Clarus Corp (CLAR) 2011 Q4 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 fourth quarter and full-year ended December 31, 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 statements within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements.

Please not that during this conference call, we may use words such as appears, anticipates, believes, plans, expects, intends, future, and similar expressions which constitute forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are made based on the Company's expectations and beliefs concerning future events impacting the Company, and therefore involve a number of risks and uncertainties. We caution you that forward-looking statements are not guarantees, and that actual results could differ materially from those expressed or implied in the forward-looking statements.

Potential risks and uncertainties that could cause the actual results of operations or financial condition of the Company to differ materially from those expressed or implied by forward-looking statements used in this conference call include, but are not limited to, the overall level of consumer spending on Company's products, general economic conditions and other factors affecting consumer confidence, disruption and volatility in the global capital and credit market, the financial strength of the Company's customers, the Company's ability to implement it's growth strategy, the Company's ability to successfully integrate and grow acquisitions, the Company's ability to maintain the strength and security of it's information technology systems, the stability of the Company's manufacturing facilities and foreign supplier, the Company's ability to protect trademarks and other intellectual property rights, fluctuations in price, availability, and quality of raw materials and concentrated products, foreign currency fluctuations, the Company's ability to utilize it's net operating loss carryforwards, and legal, regulatory, political and economic risks in international markets.

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

I would like to remind everyone that this call will be available for replay through March 19, 2012, starting at 7.30 p.m. Eastern tonight. A webcast replay will 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 express written consent of Black Diamond Incorporated is strictly prohibited. Now I would like to turn the call over to the Executive -- Chief Executive Officer of Black Diamond, Mr. Peter Metcalf. Sir, please go ahead.

Thank you, Michala, and good afternoon, everyone. At the close of the market today, we issued a press release announcing our financial results for the fourth quarter and full-year ended December 31, 2011. As you know, on February 6, 2012, we pre-released our expected fourth quarter and full-year 2011 revenue and gross margin, and provided our full-year 2012 guidance. We, then held a conference call to discuss these expectations, and presented operational highlights for the fourth quarter and full-year 2011, and also reiterated our five-year organic plan. So the primary purpose of today's call is to review the financial results for the fourth quarter and full-year 2011. We will also provide some limited first half quarter 2012 revenue guidance. And as such, I will keep my comments relatively brief.

I'm pleased to confirm that we achieved all the sales and gross margin expectations presented in our pre-announcement release as expected. In fact, we grew 2011 sales by 17% to $145.8 million, which is a record for Black Diamond. But 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 fourth quarter and full-year 2011. After Robert's remarks, I'll return to discuss some additional highlights, and why we believe 2012 is off to a very solid start for Black Diamond. Following my remarks, we will open the call for your questions. Robert?

Thanks, Peter, and good afternoon, everyone. Our total sales in the fourth quarter of 2011 increased 6% to $36.3 million, compared to $34.2 million during the same year-ago quarter. The growth in sales was attributed to the release of a number of innovative products, as well as consistent execution in sales and marketing. We achieved this sales growth by lighter ASAP sales in both North America and Europe, due in part to an unseasonably warm and dry early winter, especially when compared to last year's global cold and snow. As we have previously discussed, we deliver against advance orders from retailers every season. However, each quarter we also rely on and plan for a certain amount of ASAP or follow-on orders for immediate shipment during any given quarter, which is largely related to our sell-through and continued demand.

Due to the fact that we manufacture many of our products in our line, we are often able to respond to market needs, and fulfill these ASAP orders more readily. Foreign exchange markets continue to experience volatility, as BD operates across multiple currencies, primarily the US dollar, the euro, and Swiss franc. However, there was no meaningful revenue impact in the fourth quarter of 2011 due to foreign exchange rates.

Gross margin in the fourth quarter increased 100 basis points to 39.2%, compared to adjusted gross margin of 38.2% in the same period last year. The increase in gross margin reflects in part, a shift in product mix toward higher margin product, and we believe in part a credit to the global investment and unique capabilities of Black Diamond's operations group led by Mark Ritchie. Given the unseasonable winter backdrop in Q4, we are certainly pleased to expand gross margin, and we believe this is part of -- a function of our manufacturing strategy.

