Clarus Corp (CLAR) 2011 Q2 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 second quarter ended June 30, 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'll 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.

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 the actual results could differ materially from those expressed or implied in the forward-looking statements.

Potential risks and uncertainties that could cause the actual results of operations or financial condition of the Company to differ materially from those expressed or implied by forward-looking statements used in the 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 of 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 through the Company's public reports filed with the Securities and Exchange Commission, including the Company Annual Report on Form 10-K, Quarterly Report on Form 10-Q, and current reports on Form 8-K.

All forward-looking statements included in the conference call are based upon information available to us as of the date of the conference call, and speak only as of the date hereof. We assume no obligation to update any forward-looking statements to reflect events, circumstances after the date of this conference call.

I would like to remind everyone that the call will be available for replay through August 22, 2011 starting at 7.30 p.m. Eastern Time. 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, www.blackdiamond-inc.com. Any redistribution, retransmission or rebroadcast of this call in any way without the express written consent of Black Diamond, Inc. is strictly prohibited.

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

Thank you, Diana. And good afternoon, everyone.

As you saw at the close of market today, we issued a press release announcing our financial results for the second quarter ended June 30, 2011. This was a strong second quarter for Black Diamond as we achieved double-digit sales growth over the same year-ago quarter and continued to exceed the growth rate of an already healthy outdoor equipment industry. These results were driven by the successful launch of a number of new products, solid sales and marketing execution, and continued investment in our operational platform.

In fact, we believe that the quarter's performance continued to validate the proactive steps we made two years ago to invest in product development and establish a flexible and dynamic supply chain to meet our current [growth] needs.

This quarter marks the completion of our first full year of operations since combining Black Diamond and Gregory into Clarus as a public company. Looking back over the last 12 months we are extremely proud of what we have accomplished, and based on the first half of 2011 we believe that all of our stakeholders are seeing the value of what we are creating. Integration is complete, the cost savings have been realized, and we believe the true synergistic benefits of combination are just beginning to be realized.

As we continue through the second half of 2011 we will remain steadfast in our strategy of investing in product design and development to deliver high quality, innovative product demanded our retail partners and our loyal customers.

Our new Vice President of Gregory has positioned the brand for its next phase of growth and product line expansion. In fact, meetings during the quarter have instilled our retail partners with a renewed confidence in the brand and how it is being managed and operated. Our new Director of Apparel is diligently advancing our entrance into the technical apparel market, and we expect to remain well on track for a Fall 2013 initial launch.

Earlier this year we outlined a five-year organic growth plan entirely from existing product categories, and we are encouraged to be outperforming that plan in the first half of year one of the plan. During the first half of 2011 we also augmented the five-year organic plan by announcing that we expect to launch BD Apparel, potentially as early as the fall of 2013.

As the business expands we are also exploring other long-term growth initiatives which we believe may either extend our margins, increase our control over our products in manufacturing and/or accelerate our distribution. These include initiatives to backward-integrate production of certain key products or product categories or to gain more control over certain international markets in the future.

Asia, for example, is a large market and an important market that we believe has significant long-term growth potential. Both Gregory and Black Diamond have established brands and a significant market share in Japan. It is often said that the rest of Asia often looks to Japan for product and brand, and we are established and growing, both in Korea and China, as well.

In addition to these internal investments we are also looking to leverage our global operational platform through strategic acquisitions designed to build Black Diamond into one of the world's most respected, active, outdoor lifestyle and equipment companies.

Now, before I comment further, I would 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'll return to discuss additional details about the quarter and how we plan to seek to increase shareholder value for the remainder of the year and on into 2012. Finally, we will open the call up for your questions. Robert?

Thanks, Peter, and good afternoon, everyone. Before we get into the numbers, I'd like to mention one important factor that will help put our financial results into perspective. When comparing to the prior second quarter I will focus on proforma comparison which we believe are the most meaningful to our investors. As a reminder, at the time of our May 2010 transaction Clarus had no business operation. As a result Black Diamond Equipment is considered to be our predecessor company for financial reporting purposes. As Peter mentioned, with the completion of the second quarter this marks the one-year anniversary of the combination of Black Diamond, Gregory, and Clarus.

So beginning with the third quarter in 2011 we will no longer be referring to the predecessor company for quarterly comparative purposes. However, for year-to-date comparisons predecessor information for 2010 and prior periods will still be shown. For this quarter we still believe proforma results, in particular proforma sales and proforma adjusted gross margin, which include Gregory and Black Diamond and Clarus for the prior year quarter are the most useful and instructive comparison.

So with this in mind our total sales in the second quarter of 2011 increased 19% to $28.3 million compared to proforma sales of $23.7 million during the same year-ago quarter. Proforma sales include revenue from Black Diamond and Gregory. Sales growth was broad based and we experienced global growth [and revenue increase] from climbing protection and general mountain products during the quarter. This sales performance is particularly gratifying in what is traditionally our lowest volume quarter seasonally.

As many of you are aware, the foreign exchange markets continue to experience volatility, and BD operates across multiple currencies, primarily the US dollar, euro, and Swiss franc. Net, net the Company experienced an approximately $1.4 million revenue benefit during the second quarter primarily from a rapidly appreciating Swiss franc. On a constant dollar basis the Company's revenue still increased $26.9 million or 14%.

Gross margin in the second quarter was 38.9% compared to proforma gross margin of 39.8% in the same period last year. The 90-basis point decrease in gross margin was primarily attributable to a higher percent of international distributor sales which have a lower overall gross margin but comparable operating margins.

