Clarus Corp (CLAR) 2011 Q3 法說會逐字稿

Good afternoon, everyone. Thank you for participating in today's conference call to discuss Black Diamond's financial results for the third quarter ended September 30, 2011. Joining us today are Black Diamond's President and CEO, Mr. Peter Metcalf, and the Company's CFO, Mr. Robert Peay. Following their 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 the Company's 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 guaranteed and that actual results could differ materially from those expressed or implied in the forward-looking statements.

Potential risks and uncertainties that could cause the actual results of operations or financial condition of the Company to differ materially from those expressed or implied by forward-looking statements used in this conference call include but are not limited to 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 acquisitions; the Company's ability to maintain the strength and security of its information technology system; stability 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 the raw materials and contracted products; foreign currency fluctuations; and the Company's ability to utilize its net operating loss carryforward; and legal, regulatory, political, and economic risks in international markets.

More information on potential factors that could affect the Company's financial result is included from time to time in the Company's public reports filed with 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 include in this conference call are based upon information available to us as of the date of this conference call -- pardon me -- and speak only as the date hereof. The Company assumes 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 November 14, 2011, starting at 8pm Eastern Time tonight. 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. 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. Sir, please go ahead.

Thank you, Britney. And good afternoon to everyone. As you saw the close of the market today, we issued a press release announcing our financial results for the third quarter ended September 30, 2011. We believe that the global appeal of our products and the aspirational nature of the Black Diamond brand continued to broaden in the third quarter as reflected in our healthy double-digit sales growth. In fact, we achieved growth throughout nearly all of our primary categories and met or exceeded our sales goal in each of our 3 major geographic markets -- North America, Europe, and Asia. We attribute these results not only to the ascension of our brand in the eyes of the consumer, but also to the proactive steps we have taken to invest in our operational platform and our disciplined focus in new product development. We believe strongly that Black Diamond's singular commitment to product development is a critical success factor in everything we do and we have taken proactive steps during the third quarter by bringing on some exciting new talent to support our technical apparel industry.

Looking ahead, we intend to remain steadfast in our plan to invest in people, products, and platforms that are driving the momentum in the Black Diamond and Gregory brands. We will also remain mindful of the importance of investing in our key growth initiatives and being thoughtfully opportunistic with our acquisition strategy. As of today, we remain on track for the anticipated fall 2013 launch of our new technical apparel line, which we expect to advance Black Diamond as 1 of the world's most respected and leading active outdoor equipment and lifestyle 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. After Robert 's remarks, I will return to discuss some of the strategic issues in more detail and how we believe they drive shareholder value. Following my remarks, we will open the call to your questions. Robert?

Thanks, Peter, and good afternoon, everyone. Our total sales in the third quarter of 2011 increased 24% to $42 million, compared to $33.9 million during the same year-ago quarter. Sales include revenue from both Black Diamond and Gregory. The growth in sales was attributable to the release of a number of innovative products, as well as consistent execution in the sales and marketing efforts of existing products. As many of you are aware, the foreign exchange markets continue to experience volatility and BD operates across multiple currencies, primarily the US dollar, the euro, and the Swiss franc. Net-net, the Company experienced an approximately $1.4 million revenue or 4% benefit during the third quarter, primarily from an appreciating Swiss franc. On a constant dollar basis, the Company's revenue still increased to $40.6 million or 20%. Gross margin in the third quarter increased 70 basis points to 38.1% compared to 37.4% in the same period last year. The increase in gross margins reflects better absorption from higher throughput as well as a shift in product mix toward higher margin products.

Total operating expenses in the third quarter were $13 million, compared to $11.9 million in the same period last year. Operating expenses in the quarter included an unanticipated $219,000 restructuring charge associated with the termination costs of a leased facility formerly occupied by Gregory Mountain Products in Sacramento, California. In addition, the 2010 comparable period included approximately $1.2 million of nonrecurring merger, integration, restructuring, and transaction costs, associated with the May 2010 combination of Black Diamond, Gregory, and Clarus. Through the first 9 months of 2011, we estimate we have realized approximately $1.4 million of cost savings associated with the integration of Gregory into Black Diamond, excluding restructuring charges. Adjusted for the nonrecurring transaction costs, integration savings, and non-cash stock compensation, operating expenses have increased approximately $4.2 million, compared to the same period last year, reflecting a number of significant investments in growth and infrastructure.

The list of strategic investments we are making, many of which have little or no revenue associated with them as of yet, include 1, our apparel initiative; 2, investments in Asian sourcing; 3, investments to control more of our foreign distribution over time; 4, investments in a new state-of-the-art distribution center in Salt Lake City; and 5, investments in e-commerce, visual merchandising, acquisition activities, and additional resources, primarily headcount for both our operating and sales platforms. We expect all of these investments to continue into the future and leverage both from increasing revenue and lower overall costs, to begin to take hold in 2013 and beyond. While operating expenses year-to-date in apparel have been modest, we expect that operating expenses for the apparel initiative alone, it will exceed $3 million in 2012. For the third quarter of 2011, we reported net income of $1 million or $0.05 per diluted share compared to a net loss of $3.3 million or $0.15 loss per share in the same period last year.