Operating expenses in the fourth quarter of 2011 increased 3% to $13.4 million, compared to the same quarter last year. For the fourth quarter 2011, we reported net income of $3.5 million, or $0.16 per diluted share, compared to a net loss of $0.5 million or a negative $0.02 per share in the same period last year. As we discussed on our Feb 6 call, net income in the quarter included a $3 million benefit related to the release of our valuation allowance on our net operating loss carryforward set to expire in 2011.

Reported net income also includes $1.8 million of non-cash charges. Internally, we continue to focus on adjusted net income before non-cash items, which is a non-GAAP term, and excludes these two non-cash items which was $2.3 million or $0.10 per diluted share, compared to $2.9 million or $0.13 per diluted share in the fourth quarter 2010. Adjusted EBITDA in the fourth quarter of 2011 increased 6% to $2.8 million versus Q4 of 2010, which excludes $0.6 million of non-cash equity compensation.

We define EBITDA, which is a non-GAAP term, as earnings before interest, taxes, other income, depreciation, amortization, non-cash equity compensation and restructuring charges. Tables reconciling each of pro forma sales, adjusted gross margins, adjusted EBITDA and adjusted net income before non-cash items to the nearest GAAP measurement are presented in the earnings release we issued today. It is available in the Investor Relations section on our website.

Now turning to the full-year, our total sales in 2011 increased 17% to a record $145.8 million, compared to pro forma sales of $125 million for the full-year 2010. The pro forma sales included the results from both Black Diamond Equipment and Gregory Mountain Products prior to their acquisition by the Company on May 28, 2010. Organic growth in sales continues to be driven by the release of a number of innovative products, as well as consistent execution in the sales and marketing efforts of existing products I previously mentioned.

Out of the 17% sales growth, Black Diamond experienced for the year, approximately 2% was attributed to foreign exchange rate. So on a constant dollar basis, our revenues still increased nearly 15% for the year. Gross margin in 2011 increased 10 basis points to 38.7%, compared to 38.6% in 2010. The increase in gross margin is a result of a shift in product mix towards higher margin products.

Total operating expenses in 2011 were $51.5 million. Throughout 2011, we estimate we have realized approximately $1.4 million to 1.7 million in annual cost savings associated with the integration of Gregory into Black Diamond, excluding the restructuring charges. Adjusted for the integration savings and the non-cash stock compensation, operating expenses reflect a number of significant investments in growth and infrastructure. Such investments included headcount for our North American and European sales team, advertising expenses, search engine optimization, et cetera.

Looking back on 2011, we estimate that Black Diamond added approximately 80 new jobs last year, and we expect to continue to have more job creation in 2012. Net income in 2011 was $4.9 million or $0.22 per diluted share, which includes the $3 million tax accounting benefit as previously discussed, compared to net income of $51.2 million or $2.50 per diluted share in 2010, which included a $65 million benefit related to a partial release of the Company's valuation allowance on it's NOL carry-forward.

Net income in 2011 included $6 million of non-cash items, and $1 million in restructuring charges related primarily to the relocation of Gregory Mountain Products to BD's headquarters in Salt Lake City. Excluding these non-cash items, adjusted net income before non-cash items in 2011 was $11.9 million, or $0.54 per diluted share. Adjusted EBITDA in 2011 was $13.6 million, which excluded $3.1 million of non-cash equity compensation and $1 million of restructuring charges.

Now, turning to our balance sheet, we had $2.4 million of cash and cash equivalents at the quarter -- at the end of the quarter, compared to $2.8 million at the end of 2010. Non-cash working capital increased approximately $17 million to $57.6 million, which is largely the result of increasing inventory. Most of this inventory is to support growth in the Business. However, as we discussed on our Feb 6 call, Q4 2011 was impacted by unseasonably warm, dry early winter which left us at year-end 2011, with modestly higher winter seasonal inventory, including, among other things, skis and ski boots.

Most of this inventory is in-line inventory, and will be carried over into next season. Some items, however, are discontinued models and will be moved through our sales channel now and throughout the year, but are expected to be mostly sold by the start of the fall '12 season. I will remind -- I will remind you that as a matter of policy, Black Diamond does not accept returns from it's dealers.

At December 31, 2011, we had $22.4 million outstanding on our $35 million revolving credit line with Zions Bank, compared to $14.7 million at December 31, 2010. Total debt, both long and short-term, stood at $38.1 million, which includes $15 million of 5% subordinated notes due in 2017. As most of you are aware, on Feb 27 -- 22, 2012, we closed a public offering for 8.9 million shares of common stock, realizing net proceeds of $63.4 million. We plan to use the proceeds for general corporate purposes, including repayment of debt, capital expenditures, and potential acquisitions.