Total operating expenses in the second quarter were $11.9 million compared to $17.6 million of combined operating expenses in the same period last year, which included approximately $5.4 million of nonreoccurring merger, integration, restructuring, and transaction costs associated with the May 2010 combination of Black Diamond, Gregory, and Clarus.

With the integration of Gregory completed in the first quarter we did not incur any restructuring charges nor do we foresee any additional costs from the integration to hit the P&L going forward. As we reflect on the integration of Gregory into Black Diamond we estimate that we have realized approximately $800,000 and $1.2 million of cost savings in Q2 and the first half of 2011, respectively. These savings are enabling us to make significant investments primarily in people to drive the growth initiatives for the future.

SG&A for the three months ended June 30, 2011 included a $1 million charge in noncash equity compensation compared to $3.7 million in noncash equity compensation in the same period last year. Approximately $600,000 of the second quarter charge will be fully spent by the end of 2011.

For the second quarter of 2011 we recorded a net loss of $811,000 or $0.04 per share. Excluding $2.1 million of noncash items adjusted net cash before noncash items was $1.3 million or $0.06 per share. Adjusted EBITDA in the second quarter of 2011 was $1.1 million which excludes $1 million of noncash equity compensation from EBITDA. Adjusted EBITDA for the first six months of 2011 was $5.7 million which excludes $1.9 million of noncash equity compensation and $800,000 of restructuring costs.

We define adjusted EBITDA, which is a non-GAAP term, as earnings before interest, taxes, other income, depreciation, amortization, and noncash equity compensation. A reconciliation of adjusted EBITDA to GAAP net income is presented in the earnings release we issued today, which is also available in the Investor Relations section of our website.

Our balance sheet at June 30, 2011 remains strong. We had $1.7 million of cash compared to $2.8 million at the end of 2010, and $15.5 million outstanding under a $35 million revolving credit line with Zions Bank, compared to $14.7 million at December 31, 2010. Total long-term debt which includes, among other things, $14.5 million of 5% subordinated notes due in 2017 stood at $31 million.

The Company generated cash in the second quarter and for the first six months of 2011 has continued to invest that cash in working capital to support our growth.

We finished the first quarter with an excess winter inventory in Europe due to poor ski conditions, and we have modified our production planning going into the fall/winter 2011 season to seek to incorporate this [in-line] inventory.

In closing, we are very pleased with our continued top line sales growth in the second quarter. As we have discussed in the past, we view our business as a two-season business -- spring/summer, fall/winter. We think about, plan, and proactively manage our business around two six-month cycles.

As a result we believe that it is appropriate to revisit our full-year 2011 outlook and to comment briefly on 2012. In February we expected revenue in 2011 to between $135 million and $140 million. We now expect sales to increase to a range between $140 million and $145 million.

Thinking ahead to 2012 we are still collecting orders for spring '12 but based on early indications of recently completed trade shows, both in the United States and in Europe, we remain confident that the business will see organic revenue growth in 2012 of at least 12.5%, albeit it on a higher base for 2011. This is consistent with our long-term outlook of 12.5% compounded growth in our five-year organic growth plan.

This completes the financial portion of our presentation. Now I'll turn the call back over to Peter. Peter?

Thanks, Robert.

As I noted in my opening remarks, we have completed the first six months of 2011 with another strong quarter, largely based on market share gains from innovative and award-winning products. The outdoor industry is growing solidly on a global basis, and the metrics we are receiving from our retailers show we are growing faster than the market. We attribute this to a conscious approach of continuing investment and product development in 2008 and 2009, while many of our competitors were cutting costs in this area. We believe that we are now seeing the benefit of this steady investment strategy as these products both driving revenue growth and receiving superb reviews in the media and at trade shows, while many other companies are now just beginning to make up for lost time.

We are in the midst of capitalizing on that momentum with the launch to the trade of our very innovative line of new products for spring 2012. Yesterday we wrapped up our attendance at the most vibrant and well attended trade show in the history of outdoor retailer, and we are exceedingly pleased by both the buyer and media attention given the spring 2012 line.

We unveiled truly exciting and at times paradigm-changing new products in each of the major categories we compete in, and that includes carabiner, harnesses, crampons, helmets, trekking poles, lighting and packs. The consistent message we received back from the trade was that these innovative 2012 products on top of this year's launches combined with our brand ascendancy, and consistently strong delivery would serve to further accelerate our growing global leadership.

In our Gregory business we have hosted a number of meetings with key retailers and their response to our 2012 line has been positive. They are impressed with, among other things, our new products, management and operations, and we expect them to increase their commitment to the brand.

In addition to driving sales during the quarter, our innovative products have earned numerous coveted awards that have included Backpacker magazine's Editor's Choice Award and Outside magazine China Gear of the Year Award to our game changing Z-Poles. Climbing magazine's Editor's Choice Award for our radically new gridlock carabiner, and Outside magazine's Gear of the Show Award to our new Magnetron beemers that also received the full front page of the trade show's day-two [Show Daily] magazine.

We've also invested marketing dollars in a number of areas to raise BD's profile. These include direct-to-consumer marketing, visual merchandising, and a number of special events around the world. We were also [pleased] by May's National Geographic cover piece on climbing in the Yosemite Valley California with its focus on BD-sponsored classic climber Alex Honnold. BD gear and logos were prominent throughout this visually engaging piece.

BD continues to navigate the sourcing and production landscape throughout Southeast Asia that has impacted every company with production in the region. Complications included increases in labor, raw material, and logistics costs, and a gradual appreciation of the Chinese yuan against the US dollar. However, we have noticed these trends impacting (inaudible) companies, like Black Diamond, much less than apparel companies. Nevertheless, as I mentioned in my opening remarks, we are taking proactive steps to mitigate these effects over time by investing to control more of our own production by reverse integrating where appropriate. As volumes have increased we are leveraging these costs over our fixed cost base. We also have a strong team on the ground in Asia that works diligently on our supply chain to help ease price increases.

