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Clarus Corporation (NASDAQ:CLAR)
Q3 2021 Earnings Call
Nov 8, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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 30, 2021. Joining us today are Clarus Corporation's President, John Walbrecht; Executive Vice President and CFO, Aaron Kuehne; and the Company's External Director of Investor Relations, Cody Slach.

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. Slach, as he reads the Company's Safe Harbor Statement within the meaning of the Private Security Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements.

Cody, please go ahead.

Cody Slach -- Director of Investor Relations

Thank you. Please note that during this call, the Company 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 the Company's 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 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. The 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 of the Company's business as a result of the COVID-19 global pandemic and 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 manufacture and sale of bullets and ammunition by our Sierra segment, and the possession 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 of our information technology systems or information security systems to operate effectively, including as a result of security breaches, viruses, hackers, malware, and 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 branding, 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; ongoing disruptions and delays in the shipping and transportation of our products due to port congestion, container ship availability and/or other logistical challenges; the Company's ability to utilize its 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; 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 risks that could affect the Company's 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 information 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 22nd, starting at 8:00 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 claruscorp.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 Clarus' President, John Walbrecht. John?

John C. Walbrecht -- President

Thank you Cody, and good afternoon everyone. Thank you all for joining us today on our third quarter earnings call. We've had another exceptional quarter, driven by our portfolio of well-diversified Super Fan brands and supported by continued favorable trends in the outdoor industry. I'd like to thank our team of colleagues across our brands for their continued hard work and execution toward such a strong and profitable growth.

For the third quarter, we reported sales of approximately $109 million, up 69% versus last year and then adjusted EBITDA more than doubled to $19.2 million. Both metrics set new records and I'm happy to share that it is 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 an easy to do business with mentality with our partners and of course our super-fan 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, in 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 are best poised for sustainable long-term performance. We continue to see that in good times and bad times Super Fan brands remain 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, Ski was up 20%, Mountain was up 18%, and Climb 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-poles and gloves.

Our footwear and apparel businesses, which are included in the business categories above, we're up 33% and 20% respectively. Again, apparel is our fastest growing category at BD and our apparel as equipment positioned and resonated well with our consumers. We continue to innovate and accelerate our apparel offerings, whether that's through next generation material innovation or advancement 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 skies 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 on performance marketing, balancing an approach of search, top of funnel, paid social, and email retargeting. These efforts are expected to further position our e-commerce business for accelerated growth once we can fulfill the increase in 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 Sierra segment, which include both the Sierra and Barnes 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 tailwinds in the third quarter continued, including growing participation in outdoor hunting and indoor shooting ranges. For Sierra and Barnes we continue to focus on increasing daily output to meet demand. Since acquiring Barnes a year ago, we have already doubled bullet production to a run rate of 110 million bullets.

Similarly, Sierra has increased its bullet 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 in output. We are now starting to work on commercializing two years of R&D innovations 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 was in severe COVID locked down the entire quarter. It's a tremendous achievement and a compelling case for the resilience of Super Fan brands. At Rhino-Rack we have identified a clear and defined strategy for growth.

Most importantly, we intend to expand Rhino-Rack's product penetration in North America, where we can seek to capitalize on our existing network of key distributors and dealers and leverage those relationships to grow their brand domestically. We also believe we have plenty of opportunities for continued expansion in the home markets.

Today, we believe Rhino-Rack has 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 Rhino-Rack as the leading overland brand in North America.

To date, we've had many positive conversations with potential new retail partners in North America. This has traditionally been a space served by the 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 among 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 Rhino-Rack is proving to be a great entry point to the growing overland and vehicle accessory category.

Overland is in an incredible popular space right now and an increasing number of people want to go outdoors, getting from Black tops to Brown roads. As the premier provider of highly engineered automotive roof racks, trays, mounting systems, luggage boxes, carriers and accessories, we expect Rhino-Rack to capitalize on the trends in this category whether organically or through new product launches or through strategic M&A.

Speaking of new product launches, at SEMA last week, we launched the new RECON Pioneer deck, a versatile truck bed system similar to our over-the-cab Pioneer rack, too much anticipation. Before passing it to Aaron, I'd like to state that we believe our third quarter epitomizes our Super Fan brand mission within Clarus.

