BDE - Black Diamond

[Foreign Tuffett]

Any idea why we are sitting at 6.70 here? I had fair value pegged around 6 and can't see any reason to change that by much unless there is value creating m & a in the works to make use of the Stack of NOL's. Anyone hear anything?

 

Excitement after a new President for Black Diamond Equipment. Most recently he led Mountain Hardware, a division of Columbia Sportswear.

 

I agree with you about the valuation. I sold my position due to the run up.

[KJP]

Two interesting developments recently:

 

1.  On June 1, Kanders signed a new employment agreement (there was no press release accompanying the agreement).  In addition to a base salary and potential cash bonus, he gets the following potential stock comp:

 

"Under the terms of the Employment Agreement, the Company issued and granted to Mr. Kanders a restricted stock award of 500,000 restricted shares of common stock pursuant to the Company’s 2015 Stock Incentive Plan, of which (i) 250,000 will vest if, on or before June 1, 2022, the closing share price of the Company’s common stock shall have equaled or exceeded $10.00 per share for twenty consecutive trading days; and (ii) 250,000 will vest if, on or before June 1, 2022, the closing share price of the Company’s common stock shall have equaled or exceeded $12.00 per share for twenty consecutive trading days."  [https://www.sec.gov/Archives/edgar/data/913277/000114420417031288/v468436_8k.htm]

 

2.  BDE filed shelf registration statements for potential debt and equity offerings.

 

 

 

[KJP]

Two interesting developments recently:

 

1.  On June 1, Kanders signed a new employment agreement (there was no press release accompanying the agreement).  In addition to a base salary and potential cash bonus, he gets the following potential stock comp:

 

"Under the terms of the Employment Agreement, the Company issued and granted to Mr. Kanders a restricted stock award of 500,000 restricted shares of common stock pursuant to the Company’s 2015 Stock Incentive Plan, of which (i) 250,000 will vest if, on or before June 1, 2022, the closing share price of the Company’s common stock shall have equaled or exceeded $10.00 per share for twenty consecutive trading days; and (ii) 250,000 will vest if, on or before June 1, 2022, the closing share price of the Company’s common stock shall have equaled or exceeded $12.00 per share for twenty consecutive trading days."  [https://www.sec.gov/Archives/edgar/data/913277/000114420417031288/v468436_8k.htm]

 

2.  BDE filed shelf registration statements for potential debt and equity offerings.

 

As foreshadowed by the events discussed above, the company -- now renamed Clarus -- just paid $79 million to buy Sierra Bullets, a bullet manufacturer.  [source:  http://www.nasdaq.com/press-release/clarus-acquires-sierra-bullets-for-79-million-20170822-00496]

 

Here's a quote from the release regarding the multiples paid:

"For the unaudited 12 months ended June 30, 2017, Sierra's total revenues were approximately $32 million with EBITDA of approximately $12.5 million, representing a purchase price multiple of approximately 6.3x EBITDA. Sierra has a strong cash flow profile, generating free cash flow conversion of approximately 95% with limited ongoing capex requirements."

 

As discussed earlier in this thread, BDE (now Clarus) has long had ~$75 million in excess cash on its balance sheet and short-dated NOLs that its existing business could not use.  So, given Clarus'  the NOL shield and Sierra's low-capex requirements, the bulk of that $12.5 million in EBITDA should convert to FCF over the next few years. 

 

Clarus expanded its credit line in connection with the purchase, so it's unclear how much of the purchase price is being funded with cash on hand versus additional debt.  But in any event, Sierra doesn't look profitable enough to use up the existing NOLs before they expire, so I think more deals are likely.

[KJP]

Q3 results are out:  https://www.claruscorp.com/press-releases/detail/138/clarus-reports-third-quarter-2017-results-and-raises

 

The Black Diamond segment continues to improve with 7% increase in sales and a 250bps increase in gross margin.

 

They also filed a 8k containing Sierra's historical financials.  It looks like that division should produce at least $10-$12 million annually in FCF, so long as the last few years don't represent a cyclical peak for bullet demand. 

 

The company still has $170 million of relatively short-dated NOLs, so they won't be paying any taxes for the next few years. I expect another acquisition in the next year or so to maximize the chances of using all of the NOL.

[KJP]

If people realize that the Black Diamond brand is now owned by a company that also makes bullets, this type of thing could be a problem:  https://www.washingtonpost.com/news/morning-mix/wp/2018/03/02/gun-boycott-rei-mountain-equipment-co-op-stop-selling-major-outdoor-brand-due-to-its-weapons-sales-nra-ties/?utm_term=.672899cd0819