Lastly, we have developed long-term strategic alliances with our vendors in Asia dating back over 20 years. Due to these relationships we have reduced the amounts of competing OEM vendors we work with and have been able to work collaboratively to moderate any inflationary pressure. We feel comfortable raising prices to the extent the market will allow and don't expect compromises to our margin in 2012 as a result of this inflationary environment.

In the last quarter's call we fielded several questions on what impact Japan's tragic national disaster had and would have on our substantial Black Diamond and Gregory business in Japan. Now with the benefit of another quarter behind us we are relieved to confirm to you that the negative impact on Gregory was both short-lived and negligible, while for Black Diamond, with our responsive supply chain and market-leading [lighting] business, it actually proved a catalyst towards [additional] growth.

As we prepare to start shipping fall 2011 orders we are pleased by both the continued buildup over the past several months and by the fact that there are now some of the strongest bookings relative to sales goals that we have seen in the past decade.

Related to future orders and business, early indications for spring 2012 confirm that the revenue synergies that we stated would accrue to Gregory through integration are happening both in Europe and North America at a level and at a rate of growth beyond what we had anticipated. This is a testament to the synergies obtained by combining innovative, iconic product with a respected global sales and operations infrastructure, [from] a firm that has instilled special e-retail (inaudible) and its consistent and steady strategy to a partnership approach to doing business.

The growth that we are seeing across all product categories has contributed to a very dynamic atmosphere here at BD. With this momentum we are proud to have hired strong additions to our Team. First, we hired a seasoned outdoor industry leader in Bill Kulczycki as Vice President and General Manager of Gregory, to provide brand and operational leadership. He has done an excellent job taking the reins of Gregory and has given our team great confidence as we enter the brand's next phase of growth.

We also hired Tim Bantle to lead our new apparel initiative. His invaluable experience serving as Business Unit Director for Technical Outerwear at Patagonia makes him a perfect fit as we remain committed to our fall 2013 limited launch. Tim has been in the saddle for less than 90 days but is making fast progress on high level budgeting, structure, direction, talent identification, and other critical strategic direction.

I don't want to say much more about apparel other than to say we intend to launch apparel in a manner consistent with our style and how we launched other new product initiatives, which is to target directly our core customers. We are receiving global interest in our plans from our distributors around the world. We continue to believe that the opportunity to achieve $250 million in annual revenue five to seven years from the date of launch is achievable. We believe that apparel will improve our overall gross margins and help to leverage our overall infrastructure and supply chain. At this point we are confident that launching apparel will not be our challenge. Getting it right, delivering innovative product on time is where we are focused.

In addition to Tim Bantle, subsequent to the end of the quarter we announced several new hires to match our continued growth and serve the sales and marketing team as we continue to expand. These included the newly created positions of Director of Marketing, VP of Supply Chain, Black Diamond Equipment Climbing Line Sales Manager, and Direct-to-Consumer Sales Manager. Finally, we have hired key executives to fill the roles of Vice President of HR, Black Diamond Retail Store Manager, and the Marketing Director of Europe.

Before we wrap up our prepared remarks and open the call to questions, I want to clarify and update the long-term vision and opportunity that we've established for Black Diamond. Since the completion of the May 2010 transaction we have repeatedly talked about a $500 million annual revenue target by 2015 from a combination of equal parts organic growth and acquisition.

In early February of this year we announced our baseline five-year strategic plan, which called for 12.5% compounded annual growth just from existing product categories, which excluded apparel because of our belief that apparel represents a significant long-term opportunity to have a material impact on our growth over the next decade and beyond.

The baseline plan also calls for meaningful operating leverage and accelerating operating margins in years 2013, '14, and '15. Finally, the baseline plan outlines approximately $13 million in additional operating expense investment during the five-year period, excluding the cost of launching apparel.

Since February we are ahead of plan and, as a result, we have increased our revenue guidance for 2011 and, as Robert mentioned earlier, we expect our momentum to continue into 2012 with at least 12.5% revenue growth on top of higher 2011 revenues of $140 million to $145 million.

Since February we have also introduced our intentions to launch apparel as early as the fall of 2013 and targeted $250 million as a revenue target for apparel five to seven years from the date of launch. This is materially additive to our 12.5% compounded annual revenue growth expectation.

Taking all of this into context together we expect apparel to increase our annual revenue to be in excess of $250 million by the end of 2015, just two years into that apparel launch. At that time we expect our revenue growth and margin expansion to be accelerating. Again, this is before any acquisition.

Our team continues to develop and evaluate a pipeline of acquisition opportunities. While I don't have anything more specific to report on today, we certainly consider this to be a core part of our strategy and continue to believe that we can add $250 million in revenue from strategic acquisitions by 2015.

Thank you, everyone, for joining us. I think the second quarter wraps up a very good first half of 2011. We expect strong momentum for the remainder of 2011 as we continue to grow our global organization, deliver award-winning innovative product, execute on product delivery, and forge strong partnerships with our retailers.

Black Diamond's vision supported by a robust product pipeline is set squarely on projects expected to enhance our brand, reinforce our operating infrastructure, and bring value to our shareholders and partners in the specialty retail industry.

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

Thank you. We will now begin the question-and-answer session. (Operator instructions.)

Our first question comes from the line of Sean McGowan from Needham & Company. Please go ahead.

Thank you. I was wondering if you could -- I missed the very beginning of the call so I apologize if you did call these out. But I was wondering if you could call out some particular products that drove the positive sales surprise?