We believe that our fresh capital gives BD added flexibility, and resources to move quickly to close potential acquisitions. At the same time, we also believe that significantly enhancing our balance sheet goes a long way toward providing potential sellers with better certainty of closure. On Feb 22, we reduced our revolving line of credit with Zions Bank to zero, leaving $35 million of available capacity. After reducing our credit facility, we have approximately $34.5 million, in cash with approximately 30.7 million shares outstanding.

As a result, we believe that we have entered 2012 with a robust balance sheet that will provide us the flexibility to execute our strategic initiative. As we have discussed in the past, we think about, plan, and proactively manage our business as a two month -- excuse me, two six month seasons, spring/summer, winter/fall. We also provide revenue guidance at each six month period, rather than quarterly. I also want to remind listeners that we are in a growth mode, and as such we have not, and do not intend to provide earnings guidance in the near-term, to provide us the flexibility to invest where we believe it is appropriate.

As you will recall on Feb 6, 2012, we announced our 2012 guidance. This guidance remains unchanged. We expect fiscal year 2012 sales to range between $160 million and $165 million, which does not include new category launches or the impact from potential strategic acquisitions. We expect our first-half 2012 sales which end on June 30, 2012, to range between $76 million and $79 million, which represents an increase in sales between 13% and 17% over the same time last year. We are pleased with our sales results for the first 60 days of 2012.

For a variety of reasons, gross margin in any given period can be more challenging to forecast due primarily to the multiple currencies in which we operate, and the potential volatility in the underlying exchange rate. In Europe, for example, we contract sales at a fixed price in euros. But during the time it takes to deliver the product and collect the receivable the exchange rates are likely to fluctuate. A portion of this exposure is naturally hedged by operating expenses denominated in euros, and a higher portion is hedged through derivative contracts. However, on a quarter-to-quarter and year-to-year basis, there are certain amount of fluctuations that are difficult to forecast.

Having said that, we expect gross margins for fiscal '12 to be consistent with those for fiscal 2011. In the out years of our five-year organic growth plan, we expect to see some natural gross margin expansion, resulting from capital investment and increasing scale during the period. We also anticipate that certain strategic acquisitions are likely to cause gross margin expansion in the out years.

We remain confident in our expectation 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 five-year organic growth plan. This completes the financial portion of our presentation.

Now I will turn the call back over to Peter. Peter?

Thanks, Robert. Our diverse collection of new and innovative outdoor performance and lifestyle products helped deliver another year of record results. We are proud of the marketplace impact in sales generated by the 2011 product launches which included our award-winning Z-poles and spot and storm headlamps, grid and nitron carabiners, Cayenne heated gloves and AMPerage and Element skis. We believe that these results were also supported by solid execution in sales and marketing, and the investment in our global operational platform.

We believe Black Diamond is a brand leader in every category of hard goods and accessories in which we compete. And more importantly, we believe that the operational investment we plan to continue making in 2012, will allow our brand awareness and market share to expand globally. As we have previously stated, one of Black Diamond's greatest strengths is our seasonal sales balance, and product strength in multiple related and complementary categories. We believe that our spring/summer 2012 line is one of the strongest we've had in years. And it continues our multi-decade track record of innovative product launches across most key categories. This includes carabiners, headlamps, ski poles, harnesses, crampons and packs. As a result, our order book from Asia to Europe to North America is robust, and we feel confident in our spring and early summer 2012 projections.

While there are limited concerns about the financial health of some retailers in specific European regions due to the lack of weather and financial issues, we will monitor each carefully and not take significant risks. However, we do not believe the situation to be deep or broad enough to be truly meaningful to our spring 2012 Business. In addition, it appears to us, that both the late winter weather in central Europe and the partial resolution of the Greek debt crisis, have helped restore a degree of consumer confidence in parts of the continent.

Looking towards the rest of 2012, we believe we are in a strong position to sustain our organic growth through product innovation, and further capture macro active lifestyle trends currently working in our favor. Speaking of 2012, at the end of this calendar year, that we expect to be -- excuse me -- speaking of 2012, at the end of this calendar year that we expect to be selectively launching to the trade our fall 2013 apparel collection. Our plans currently call for launching with select retailers in North America, Europe, and parts of Asia. We have received strong and affirming feedback from all key retailers we have met with.