Excluding $2.8 million of non-cash items and the $219,000 restructuring charge, adjusted net income before noncash items was $4 million or $0.18 per diluted share compared to $2.1 million or $0.10 per diluted share in the third quarter 2010. Adjusted EBITDA in the third quarter of 2011, increased 36% to $5.2 million, which excludes $641,000 of noncash equity compensation and the $219,000 restructuring charge from EBITDA. We define adjusted EBITDA, which is a non-GAAP term, as earnings before interest, taxes, other income, depreciation, amortization, noncash equity compensation, and restructuring charges. Our reconciliation of adjusted EBITDA to GAAP net income is presented in the earnings release we issued today, which is available in the investor relation section of our website, which by the way, we just relaunched, so please check it out at www.blackdiamond-inc.com.

Turning to our balance sheet, we had $1.7 million of cash at the end of the quarter, compared to $2.8 million at the end of 2010. Working capital is at a seasonal high, as we billed for winter product for deliveries in Q4 and Q1 of next year. Accounts Receivable and inventory are generally in line with our expectations and are expected to decrease during Q4, which should allow us to reduce our revolving credit balances by year-end. At September 30, 2011, we had $24.9 million outstanding on our $35 million revolving line with Zions Bank compared to $14.7 million at December 31, 2010. Total debt, both long and short-term, stood at $40.5 million, which includes $14.8 million of 5% subordinated notes due in 2017. During the process of reconciling our tax provision with our recently completed income tax returns for 2010, we identified an additional income tax deduction we will be able to use in future years. We have adjusted our balance sheet to properly reflect the expected benefit of this deduction. Looking ahead, we are very pleased with our continued top line sales growth in the third quarter.

As we have discussed in the past, we think about, plan, and proactively manage our business as 2 6-month seasons, spring/summer, fall/winter. We also provide revenue guidance at each 6-month period, rather than quarterly. As of September 30, 2011, we are midway through the fall/winter season and at the end of Q4, we expect to reflect on our 2011 fall/winter season as well as evaluate our spring/summer order book and present our 2012 revenue guidance at that time. At this time, we are not making any further comment on Q4 expectations other than to say that as a result of the Company's year-to-date revenue and current bookings, we expect to meet or exceed the top end of our existing revenue guidance of $140 million to $145 million for the 12 months ended December 31, 2011. Please do not read this to mean anything about our Q4 expectations. Ultimately, Q4 revenue will be driven largely by a world economic and by winter weather conditions in both North America and Europe and we are encouraged by the early season snowfall, both in Colorado last week and in the Northeast United States over this past weekend. We can share, however, that we are pleased with our spring 2012 bookings as they currently stand. We remain confident in our expectations that the Business will see organic revenue growth in 2012 of at least 12.5%, albeit on a higher base for 2011. This is consistent with our long-term outlook of 12.5% compounded in our 5-year organic growth plan.

Finally, we want to urge all of our analysts to follow the Company to update their models to our latest long-term thinking, as not everyone has done so. 2011 sales to be between $140 million and $140 million. 2011 gross margins to be between 36% and 39%. In February 2011, we announced our 5-year organic growth plan which included among other things, the following -- capital expenditures between $2.5 million and $3 million; approximately 12.5% sales growth just from existing categories; meaningful operating leverage in the out years, in spite of significant incremental expenses in the early years of the plan, including the following -- $3 million in 2011 with headcount additions for products, North American and European sales teams, and additional expenses for advertising and search engine optimization; $4 million of additional OpEx investment in 2012; and a total increment of $13 million over the next 5 years. We expected to remain cash flow positive and generate positive free cash flows.

Given the Company's current rate of growth in 2011, working capital increases are consuming much of our current free cash flow for 2011. To be perfectly clear, our 5-year organic model did not include any operating expense associated with the apparel initiative, nor did it include any strategic acquisitions. That said, we believe that certain analysts have attempted to quantify and predict acquisitions in their existing published financial models. Also, certain analysts have not fully reflected the incremental OpEx we stated we would spend as part of our 5-year organic model. Finally, I want to reiterate that our 5-year organic model is focused on growth and as such, we have not and do not intend to provide earnings guidance in the early years to allow us to invest where we think it is appropriate. We intend to invest in apparel, in distribution, and in manufacturing, so that we can realize operating leverage and accelerating earning in the out years -- 2013 and beyond. This completes the financial portion of our presentation. Now I will turn the call back over to Peter. Peter?

Thanks, Robert. As I noted in my opening remarks, we have completed the first 9 months of 2011 with another strong quarter of double-digit sales growth, largely based in market share gain from our innovative and award-winning products. The outdoor industry continues to grow solidly on a global basis, not just at Black Diamond, but at much larger enterprises such as Patagonia, The North Face, Adidas, and others. These results reflect long-term macroeconomic trends for health, wellness, and increased participation in outdoor lifestyle activities, and we appear to be benefiting from these trends. We find it interesting that most of these companies are predominately soft goods providers, whereas we occupy a much more defensible niche in hard goods. As a hard goods provider, in large part, we believe that we define the market for our products and will for years to come. The metrics we are receiving from our for retailers indicate that in our opinion, we are growing faster than the market. We attribute our rates of growth to a number of factors and in no particular order.