Hi, Sean. This is Peter. Yes, we had strong growth from all of the major categories we're in this spring. There wasn't a single category that really took responsibility for the majority of the growth. It was well spread out,. And we don't break out detail. However, what I will share with you is that some of the real standouts that were clearly -- some of the new products, which included the Z-Pole, absolutely stunning success, the new spot headlamp, the gridlock carabiner, those are a couple just to name a few that really were driving the business substantially.

Anything that was a little softer than you thought it would be?

Say that again?

And was there anything that was a little softer than you thought it would be?

Candidly, nothing really stands out. I mean we had certain new products that really drove things, but overall the other categories were performing relatively to expectation. And what is typical within a business like ours where we have a fairly diverse portfolio, I like to say ecosystem of product, you're going to have some that race ahead of anticipation that a very strong supply chain that we have can respond to well, and you're going to have a few that do a little bit less than you had anticipated for a variety of reasons. But that's pretty normal when you've got 27 product categories like we're in.

Indeed. And a question for Robert, any comments on expected tax rate here for the balance of the year?

Thanks, Sean. And maybe this is a good opportunity for me to remind everybody that the primary purposes of including the net cash income reconciliation is to highlight the benefit that we get from the NOL. In other words, per GAAP we have to report our tax provision based on an effective rate analysis, which at the end of Q2 is 30%. But we really don't necessarily anticipate paying 30% in taxes because we are able to utilize our NOL and defer tax payments on US-sourced income. So that's one of the highlights on the net cash income reconciliation. But so that 30% seems to be pretty much in line, Sean, with what we had anticipated, kind of our expected earnings by the end of 2011.

Okay, thanks. That's what I was looking for.

Our next question comes from the line of Rob Young from Wm Smith & Company. Please go ahead, sir.

Hey, guys. Good afternoon.

Hi, Rob, good afternoon to you.

Hey, I was just curious, just wanted to clarify the 2011, or excuse me, 2015 number that you gave. That's $250 million in organic revenue that you're expecting, that includes only existing products, and then an additional $250 million from apparel. Is that correct?

Not completely. So let's reframe this. What we are saying is that we believe that our organic growth from the categories that we're in will take us approximately to $250 million.

Okay.

In addition we're going to launch apparel in 2013 which should contribute to that overall number. In addition to that we have our acquisition strategy which is another $250 million.

Okay, I got you. Okay, I've got it. Can you comment, at all, on the operating margin that you'd be expecting with the apparel side coming online in 2013?

I'm going to start that but then pass it to Robert, in that it's going to be a very focused, limited line in 2013, and there's a couple things we should note about apparel. Number one, is that overall apparel does have higher margins than some of the (inaudible) categories we're in. However, we should note that when you start you don't have the volumes that some of the larger players have. So it would take one a few years to grow into the level of margins that I think we believe are sustainable.

And, thirdly, in year one as we're looking at this it's not going to be material enough to the overall business to move margins I don't think one way or another. It's going to be in the following years as the apparel revenue grows quickly and becomes an ever increasing percentage of the overall mix that you've going to begin to see the overall margin mix move upward. But in fall 2013 it's just not going to be that meaningful to the -- when you think about the size of our business (inaudible) launched.

Okay.

Rob, this is Robert. I would just echo what Peter said and just add a little bit, that the investment that we'll make in clothing will have a higher OpEx component, and so you'll have more cost initially than necessarily that volume would show a good return on, at least in the initial years. But as you move out into the out years and you're able to leverage more of that, that's when you start to see the benefit in margins.

And that's not only true for apparel, that's true for all the product lines that we have at BD. As we add more throughput through our own manufacturing processes and lever even our OEM product on a global platform we're able to feel confident in projecting higher gross margins and also operating margins. So we're still pretty bullish on that.

Okay, perfect. And then briefly can you talk a little bit about what's driving the growth internationally? Is there a sort of product out there? Or, I mean, is it mainly related to Black Diamond or Gregory, or what's going on there?

Sure, Rob. I mean we don't break out our sales by Gregory and Black Diamond, but let me say the following is that we are in specialty markets with users. Users around the world respond to innovative product that allows you to perform better, makes you more comfortable or makes the situation safer. So that's not unique to the US or any one country. It's a universal Esperanto. So what we're seeing internationally is a response to the product, much as we have in every other place.

However, I think fundamentally what's really driving international growth now -- our international growth is very robust -- is the fact that we have the ascendency of a brand that is beginning to be better and better now. And our maturation structure as a brand lags internationally behind America where we began, and then began to move our business offshore. And that transformation as a brand that was known for telemark skiing, hardcore, back country, and climbing is now becoming a brand that is known to be a leader in the mountain equipment category.

That's what's occurring, along with additional investment by us in [corp ads,] another person investing time and energy in these markets, both there and bringing the distributors here, and doing a more intense job and putting more time into the job of bringing them up to speed on the brand. And, hence, they're responding quickly, strongly, and in part because they are in markets that are growing very nicely relative to outdoor products, especially when you talk about Southeast Asia or the maturing economies of Southeast Asia, or even places like South Africa or Russia, let alone China. So you've got a combination of factors that are all really playing to our favor right now.

Okay, great. And is that growth essentially reasonably expected to be sustainable or is that kind of just because you're moving into some of these different markets?

I believe that the overseas growth is going to remain more robust than some of the more established markets because of the moving upward economically of so many people in some of these parts of the world, the fact that participation numbers are increasing, and because as our and our distributors' growing investment into these markets because we see how the markets in specialty retailing are responding to who we are and what we are. So we're quite bullish relative to the prospects overseas for Black Diamond.