We are generally tracking according to plan relative to design, being well-synced with our textile and OEM sewing partners, as well as developing the sales and marketing plan. The apparel team is working well, and is appropriately staffed at this time, though we do intend to augment that team by mid year, as we take on the design and development of additional collections to be launched in future seasons.

In addition to the apparel team, we intend to continue to add to our staff throughout the world, as we augment our supply chain, IT, and sales and marketing functions as required to maintain our growth momentum while being vigilant to increase efficiency. Efficiency and effectiveness is an area that our global operations team led by Mark Ritchie is absolutely focused in on. Right now, a thorough review of our seasonal product inventory forecasting sales cycle is underway, with the goal of reducing both inventory and inventory risk.

Another area of the business I want to briefly discuss has to do with one of Black Diamond's greatest assets, the living brand that is BD and why that resonates so strongly with our core community of mountain and canyon enthusiasts. It has to do with a set of values and beliefs that we were founded upon and we live by. A fundamental belief is to champion the issues of great importance to our community of users. Currently that mission is manifesting itself into the defense of Utah's public lands, the playground of our community of users.

Currently our governor and state legislators are in favor of transferring all such federal lands back to the state, ultimately for development, as well as the right to criss-cross our national parks, monuments and wilderness areas with new roads. We are actively mobilizing the outdoor industry to take a stand on this topic quickly, to bring some additional political and economic pressure to prevent what we believe strongly could be a long-term disaster for Utah, our industry, and potentially the western United States, if this kind of action ever serves as a precedent.

Before I conclude our remarks and open up the call for questions, I want to offer a few observations about our recent stock offering, our first additional equity capital raise since1989, which raised $63.4 million on February 22, 2012. For almost two years, Robert Peay and I have been on the road, attending investor conferences and meeting with investors one on one to tell our story and help investors understand who we are and where we believe we are going.

We are very proud of this particular offering for three important reasons. First, we believe that it validates many of the important premises associated with our decision to combine with Gregory and Clarus in a public company format. Secondly, it tells us that our messages are being heard and validated by our investors and partners, and give us a renewed sense of confidence in the capital formation process in the US. And thirdly, it enables me to share with you on behalf of my partners, Rob Schiller, Warren Kanders, Robert Peay, and myself, how proud we are to add so many new investors to a growing list of long-term financial partners.

We believe more than ever, that Black Diamond boasts a who's who of the world's most intelligent and sophisticated small cap growth investors, and it gives us great confidence for the future. We plan to deploy this capital thoughtfully towards our strategic objectives, including our expected fall 2013 apparel launch and acquisition strategy. We continue to look for outdoor and snow sports brands that are growing, but have yet to take significant risk in new foreign markets.

In Europe in particular, where the economy may be uncertain, the markets for climbing, mountaineering and skiing are still substantially larger than in the US. And our centralized pan-European subsidiary continues to be a unique asset, even among many euro-based brands that still use independent distributors out of their own market.

In regards to acquisitions, I'm pleased to share with you that we are currently in advanced discussions at this time with what we believe would be an ideal acquisition. In conclusion, we're certainly optimistic about our prospects for the future, and believe the steps we have taken in 2011 and early 2012 further positions Black Diamond for continued growth.

Now we would like to open the call up to your questions. However, at this time, we are not prepared to share any more information with you in regards to acquisitions. And secondly, I just need to point out that we do have a hard stop here by -- at about 3.45 Mountain, because we are heading to the east coast for our Investor conference.

Thank you.

(Operator Instructions).

And our first question is from the line of Sean McGowan from Needham & Company. Please go ahead.

Hi, thank you. Two questions, if I may. First, have you attempted to quantify what you think the impact is from unusual weather? I guess there could have been actually some pickup in some markets, if spring-like weather prevailed and maybe some spring-like activities were going on. But if you could quantify what you think the impact was of unusual weather? And then secondly, at least relative to my expectations, the domestic business seems stronger relative to what I thought than in the international business, maybe a little weaker. Could you comment on where you saw the strength in the domestic, the US-based product categories? Thank you.

Yes. Hi, Sean, thanks. This is Peter. I didn't hear the latter part of your question. Could you just repeat that in regards to Europe?