First, we have benefited from a very robust ASAP sales during the quarter. As you know, we deliver against advanced orders from retailers every season. However, each quarter we also rely on and plan for a certain amount of ASAP to follow-on orders for immediate shipment during any given quarter, which is largely related to our sell through and continuing demand. Our manufacturing strategy can be a competitive advantage in many of our product lines, because it often enables us to fulfill ASAP orders more readily. Currently, our products are selling well across all markets and are growing in nearly all primary categories. Second, we are pleased by the overall shipments of our fall products. Nearly all products have been received and shipped out on a very timely basis and we have had the necessary inventory to take advantage of strong booking. Third, the credit of our retail partners has been strong. Our DSOs reflect a healthy collection period and our inventory has been moving very well. Finally, and perhaps most importantly, we believe that our robust sales reflect a very conscious approach to protect our investment in product development in 2008, 2009, at the expense of other operating costs doing a difficult period. We believe we are now reaping the rewards of this strategy, by coming to market with new products, while many of our competitors have a limited amount of new products, due to cost cutting in 2008 and 2009.

Product innovation continues to garner significant media attention and awards, which we believe is both accretive to the brand defendancy and to increasing sales in the future. To list a few meaningful awards -- 1, Black Diamond skis are currently on the cover of the fall 2011 Outside Magazine Buyers Guide; 2, Backcountry Magazine awarded 4 Editor's Choice for 2011 to Black Diamond skis and boots; 3, Powder Magazine and Freeskier Magazine added another 7 Editor's Choice awards; and 4, our new magnetic locking carabiner, the Magnetron, received 2 Best in Show awards from each of the Outside Magazine and Gear Junkie. We have attempted to take advantage of these awards by increasing our print media buy for ski products this fall by 23%, while concurrently investing in social media. As a result, we have seen our Facebook friends and fans increase by threefold. Finally, later this month, we expect to see 2 more Black Diamond products receive, quote Best of What is New for 2012, in each of Popular Science and Men's Journal. The consistent message we receive back from the trade was that our innovative 2012 products on top of this year's launches, combined with our brand ascendancy and our consistently strong delivery, would serve to further accelerate our growing global leadership.

We are truly pleased with the response in bookings we have received in Europe for Gregory products in 2012. As we had planned a year ago, we have utilized existing Black Diamond distribution, operations platforms, and reputation, to launch Gregory into the spring 2012 market. The response in bookings have exceeded our expectations. Operationally during the quarter, all 3 of our global manufacturing facilities achieved their output goals and more than 90% of our goods were delivered on time. In fact, September marked the largest shipping month in the Company's history at our Salt Lake City distribution center. In late July, we relocated our European distribution center to a brand new, much larger, and state-of-the-art facility. Despite the move, the shipping of our goods during that period was very smooth. We are very happy with the new space, as we believe that it provides significant growth capacity. It is located on the bank of the Rhine River, allowing for the seamless shipment of goods via boat and barge from our facility in Zhuhai, China.

We have continued to take the proactive steps to invest in our manufacturing footprints and control our own distribution. As volumes have increased, we are leveraging these costs over our fixed cost base. Our strong internal team in Asia and the long-term strategic alliances we forge with our vendors there have helped reduce the amount of competing OEM vendors and moderate inflationary pressures. We continue to believe that the pricing of our products will not compromise our margins in 2012. We believe these operational steps ensure quality and will help expand our margins over time. We have also made an investment in our global IT platform that will be instrumental as we continue to scale our business in a globally integrated manner. For example, our just completed implementation of Microsoft Global Exchange server furthers our 3 continent operational integration. We expect to provide you with financial guidance for the first half of 2012 in early February. However, today we can tell you that spring 2012 bookings are running ahead of last year and we are optimistic that 12% to 15% growth is expected to continue in the first half of 2012, albeit off of the higher base at the conclusion of 2011.

During the quarter, we moved forward with a number of strategic initiatives, but none more front and center to our long-term development than apparel. With several important hires, our apparel team is taking shape and we're extremely pleased with the progress achieved under Tim Bantle's leadership in less than 5 months. We hired Cheryl Knopp as the design lead for our apparel initiative. Her experience includes freelance designing for Mountain Hardware, Simms Fishing Products, consulting for W.L. Gore & Associates, and serving as the Vice President of Product Development for Arc'teryx Equipment. In addition to Cheryl, we hired her design partner Damien Kelly, whose experience extends to Blurr to Simms to Timbuk2. We hired Teri Davis with her lifetime of technical outerwear design experience, with such firms as Cloudveil, Pearl Izumi, Mountain Hardware, and more. And Jenny Grad, whose apparel design experience includes SUGOI, Mountain Equipment, [Buller] and Blurr.