Okay, perfect. And then just, lastly, relative to the timeline that you distributed on the Gregory integration, assuming that you would be making an acquisition, is the integration timeframe fairly similar with an additional acquisition?

You know, obviously, each acquisition presents its own unique and potentially somewhat idiosyncratic characteristics that have to be assessed. It's not a cookie-cutter. But I'd say this, if you took a brand similar in size, complexity, operational scope to Gregory, I believe based upon the experience we had -- just sort of putting my thumb in the air and thinking about the time we took to first figure out the organizational structure, the fact that we had to reengineer BD, then come back to address the strategy, it took us fundamentally a year from the start to where we were fully integrated and feeling like the benefits were accruing to the organization. If we were to repeat that right now with a similar sort of company I would say that I bet we could knock three to four months off of that.

Okay. Okay, great. Well, thanks very much, and congratulations again.

Thanks, Rob, appreciate that.

Our next question comes from the line of Torin Eastburn from CJS Securities. Please go ahead, sir.

Hi, it's actually Arnie Ursaner backing up Tory this afternoon. Good afternoon.

Hi, Arnie.

How much of your revenue guidance change is due to currency? How much due to stronger volume? How much due to price?

Good question. And this is Robert. As we mentioned in the script that we had about a $1.4 million tailwind from currencies during Q2, so on a constant currency basis we grew 14%. When we look out through the remainder of this year and look in our little crystal balls and try to forecast where currencies might end up, generally that's based on kind of where they're trading at the time. There is a component that is FX based but we do believe that on a volume basis, not necessarily on a price basis, but on a volume basis we can achieve sales of between $140 million and $145 million. So there's not a lot of FX -- there's not FX built into that assessment that's based on volume.

Okay, and then you mentioned several times innovative new products. You highlighted the Z-Pole and some other ones. Can you maybe expand a little bit? You mentioned you just had a very successful show where you demonstrated some key new products. Maybe highlight the three or four ones you believe based on retailer feedback are the ones that are most likely to drive your growth both, you know -- in 2012?

Yes, yes, okay, Arnie. Yes, let me just start by saying that the (inaudible) Outdoor Retailer Trade Show that ended yesterday in Salt Lake City was perhaps, most likely a credit to the preliminary numbers that Nielsen Media, who produces the show, gave out, without question the most successful, best attended --by perhaps as much as 10% -- and high equipment of exhibitors, Outdoor Retailer Trade Show in history. It was hard to get through the aisles. The energy there was just, in sharp contrast to what you'd sort of hear on Wall Street as you left that evening to go home, is two different worlds. Confidence and vitality in outdoor retailing, more exhibitors there than ever before. Just great energy and a great degree of confidence that the growth and robustness that people have experienced it appears people believe can be resistant to some of the economic headwinds.

So, with that, let me tell you about a few of the exciting products that we launched that we believe will help drive our growth. And when I list them understand that there is two components to the growth you achieve when you launch innovative new products. First is the growth in the product, itself. And, secondly, is the halo effect you create for the whole category because you are further augmenting your position as an innovative market leader, ahead of others. And sometimes part of your success in leadership is based in part upon what others don't do as well as what you do. And, as I said in my opening remarks, the lack of what others were doing was somewhat shocking by the complacency, and then you add on the fact that we had actually accelerated our offerings in really innovative new products really was very marked.

So, yes, let me highlight a few of them. Number one, carabiners -- carabiners is a very substantial robust, growing, global category for Black Diamond. And it's one that the brand is built off of, because the product represents security, strength, and it sort of personifies a lot about what climbing is like. You need strength with light-weightness, you need ergonomics and beauty. You need reliability. In the carabiner world we turned it upside down at this trade show with the introduction of the world's first magnetically locking carabiners. This is a platform product where we have applied for a patent. We're conf- -- we believe we will get those. This provides a new level of performance we've not had in carabiner before. It's a game changer, and we believe this will drive a huge amount of business or, let me say, rephrase that, a substantial amount of business to our carabiner business to these products we launched [this Q] (inaudible) platform category. And there's going to be a halo effect to the rest of our carabiner.

We also launched some other free climbing [biners and draws] I won't go into, but the Magnetron was a standout. It received from Outside magazine the Gear of the Show Award.

Staying within the category of climbing, we launched some truly innovative new harnesses relative to their comfort, their support, their light-weightness, and their breathability, and the design and construction that went into these are something that I think will be the marvel of the running shoe industry. They're clearly going to drive global growth, and we have good margins on them, and they're very competitively priced.

The third category in climbing that has been a very strong growth category in the sport for several -- for many years, as it has been in other action sports, is helmets. We launched the second generation Half Dome helmet. It's been an iconic product for us over the years, a very modern, lightweight, well priced, very comfortable, with great ventilation helmet. That received very good feedback at the show in a category that is growing nicely. Has great brand identification for us. They're really excited about that category.

So three very significant products in the realm of climbing, one of our three primary categories.

In the realm of mountain products we built upon the incredible success we've had with the game changing Z-Pole. We added new Z-Poles to the line, simply because that product has just taken the market by force so we wanted to build upon our success by spinning that family into new products.

Also in the mountain products we launched several new headlamps to capitalize both on the growth in that market, the momentum we have, and some of the design engineering concepts we have come out with that has given us so much momentum in that category in 2010 and now in 2011.

And then the third category that we launched significant new product in was packs. It's an important category for Black Diamond and Gregory and both Black Diamond and Gregory launched pretty significant new collections of packs that were at the show, well received.