You mean -- the second question was, just that the international business seemed a little weaker than I thought. And I would imagine that's mostly weather, but the domestic business seemed a little stronger. Could you comment on where there was strength domestically by product category, what product categories seemed to be stronger? The first one was just quantifying the impact of unusual weather.

Yes, okay. Thanks. There's no question that a combination of the anemic weather we had winter-wise, both in Europe and really in the US, especially in the northeast. And then in the west, we lacked snow for a long time, but we had cold conditions for ice climbing, which did help our ice climbing sales. But in Europe the lack of snow and cold up until just prior to Christmas, really did act as a dampener to the sales of big-ticket ski products and gloves and mittens.

Relative to your question of how much did that hurt us, everything is relative, right? I mean it was a combination of the economy in Europe, as well as the snowfall. But as a guesstimate, it was clearly in the neighborhood of many millions of dollars, of what potentially could have been, where we ended the year. We recognize that being in the -- having a part of our business, roughly 27% in the ski business, that is susceptible to some volatility. And certainly, we did experience that around the globe.

Relative to your question of what categories did very well for us, certain categories definitely did better than we had anticipated, and that's why we had the results that we achieved, in light of the weaker than anticipated sales in big-ticket ski products. And that was generally some of the hard good mountain categories. Lighting was one that continued to be very robust for us. And then climbing has continued to be a strong year round category for us. I mean, certainly in the west because we had cold, though a lack of snow. It made for very good ice climbing.

And then even in a category like gloves, we did very well with our new Cayenne glove, which is the lithium battery-powered heated glove, that certainly surpassed any expectations we had. And it just proves that innovation can really drive this business forward. If you have not got innovation, even when the weather and the economy isn't compromising -- isn't cooperating the way you would have liked it to go.

Thank you very much.

You're welcome, Sean.

Thank you. And our next question is from the line of Lee Giordano from Imperial Capital. Please go ahead.

Thanks. Good afternoon, everybody. As you think about your acquisition strategy going forward, can you talk about what you learned from integrating Gregory? And also in particular, how has the progress been in terms of distribution for Gregory in Europe, and then for taking Black Diamond into Asia?

Okay. Hi, Lee, this is Peter. So really three parts to your question. Lessons learned, Gregory in Europe, and BD in Asia. So I think relative to lessons learned, when we did the first acquisition, was really came here together of Clarus and Black Diamond, and Gregory. And the first thing that we had to do really after the deal consummated, was to both identify who is the acquisition team? What's the methodology that we were going to use?

And most importantly, how were we going to reconstruct the corporation, specifically Black Diamond, to be not Black Diamond Equipment, Limited, the company it had been for 20 years, but a combination of Black Diamond, Inc., the portfolio holding corporation, and Black Diamond Equipment, Limited, the brand that had developed such a strong following among a group of mountain and canyon, crag enthusiasts around the world. So that is what took a significant amount of time out of the starting gate, was both to reconstruct the company, reorganize it, define roles, and then come up with a systemic methodology by which to do the actual integration.

And I think what did we learn from that? I think that what -- I know what we have now is, one, we have two people who have been through this who are tasked, and who are specifically tasked with -- exclusively with acquisitions and integration. I think we have put together a very strong systemic approach to how to do that. We have a team of people now, within the platform, i.e. BD, Inc., the operational platform, and the corporate overhead group, including a very experienced VP of HR, a strong finance team, and a commercialization supply chain and IT group that learned a lot through this acquisition, and what their roles have to be, and the approach we should use for the next acquisition.

And I think because of that we have a honed group of people that have been through this once. They have a documented systemic approach. I think for the next one, we can do it definitely faster, more efficiently, and with a more explicit approach to that. We certainly know how to bring it on to this platform. So that's a high level summary to your question.

Relative to Gregory in Europe, I think as we've shared some time in the past, at the time we did this transaction, Gregory, which had a very small amount of business in Europe through kind of a hodgepodge of independent European distributors, had developed a five year $5 million investment plan to set up its own operations in Europe, take control of it's future, to take control of it's business, and hence grow its business in a way that would set it up for long-term growth.

We worked together and brought Gregory on to the already well established, well-respected Black Diamond platform, which really has been 15 years in developing. And by the hiring of a Gregory brand manager for Europe responsible for the sales distribution and marketing strategy, and the support of BD Europe team, and the Gregory team in the US, introduced Gregory through Gregory Europe at the July 2011 Friedrichshafen OutDoor Trade Show. We had the new sales agent in place. They were there selling to prospective accounts.