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 outdoor-ism. This performance is driving margin expansion and high free cash flow conversion, which we're using to reinvest in our growth and to opportunistically acquire other companies with the same Super Fan 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 Aaron Kuehne, 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 Aaron.

Aaron J. Kuehne -- Chief Financial Officer, Secretary and Treasurer

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, the acquisition Clarus completed on October 2nd of 2020 and $96 million from Rhino-Rack, an acquisition we completed on July 1st, 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 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 in our national accounts with that business growing at least 82%.

The $2 million or 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. Sierra's ammunition business was up nearly 140% in the quarter, while our goal was to achieve 10% of Sierra sales through ammunition, we were nearly at 40% in the quarter.

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 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 increasingly the EBITDA levels.

Rhino-Rack contributed $19.6 million of sales in Q3, which, as John mentioned, is a great outcome, given the COVID 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% was stripping out the inventory step-up associated with the Rhino-Rack acquisition. Improvements in channel and product mix drove the bulk of this margin performance. In Q3, we experienced [Technical Issues] and the inclusion of Rhino-Rack, which contributed $7.7 million, and Barnes, which contributed $1.7 million.

The remaining increase was attributable to the Company's investments in brand-related activities, in sales, direct-to-consumer, marketing and warehousing and logistics, all focus on supporting strategic initiatives around expanding distribution, elevating brand awareness and being easier 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 30th, 2021 compared to the prior-year.

Net income in the third quarter increased to $4.5 million or $0.13 per diluted share compared to a net income of $1.2 million or $0.04 per diluted share in the year ago quarter. The improvement is primarily attributed to our 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 $0.50 per diluted share, compared to an adjusted net income of $9.2 million or $0.30 per diluted share in the year ago quarter. 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 $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 Rhino-Rack 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 strong balance sheet to increase product availability to keep pace with the elevated demand.

For a context, we are carrying an additional $5 million of inventory at Black Diamond in an effort to offset the current elongated process of moving 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 prove this strategy is working.

Within Sierra and Barnes we have 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, well opportunistically hedging the cost of rising commodities, such benefits are partially reflected in our reported gross -- in our reported gross margins.

At September 30th, 2021, cash and cash equivalents were $10.2 million 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 $98 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 Rhino-Rack. We expect free cash flow to rebound in the fourth quarter as product moves out and the cadence of our inventory purchases normalize.

At September 30, 2021 total debt was $190 million, putting us in a net debt position of $179.8 million. Net debt leverage was 2.7 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 as the first and foremost way to grow. We have 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 2 times to 3 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 29th we closed a public offering for 2.75 million shares of common stock at $27 per share, plus 400,000 of additional shares in 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 aggregate principal amount under our revolving loan facility. This will provide remaining pro forma net debt leverage of less than 2 times. The remaining portion of the net proceeds will be used for general 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 sales 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 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 Sierra sales which includes Barnes to increase 99% to $105 million compared to 2020. This is up from the $95 million we guided to last quarter. We continue to expect from Rhino-Rack 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 Rhino-Rack to contribute approximately $6 million to our consolidated adjusted EBITDA outlook.

In addition, we continue to expect capital expenditures of approximately $8.5 million. We are proud of the strong operational and financial foundation we've built as an organization over the years. And once again we have shown that our innovate and accelerate playbook and our commitment to Super Fan brands as the key to our success and allows us to -- for us to prosper regardless of the external market environment.

Operator, we are now ready for Q&A.

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] 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.

Jim Duffy -- Stifel -- Analyst

Great execution during the quarter. Congratulations on the successful offering. I wanted to start with a question on the Sierra and Barnes 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. Are there some timing dynamics we should be considering that would explain that?

Aaron J. Kuehne -- Chief Financial Officer, Secretary and Treasurer

Yeah, Jim, this is Aaron. I hope all as well. One of the things that we are working through, not only if we increase our capacity and being able to continue to demonstrate strong progression in that regard and meeting the demand, but immediately we need to be able to provide some preventative maintenance as we work through the quarter and to provide ourselves with a little bit of breathing room or headroom here as we head into the New Year.

