Clarus Corp (CLAR) 2011 Q1 法說會逐字稿

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Black Diamond's financial results for the first quarter ended March 31st, 2011. Joining us today are Black Diamond's President and CEO, Mr. Peter Metcalf, and the Company's CFO, Mr. Robert Peay. Following the remarks we will open the call for your questions.

Before we go further, I would like to take a moment to read the Company's Safe Harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Any redistribution, retransmission or rebroadcast of this call in any way without the express written consent of Black Diamond Inc. is strictly prohibited.

Please note that this conference call includes forward-looking statements within the meaning of the Federal Securities Laws. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting the Company and therefore involve a number of risks and uncertainties. We caution 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 are forward-looking statements used this conference call include the overall level of consumer spending on the Company's products, general economic conditions and other factors affecting consumer confidence, disruption and volatility in the global capital and credit markets, the financial strength of the Company's customers, the Company's ability to implement its growth strategy, the Company's ability to successfully integrate and grow our acquisitions, the Company's ability to maintain the strength and security of its information technology systems, civility the Company's manufacturing facilities and foreign suppliers, the Company's ability to protect trademarks and other intellectual property rights, fluctuations in the price availability and quality of raw materials and contracted products, foreign currency fluctuations, the Company's ability to utilize its net operating loss carry forwards and legal regulatory, political and economic risks in the international markets.

More information on potential factors that could affect the Company's financial results is included from time to time in the Company's public reports filed with the Securities and Exchange Commission, including the Company's annual report on Form 10-K quarterly reports on Form 10-Q and current reports on Form 8-K. All forward-looking statements included in this conference call are based upon information available to us as of the date of this conference call and speak only as of the date hereof. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of this conference call.

I would like to remind everyone that this call will be available for replay through May 23rd, 2011 starting later this afternoon. A webcast replay will also be available via the link provided in today's press release as well as available on the Company's website at www.blackdiamond-inc.com.

Now, I would like to turn the call over to the Chief Executive Officer of Black Diamond, Mr. Peter Metcalf. Sir, please go ahead.

As you saw at the close of the market today we issued a press release announcing our financial results for the first quarter ended March 31, 2011. We've begun 2011 with a strong quarter increasing sales 18% and achieving global growth in all categories. We are most proud of the style in which these results were achieved. They were through a combination of new and truly innovative and award-winning products further cultivating our key retailer relationships, brand resonating marketing, superb execution and by continuing to take a national profile and actively championing the issues of great importance to our community of fellow end users.

In addition to driving sales, our innovative products won numerous awards during the quarter from Men's Journal, Gear Junky, Back Country and Skiing Magazine. We also completed the integration of Gregory and Black Diamond Equipment and our new Salt Lake City based 77,000 square foot distribution facility is now fully operational. We've also added more than half dozen new director level management and designer positions to expand our platform capabilities.

Our team is certainly eager to move forward with the compelling strategy to grow our platform, both organically and through acquisition into one of the world's leading and most respected outdoor lifestyle Companies. This quarter's results helped support this vision.

Now, before I comment further, I'd like to turn the call over to our CFO, Robert Peay, who will take us through the details of our financial results for the quarter. Afterwards I will return to discuss additional details about the quarter and how we plan to drive shareholder value for the remainder of the year and on into 2012. Finally, we will open up the call for your questions. Robert?

Thanks, Peter, and good afternoon, everyone. Before we get into the numbers I would like to mention one important factor that will help put our financial results into perspective. When comparing to the prior year first quarter I will focus on pro forma comparisons, which we believe are the most meaningful. As a reminder, at the time of our May 2010 transaction Clarus had no business operations. As a result, Black Diamond Equipment is considered to be our predecessor company for financial reporting purposes. We believe pro forma results, in particular pro forma sales and pro forma gross margin, which includes Black Diamond Equipment, Gregory Mountain Products and Clarus for the prior year quarter are the most useful and instructive comparisons.

So with this in mind our total sales in the first quarter of 2011 increased 18% to $39.1 million compared to pro forma sales of $33.1 million during the first quarter of 2010. In both periods pro forma sales for the first quarter include revenue from both Black Diamond Equipment and Gregory Mountain Products. In addition to overall growth, we were pleased to see sales growth that was broad based and grew in all meaningful categories.