And as a result of all that, we are now we -- we achieved a fairly robust order book for 2012. We are forecasting currently that we will more than triple Gregory sales in Europe in 2012. And the overall investments that have been five years and $5 million, would be about a year and -- or a year and a half, and well, probably less than $500,000. So we're excited by that. I think that's proof of what this global operation platform can do for a brand, a well established brand like Gregory, that had not been selling or marketing itself in Europe. So we're excited to extend that to future brands.

Relative to Asia, Black Diamond actually has a -- had and has a fairly robust business in Asia. However, what we did not have -- was really the level of -- I think market penetration as well as strength of leadership in one specific country, the way Gregory had in Japan. And I think what we've learned from that are some, what I would call, best practices. The investment value of putting more dollars into sales and marketing efforts, to work more diligently, in greater detail, and with a stronger level of you-must-do set of requirements of distributors, so they build the brand more in the way you are doing it in your own market.

And we are applying that now we're -- we began applying it in 2011. I think that is part of the reason the BD brand got such significant growth in parts of Asia in 2011. As well as some of the natural disasters actually turned out to be not negative to our business, but actually accretive to our business, because of the kind of product we have, and the really quick rebound in the outdoor recreation space in Asia as well, and specifically Japan. So that's a pretty succinct summary to your questions. Hopefully I've answered them.

That's very helpful. Thanks a lot.

Yes.

Thank you. And our next question is from Sean Naughton with Piper Jaffray. Please go ahead.

Hi, thanks for taking my questions. What do you think about the growth in the second half? Looks like 13% to 17%. Maybe you could just outline how you're thinking about that between Gregory and Black Diamond, international versus domestic, how much is FX potentially going to be impacting those numbers year-over-year? Any color you can give there would be helpful.

Sean, this is Robert. When we look out in the first half of the year, what gives us confidence to give a revenue range like we did, is that the strength of our bookings that we have in place. And as you know, we try to fill our order books to where we -- then we place orders with vendors, and manufacture our own products. So we feel pretty good about those numbers for the first half.

Relative to mix of Gregory versus Black Diamond, and international versus domestic, I would say that there is -- this is the year in 2012 where we see Gregory kind of get a boost or a tail wind from being on, in a stable home, on a stable platform, that is Black Diamond. And as Peter mentioned, to answer Lee's call, we expect to see good sales growth in Europe, because the Gregory brand hasn't really had that much penetration in those market. So we expect good market growth from Gregory, but we also expect good market growth in the spring from Black Diamond.

The organic growth, those categories of climbing and mountain continue to expand and to grow. And we've got new products that will give a bit of a tail wind to those sales in the spring. So it's -- the answer is, it's going to continue to be kind of like what it has been. We'll continue to grow organically. We'll continue to grow domestically and internationally, more of the same historical rates that we've seen in the past.

Okay. That's great. Then on the -- just on the inventory side, was up a little bit, obviously because some of the smaller at-once business in the fourth quarter. What do you expect as you look out with your booking trends? When do you expect the inventory to sales ratio to come back into line a little bit closer to an even balance?

Sean, this is Robert again. I think you have to kind look at our inventory in different bucket. There is kind of the seasonal fall product. There's manufactured goods, then there's everything else. And we -- where Q4 had its biggest impacts was on seasonal winter product, ski and ski boots, gloves. So we're in the process now of moving those product through the channel. Some of it will be -- some of it is discontinued. So we need to sell it before next fall. But looking at the inventory levels, and looking at our history of being able to move product through those channels, we remain confident that we'll have pretty clean inventories at the start of the fall '12 season.

Okay. And then just lastly, two final questions. One is, do you expect any additional synergies coming from Gregory? I think you mentioned earlier on the call you had about $1.4 million to $1.7 million in the integration process. Do you expect any additional synergies? And also do you expect into 2013 the same level of investment in apparel that you are going to have here in 2012?

I think, Sean, from a synergies perspective, I think we'll see less operational expense efficiencies, and we will see more sales synergy, for all the reasons that we've mentioned previously, and in Europe and having a stable home. And then, let's see, sorry, what was your second question or second part of the question?