As we know historically as well, Q4 has been a little bit softer as people have just kind of recalibrated inventory levels with our OEM partners. But then also as we come out of the hunting season, we've done a really good job of also fulfilling orders as we head it 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 -- some maintenance capex, sorry, some maintenance on our machinery and also on the plant floor, 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 breather just to give ourselves a little bit of cushion to take care of some of these maintenance topics.

Jim Duffy -- Stifel -- Analyst

Understood. And then as it relates to the ammo contribution, $12 million in the quarter, is that a good figure to think about for future quarters or would you expect to continue to build on that ammo contribution?

Aaron J. Kuehne -- Chief Financial Officer, Secretary and Treasurer

Yeah, I think that the 40% to 50% range based on the way that the order book is developing and where we're -- on how we're positioned would continue to be a solid milepost or guard rail for us as we think about the next, the coming months etc.

John C. Walbrecht -- President

And remember that, Jim, is a balance between a higher percentage of that in the Barnes 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. As we've mentioned in previous calls, it hasn't slowed down at all and we don't anticipate it based on order demand in the book going well deep into 2022 and beyond.

Jim Duffy -- Stifel -- Analyst

Great, thanks. And then one more if I may and I'll let someone else jump in. On Rhino-Rack, I'm just curious, the key milestones we should be watching for, as you look to realize your full potential in the U.S.

John C. Walbrecht -- President

Yeah, 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 supply against the increased demand.

I think second of that will be new accounts, as we expand with this growing overland outdoor-ism black tops to brown roads initiatives, and outdoor retailers participating in this growing overlanding segment. And then the third milestone is, we start to accelerate through the innovate and accelerate strategy, we start to see even more award winning new products which we were hoped to see this last week, winning a Show Award for The Stoic [Phonetic]. So we see -- we'll 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.

Jim Duffy -- Stifel -- Analyst

Thank you, guys.

Operator

We have our next question coming from the line of Laurent Vasilescu with Exane BNP Paribas. Please proceed.

Laurent Vasilescu -- Exane BNP Paribas -- Analyst

Congrats on a great, great quarter. I have to ask, I mean you, we've been hearing from other outdoor companies talking about just shift in revenues between 3Q into 4Q just due to the supply chain constraints. I just love to hear if that was the case for you? If you had any -- if you're anticipating 4Q revenues potentially falling into 1Q due to the supply chain issues out there?

John C. Walbrecht -- President

I mean obviously as we chase this and it's a very dynamic market today, we'd be wrong to say that we didn't have revenue in Q3 that trailed into Q4, just in order to meet supply or fulfillment. And the same will be true, obviously we take all that into account when we give you quarterly and annual guidance and our goal is to try and accelerate through our scrappiness 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 scrappiness, we've seen an increase in our demand as we become more valuable or gaining more market share through this transition and the growth of outdoor-ism. 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 in the notes here, we have a strong order book for 2022.

Laurent Vasilescu -- Exane BNP Paribas -- Analyst

Okay, great. And then on the BD front with the direct-to-consumer initiative, you've got a great website, but as you mentioned, John, you were alluding to the new store openings or three store openings on your website, they showcased those store openings. I love to hear how many stores you think you can get to on the BD side and how much you think, direct-to-consumer revenues could represent for BD over time?

John C. Walbrecht -- President

Yeah, I mean it's, we're always a yes and yes philosophy. So obviously today's market of what we call consumer-centric message or what we really refer to be in Black Diamond is community-centric, that's really what's driven the initiative behind the flagship retail stores, especially in towns like Burlington; Jackson, Wyoming; Park City, Bend, Oregon; Big Sky, Montana; Boulder, Colorado. When we finish 2021 we'll 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. 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 a 30% opportunity in direct-to-consumer and that's clearly driven by this new consumer outdoor-ism meets what took place in COVID and more and more online engagement with the brand.