So those are the highlights, and those will drive sales to the products themselves, to the categories they reside in, and the entire BD brand just because together they create a lot of synergistic force and momentum.

That's very helpful. Thank you. One final quick question -- footwear, where does it fit in either your organic growth or apparel? How are you thinking about footwear?

Footwear is a logical extension of what we do. We're in ski boots now. There's no harder category of footwear to get into than what's involved in designing cutting-edge, state-of-the-art paradigm-changing ski boots. So footwear is a logical category for us to enter.

We may enter it at some point in acquisitions, and we don't talk about the acquisitions we're looking at. Or at some point we may enter it organically or some combination thereof. But what I will share with you we do not currently have any plans in development relative to our own launch. We are totally focused at this point in time in putting those resources to apparel, which is a huge initiative for the Company. And so that's our focus at this time. But I will share with you that it's not a matter of if, it's a matter of when with footwear.

Thank you, again.

Your next question comes from the line of Andrew Burns from D.A. Davidson. Please go ahead, sir.

Hi, Peter and Robert. Congratulations on the quarter. Hoping you could elaborate on a comment I thought I heard -- it seems like you mentioned that you had the strongest bookings relative to sales goals that the Company has either ever had or had in a long time. Did I hear that correctly?

Yes, Andrew, hi. It's Peter. Yes, what we said was that we have some of the strongest bookings relative to sales goals that we've had in a very long time. So what that means -- and they have varied year to year for a variety of reasons relative to your sales goal, but they're very strong this year. And so it gives us high confidence in our numbers and, hence, in part why Robert shared with you that we are raising our guidance.

Okay, and when you look at the low end and the high end of that guidance is the wiggle room there going to be largely be determined in the fourth quarter? I would think the third quarter ship-in would be largely baked at this point, is that fair?

Yes, it's pretty fair. I'll say that, and that is we have very good bookings and we plan to ship those starting very shortly here, starting in August. And so our production, our supply chain has been going overall quite well. We're going to ship those goods. We have a lot of confidence about the strength in the third quarter.

And, yes, the fourth quarter when you're in winter sporting goods business has a degree of dependence on [ASAT]. And so, yes, the economy, snowfall, cold, things like that will come into play, and that's why we give a range. If those line up well, it could be incredibly robust. If they don't line-up well they'll be in the range of what Robert has said, but perhaps in the lower end of that range.

Got you. Okay, and then the gross margin guidance was not updated. I guess that's still at 36% to 39% for the full year. To hit the low end of that would mean some serious year-over-year declines in the back half. Just wondering if the room in that range is still largely currency or is there any product mix shifts that we should be considering when working on our models for the back half given some of the new ski line introductions or anything like that?

Andrew, this is Robert, and good question. So year-to-date for the first half of the year 38.7% and that is on, as you mentioned, on the upper end of guidance. We left guidance where it was because it's such a broad range of 36% to 39%, I didn't really feel like I needed to come back and give a whole lot more color on it because we're kind of on the upper end.

As we look out into the back half of the year or the fall season I don't -- there's nothing that I see on the horizon that really causes me a lot of angst or a lot of concern that that's going to materially drop. And so there's nothing -- there's not any products that are going to be discontinued or we've got to do some heavy discounting to new products. We feel pretty good at this point, so I think we're going to continue with what we've shown and still feel okay about it.

Okay, just wasn't sure -- in recent weeks, the Swiss franc has been volatile and see some flight to safety there. Didn't know if we should be considering some of the currency impact from that Swiss franc/euro translation and looking at the margins?

Yes, good question, also. And so, as you know, we're dollar functional in the US and then Swiss functional in Switzerland. And so we have a currency translation from the euro, Swiss on a lot of sales that Europe has. And then those get translated from francs into dollars. And so we have this kind of this triangulation where our true exposure to a large extent is actually euro/dollar. And so the fact that the franc has really strengthened certainly impacts the statutory margins of our European subsidiary. But when those are announced and are translated back into USD, as you saw and as we reported today, we're getting a little bit of a tailwind on the sale side of $1.5 million, $1.4 million.

Keep in mind, too, that when you translate those amounts over you get a pop in revenue but you also have then higher cost of goods and higher OpEx. And so if you just isolate the foreign currency when you translate that from francs to dollars you generally keep the same percentages. The dollar amounts move but the percentages stay the same.

The other impact is your mixture of how much of your revenues and COGs are actually euros, Swiss francs and dollars, and that's what can have a little bit more movement, not only on your revenues, your margin, gross margins, and also your operating margins. And so that can have its impact, as well. It's just pure translation. It doesn't really impact you as much as you might anticipate.

Thank you. And a last question, just looking in the avalanche safety category there was a couple of acquisitions. Mammut acquired SnowPulse, Deuter acquired Ortovox. Just wondering if you are looking to expand your product line in avalanche safety and whether these changing ownership changes the competitive landscape in any way for avalanche safety gears looking forward?

Yes, [you're in the markets.] Obviously avalanche safety equipment is a category of importance to Black Diamond. the Avalung is a critical product for us, as are Probe, shovels et cetera, et cetera. It's an area that we compete in in a real way. And I believe, we believe that some of these acquisitions may be a catalyst for others who are still -- who continue to be independent, to begin to think more about is that strategically in the medium and long term the best place to be. Or with what has recently transpired where those companies were sold to what appear to be deeper pocketed entities, potentially can do more while cutting cost and put some other additional marketing cost behind them. That could well be a catalyst for some of the independent operators out there, which potentially could play to Black Diamond. So, yes, I mean transactions like that do shake up the competitive landscape and that potentially can play to our favor. I'm not saying it does, but potentially it can.

Great. Thanks, and good luck in the back half.