Gross margin in the first quarter of 2011 was 38.6% compared to pro forma gross margin of 39.6% in the same period last year. The decline in gross margin was primarily attributable to unfavorable foreign exchange rates related to our European sales, despite sales growth on a constant currency basis. While we do experience product mix fluctuations from one quarter to the next, the primary driver of the gross margin variance in Q1 was foreign exchange.

Total operating expenses in the first quarter of 2011 were 13.1 million, which includes $774,000 of final restructuring charges associated with the integration of Gregory Mountain Products into Black Diamond's Salt Lake City Headquarters. As we mentioned in our last call, Gregory's management team relocated to Salt Lake City in January, 2011 and our new distribution facility in Salt Lake City went live during the quarter. Though the integration is now complete in the final expenses associated with the May 2010 combination of Black Diamond Equipment, Gregory and Clarus are reflected in our financial statements during the quarter, we do not foresee any additional costs from the integration to hit the P&L going forward.

SG&A for the three months ended March 31st, 2011 also include an $899,000 non-cash compensation charge related to restricted stock and option packages grated in connection with the May 2010 combination of Black Diamond, Gregory and Clarus. Approximately $600,000 of these charges for the new equity will be fully expensed by the end of 2011.

For the first quarter of 2011 we reported net income of $1.2 million, or $0.05 per diluted share. Adjusted EBITDA in the first quarter of 2011 was $4.6 million. We define adjusted EBITDA, which the non-GAAP term, as earnings before interest, taxes, other income, depreciation, amortization, non-cash equity compensation and restructuring charges. A reconciliation of adjusted EBITDA to GAAP net income is presented in the earnings release we issued today, which is available on the Investor Relations section of our website.

Our balance sheet at March 31st, 2011 remains strong. We had $5.2 million of cash compared to $2.8 million at December 31st, 2010 and $18.3 million outstanding on our $35 million revolving credit line with Zion's Bank compared to $14.7 million at December 31st, 2010. Total long-term debt, which includes among other things $14.3 million of 5% subordinated notes due in 2017, stood at $33.5 million. With 2010 behind us, the Gregory and Clarus integration projects complete, we believe our balance sheet is well positioned for 2011.

In closing, we are very pleased with our first quarter results, which were more robust than we anticipated. As we have discussed in the past, we view our business as a two season business, spring/summer and fall/winter. We think about, plan and proactively manage our business around two six-month cycles.

As a result, at the end of Q2 we plan to reflect on our 2011 spring summer season in hindsight as well as the 2011 fall/winter order book and we expect to revisit our 2011 revenue guidance at that time with considerably more visibility. Having said that, I will share that we are pleased with our fall 2011 bookings, as they currently stand.

This completes the financial portion of our presentation. Now, I will turn the call back over to Peter.

Thanks, Robert. As I noted in my opening remarks, 2011 began on a strong note, largely based on market share gains by our innovative and award-winning products. We continue to forge strong partnerships with key retailers where our products are performing best in class. In fact, with online core summer categories at REI and Eastern Mountain Sports our Gregory and Black Diamond brands occupy the top brand in six and seven of 13 categories respectively. We also have strong positions in almost all categories we compete in at these key retailers.

In addition to driving sales during the quarter, our innovation spring products have earned numerous coveted awards. For example, Black Diamond's Paradigm changing ultra distance Z-Pole won the Gear of The Year award from Backpacker from Outside Magazine China and National Geographic Adventure. This product combines a lightweight compact three-section design with reliable support and stiffness making them the ultimate poles for fast packing, trail running or any pursuit where low weight and compact carry are paramount.

Climbing Magazine gave BD's patent pending new gridlock carabiner their Editor's Choice Award and Urban Climber Magazine gave our new Nitron Quickdraw the Best In Gear Award. Other innovations worth mentioning are the redesigning of our Spot and Storm Headlamp products based upon customizable lighting modes, incredible power and all weather capabilities. They're truly beautifying state of the art in their respective categories.

In our Harness line the completely redesigned and highly innovative momentum in women specific Primrose Series feature excellent feasibility and lightweight while presuming an uncompromising level of safety, comfort and durability thanks in part to their unique track fit leg loop adjustments and dual core construction.