For in the commercialization side of our apparel team, we have hired Ajay Badiga, Director of Sourcing and Development for Apparel, with a background as Director of Sourcing and Development at The Sports Authority, and Jeff Nash, Vice President of Engineering Support Services. His last job was Director of Material Development at The North Face. Also this past week, we announced the hiring of Brian Mecham a Director of North American Sales, which is a new position at Black Diamond and will report to our Vice President of Sales. Brian's last position was as Western Regional Sales Manager for Patagonia. Not only is our apparel team now in place, but design, material, sourcing, and manufacturing strategies are also coming into focus. During the quarter, Tim Bantle, Chris Grover, and I had opportunity to speak with key accounts about our apparel plans and we are very encouraged by responses that include early verbal commitments to the program in excess of our expectations. There is still a long way to go, but we are encouraged by a progress, quickly reaching a $3 million plus annual run rate of investment in advanced of anticipated fall 2013 launch. While it is still early, and this is a very long-term investment, our current internal plan is calling for an expected $250 million in annual revenue in just over 7 years from the date of the launch.

In addition to apparel, acquisitions are a significant strategic growth focus. While one can never be certain about the timing of strategic acquisitions, we have been active in the market for almost 12 months, and our organizational experience in this area is developing nicely. As a result, the pipeline of opportunities is growing and we are in active dialogue with several sellers at the same time. Thank you everyone for joining us. I think the third quarter put us on track for a strong finish to 2011. We expect momentum to build in the remainder of 2011 as we continue to grow our global organization, deliver award-winning innovative products, execute on product delivery, and forge strong partnerships with our retailers. Our vision for Black Diamond is growing our projects designed to enhance our brand, reinforce our operating infrastructure, and bring value to our shareholders and partners in the specialty retail industry and this is clearly reflected in our robust product pipeline. Now I would like to open the call up to your questions.

Thank you, sir. We will now begin the question-and-answer session.

(Operator Instructions)

Our first question comes from the line of Torin Eastburn with CJS Securities. Please go ahead.

Good evening.

Hello, good evening.

My first question, so your sales growth was 24% this quarter. You said about 4% of it was from the Swiss franc. Is there any way to very roughly quantify how much of the remaining growth was from volume versus price?

Torin, this is Robert. Let me take that and then Peter if you want to jump in. So Torin, we didn't increase pricing that much, just modestly during Q3. So what you are seeing is that the remainder of the sales growth is primarily from volume.

Okay. And you also mentioned, at one point a $4 million benefit from the Swiss franc. Was there a benefit from other currencies as well? And if so can you quantify that?

Torin, so we are getting a tailwind in sales and a little bit of a tailwind also in gross margins. And let me share with you 3 factors that we consider when we try to get our hands around this and analyze it. Number 1, is the translation of our foreign subs' functional currencies and the local currencies into USD. So when we translate that over that is going to have an impact on our financials. On their standalone statutory books, the percents stay relatively the same but when you translate those over and roll those amounts into with your consolidated numbers, it does move slightly or it can move the needle. Number 2, is the mix of local currencies into those statutory books. So as you probably know, we have our European subs sales predominantly in euros. And so when we take those euros, convert them into francs and convert them into dollars, that can have an impact. And that impact is -- when I talk about mix, it's a mix of sales, cogs and OpEx. And then the third thing that can impact this is hedging. We do essentially trade 1 risk for another and we try to lock in and protect our budgeted margins and by so doing, you can protect your downside, but you can also leave a little bit on the table as well. So those are kind of the 3 factors that generally impact our financials.

Okay. Another question, you have mentioned a potential move into footwear in the future in the past. That seems to have been put on the back burner at least in your presentations. Where doe that stand today?

Yes just to clarify Torin and thanks for that question is that, that came up in discussions relative to future potential areas for the Company to move into but we have never stated that we were beginning work on that. So, today it is the same pace it was a year ago when we talked about potential areas to move on. Those are future opportunities for growth, they are not initiatives that we are currently developing.

All right thank you.

Thank you. Our next question comes from the line of Andrew Burns with D.A. Davidson & Co. Please go ahead.

Good afternoon. Congratulations on a good quarter. Could you provide some more detail on the strength in international in the [Stribers] is in Europe in terms of increased distribution and then also, just I know you don't like to give brand specifics, but you know the Gregory Asian business is distinctly different, just any color between the segments would be helpful. Thank you.

Yes, hello Andrew. This is Peter. Thanks for your question. You know, we don't at this point in time, breakout between brands or try to give that level of detail. But what I will share with you, and for the market is that as I stated in my opening remarks, what really pleases the us is that we have seen good growth in most of our product categories and in most regions. When it comes a specifically to Gregory, as I think you are aware, Gregory did not have a meaningful presence in Europe. And 1 of the very attractive and accretive aspects of this transaction was the ability to shorten -- Gregory had it to plan roughly 5 years to go to Europe, set up their own business, establish their credentials and the credibility, and we were able to do that in less than 12 months. So as I mentioned in my remarks here, what's very gratifying to us is that we went into the trade shows, we got Gregory on to the BD platform, hired a Brand Director for Europe, Andrea Meerholz, who we hired away from Mammut's export manager, and now that the orders have come in, we are very pleased with that, and expect very significant growth starting next spring in Europe. You know relative to Asia, Gregory is doing very nicely in Asia. It is mature in Japan, but there is a host of other markets that it has been developing and it has been seeing some nice growth off of small beginnings in close to half a dozen different Asian markets. So that is some color for you.