Yes, thanks very much.

Our next question comes from the line of [John] Munda from Sidoti. Please go ahead, sir.

Good afternoon, guys.

Hey, John.

It's Joe, but it's all right. A quick question -- a lot of my questions were pretty much answered already. Can you give us the number for cash flow from operations for the six months?

Joe, this is Robert. You'll see that reported tomorrow when we file our 10-Q for the quarter.

Okay, the 10-Q is getting filed tomorrow.

Yes.

Okay.. And just one follow-up question in regards to acquisitions. Any acquisitions you guys do, I know you said you couldn't really comment further, but would it go under the Black Diamond label umbrella or would it follow more on the Gregory backpack model?

Yes, Joe, it depends on what it is. We have two people working full-time on acquisitions and integration. And as we had shared earlier with the markets we look at three types of acquisitions -- tuck-ins that could be easily tucked into Gregory or Black Diamond. In our history we've done a few of those, they get rebranded Black Diamond or Gregory, and where they will go will be dependent upon what the brand characteristics are and are they more logically aligned with Gregory or BD.

Secondly, we are looking for what we call brand acquisitions, companies with a substantial enough brand footprint positions you uniquely and discreetly enough, and what we would do with that acquisition is [quick] bring it on to our operation, supply chain, commercialization platform and give it the benefit of our corporate group, finance, HR, accounting, IT, et cetera, just the way we did with Gregory. And then we'd have a third brand. And the third type would be something significantly or substantially bigger, a strategic one where you might not even bring it on to a full operational platform. It would be sort of a Chinese menu of where are the synergies that make this acquisition financially logical and rational and in a way that is accretive to the overall corporation. So, in summary, it depends upon the acquisition, and we are looking at acquisitions that could be any of those.

Okay, and I guess we just had one more follow-up, from a caller before. International seems to be, you know, the growth there is robust for you guys, like you said. What are your plans domestically to try to have that domestic revenue catch up to international?

Well, domestic revenue isn't -- doesn't need to catch up. I mean just talking about growth, this -- our largest total business is still North America, not hugely but slightly. And the growth we've had in the first half has been quite substantial. We've got growing momentum here in North America for both our brands, and we're quite excited about what the prospects are for these brands for the second half as they have been great in the first half, as well as for next year.

So how do we do that? Innovative product, continue to build upon the partnerships we have with the consolidating retail base in the United States, and by investing in and moving forward on the strategic initiative we announced which has to do really with visual merchandising, and the second one, which is direct to consumer. So I think all of that will continue to drive the growth rates forward in North America.

I mean so, just a follow-up, should we expect to see more ad placement in Outside magazine, that kind of stuff, [your] magazine?

I think if you were to look at how many ads we have placed in the past 12 months in major publications from Outside to Backpacker to Climbing to Mountains or to (inaudible) a broader base versus a year ago, you will see a very robust increase. If the question is will you see that again in 12 months, I have to answer that question and tell you that the world is moving increasingly towards social networking, social media, events, and a far broader portfolio of ways to bring your brand message forward.

We're really focusing increasingly now on building our acumen in that world to have more than ever a huge following on Facebook to really be integrated in a myriad of ways in social networking because we believe increasingly that is an ever more important place to make the investment. So in the next 12 months I think you're going to see us doing more there, which to the average person is not quite as visible, as looking at it in the print media. But I can assure you we are continuing to increase and it will be in the more online social media, net, et cetera.

Also, I was going to say, should we expect more sponsorship of I guess climbers, skiers, that kind of thing going forward, as well?

Well, we are constantly on a yearly basis reevaluating our marketing strategy and where to put those dollars and how to work with those we sponsor. I don't think it's a safe assumption to say that we will sponsor more people. I think it may be relatively safe to say how we work with those we sponsor, how we build upon those relationships, that will increase so we can get more with those people. And who we work with is always a dynamic based upon who is up and coming and who is in the twilight of their sports career.

Okay, thanks, guys.

Yes.

(Operator instructions.)

Our next question comes from the line of Lee Giordano from Imperial Capital. Please go ahead.

Thanks. Good afternoon, everybody. When you think about your organic growth potential do you see further opportunity to gain shelf space within your existing retail partners?

Hi, Lee. It's Peter. Yes, absolutely, absolutely. And it's a combination of getting more shelf space and getting a higher level of acceleration off of the existing [peg]. So you don't necessarily need more square footage but we are working to get more and we will get more with growing product categories.

But part of our strategy has got to be how do we accelerate the sales volume off the existing square footage that we have. Then, in addition, as we move into new categories, like apparel, of course we're going to get more shelf space from those partners, and that's something we have a high degree of confidence again because we're being told we're going to get it.

Great. Thanks a lot.

You're welcome, Lee.

Our next question comes from the line of Doug Thomas from JET Investment Research] Please go ahead.

Good afternoon. Great quarter, and good call. Most of my questions have been answered. I guess, Peter, a couple more days like this a lot of us are going to have quite a bit more time to be outdoors hiking and climbing, which is probably good for the business.

But really just two kind of questions, follow-ups. One is there's been a lot of people in and out of apparel over the years. In fact, there's certain people exiting now. And maybe just to tie up a lot of the questions that you've already had, you know, not having been to the show, what is it that you think you've got in terms of apparel that really will differentiate you from everybody else that's out there and sort of help foster an environment where really you can't fail at this initiative?