Laurent Vasilescu -- Exane BNP Paribas -- Analyst

That's great to hear. And then the last question. Aaron, I'd love to ask about Rhino-Rack. In the 10-Q release tonight, shows that Rhino-Rack had an EBIT loss of $3 million, which I believe includes the $8 million in transaction costs. Hence, tell me if I'm wrong here, but I think on adjusted basis, you generated $5 million of EBIT on $19 million of sales, which I think implies a 20% EBIT margin.

I'm just trying to reconcile that versus the June 1st press release, which implies the EBITDA margin in the high teens. Any color on how we think about the EBIT or EBITDA margins for the full year would be very helpful. Thank you.

Aaron J. Kuehne -- Chief Financial Officer, Secretary and Treasurer

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 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 us 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 is just that. What you see in the 10-Q also reflects inventory step-ups of -- it was $3.1 million in the quarter. It's going to be another $1 million to $1.1 million 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 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 as mass because of the noise with the lockdown and associated impacts.

Laurent Vasilescu -- Exane BNP Paribas -- Analyst

Very helpful, thank you very much, Aaron.

Operator

We have our next question coming from the line of Anna Glaessgen with Jefferies. Your line is open.

Anna Glaessgen -- Jefferies -- Analyst

Thanks for taking my questions. First one, can you expand a little bit on your point about how being nimble has helped you navigate the current supply chain landscape, do you have maybe greater flexibility in sourcing versus some of these larger players, more duplicity along the chain. Just any perspective here would be really helpful.

Aaron J. Kuehne -- Chief Financial Officer, Secretary and Treasurer

Yeah, Anna, this is Aaron. I think this really highlights the -- one of the many elements of the secret sauce that we have within the Clarus 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 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 brands operate on a stand-alone basis. These decisions, one, can be quickly made or the situations can be quickly assessed, but then decisions can be made in a quick manner that enables us to be able to unlock the different opportunities within the various supply chains 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, etc., etc.

Instead, some of our competition may actually be -- may not experience the same flexibility because it has to go through a centralized or a synergized view in terms of a function that oversees supply chain for the entire portfolio for much or for a much larger organization. But also because of the way that we manage these businesses, we also have a very flexible balance sheet that we can leverage versus needing it to go through multiple layers of approval, just to get some additional open to buy, if you will, for the different brands and for the different supply chains that, for us, becomes a pretty easy discussion and a pretty easy and nimble move that we can activate.

John C. Walbrecht -- President

I think the other side is, when you have Super Fan brands that every quarter continue to provide and improve sustainable long-term growth, it's really easy for your, as Aaron said, your vendor partners to allocate time, resources, space, capacity to those brands that continue to meet or exceed their expectations. And we'll be with them long-term through this process. Now COVID, tomorrow economic challenges or 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.

Anna Glaessgen -- Jefferies -- Analyst

Great, thanks. And then it's really good to hear bookings remain strong across the segment. Could you maybe put this into historical context of 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 demand?

John C. Walbrecht -- President

Yeah, I mean obviously every -- with each of these brands, as we started 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 success is to reference Aaron's 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, i.e., in Sierra and Barnes.

I think our engagement with our retail partners, similarly to each that of our vendor partners has given us a strong insight and really strong bookings through 2022. We're now in the midst of fall 2022 bookings and already starting pre-lining for spring 2023. So we feel really good. We'll 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 as we exit 2021 and kick off 2022.

Anna Glaessgen -- Jefferies -- Analyst

Great, thanks.

Operator

Thank you. We have our next question coming from the line of Matt Koranda with ROTH Capital. Your line is open.

Matt Koranda -- ROTH Capital Partners -- Analyst

Just wanted to start in BD. You guys mentioned, I think, John, you mentioned 150 new products introductions in 2022. Maybe could you give us some context on how that compares to 2020 and 2019 in terms of new product intros, it sounded relatively high? And then how much of a growth tailwind does that provide in 2022? And then just any more commentary you can provide on sort of the product mix we should expect in 2022 if it's going to be relatively different than prior years in terms of apparel or footwear or whatnot, that would be helpful.