Yes. Just you had mentioned some investments in apparel in 2012, obviously that's something that's going on in fall 2013. Should we continue to expect -- I know you are building out the team more. Should we continue to expect that similar level of investments in 2013, before we really get to any sort of top line benefit from those investments that you're making today?

Well, certainly, going -- hi, Sean, Peter. We are certainly going to have to continue to build the apparel team through this year, and through next year. And we only begin shipping and racking up sales for the apparel in fall '13. And the level of revenue gain would certainly not offset the investment in '13. It's in '14 you are going to see those two change quickly, where sales will rapidly accelerate beyond any kind of additional expenses and salaries, samples, et cetera.

But between this year and next year, yes, we will, as we keep having to develop additional collections and have -- for collections going at any one time from a design, development standpoint, expenses will increase with apparel through '13. And then in '14 we'll add to it, but much less than one would have in the two-and-a-half years leading up to that, and you've got big revenue growth. The one other thing I want to add also is, just coming back just to add some color to Robert's response on the Gregory BD synergies. At this point in time, I think we have cut out the savings we're going to get.

We've established the way the two companies are going to work together and what can be gotten out of that. However, now is the time that we're going to begin to see really good solid -- or continued revenue growth. And we certainly don't have to add to a lot of parts of the BD infrastructure to get that revenue growth. So you are seeing operational leverage coming, beginning this year out of that aspect of it.

Got it. Okay. Best of luck for the rest of the quarter. Thanks.

Thank you. Our next question is from the line of Joel Altobello from Oppenheimer. Please go ahead.

Hi, good afternoon. Just a couple of quick ones for you, if I could. I guess, first, you talked a lot about in the first half of the year today, and obviously the very strong start to the year. It seems like, if we just do the math, that you are looking at mid teens top line first half, but it implies high single-digit growth in the second half. Is that because you are being conservative, because you don't have a lot of visibility at this point in the second half? Or is there something about the second half bookings that would cause that type of slowdown?

Okay. Hi, Joe, it's Peter. It's -- you have kind of nailed it. I mean, number one is we do have great visibility the first half, second we have the bookings to back it up. And with two months into this, and we're seeing really robust ASAP sales coming. The second half, we're coming off of a winter that has been somewhat impacted as we talked about earlier from both an anemic winter, and the economic challenges that Europe had. We don't have, by any means, all our orders in.

The hard good business is -- the hard good industry lags behind the apparel as far as getting orders in. We won't have them all in until approximately April 15, at which point we will have much greater insight as to what that looks like. So because we are coming off of a more anemic winter. And secondly we don't have all the orders in yet for Black Diamond or Gregory on a global basis, and because we're still trying to ascertain just how much product may be in the global pipeline for big ticket ski products, we've decided that, let's play it conservatively at this point in time. And we'll see, as we move forward.

Okay. That's very helpful. Secondly, obviously you don't want to talk about the specific acquisition you mentioned earlier, but in terms of the general M&A environment overall, are you seeing any increase in activity given the warm weather? Are some of the smaller family-owned private businesses starting to think about selling out more readily?

I would probably be -- I can't say that based on factual information at this point in time. But it's kind of a gut level feeling we have, but I can't back it up right now the way I would like to. The transaction that we've been involved with, that I said is in an advanced state of discussion, it's one that we've been working on honestly for -- coming on to eight months or so. Is this accelerating it? I don't think so. But it's certainly not hurting it. It's just the nature of continuing to build momentum, and we're far enough along that it's beginning to have its own momentum.

Okay, great. Thank you.

Thank you. Our next question is from Andrew Burns from D.A. Davidson. Please go ahead.

Hi, Peter and Robert. Congratulations on 2011 and the capital raise. Just a couple of follow-up questions here. Just in terms of with the completion of the secondary, does any of the commentary from the last guidance call change in any way regarding CapEx or SG&A investments, in terms of just modeling for 2012 in those lines?

Hi, Andrew, this is Robert. No what we mentioned on the Feb 6 call stands. And so what we're looking at now on CapEx is kind of a one-time incremental pop in our CapEx in 2012, for all the reasons that we mentioned on that call, to be between $5.5 million and $6 million. And that's not necessarily incremental to our organic, but that's a total amount for 2012. And then relative to OpEx, the guidance that we gave in our Feb 6 call stands of $4 million of incremental organic infusion of OpEx, plus $3 million incremental for a total of $7 million for 2012.