We've also invested marketing dollars in a number of new initiatives to raise BD's profile. For example, BD sponsored the 2011 Freeride World Tour, a five-stop freeride ski competition broadcast on line and via television in partnership with Subaru, the North Face and Sierra Nevada Brewery. BD's ski athlete, Angel Collinson, won the top place female competitor in the Series. We've also substantially stepped up our spring 2011 Mountain Line advertising for Axe, Trekking Poles and Lighting in Outside, Backpacker, Sierra, Mountain Sports and Living Magazines, as well as selective regional titles.

BD has also kicked off a strong year-long digital campaign that we believe will generate nearly 25 million paid impressions.

Moving along to our integration, both Gregory and Black Diamond Equipment began shipping product from our new 77,000 square foot consolidated distribution center here in Salt Lake City. We expect this new facility to provide BD with significant operating leverage over time from meaningful expansion and I am proud to say that in the first full month of operation we shipped the largest amount of product in our Company's history.

Now, I'd like to highlight a few key additions related to Gregory North America that will support our strong manufacturing partnerships and allow new product innovations to become commercial realities. During the first quarter we hired a seasoned outdoor industry reader as General Manager to provide [research] brand and operational leadership. Two critical positions in the Research and Design Team were also hired with the newly created position of Sourcing and Development Manager being filled, as well as an additional Product Developer.

Our Gregory North American Sales and Marketing Director hosted a number of Gregory's key retailers including REI and EMS at our new Salt Lake City Headquarters on the DD Campus for previews of the spring 2012 line. Gregory continues to hold the dominant position in the large pack market with spring 2011 seeing the debut of the updated Altera and Deva lines of large backpacking packs. This category has performed exceedingly well in Q1 with sales up over 17% the same period last year. In addition, the new travel [Axis] debut was well received due to its unique wide chassis system. Fall 2011 preseason bookings in this category exceeded expectations and initial production is on schedule for July 1 launch to retailers. We expect this will drive significant additive sales in 2011.

Many of you have understandably asked how will the tragic Japanese natural disaster impact both Gregory's and Black Diamond's business in 2011. It has taken BD and our two exclusive distributors some time to properly assess the full situation. As of today, we do not expect these events to have a meaningful impact on our business taken as a whole. The overall business is performing more robustly than we first anticipated. We expect to make up some revenue in other Asian markets and we are taking steps to reduce some expenses. Lastly, some of Black Diamond's business, especially in Headlamps and Lighting, has actually increased as result of this disaster.

Another frequently asked question has been that of raw materials appreciation and rising labor rates in China. Over the past 12 months BD has navigated the same sourcing and production landscape throughout Southeast Asia that has impacted every company with product in the region. These include increases in labor, raw material and logistical cost and the gradual appreciation of the Chinese won against U.S. dollar. We are taking affirmative steps to manage through the dynamic environment in Asia, which include broadening our sourcing base for materials, components, processing and finished goods, leveraging existing long-term supplier relationships, increasing efficiencies in our China based operation through greater reliance on lean manufacturing principles and raising prices to the extent the market will allow.

Finally, during the first quarter this year we outlined our five-year strategic plan and I think it's worth reiterating. The backbone of this plan is 12.5% compounded organic revenue growth from the existing business before any incremental spending to develop new product categories or acquire additional brands. To achieve our growth objectives we're making substantial investments in our platform capabilities. We've invested in our master distribution facility in Salt Lake City and direct-to-consumer channel along with recruiting new manager and director level positions. We're also active on the acquisition trail.

In spite of significant investments to drive long-term revenue growth, we expect to remain profitable and to generate cash annually and we expect our profitability to accelerate in 2013, '14 and '15, as we realize meaningful operating leverage. It's important to note that the organic contemplated by our five-year strategic plan is anticipated to be self funding.

We've worked to augment the strategic plan by introducing new product categories and by making acquisitions. Both of these initiatives are likely to require some additional capital at some stage in the future. We are working towards the limited launch of technical outdoor apparel under the Black Diamond brand possibly as early as the fall 2013 season. We look to have additional details on our apparel initiative sometime in the future. This is a very significant undertaking and we believe it has the potential to propel our brand to a new level. We're excited about it but moving purposely and carefully.