Thanks. And Robert, you mentioned a positive mix shift as benefiting gross margins. Do you think you could do elaborate on that? Is that outgrowth of international or ski product? Any color would be helpful?

What we saw in Q3 is so we grew 70 basis points in the quarter and as I mentioned with Torin's question, there is a bit of a tailwind from FX, but there's also a good tailwind from product mix. So the categories that are really performing well, and there are a number, these are categories that have generally higher margins and that kind of pull the margins northward and so we're getting a benefit from some very favorable product mix.

Last question here. Just so I understand the guidance that has been outlined in terms of investment spending. Is the way to think about 2012 and the operating expense bill it is an incremental $4 million for growth initiatives, then an incremental $3 million above that for the apparel initiatives, and then any SG&A growth associated with organic revenue growth? Are those the components I should be considering?

Yes, Andrew, good question. So I think you have outlined the 3 pieces. So there's the $4 million of OpEx growth as based on the 5-year organic model that we shared last February. And then in addition to that, we are expecting to spend at least $3 million next year in apparel. And then we will have additional OpEx just for kind of the organic growth, not a part of those other two projects. I also mentioned too, that other things to be considering is the list of 5 investments that I mentioned earlier. You know, apparel, the investments in Asian sourcing, investments in foreign distribution, and DC costs and then just kind of marketing and visual merchandising. Those are costs that could be incremental in addition to the $4 million and the $3 million.

Thanks and good luck.

Thanks, Andrew.

Thank you. And our next question comes from the line of Rob Young with a Wm Smith & Company. Please go ahead.

Hello, guys, good afternoon.

Hello, Rob.

Hello. Just curious, would it be possible to break down the sales growth that you have been experiencing over the last 12 months or so by way of just market share growth, so kind of cannibalization of others' market share versus just the overall industry?

You know, that is good question. And we are in 27 different categories, which is I think one of the great strength of the Company that we are both, have over half our sales around the world and in 27 different categories and very seasonally balanced, so you know really, to dig into that Rob, I would have to go category by category, which would be pretty time-consuming. So let me say this, is that there's no question, when we look at a couple of bellwether accounts, taking REI for example, that is quite cooperative in sharing category information with their vendor partners, we are both benefiting from a tailwind that the marketplace is, everyone in the marketplace is experiencing, i.e., there is growth in outdoors around the world, there's no question about it. Asia, Europe, and North America. However, when we get the numbers from someone like an REI, it is clear in quite a few of the categories that we are in, that we are exceeding that growth by 2x, 3x, and in a few cases, more than that. So we are also benefiting clearly from some of the innovative product launches we have done that have been truly grand slam home runs.

Okay. I appreciate that. You talked a little bit about acquisitions and could you mention or give a little bit of color on some of the motives that you are seeing from these potential targets? I mean, it sounds like the outdoor market is fairly robust, as you guys have indicated. But is there a couple of defining characteristics that each of these targets might be siding in terms of looking at you as a potential acquirer?

Great question. And first of all, I will respond by saying each entity is individualistic unto itself. You know, what is motivating the sellers to potentially sell or engage in dialogue. But I think that there is a common theme here, that you do see in the majority of the companies that we have been talking to. And that is that even in good times, like you have right now, where our brand is experiencing solid growth, there is a recognition by those who really understand their businesses that they are facing some very, very meaningful and significant investments -- investments in IT, investments in global distribution, investments in sales platforms, further investments in the supply-chain, perhaps setting up an office to deal with manufacturers in Asia, foreseeing new distributors in different parts of the world.

And so, it is 2 things. It's, if you want to distill it down to primary ones, that is number 1, just that we have in place what would be very expensive, let alone time-consuming, and not guarantee to the outcome investments that some of these companies have to make. That is probably the most compelling. And then the fact that we ourselves are a passion-based business, understand the nature of having a business that is quote one with sports, we serve absolutely indistinguishable from them and have manufacturing, engineering, compliance, quality assurance, acumen, and competency, is a draw to the people that we are talking to, because of the skill sets they're in the process of needing to develop, and we have a culture that they do not find alien, and they find comfortable, relative to who they are.

Okay, great. That's very helpful. And then lastly, Robert, I may have missed it, but did you give any outlook for your working capital needs for 2011?

Sorry Rob, for the remainder of 2011?

Yes.

So recall that Q3 is our seasonally peak quarter end for working capita, because of all the inventory build --the inventory for product and primarily in the winter. So, and that is also -- we have got a higher AR and higher inventory. And then those amounts will start to come down in Q4 as they--

Okay, got you. Okay, perfect. Thanks very much.

Thank you Rob.