John C. Walbrecht -- President

Yeah. So upon initiating the innovate and accelerate strategy on the brand starting fall of 2017, if we go back to exiting Outdoor Retailer 2020, that year, we had finished the year a little over 350 new products. So 150 this year is not as strong as we've done in the past, but we've been a lot more strategic in the alignment of where those are, specifically chasing down what we call the Sacred Seven 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 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 packs that consumers don't -- are intimidated by wall camps Camelot is an example. I mean we continue to see a stronger growth in those categories, and they align with the more inclusive nature of this exploding outdoor-ism.

Long term, I think our mix, hopefully will be less in equipment, a little more in 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.

Matt Koranda -- ROTH Capital Partners -- Analyst

Okay, it makes sense. And then on Rhino-Rack a two-part question I guess. Any anticipated near-term impacts or hangover, I guess, as I might put it from the Australia lockdowns that we've just come out of, either supply chain or just sort of hesitancy on wholesale stocking orders related?

And then it was good to get an update on the progress and you guys moving into the North American retail channels and it sounds like a great opportunity. But I'm wondering if maybe we can put a finer point on when we should expect to see more meaningful North American distribution for Rhino-Rack?

I mean is it -- it sounds like you're signaling it's 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 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 event?

John C. Walbrecht -- President

Yeah. So I think we believe that in the integration and what took place with the lockdown in Australia up until literally weeks ago, that -- yes, there was obviously some impact. We took that into account as we planned for the remaining of Q4 and our guidance. We are accelerating that now in the marketplace as we chase both the -- what we anticipate similar to North America as Australia comes out of the lockdown we'll see an acceleration, especially as they now lean into spring and summer and the overlanding market.

In the U.S. market, our real goal here is ensuring that we catch up on supply for what is an increasing demand oversupply 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.

So at the worst case, we'll be able to plan even better for that of 2023, but we anticipate to start to accelerate that growth in 2022.

Matt Koranda -- ROTH Capital Partners -- Analyst

Okay, very clear. I'll leave it there, guys, thank you.

Operator

We have our next question coming from the line of Joe Altobello with Raymond James. Your line is open.

Joseph Altobello -- Raymond James -- Analyst

Just kind of following up on that line of questioning, lack of inventory is 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 that push out the timing of the expectation of your D2C penetration?

John C. Walbrecht -- President

No. I think there's two-fold that takes place in this. 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 come to live in all of our communications. And that -- just to be clear, that just is important and relevant to our wholesale key partners as it is to our D2C efforts. We believe that one plus one equals three or five or seven 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 chasing our availability as much as we can and keeping up with that. Given our order book and our success so far in D2C, we continue those growth rates continuing.

And our goal is to really do as best as we can to deliver on time and be as successful in all channels in all regions as we can. And it's -- short-term, it's an allocation exercise, long-term it's really just about the pipe -- the size of the pipeline and how soon and aggressive we are about chasing that and focusing on those key items that continue to not yet find a ceiling in the marketplace.

Joseph Altobello -- Raymond James -- Analyst

Okay. So it sounds like you do expect D2C to see some significant improvement in terms of your overall percentage of sales in 2022?

John C. Walbrecht -- President

Yes.

Aaron J. Kuehne -- Chief Financial Officer, Secretary and Treasurer

Yes.

Joseph Altobello -- Raymond James -- Analyst

Okay. Okay. And then just to follow-up on that, your margins have taken a very nice step function up this year. We're looking at, call it, 16% EBITDA margins year-to-date and I think you've been running around 10% over the last three years. How sustainable is that, and I know there's a lot of puts and takes on 2022, for example, you just recently only took pricing. But as you look ahead to 2022, what's the opportunity to take those margins even higher next year?

Aaron J. Kuehne -- Chief Financial Officer, Secretary and Treasurer

Yeah, this is Aaron. There's 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 corresponding higher levels of flow-through to the adjusted EBITDA level. When we think back of what's taken place and the step functions 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 product mix, our channel mix, geography mix, etc.