BD is also looking at several acquisitions of varying sizes and we have a pipeline that our team is continuously evaluating. We have two full-time professionals that include our former CFO leading this effort. While I don't have anything more specific to report today, we certainly consider this to be a core part of our three-pronged growth strategy, which we believe enable us to achieve $500 million of annual revenue by 2015.

Thank you for joining us. I think the first quarter marks a very good start to 2011. We're growing our sales and our global organization delivering innovation products that are winning awards in the outdoor media, executing on product delivery and forging strong partnerships with our retailers.

We expect strong momentum for 2011 supported by a robust product pipeline and we are excited to see our growth continue. Our focus is squarely on a variety of projects expected to enhance our brand, reinforce our operating infrastructure and to bring great value to our partners in the specialty retail industry and to the consumers in our community.

Now I would like to open the call up to your questions.

(Operator Instructions). Our first question is from the line of Sean McGowan with Needham.

Mostly housekeeping type questions here so, Robert, is the tax rate that you're showing there in the reported results for the first quarter, is that indicative of what you'd expect for the whole year?

Sean, yes it is based on GAAP guidance we have to try to project what our taxable income relatively to our pretax income on a GAAP basis will be and then that's the rate that we'll use on each quarter so we wouldn't anticipate too much volatility in that as long as that our estimates of (inaudible) items and pretax income number holds true.

Great. Can you comment on the effect of changes in exchange rates on the top line and the bottom line? Can you give us some idea of some pressure at the gross margin line that if you can comment on sales and EPS?

Sure, Sean. We do an analysis that takes -- looks at a constant currency view of revenues, particularly in Europe as that's where our bigger exposure on FX lies and so when we translate Euros into francs we're losing sales and also losing margins but when those sales then are translated into U.S. dollars because of the strength of the franc relative to the dollar, a lot of that loss is mitigated. So in Q1 Europe actually had good gains on a constant currency basis but when those are translated on a statutory basis it doesn't look quite so robust. But when they're then translated into U.S.D. it's almost a push.

Okay so does that mean not much of a significant impact then on the top line you mean?

No there's not much impact when it's fully translated on a consolidated basis into U.S.D.

And that's true of the top line and the bottom line?

That's true on the top line but then you also need to convert your cost of goods at the higher rate of Swiss francs and so your OpEx so your gross margin takes a little bit of a hit and also your OpEx does as well.

Okay so a little bit of an impact, maybe 0.01 or so on the bottom line?

Oh well, I don't think we've actually calculated down to that level of detail. We do have a number in our head and if you look at what we did mention in the script and we had a 39.6 gross margin last quarter for 2010 on a pro forma basis and this year we had a 38.6 and a large part of that decrease is due FX in Europe so you could look at it as a point.

Okay the final question I think you said on the last conference call that you'd expect this year to show lower sales in the second quarter relative to the first. Would you expect the SG&A spending to be kind of flattish for the first quarter or might that also be lower?

Sean, you're correct. The Q2 numbers historically do drop down below what Q1, Q3 and Q4 generally show. Relative to spending, a lot of the SG&A components are flat lined or more fixed. There are elements at SG&A that are variable that will decrease when your sales decrease and those are commissions paid in Europe and commissions paid worldwide. There's some shipping costs, warehousing costs in Europe that are also variable based on the amount of volume that you put through so there is a component of that but for the large share you're fixed component of SG&A just kind of keeps constant.

Okay thank you.

Lee Giordano, Imperial Capital.

Can you provide some detail on performance by category for the quarter?

Hi, Lee, this is Peter. Yes we don't break out by categories overall. We have decided we're not going to give that kind of guidance but what I can share with you is that one of the strengths of Black Diamond is that we have this diversity. We have diversity is distribution channel. We have diversity in geography and we have diversity in our product lines and we have two very balanced season business. That said, we're really pleased to report that we have seen very strong growth in the majority of our categories and the majority of our geographies as well, so it was a very balanced growth quarter relatively to geographies and product categories.

Great and now with the integration of Black Diamond and Gregory complete, can you talk about the synergies that you've seen so far? Have they been up to your expectations and do you see additional opportunity going forward?

Another good question, Lee, yes the integrations are done and one of the things that we had shared I think in the last quarterly call or even earlier when we did this deal was the outdoor industry works very much with forward rolling orders, a full season and you really can't affect much of your business until you can really affect the preseason so from a sampling of affecting sales, we're going to really begin to see the first benefits of that with fall 2011 and that will be modest but we'll begin to see it with fall '11. And then where we'll really see it is spring '12 from a revenue standpoint.

