.
Does that pushed out the timing of the expectation of your DTC penetration.
No.
Theres twofold that takes place and that's obviously our goal is yes and yes.
I think.
Part of this is the acceleration through the marketing aspect and really making that what we call. The digital first strategy comes alive in all of our communications and that just to be clear, that's just as important and relevant to our wholesale key partners as it is.
Through our DTC efforts, we believe that one plus one equals three or five or 7% in that case.
We continue to have very aggressive goals, both in our direct to consumer and our retail expansion alongside what we're doing in wholesale we continue to be as Aaron said very scrappy on changing our our availability as much as we can and keeping up with that given our our order book and our success.
So far in DTC, we continue those growth rates continuing.
And our goal is to really do as best we can to deliver on time and be successful in all channels and all regions as we can.
Short term mentioned an allocation exercise long term, it's really just about the pipe the size of the pipeline and how soon and aggressive we are at about chasing that and focusing on those key items that continue to not yet find a feeling in the marketplace.
Okay. So it sounds like you do expect DTC to see something different improvement in terms of the overall percentage of sales in 2002.
Yes, yes.
Okay. Okay, and then just a follow up on that your margins have taken a very nice step function up this year, we're looking at.
Call it 16% EBITDA margin year to date, and I think you've been running at around 10% over the last three years.
Payable is that I know, there's a lot of puts and takes on 22. For example, we just recently only took pricing but.
As you look ahead to 2002, what's the opportunity to take those margins even higher next year.
Yes. This is there is an opportunity to continue to push this.
And the nice thing about it is that each of the growth drivers that we have within the portfolio come along with higher levels of gross margin, but also then a corresponding higher levels of flow through to the adjusted EBITDA level.
When we think back of what's taken place in the step functions that have that have occurred over the last nine months or so it's a function of really gaining scale within the black Diamond business really focused on our on our product mix or channel mix geography mix etcetera, but we've also been implementing a series of different improvement initiatives.
Over the years that are starting to take hold.
Are really around the commercial excellence side of things in terms of how we design and commercialized product, but also how we continue to work with our vendor partners, albeit the different.
The rising input costs associated with freight and everything else and I think this really highlights.
And as a testament to the team and the collaboration and the planning that we've been able to implement to really drive. These types of improvements then when you think about the growth that we've had with with <unk> and then the addition of Barnes nationally, we know that those come with higher levels of EBITDA levels as well, but even with that we have driven.
Sure.
Significant improvements within those two businesses from a from an overall profitability standpoint. In addition to the to the massive growth that we've seen and that comes back to a very disciplined approach to the go to market and operational side of things.
We expect that we would be able to do the exact same thing within <unk> and any other acquisition that we bring on and this really highlights the power of the <unk> operating model. When we think about how we approach the business the way that we manage the business the disciplined the way that we organize ourselves et cetera and.
And it's very in line or focus on how do we focus on the key growth drivers how do we connect with the end consumer really take that feedback to make sure that we're always providing best in class product, but also how do we implement best.
Best in class processes to drive higher levels of gross margin and associated EBITDA levels.
What you will note is that I haven't mentioned anything about cost cutting this is something that we expect that we'll be able to continue to scale ischemia appropriately, but we want to continue to grow these brands and we know that that does require investments and so we'll continue to take.
The opportunity to reinvest in these businesses. So that we can continue to activate the innovate and accelerate playbook and as a result of that we feel very confident that not only will we be able to grow the business, but we'll also be able to drive higher levels of EBITDA.
Throughout the throughout the portfolio.
I think the summation that Aaron just said be very competitive and then continuing to look for ways to have continuous improvements that add up and this idea of 1% a day every day over a long period of time really built and has an increasing value to everything we do.
That is very helpful I think.
Sorry.
I would just going to say.
One last comment because I think this is important to note I think it really iterate is also how we manage these businesses on a standalone basis.
We have dedicated teams across the different brands that are responsible for their plans, but also responsible for finding ways to improve upon each of these businesses and that provides us with a lot of confidence in terms of our ability to grow in scale.
Scale individual businesses, but also to be able to add on to it via M&A, but.