But we've also been implementing a series of different improvement initiatives over the years that are starting to take hold that are really around the commercial excellence side of things in terms of how we design and commercialize 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 there's 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 Sierra and then the addition of Barnes, naturally, we know that those come with higher levels of EBITDA levels as well. But even with that, we have driven significant improvements within those two businesses from an overall profitability standpoint in addition 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 Rhino-Rack and any other acquisition that we bring on. And this really highlights the power of the Clarus operating model, when we think about how we approach the business, the way that we manage the business, the discipline, the way that we organize ourselves, etc., and it's very in line or focused 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-in-class processes to drive higher levels of gross margin and associated EBITDA levels.

What you'll note is, I haven't mentioned anything about cost cutting. This is something that we expect that we'll be able to continue to scale SG&A 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 portfolio.

John C. Walbrecht -- President

I think the summation that Aaron just said is, be very competitive and then continually 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 build and has an increasing value to everything we do.

Joseph Altobello -- Raymond James -- Analyst

That is very helpful. Sorry, go ahead, Aaron.

Aaron J. Kuehne -- Chief Financial Officer, Secretary and Treasurer

I was just going to say one last comment, because I think this is important to note. I think it really iterates also how we manage these businesses on a stand-alone 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 and scale these -- to scale the individual businesses, but also to be able to add on to it via M&A, but also to be able to further progress the entire Clarus portfolio.

Joseph Altobello -- Raymond James -- Analyst

Got it. Thank you.

Operator

Thank you. We have our next question coming from the line of Ryan Sundby with William Blair. Your line is open.

Ryan Sundby -- William Blair -- Analyst

Just a quick follow-up on the lockdowns in Australia. Did you have to actually shut down production for Rhino-Rack because of that or are you -- to your commentary more geared around retail shutdowns and maybe lack of internal mobility?

Aaron J. Kuehne -- Chief Financial Officer, Secretary and Treasurer

Yeah, so the lockdowns happened shortly after we bought the business in early July and didn't lift until early October. And as a result of that, we were forced to shut down our operations in Australia to the point where at times we literally had production or capacity of, call it 10% to 15%...

John C. Walbrecht -- President

Skeleton level.

Aaron J. Kuehne -- Chief Financial Officer, Secretary and Treasurer

Yeah, it was super skeleton level. And so as a result, that's where you see some of the overhang associated with that pushing down on the EBITDA levels, but that team has done the amazing job of working through that situation, keeping morale high, but also reestablishing the production levels and the different ins and outs of the business to be able to set us up to get back on track to where we were before buying the business and where we expect we'll be able to -- where we expect that we'll be able to take the business.

John C. Walbrecht -- President

And interesting, Ryan, one of the things we often say is, how does a Super Fan brand perform in difficult times versus easy times. If you got leading market share and the market goes up, of course, you're going to win, that's the whole math, right. But how does a brand performance and it was interesting, it wasn't planned or hoped for by any means, but that we bought that Super Fan brand and then immediately saw it over index and perform in the most challenging of times and now makes us even more excited about what the opportunity is and the potential as it comes out of this, and we start to accelerate it as of even this week at SEMA and then as the market has now opened up in Australia.

Ryan Sundby -- William Blair -- Analyst

Got it. That's great. And then just the decision to prioritize product availability among the seven core categories. Can you talk about what percentage of sales that would be for you guys? And maybe where things sits in the rest of the business. Should we expect to see a drag on sales, given that kind of focus from the smaller [Speech Overlap].

John C. Walbrecht -- President

Yeah, Ryan, I don't want to give away the secret sauce here, but out market share is in our products. There may be competitors listening to this, but obviously what we saw and have seen is, we continue to see very strong growth in apparel and footwear, and those are really inclusive to what's taking place in outdoor-ism today and a real entry into the brand.

We continue to see strong growth in categories like gloves and packs. And as we move up, apparel and footwear, we still approach them as apparel as footwear -- footwear -- apparel as equipment, footwear as equipment, right. But they're pretty entry level. Then we focused on packs and gloves and the nature of BD, we get a lot more technical there, right. We believe we make the best gloves in the business and our packs are really specific to the activity level and we accelerated that.

And then you get into our equipment world, which starts with Alpine snow safety, it doesn't get any more technical than that. Core climbing equipment, it doesn't get any more technical than that. And then these two categories where we have leading technology and market share in headlamps and trekking poles and we have not found the ceiling.