Thank you. Our next question comes from the line of Sean McGowan with Needham & Co., please go ahead.

Thanks. Hello, guys. Couple of housekeeping questions and then a kind of a bigger picture. Could you give us specifically what the CapEx and D&A were in the quarter, Rob?

Okay, Sean. Let me grab the DA component for the quarter. We had about a little over $1.3 million of DA for the quarter. And that is amortization and depreciation.

Okay. Does that include amortization of intangibles?

Correct. Yes. Yes. So when you look on our press release, it's page 10 of 14.

Right.

And it will show amortization of intangibles was about $333,000

Right.

And then DA of a little over $1 million.

Yes, I didn't know if there was any other amortization that wasn't included in that. I did see that exhibit. So okay $1.3 million and then CapEx?

CapEx, thinking about that one, that one was fairly modest. We're kind of on target to kind of been in $2.5 million to $3 million range this year. So I think we probably did probably about $700,000 to just be shy of the $1 million of CapEx in the quarter.

Okay. And you gave some commentary on tax rate, just finding some unexpected things, so how should we think about the reported tax rate?

Yes, good question. So for the quarter, our tax rate is effective rate of 34.5% and then for the 9 months, it's about 33%. So as we have discussed in the past, what can move your effective tax rate are a combination of changing your forecasted GAAP income, changing any view of your permanent items, and then mix of where you think you are actually going to make money. And the other thing that usually happens in Q3, for most calendar companies, is that, that's when you true up your taxes.

Right.

And so there could be some discrete items rolling through, so we have kind of taken all those things, blended them together. It looks like we're going to have a little bit higher effective tax rate on at least on a statutory basis for 2011. I will take this opportunity to focus on why we have that both adjusted net income, reconciliation to non-cash items. Because this is where we help investors and analysts and everybody understand the value of the NOL. Because on per GAAP, you have to project your statutory pre-tax income and use statutory rates. But because of the NOL, we are not going to have to pay that much in tax because we are able to not have to pay on US-sourced income except for AMT. So if you do look at those charts on page 10 and 14, of our net cash income reconciliations, you can see like for the 11 months -- or excuse me for the 9 months, our GAAP tax revision is $681,000 but we've actually had a refund of $46,000 for the year.

Right.

And so that is probably our best tool to help kind of show the utilization and monetization of the NOL, of those schedules.

Great. And was there any EPS impact from currency in the quarter?

Yes, so we mentioned there was a $1.4 million benefit to the top line. There is a tailwind, coming in from gross margins, that is mostly offset then by OpEx that impacts our financial statement. So I haven't felt overly comfortable in quantifying that exactly. But there overall, there is a little bit of a benefit to EPS related to FX.

Okay, so slight benefit. And then, Peter, a question for you. I think you made some comments about just sort of how meaningful the footwear can be. Could you give us some assistance on how to think about both the ramp rate and whether that category would have significantly different seasonality from the rest of your product categories? Thanks.

Okay Sean. I think you meant apparel, though, because I said--

I'm sorry. Yes, I meant apparel. Sorry.

Yes. So just to make sure I understood your question is, the growth rate and is the seasonality different to that? First off, apparel tends to be more of a -- in the outdoor industry, for most companies until they develop a strong sportswear category, it tends to be weighted more towards the fall. Because of that, we are working with our plans to develop sportswear early on in the launch cycle just so that we have two strong seasons to that. At this point in time, I don't really want to project further how we are projecting that spring versus fall. But yes, it will be, as it is for most apparel companies, it is weighted somewhat more towards fall, that is just the nature of outdoor apparel is that you need it more for the fall/winter period.

Yes. I was just wondering if we would expect to see like kind of a big surge fall of '13 and then if you didn't have a strong spring line, would there be kind a big tail off that in the early part of '14? I know it's way out but I'm just, I'm trying to understand the cadence of that business?

We will be giving more information to the market about our apparel lines as we get further along. But what I will share with you at this point in time, this is not a one-time tada ideas launch, where you launch and you have 5,000 SKUs that we go into TSA, Dick's, Zappos, et cetera. We are doing this very much in the accretive manner to the brand, the way that Black Diamond has always done things, which is a commitment to specialty, a commitment to our core markets and build out from there, and to do it in a way that builds a very strong foundation to BD as accretive to everything else we do. And we will roll this out and grow it over a series of seasons, adding collection to collection to collection. So we anticipate that we will be building it very steadily over 7 years from launch. And though the fall will be greater, I don't think at this point in time, it would be fair to characterize it as something akin to a missile launch in fall '13 and then the collapse in spring. No.

All right. Thank you very much.

Thank you. Our next question comes from the line of Jim Duffy with Stifel Nicholas. Please go ahead.

Thank you. Hello.

Hello, Jim.

I will start by congratulating to the BD team on the favorable reviews and accolades for the ski line.

Thank you.

Coming from you, that really means something.

Can you comment on the year-to-year changes that you've seen in ski pre-bookings for this year? And the timing of those shipments this year versus last?