However, let me add some texture to that answer as well and that is number one, we did hire, as you know, a Brand Manager for Gregory Europe. He immediately put Gregory on the platform. We are in the process of hiring and have hired numerous sales agents in many different countries in Europe. Sales meetings are scheduled and planned. We have good attendance being lined up and we've gotten a very good response from the trade there so we're excited by what we're seeing both from our ability to leverage that platform, have get good sales agents to represent Gregory hired and just the buzz we're getting and the fact that the trade knows that there is a proven well respected operational platform now for Gregory to operate off of and begin shipping from in European currencies in January of 2012. So that's a big plus.

From the standpoint of the North American trade, we certainly had very positive meetings with both EMS and REI when they came here to meet with the Gregory team. I did sit in on part of those meetings and I think it was a great relief to the buyers of both those companies to know that this Gregory's home. It's predictable, that we're investing in Gregory and that this is a brand with an iconic past and a magnificent future and that the future is more magnificent than its iconic past so I think that's a real plus.

Thirdly, there is an energy that's palpable here of having the Gregory team now reside in their own space, in their own facility within and on the Black Diamond campus that is I think creating a high degree of synergy, energy, creativity that wasn't had before. So those are few of the places we're seeing the synergies. Certainly from the perspective of being able to leverage the rest of the BD operational platform for our supply chain to the new distribution center to our senior supply chain people to even I think working in cost negotiations with a couple of our suppliers. We're benefitting from that synergy so some of it's you have to listen to how I've -- the narrative I've given you because it hasn't all appeared yet on the P&L but is it meeting my and our expectations to date? Absolutely.

That's great. Thanks a lot.

Andrew Burns, D.A. Davidson.

Congratulations on the quarter. Couple of quick questions for you; could you maybe help us better understand the growth on the international side and particularly in Europe that you're experiencing and demonstrated in the quarter just in terms of whether it's account growth or sell through at existing accounts versus your product categories? Things of that nature would help. Thank you.

Yes let me give you some narrative and thanks for the question. Again, we don't break -- right now we don't give guidance or break it out in detail by region but I will give you some texture there and that is when you account for the various currency fluctuations, as Robert says, in the end it's the top line that balances out and with that we did experience in Europe pretty much the same level of growth despite the rather anemic second half of the winter in Europe, which did hurt the ski business and we've said.

The overall skiing industry was soft in the second half because of warm weather and drought but despite that, BD Europe saw growth pretty much on par with what we saw with the rest of our businesses, so clearly the robust ski growth we saw in the first half, which got a bit anemic in the second half, was more than made up by the growth we were seeing in our spring line new products that we are launching in our spring business. And I think that's one of the great strengths of Black Diamond is that we are truly both a well balanced global business -- half our business roughly is in North American -- and a two season business.

It's literally about 50% spring, 50% winter so when you have a market like Europe where the second half of the winter is a bit anemic, it's warm and it's dry and people are getting out and climbing and hiking and trail running and doing more warm weather mountain pursuits, our gear is right there in the stores. People are acquiring it and it really helps make up for some of the softness you would feel as a one season business.

Okay thank you and second question, Robert, just in terms of gross margin, the guidance of the full year remains 36% to 39%, just hoping you could help me understand will you likely update that or start to narrow it as the year progresses? And is there any color you could give just the what if exchange rates remained constant at this level going forward, what the impact would be?

Good question. When I think about gross margins, obviously it's very dynamic and there are a lot of things that can impact that, both pluses and minuses. We did give guidance of 36% to 39% for the year and I think we're standing firm on that at this point. We'll take another look at the end of Q2, as we mentioned and we'll revisit our sales guidance and if possible we may revisit a little bit more narrow on our gross margin but then again may not. We might just keep a little bit broader range. At the moment, though I don't really see anything that's going to materially adversely impact our gross margins. It seems like our inventory dealer sell through is healthy and I don't see where they need to discount or we need to discount on our sales to them so feel pretty good about that.

Relatively to exchange rates, we do hedge and so we are able to protect a certain level of margin. What we aren't able to predict is that you usually hedge up to a certain percent and so that un-hedged piece is a little bit more volatile and that could have its impacts, either for us or against us so at the moment I don't see anything that causes me a whole lot of concern and so I feel pretty good about where we are.