Yes, yes, that's a great question, Doug. I'm not going to get into the weeds on it, but I'll answer it at a high level. So first off I mean the narrative of the outdoor apparel industry is the narrative of -- a successful outdoor apparel company is the narrative of gear and equipment companies moving into apparel, right? I mean if you look at the leaders, Outerra, Patagonia, North Face, Mammut, they all began as equipment companies and made the transition into apparel at some point in their lives. Most of them early, young, as adolescents they did that. Very few companies have had the audacity to build truly a pristine global brand and pass the $100 million mark on technical hard goods before they seriously entered the world of apparel.

What gives us great confidence in our ability to succeed, and I say that with no hubris, because we don't have hubris here. We understand the audacity of the undertaking, the level of challenge and the focus and creativity and passion that would be required, and that intimacy with the market to do something unique and different. So we get it, we understand the magnitude of what we're undertaking.

However, what does give us our confidence with humility is that we have entered over the past 22 years competitive category, after competitive category, after competitive category, and we have succeeded. We didn't begin with the product line that we have today. We began with a tiny line of very core climate equipment and some telemark ski gear. And we didn't begin as a global company. We began as a little garage roll-up in Ventura, coming out of the bankruptcy of another company that was not very large.

We have something I think really unique. We have an amazing group, over 500 strong, of employees who are absolutely passionate about this business and, more importantly, they have lives that have been forged by the sports that we serve -- climbing, skiing, mountaineering, and the mountain sport activities.

In addition, they're true professionals at what they do, and I'm fond of saying BD is where passion meets professionalism in a unique alchemy here at the foothill of the Wasatch. So it's this alchemy, it's this culture, it's this environment, it's this group of passionate people whose lives have been forged by these activities who coming together here somewhat [nava] certainly in the foothills of the Alps in Switzerland that create this alchemy and this creativity that allow us to succeed in an innovative way to enter new markets, all focused on an ecosystem of customers -- the passionate mountain sports person.

So I think the way we entered the ski boot business, the way we entered the lighting business, the way we entered the trekking pole business, the way we moved into free ride skiing, that's how we're going to enter the apparel business, and that's how we are entering it. That's how we are lining up to enter it.

And we are a very, very attractive place for the right people to come. I was very impressed coming out of this trade show with the number of interviews we held, the number of people we met who are people who share that passion, who work in places where they don't have the access to the mountains like we have, don't work in an environment as creative, as passionate, and as intimate with the sports as we have. And these are people at the midpoint of their careers who are looking to get to the next level. And when you think about it, as you pointed out, there hasn't been a successful launch into technical outdoor apparel in the outdoor space in 20 years, since [Outerich] did it.

So if you're an up and coming person in product design, engineering, sourcing, materials, marketing at one of the biggies and you really care about this and you want to make your mark with your career, this is it. Black Diamond is the place for the next generation of people to come and leave their mark. And this may be the last time.

I was going to say you have shown a remarkable ability to bring in some extremely talented people, and this kind of goes to my second question. Again, not because I fear that you would become distracted if, in fact, you did do an acquisition during this period of time, but a couple things.

One is it seems like you've had the track record and the history of being able to innovate and do things and just create from scratch key positionings within specific categories. And it appears, as though, and I don't know all of what's available, but the deals that have been done since you last had a conference call, the prices have been extraordinarily high, as far as I'm concerned. And I just wonder how you sort of view balance, footwear maybe is one category where you'd have to make an acquisition, but really you've done a yeoman's job of proving that you really don't need to acquire anything, that you could sort of grow organically.

Yes, right. Thank you, Doug. Yes, there's no question that there's some pretty high prices right now being paid in the States. But we are not going to overpay for an acquisition. We still believe quite strongly that there are opportunities out there and that potentially even the events of the last eight hours may be catalyst to bringing people down to earth relative to what valuations should be. There's a lot of reasons why people haven't done deals in the last 12 months. Part of it is the significant growth that has been experienced in the outdoor space and the belief that that will continue forever for anyone.

And I think if -- there was several takeaways from the last trade show we just completed yesterday. I think one of them is that we are [end of] that period of consolidation. And I forgot who it was, if it was Andrew or somebody who talked about acquisitions in the avalanche safety world. There's something lost on people, and if the markets fill up a bit those with the strongest brands, most responsive supply chain, the greatest innovation, and the relationships, the global relationships to drive their brands forward and amortize cost of design, R&D, certification, compliance, downward because they have a large volume of product, you know, that's what you need. And I think that's becoming clear to everyone.

So I think in some ways what's going on right now may be a catalyst for creating opportunities at sane pricing to do some acquisitions. But we will not let an acquisition become a diversion to the organic opportunities that we have, are engaged in, and are driving very hard on. And, as you pointed out, we've been very, very fortunate that this company, this culture, this group of people continues to be a very exciting place to bring in great talent.

And we will be announcing more of that in the not too distant future. And with that gives us the ability to work on multiple initiatives at the same time, the categories we play in, as well as apparel, as well as to grow globally, as well as to do some acquisitions. So we're not going to shrink from doing acquisitions because we don't have adequate bandwidth. We will shrink from them if they're priced at a silly price. And there's certainly been deals done that seemed very silly to us in the space, but we believe that may be changing in the not too distant future.

Okay, thanks very much for your time, and keep up the good work.

Thanks, Doug. And keep sending me the articles.

No problem, you got it.

And we do not have any further questions. Management, you may continue.

Okay. Well, thanks, everyone, for listening in today. We hope our presentation provided more insight into our performance for the quarter and our outlook for the rest of the year. And I'll look forward to speaking with you again next quarter. So thanks.

Ladies and gentlemen, this concludes the Black Diamond, Inc.'s second quarter 2011 earnings conference call. If you would like to listen to today's replay please dial 1-877-870-5176 or 1-858-384-5517, conference ID 445841. Thank you for you participation. You may now disconnect.