Clarus Corp (CLAR) 2012 Q1 法說會逐字稿

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Black Diamond's financial results for the first quarter ended March 31st, 2012. Joining us today are Black Diamond's President and CEO, Mr. Peter Metcalf, and 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 meanings of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements.

Please note that during this conference call the Company may use words such as appears, anticipates, believes, plans, expects, intends, future and similar expressions, which constitute forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are made based on Company's expectations and beliefs concerning future events impacting the Company and therefore involve a number of risks and uncertainties. The Company cautions you that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.

Potential risks and uncertainties that could cause the actual results of operations or financial condition of the Company to differ materially from those expressed or implied by 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 market, the financial strength of the Company's customers, the Company's ability to implement its growth strategies, the Company's ability to successfully integrate and grow acquisitions, the Company's ability to maintain the strength and security of its information technology systems, the ability of the Company's manufacturing facilities and foreign suppliers, the Company's ability to protect trademarks and other intellectual property rights, fluctuation in the price, availability and quality of raw materials and contracted products, foreign currency fluctuations, the Company's ability to utilize its net operating loss, carry forward 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 the Company's annual reports 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 the Company as of the date of this conference call 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 May 21st, 2012 starting at seven-thirty PM 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 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 President and CEO of Black Diamond, Mr. Peter Metcalf. Sir, please go ahead.

Thanks, Alisha, and good afternoon, everyone. At the close of the market today, we issued a press release announcing our financial results for the first quarter ended March 31st, 2012. The solid momentum we built throughout 2011 truly continued into the first quarter of 2012. In fact, we grew across nearly every primary category deriving double-digit sales growth for our Black Diamond equipment and Gregory brand. This was accomplished despite soft big ticket ski products and glove and mitten sales, which we believe demonstrates the resilience and multi-season balance of product lines.

Before I comment further, I'd like to turn the call over to our CFO, Robert Peay, who will take us through the details of our financial results of the first quarter ended March 31st, 2012. After Robert's remarks I will return to discuss some additional highlights in the quarter and why we believe 2012 is progressing well 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 first quarter of 2012 increased 19% to $46.4 million compared to $39.1 million during the same year ago quarter. The growth in sales was attributable to an increase in the quantity and average sales price per unit of innovative and existing products sold during the period.

We achieved this growth despite lighter ASAP sales in both North America and in Europe due in part to an unseasonably warm and dry winter, especially when compared to last year's record-setting winter. The warm weather in part caused certain retailers to pull in their spring inventory forward, which also contributed positively to our Q1, 2012 sales increase.

As we've previously discussed, we deliver against advanced 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 continuing demand. Due to the fact that we manufacture many of our products in our line we're often able to respond to market needs and facilities' ASAP orders more readily.

Foreign exchange markets continue to experience volatility and BD operates across multiple currencies, primarily the US dollar, the Euro and Swiss Franc. However, there was no meaningful revenue impact in the first quarter of 2012 due to foreign exchange rate.

Gross margins in the first quarter increased 150 basis points to 40.1% compared to 38.6% in the same period last year. The increase in gross margin was primarily driven by a shift in product mix toward higher margin product and the distribution channels in which these products were sold. We also attribute our recent margin expansion to the global investments we've made in our infrastructure over the past two years and the unique capabilities of Black Diamond's operation group. Given the unseasonably winter backdrop, we are certainly pleased to expand our gross margins.

Operating expenses in the first quarter of 2012 were $13.9 million, an increase of 6% compared to the same quarter last year due primarily to investments in our strategic initiatives and infrastructure to support both current and anticipated future growth. These operating expenses increases also reflect the expenditures related to our apparel project.

For the first quarter 2012 net income more than doubled to $2.6 million, or $0.10 per diluted share, compared to net income of $1.2 million, or $0.05 per diluted share in the same period last year. Net income in the first quarter of 2012 included $3.2 million of non-cash items and $0.1 million in transaction related costs.

Internally we continue to focus on adjusted net income before non-cash items, a non-GAAP item, which increased 33% to $5.9 million or $0.23 per diluted share compared to $4.4 million or $0.20 per diluted share in the first quarter of 2011.

Adjusted EBITDA in the first quarter of 2012 was $6.3 million, an increase of 39% compared to Q1 of 2011 and excludes $0.4 million of non-cash equity compensation.

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

Now turning to our balance sheet, we had $41.6 million of cash and cash equivalents at the end of the quarter compared to $1.4 million at December 31st, 2011. On February 22nd, 2012 we closed a public offering for 8.9 million shares of our common stock, where we realized net proceeds of $53.4 million before expenses.

As you probably know, prior to this offering we were of the belief that the existing balance sheet and cash flow generated from operations would be more than sufficient to fund our growth including the expected launch of apparel. While we initially used a portion of the proceeds to pay off the outstanding balance on our revolving credit facility with Zions Bank we expect to redeploy this incremental capital through one or more strategic acquisitions.