Our pre-bookings were clearly up. I mean, this Business, though we have the capacity to deal with ASAPs, we have picked different rates depending on the product categories. When you're in the ski business, you clearly have to have some ASAP capability, however you have to be very thoughtful, because the way the ski industry has gone into trouble in past decades and years has been by being overly zealous in how much ASAP capabilities they have wanted. So we don't break things out by categories, Jim, but yes, our ski bookings were up overall in a meaningful way for this year. A little bit weaker out of Europe, simply because though we had a very robust winter season here in North America last year, as you're I'm sure aware, Europe started the year well, but there was for all intents and purposes, no meaningful winter in Europe post January 1. And as a result, there was a lot of product left in pipelines and on dealer shelves. And the bookings out of Europe were not robust the way they were out of North America.

So as a result, globally, balancing that, that did not have the same level of growth that some other categories have had. That said, we are off to a good start. We have shipped the majority of our ski product out the door already -- the early season orders. We do have bookings right through 12/31, we are not like some of the Alpine companies, where there is one ship date, it's in August, and just tell us what you want and it is out the door. We do shipments several times in the fall, if that is the way our retail customers want it. So we still have good bookings into December. That said, I will also share with you that the third quarter -- excuse me the fourth quarter -- is our most ASAP dependent quarter and certainly the period from late November into December is the period that is most ASAP dependent.

Okay. Peter, was there a different this year versus last in the amount of pre-book that shipped in 3Q versus 4Q?

You know, sorry Jim, I don't to comment on that because off the top of my head, I can't speak to that across the board. I do know that there is every year always in some of the category we are in, something can shift out by a week and then it goes into one quarter or the other, because we really think about our Business as a 2 season business versus a 4 quarter business. So it is just not important to us whether we ship something on September 30 or October 1. We don't make any deliberate attempts to move it one way or another. It depends how the orders come in, how the product [fills] in the warehouse, and we like to ship very complete to people. So I don't think I should give you an answer without really looking at the details on that.

Okay. That's fair. And then for this season, how much inventory have you planned for ASAP business? Or how much do you typically plan and how does this year differ?

Jim, this is Robert. It can vary product by product. Some products you have more certainty in how they are going to book relative and what you'll need then for an ASAP rate. Typically for ski products, there's probably last bookings than there is for certain spring products and it also depends on if the product is new. If, so for example, when we launched Z-poles earlier this spring, we debated long and hard about how many poles should we have on hand as an ASAP for ASAP availability. And then it also depends on your vendor. Some vendors can turn more quickly product, so that there is ASAP demand you can fill that and others are it's a little harder. And so it really varies by product.

And thirdly, we're not trying to skirt your question, but this is I think one of the BD's competitive strengths in that, unlike some of our competitors, who turn their product every year, meaning it is like a clothing item and we're going to change [top sheet] and the color and every product is new this year, because we have changed the cosmetics, we don't do that at Black Diamond. We tend to carry our products for 3 seasons and hence, the ASAP availability that we want and allow ourselves, depends on where in the product lifecycle that product is. If it is in year 3, we are much more conservative than we are in year 1. And year 2 is where we really have to really best sense to that where we have some sense of what the momentum is and we know we have the year extra if we get it wrong. So there is not just 1 answer. We have 1 person who that is all they do, is study trends, knowing the life cycles of the product and then work closely with our sales management team and our category directors to make those assessments.

Okay that's very helpful. And the final question, maybe as a directional representation of the growth of backcountry participation, what type of growth are you seeing from product supportive of that, like maybe the Fritschi bindings or the skins? How has that business grown for you over the past few years?

Backcountry skiing, if you look at it as a trend over the last say half dozen years, that has been a really nice driver of growth for the Company at modest double-digit rates. One of the products you mentioned, there is a period of time where the growth was anything but modest. Is was on a very, very steep trajectory. It is not on that kind of steep trajectory anymore, but coming back to your question, when we look at backcountry ski products, that is an area that for us and for the ski industry, is a absolutely a growth category of modest double-digit growth.

Good to hear. Thanks so much and best of luck.

Thank you Jim.

Thank you.

(Operator Instructions)

Our next question comes from the line of Joe Munda with Sidoti & Company. Please go ahead.

Good afternoon, guys.

Hello, Joe.

Congrats on a great quarter. Just a few quick questions. Peter, when you were talking about the technical outerwear -- the launch for apparel, I'm guessing obviously jackets is probably the biggest push. And I am in New York, I guess a lot of other guys are in New York. And we tend to see the Patagonia down jacket or the Patagonia down vest. Is there any plans as far as apparel goes to kind of make a line to the masses for everyday wear? I know it's technical outerwear, obviously is the biggest growth area in your business but I mean, in New York, you can't go anywhere without a Patagonia down jacket. Are there any plans to do any lines of apparel along, with like a similar sentiment?

Okay. That's a great question. And I guess there's really 2 ways to answer that. So if your question is, do we want to -- and I don't think it is -- but I just want to sort of frame this. If the question is do we plan to emulate Colombia and have $199 Bugaboo ski jackets for the masses, absolutely not. That is not our positioning. However if the question is do we plan to have technical premium outdoor apparel that someone working the Highline in down by the Meatpacking District or wants to go out and walk--

Well we are not all in the Meatpacking District.