And so that became effectively our core seven focuses. And they are the areas where during this new exploded outdoor-ism, our retailers have leaned even more into was, there are areas where we know we can continue to innovate at a pretty rapid rate across all of those seven categories, bringing out new products in each of them and accelerating our market share while also using them as a loud beacon to our digital first strategy with the consumer.

And so that's what we've leaned into, beyond that the secret sauce is in the products we pick and drive, but the real goal is we knew those and vice versa, they're ones where the retailers want heavy from us, the consumers one heavy from us and then we have really strong vendor partners that had the opportunity for us to accelerate in those categories as well.

Ryan Sundby -- William Blair -- Analyst

Got it. Thank you so much.

Aaron J. Kuehne -- Chief Financial Officer, Secretary and Treasurer

I think -- Ryan, I think it's also important to highlight that -- I think it's also important to highlight that this didn't catch us by surprise. These are initiatives that we've been working on for an extended period of time, but in particular, related to the supply chain topics, one of the first things that we did back in last year when COVID really started to hit is, we wanted to be the voice of calm, not only within the building, but also our retail partners, but also with our vendor partners.

And by the approach that we took, which we won't get into too many details here, that really positioned ourselves well to be able to respond to the recovery activities or the market response that's been taking place. But because of also our approach in this alignment internally and our ability to really focus on these key initiatives that John outlined, we were having these conversations in November of last year.

John C. Walbrecht -- President

With both the vendor partners and the retail partners, letting them know that it was going to continue to accelerate on both sides and that we would increase our production, our supply chain, our planning. So that we could be there when other vendors could not perform.

Aaron J. Kuehne -- Chief Financial Officer, Secretary and Treasurer

And as we work through the process, I'll tell you one of the most important things here for, especially our supply chain side of things is, to be able to show confidence, consistency and credibility and how you perform and how you're going to interact with them at the partnership level. And we were able to pull certain levers that enabled us to gain capacity not only for a period of time, but for the entire year of 2021. And really lock step our way through this because although we didn't have complete clarity as to the different puts and takes that would take place, we knew that these initiatives were in line with where we wanted to take the business. And that as a result, we could flex our balance sheet and go deeper with these items to ensure that we have the highest level of product availability that we possibly could as we work through this process.

John C. Walbrecht -- President

And since the hangover has not finished coming out of 2021 as we probably all hoped or expected. And it looks like supply chain impacts will probably impact us through, if not most, all of 2022. This has really set us up, this initiative in late 2020, all through 2021 has really set us up strong to be a very viable partner to our best retailers and our consumers going deep into 2022.

Ryan Sundby -- William Blair -- Analyst

It's great to hear. Thanks guys.

Operator

Thank you. We have our next question coming from the line of Mark Smith with Lake Street Capital. Your line is open.

Mark Smith -- Lake Street Capital -- Analyst

Hi guys. I wanted to look quickly into ammo, just on kind of commodity and component challenges, anything where you've seen significant price increases or that you may be having a problem sourcing?

John C. Walbrecht -- President

Yeah, so obviously ammo continues to be a big driver in demand in the marketplace. Very similar to the rest of our supply chain, we saw this occurring early, even going back into, frankly, late fall 2019 when we started to see the market accelerating then. Aaron and the team has start accelerating rapidly on copper and that's been able to help us maximize Sierra in 2021 as well as with the acquisition of Barnes, we could -- as we've proved, we've been able to double that business because we already had the supply chains well planned out in that.

Ammo continues to see more demand than we can supply. We've been just as scrappy and aggressive in both our planning and our allocation efforts through our partnerships at all levels to secure the brass, the primers, the support we need to continue to accelerate those categories. Obviously, it's always about an allocation process, but we don't -- when we look at our order books today and where the market is going over the next 12 months or until there's a change in the White House, I think the whole industry is going to continue to be challenged in this and have to be super scrappy and nimble in order to maximize the opportunity in every caliber and every case.

Mark Smith -- Lake Street Capital -- Analyst

Okay. And then just as we look at supply chain, and port issues and everything going on, we talked a lot about North America. But are you seeing similar pressures in getting goods into Europe or other markets?