Good. Thanks. Just in terms of the inventory you have now, on the seasonal product, I was hoping you might be able to give a little more detail on the percent that's in-line product that can carry over, versus the amount that actually has to sell through the channel, because it's a close-out? If could you better quantify that, that would be helpful. Thank you.

And Andrew, I think you were at the OR show in Salt Lake where you saw the new line. So what carries over is any product that's not going to change. And so there are many products, like that the mini skis, and mini ski boots, but there are a few products that are going to change for fall '12, like the (inaudible) skies, so the new carbon megawatt -- the products that that is replacing, those will need to sell through now, and before the beginning of fall '12. And so it really depends on the category, but it really is a question of how much is going to continue into fall '12 as a carryover or what is being replaced.

Great. Thanks and good luck.

Thanks, Andrew.

Thank you.

(Operator Instructions).

Our next question is from the line of Rob Young with William Smith. Please go ahead.

Hi, good afternoon, and congratulations on another solid year.

Thanks, Rob.

Relative to your apparel guidance of $250 million by 2020, can you break that down at all by, domestic versus international? That you might be expecting?

Yes, let me give you a rough idea, in that would be somewhere in the neighborhood of I think -- 40% in North America, 30% in Europe and 30% in Asia and elsewhere. And that is right now, a high level articulation.

Right.

We certainly will reserve the right to evolve that in a very dynamic way, depending on what the responses are, as we launch.

Okay. And again, I know that it's a long ways off, but can you maybe talk about how that $250 million was derived? Is that based on prior experience in terms of market share gain that you've been able to obtain on prior product launches, or does it have something else factored into it?

I would say that you would almost need -- I'm being a little bit facetious, a (inaudible) Cray-3 supercomputer with Monte Carlo theory. But I'm being a little bit facetious, in that it's a combination of the inputs and thoughts of a core group of us at Black Diamond. Many of us have been in or around the apparel business, throughout much of our career. As you know, we have people here who even before starting the apparel business had significant apparel business in senior positions at places like Patagonia, North Face, and elsewhere.

So it was a combination of that, our sales guys' experience working with key retailers over the last couple of decades. And then in conjunction also with the team of people that we've hired, and their own experiences, of what they saw. And so then it was looking at the collections, looking at specialty, looking at the number of doors we felt comfortable being in, and seeing what -- and talking to retailers, getting feedback. What kind of dollar commitments, over what kind of time, could specialty retailers take? And then it had to be conservatized a bit, so it's a bold plan.

It's not shooting for Mars. It's bold, but we think it's achievable based upon our approach of roughly six collections as I think I've shared in pat calls, adding to that over six seasons. And believing that we will get the support that we think we're going to get from our specialty partners around the world. So it was both bottom up, top down. It was sales people, and product marketing people and merchandisers coming together, looking at this, and that's really how we came up with it.

Perfect. So REI has had positive commentary, in terms of their growth prospects. Are you aware that, that pertains to any specific category? And more specifically, I guess, within your product categories?

If you work with REI, and you're an important vender to them, you get access to certain information, relative to categories that you're competing in. And they share at the end of every year what their growth has been. However, they do not publicly share what their growth is in specific categories. And so when they share that with their vendors, what I have learned is that that is confidential and is not to be communicated on further. What I can share with you is that our growth at REI has exceeded their overall growth. Our growth in REI in categories such as lighting, trekking poles, gloves and mittens, climb, has exceeded the growth that they have had in those categories. And they've seen some good growth in some of those categories.

Okay. Perfect. And then just two quick ones. Have you disclosed prior -- previously the percent of ASAP sales, relative to the total business?

Rob, this is Robert. Not necessarily officially, but just a ballpark that we have. You're looking at between 70% and 80% is kind of what we strive for in a lot of categories.

Okay.

It ends up being an involved question because each question can be handled different but that's generally the rule of thumb.

That's generally the idea. Okay. And then I didn't see it, but Robert do you have the free cash flow number for the quarter?

I do. And I'm going to flip a few pages, so bear with me for just a moment.

Okay.

So cash generated from operations is about $3.8 million less, about $300,000 in CapEx. So you are looking at about $3.5 million in free cash flow.

Perfect. All right Thank you very much, and good luck.

You're very welcome, Rob. Thanks for the questions.

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

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

Ladies and gentlemen, this does conclude our conference for today. We thank you for your participation, and you may now disconnect.