Well, you have to put it into theory actually.

Yes. [ laughter ]

[That should got boo to cons.] You know, the apparel that we are going to come out with is apparel that is targeted first and foremost towards our core customers -- climbers, mountaineers, free ride skiers. But it is not going to be so specialized, a lot of it, that you would feel uncomfortable to want to wear it in a more urban setting. And I think that is part of the strength of a Patagonia, an Arc'teryx, a North Face, is that, that clothing, that apparel is cross-functional, right. You're very comfortable using it in the mountains.

Yes, you can [use it everywhere].

Yes, using it everywhere. And certainly that is what we envision with our product is that it is targeted towards a core group of customers, but that others who appreciate the performance benefits that premium outdoor clothing has will use it in more urban settings, because like all you guys in New York, my birthplace, I appreciate what you are up against. You guys are outdoor folks, that's how you get around town. So I think our products will be appeal to people in New York. And I should add that right now if you look at our glove and mitten line, it is one of the fastest-growing premium lines in the outdoor space and I'm always pleased when I hit the road with Robert and talk to people in various places and they come up and tell me that they own a pair of our gloves.

That they don't ski, they down climb, they don't hike, they don't engage in mountaineering, they just like to walk their dog in Central Park and they think our gloves are great. Or they jog at 630 in the morning through Central Park and like our headlamps and a pair of our aerobic gloves. So I mean our product is already appealing to a much broader swath of user groups out there than just our core customers. And that has always been part of our plan, is that we launched a category targeted towards our core customers and then build out from there. Using the same DNA design, ethos, aesthetic, et cetera but build it in a way that it will also appeal to a larger demographic user group who can appreciate the benefits of a slightly [detuned] but premium product.

Okay. And I guess my next 2 questions is for Rob. Rob, you guys, with the investments that you guys are making in apparel, you had stated you are expecting somewhere CapEx on the $2.5 million to $3 million range for 2011. Is there going to be further CapEx? Or is there going to be CapEx increases going forward due to that investment in apparel? I mean, are we to look at that as like a $3 million to $4 million going forward in 2012?

Hello, Joe, good question. So when we talk about the $3 million investment in apparel it primarily relates to OpEx.

I understand that. But I'm saying is there going to be additional CapEx on top of the OpEx expense or is it just going to flow through OpEx?

Yes. So we've got the $3 million in OpEx. And then what you have, and I'm just going to contrast this against like a ski boots. So with a ski boot or a binding projects, you have a higher amount of tooling that you incur, that you capitalize and you expend through cause as you sell the product. So they're kind of on, and I'll oversimplify this, but they're kind of on polar extremes. Is that you have very little CapEx with apparel, and you have higher -- or excuse me you have very little CapEx with apparel and higher OpEx, but then with the ski boot projects, you still have OpEx but you have higher amounts of CapEx. So to answer question just really directly, apparel will have very little CapEx. What you have to think of with CapEx is that do you have the systems to support that product launch from like a product life management system? And that is where you can start to see OpEx is that when you look at this number of styles and what we are planning on doing in terms of growing apparel, the question isn't so much is it CapEx specifically for apparel, but is it CapEx for apparel and your other products to help have the necessary infrastructure? So along those lines, we will see a little bit higher CapEx to support apparel, but in addition to the other products.

And I guess a follow-up, in regards to that, I mean are you guys -- do you have a factory? Or are you contracting out all of the apparel manufacturing? I'm guessing it's being done in Asia?

Correct. And we have already had significant number of meetings with the handful of truly leading technical super-competent apparel factories in Asia and companies. And we have good relationships. Will be in the best factories and we will do it in that capacity. We do not plan nor intend to invest in building any of our own factories for apparel.

Okay. And my final question. International sales. How much of that was in Europe?

In general, Joe, think about Europe as about one-third of our business.

Okay. Robert, and I'm not a doomsdayer here, with the growth you guys are projecting, and a lot of people saying the slowdown in Europe, I mean, are you guys taking that into account in your projections?

I believe we are. I mean yes, that is certainly a concern -- we don't put together our forecast in a vacuum. So we have looked at that and taken that into account. And we believe our forecasts are neither conservative nor optimistic or liberal. We believe they are realistic. And we give them out with the idea that we have the capacity to absorb some of the issues that we see circulating around the world, including the sovereign debt issued in Europe. And what appears to be a true slowing-up of the economy and potential recession. So those kind of things are built into some of our assumptions. If we're talking about a true meltdown, I don't think anyone has those built into their models.

Okay. Great thanks, guys. Keep up the good work.

Thanks, Joe.

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

All right. Thank you. Thanks everyone for listening in. And we hope our presentation provided more insight into our performance for the quarter and our outlook for the rest of the year. And I do look forward to speaking with all of you again soon. So thank you.

Thank you. Ladies and gentlemen, that concludes the Black Diamond financial results for the third quarter ended September 30, 2011 conference call. We thank you for your participation. You may now disconnect.