Great thanks.

Rob Young, William Smith & Company.

I was just curious. I am interested in these new hires. I was hoping that you could possibly go over some of your recruiting strategies and maybe the skill sets that you might be looking for going forward and then also would be interested on from a historical perspective looking at how you're becoming aware that these particular individuals are in the job hunt market.

Okay, Rob, great question. I'll answer it a little bit facetiously but seriously at the same time we begin with, which is we were looking for incredibly talented, experienced, capable, driven people who are culturally a solid fit and I guess that's what a lot of companies would say but the cultural part I don't think they would say that. And for us the recruiting process is probably doubly challenging because you recognize that our culture is core and integral to who we are who we will be when we become a $500 million company so when we do recruiting, especially for certain positions, the background of the person relative to the sports we serve is really integral to whether or not we hire them.

We need people who understand us in implicit way, share that passion and because of that passion develop a unique set of insights and fit into this culture so much better. I don't want to divulge the full extent of how we go about head hunting because it's in part secret and it's art more than science. We do use headhunters occasionally but more often than not we do not and the primary reason is that this is a group of individuals who, especially the management team, who have been here a long time. They've grown up in the industry and in the sports and we're all pretty well networked and connected.

There's -- the grapevine in this industry is very tight. If this industry is anything it's collegial and people know one another through service on non-profit boards, in the environment, in the outdoor industry of which many of us are on, through the sports themselves and through friendships so we leverage all of those sort of non mainstream avenues to recruit and I think we're pretty damn good at it because we are such an integral part of the community of users and it's just a core part of the industry.

When it comes down to skill sets, I like to say that BD is the locus of where real professional acumen meets true passion for the sports and you bring that together in this unique culture or alchemy called Black Diamond and you create a pretty unusual organization. So in summary, we're looking for people with experience, acumen, insight and a drive. We like to get them on the younger part of their career trajectory. I think we have proven if you look at this management team and the people here that we can attack some pretty good goals with -- if we have the basic skill sets and we like to take people who are on the upward movement in the trajectory of their careers versus on the twilight of plateauing.

Okay perfect. Well, thank you very much. Regarding some of the top line sales, can you quantify at all the amount of sales that are made on line versus in the retail stores?

Andrew, this is Robert. You know, obviously we're -- oh Rob Young, sorry. As we've talked in the past, our business is primarily more a wholesale with a growing web based retail market but they're still fairly relative to our overall business so it's still less than 5%.

Okay perfect and I believe you guys talked about how you're seeing some positive indications in your order book for April and first part of May. I was hoping -- can you quantify that on a year-over-year basis at all?

Rob, this is Robert. What we're seeing when we mentioned our order book was more for fall '11 so those will be products that ship in July through December and so after the OR Show, the ISBO Show and the SIA Show our sales teams hit the road and start showing the line in a little bit more detail, then also start taking bookings here in Salt Lake and I think we feel comfortable in what we've seen. We're upbeat. We're positive on the numbers that we've been able to see so far from key accounts and so that's one reason that we feel confident in the guidance that we still have issued through the year. We will plan on at the end of Q2 and Q2's call just talking a little bit more about how that will look for the back half of the year but for now we feel pretty good.

Okay and then lastly, do you guys know the fair market value or the cost to replace your facility in Salt Lake?

Well, we have not had this place appraised in a very long time, have we?

Yes it's been probably over 10 years ago and but during -- well, actually let me back up a little bit.

I'd like to know it's priceless if you've been here, right?

But, Rob, actually I may have misspoke because when we went through our purchase with Clarus we actually had to have a fair value assessment of the buildings and the land and if I remember correctly, and I am going a little bit off memory, there was little bit of a pop in the fair value relative to the land but the buildings were about what we had spent, mostly because we have done such serious renovations in the last five, six years on our buildings that they were probably a little bit more close to fair value but the land did increase quite a bit.

Okay perfect. Well, hey thank you very much.

[Nelson Obust], Winfield Capital.

Yes I had to jump off for a minute. I hope this wasn't answered but it's become clear that year-over-year salary rates in China have gone up 25% to 35%. I just wonder how that fits into your general planning.