Aaron J. Kuehne -- Chief Financial Officer, Secretary and Treasurer

We saw some of the same pressures back in the August time frame, and they've started to reprieve a little bit. But it goes back to -- we've taken a very similar approach on a global basis. And so naturally, those constraints aren't as pronounced as what we see in North America to say that they don't exist would not be true.

But at the same time, because we've taken a very holistic approach in this regard, the same levers and the same benefits that we're seeing in North America, we're seeing also in Europe and it continues to position ourselves -- each of our brands, in particular, the Black Diamond brand when you think about Europe in a very good way as we work through Q4, but also as we head into the next year.

Mark Smith -- Lake Street Capital -- Analyst

Okay, great. Thank you.

Operator

Thank you. We have our last question coming from the line of Linda Bolton Weiser with D.A. Davidson. Your line is open.

Linda Bolton Weiser -- D.A. Davidson -- Analyst

I was wondering, so I know we've talked a lot about the gross margin, but it was really impressive in the quarter. Is there any way to break out like how much or quantify the mix effect? Because I know the AMO growing so rapidly probably helps that. But is there any way to quantify that? And did pricing make a difference? Did that contribute to gross margin expansion in the quarter? And then would we expect the gross margin to actually be up sequentially more in the fourth quarter?

Aaron J. Kuehne -- Chief Financial Officer, Secretary and Treasurer

So let's address the last question first in that. I think what we've been able to produce on an adjusted basis in Q3 is a good litmus test or benchmark as we think about Q4. We did see a lot of progression within each of the businesses from a gross margin perspective. And so it's a little bit tough to get too granular on the different puts and takes, but just note that this is a key area of focus for ours.

Not only do we want to be able to grow the business, but we want to be able to do it profitably. And because of the way that each of our brands is positioned, we feel that we have that ability to do so through the innovation cycle, through pricing efforts, but also through the different mix components that we've been discussing, but also through our efficiencies.

And so if you think about it, we take a very holistic, but yet very disciplined approach in terms of how we approach the market for each brand. And we believe that as a result of that, we've been able to demonstrate significant margin expansion because of those efforts. And so to answer your question, yes, it does reflect some price increases coming from the Sierra, Barnes side, that whole element has been pretty well socialized throughout the industry as far as what's taking place. It does not reflect anything on the rest of the businesses, which will take place here as we head into Q4 and also in the new year.

But it really comes down to our ability to continue to innovate and accelerate into higher margin products areas, but also to be able to really instill an operational excellence format or concept to drive higher levels of margin throughout the business. And as a result, we feel that they're extremely sustainable. This is not a one and done type anomaly or a topic, instead it's something that's ingrained in each of our businesses and something that is -- that we feel to be sustainable, and will continue to be an area of focus.

Linda Bolton Weiser -- D.A. Davidson -- Analyst

Okay, great. Thank you very much.

Operator

Thank you. At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Walbrecht for closing remarks.

John C. Walbrecht -- President

Super appreciate the engagement and all the questions this afternoon. We'd also like to thank everyone for listening to today's call, and we look forward to speaking to you again when we report our fourth quarter and our full year 2021 results. It is going to be a huge winter guys, a lot of snow and a lot of excitement in the industry today. So we look forward to giving you more reports on that as Q4 ends. All the best.

Operator

[Operator Closing Remarks]

Duration: 70 minutes

Call participants:

Cody Slach -- Director of Investor Relations

John C. Walbrecht -- President

Aaron J. Kuehne -- Chief Financial Officer, Secretary and Treasurer

Jim Duffy -- Stifel -- Analyst

Laurent Vasilescu -- Exane BNP Paribas -- Analyst

Anna Glaessgen -- Jefferies -- Analyst

Matt Koranda -- ROTH Capital Partners -- Analyst

Joseph Altobello -- Raymond James -- Analyst

Ryan Sundby -- William Blair -- Analyst

Mark Smith -- Lake Street Capital -- Analyst

Linda Bolton Weiser -- D.A. Davidson -- Analyst

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