Nelson, yes thanks for the question and others have been asking us about just the overall inflationary environment and when you think about our business there's a lot of -- I mean it's a very dynamic environment out there and there's a lot of issues that we have deal with and when you think about inflation it's coming from raw materials, both fabric and metals and you have more raw material cost usually in fabric items than you do in metal hardgoods items. You've got the exchange rates of the RMB and the euro, the labor rates in Asia and you've got shipping costs. You have duty issues and you have lots of factories and more demand.

There's a lot of things that we work on to try to mitigate that. One is we made a decision 20 years ago when we started this Company to "development long-term relationships with those we do business with and develop truly strategic partnerships with our critical suppliers." And I think that's paying off now in that we are able to mitigate and work with them on some of the inflationary costs they're experiencing. We're experiencing it too but I think we're able to mitigate it better than some.

Secondly, you can impact some of that through your design process and what you're designing and then where we can also mitigate it is in part through how we negotiate with higher volume with our suppliers and if we can give them steady volume. And then last and certainly not least, was the investment BD decided to make five years ago in creating BD Asia where we run our own operation and a big part of that operation is what's the throughput? We're growing. We're running more and more throughput through that global distribution center, through our manufacturing operation and through the development team, the QATC people who are there, so volume helps us mitigate that.

That said, for sure we're experiencing increased pricing. We're dealing with it the way I just said and then some of the way we will deal with it is the way all of our competitors will deal with it, which is passing some of this cost through to our consumers in spring 2012 but fortunately we have a very strong brand, a leading brand. We have good innovation products that we brought out and we continue to bring out and from what we're seeing right now we believe that we will be able to deal with these increasing costs out of Asia better than a large number of our competitors.

Okay thanks.

[Carl Kepner], [Kepner Assets].

Congratulations on a great quarter. Question was partially answered earlier. You guys have a state of the art new distribution facility and therefore you appear to have an incredible online opportunity. What steps are you taking to leverage that? You had mentioned earlier that right now it's less than 5% of sales.

Hi, Carl, it's Peter. Yes I think we've said previously in some of the guidance that we've given out on our plans was that part of our plan is to hire a Direct-to-Consumer Sales Director that is a position we are actively recruiting on, working. We're making other investments in our direct-to-consumer business in many different ways, both here and in Europe as well, just at a preliminary stage. So we're making those investments now with the idea that that will be one area of growth for sure and that's one way to leverage that distribution center we just invested in as is the continued growth we'll get in our wholesale channel through acquisitions and through the apparel initiative.

Thanks very much.

[Adam Forsland], a private investor.

As a shareholder and user it's come to my attention that certain crampons, stainless steel crampons, are experiencing catastrophic failure on their front points in an early stage of use. I know you guys have addressed this by adding 38% more material in those front points, which means you're aware of these failures. Given Clarus' history with defective products I am very concerned that this dangerous failure point is not being fully addressed as well as the contradictory data centers have gotten from Salt Lake City. How are you addressing this going forward?

Adam, I am not sure if you're with a competitor, who is trying to erroneously attack the Company but it's totally salacious. There's nothing truthful to what you just said. Our stainless steel crampons are rocking. They're turning the industry upside down. Their sales growth is increasing. We've proven through all of our testing the superiority of stainless in a multitude of ways over [chrome alloy] steel environmentally, strength wise, performance wise, durability wise so I don't know where you just made up that story from. It's not anywhere documented.

I am not making it up. It comes from my own first hand experience like I said, as an end user, as well as some other users' experiences and--

Adam I appreciate the feedback but why don't you contact us personally and I'll be happy to talk to you but this is not--

I have attempted to do so. I do so. [Bill Belcourt] has not addressed this issue and I've not been able to get [Roger Strong] to address the issue directly either.

Well, Adam, thanks for that feedback and I will make sure I follow up with those two gentlemen who work for Black Diamond on your situation, which is absolutely idiosyncratic to anything that we've seen. So can we get the next question here please?

We have no further questions in the queue at this time.

All right, Manny, let's -- thanks. So let me wrap it up here. I want to thank everyone for listening in to all those questions regardless of what they were about and I hope that our presentation here provided more insight into our performance for the quarter and our outlook for the rest of the year. And I certainly look forward to speaking with you all next quarter and at the various conferences that we will be participating in. Thanks so much.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.