At March 31st, 2012 we had a cash balance of $41.6 million and $35 million of available capacity under our revolving line of credit with Zion's Bank less outstanding letters of credit.

Long-term debt was $15.9 million and non-cash working capital was $62.6 million, up approximately $5 million from December 31st, 2011, largely related to the timing differences of when accounts receivable were collected.

At March 31st, 2012 we were also carrying higher inventory, in part to support growth in the business and also due to the dry winter, which left of with higher seasonal products. Most of this inventory is in line inventory and will be carried over the next season. Some items, however, are discontinued models that we anticipate moving through sales channels between now and the end of the year and we expect discontinued items inventory to be largely sold by the fifth fall '12 season.

As we have discussed in the past, we think about plan and proactively manage our business as two six-month seasons, spring-summer and fall-winter. We have historically provided revenue guidance at each six-month period rather than quarterly and expect this practice to continue when we report our second quarter 2012 results.

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 with the flexibility to invest where we believe is appropriate. As you may recall, we announced our 2012 guidance in February of this year and to reiterate it, 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.

In March we guided to revenue for the six months ended June 30th, 2012 to be a range between $76 million and $79 million, which represents an increase between 13% and 17% over the first six months of 2011. While not 100% complete, we are pleased with our F '12 bookings as they stand, as many product categories booked up nicely, though not all.

We do anticipate slightly higher ASAP availability than normal in a few categories including ski hardware. We believe our planned F '12 inventory will allow us to respond if weather conditions cooperate and we can invest in inventory that will roll into fall '13 if necessary.

Our yearly guidance does incorporate our current level of bookings and we remain confident in our long-term expectations for 12.5% compounded organic revenue growth, albeit off a much higher base level of 2011 revenue level.

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

Thanks, Robert. As I mentioned in my brief opening remarks, we experienced another quarter of very robust sales growth believed to be due in part to the proactive investments we've made over the past two years to deliver the most innovative products as well as strength within our global distribution platform and our maniacal focus on sales and marketing.

Our first quarter's performance is also a very gratifying validation of our acquisition strategy as our Gregory business expanded 25% plus, largely as a result of our ability to integrate Gregory into our European platform quickly.

We are not in the habit of providing brand-level revenue information nor do we anticipate regularly releasing such information. However, we want to help investors understand what we believe is one of our strong leverage points in our acquisition strategy. Gregory is historically a strong spring/summer brand and we're not anticipating this same level of growth in fall/winter 2012.

While we are working towards additional strategic acquisitions to capitalize on this unique asset, we continue to see Black Diamond's growth exceeding the overall growth rate of the already healthy outdoor equipment industry and we remain confident in our ability to drive additional market share throughout 2012 and beyond.

We are gratified to see both the vibrancy of our global specialty retail channel in Q1, especially in the fact of an anemic worldwide winter season. Spring certainly came early to many parts of the world and this no doubt helped some of our climbing mountain products. Traditionally we realized a nice tailwind in March due to ASAP's sales related to winter goods but they did not materialize. However, we still had double-digit sales growth and our specialty retail channel was vibrant.

As we've mentioned, one of Black Diamond's greatest competitive advantages is our seasonal sales balance and product strength across 27 related categories. We believe this asset, along with the operational investments we plan to continue making 2012, will allow our brand awareness and market share to expand globally. Taken as a whole, we still feel comfortable with our growth expectations through the first half of 2012 and beyond.

While there are limited concerns about the financial health of some retailers specific to European regions due to the lack of weather and financial issues, we will monitor each carefully and not take significant risks. However, we still do not believe the situation to be deep or broad enough to be truly meaningful in our spring 2012 season.

From an inventory perspective, we've realized an overhang for certain types of products, such as big ticket ski items, but the number of retailers and credit holders is not meaningfully higher than the same time last year in which we saw one of the best winters here.

Again this is a testament to our global distribution base, broad product offerings and the retailers that we have chosen to do business with and, as a reminder, the ski category of our business accounts for only about 15% of our annual sales and it's further diversified by products including skis, ski boots, avalanche safety products, etcetera, not all of which are big ticket items.

We launched our fall 2012 preseason sales program and have realized very solid results in North America and from our independent global distributor.

In Europe, although there is some weakness for big ticket ski categories, we saw our strong bookings in multiple categories.

We have finalized all spring 2013 designs and are close to completion of our salesman samples. We believe this line is strong and continues our multi-decade track record of innovative product launches across most key categories. As a result, we expect to see strong global bookings for the spring '13 from Asia, Europe and North America and we feel confident in our book of business for the first -- for the back half of 2012.

Black Diamond continues to take proactive steps to invest in and expand our manufacturing footprint and to continue to control our own distribution. We are broadening the portfolio of product and gear ourselves manufacture in our Black Diamond facilities in Zhuhai, China and, as we've learned in 2011 and manufacturing for those who are truly competent and skilled can be a great source of strength and competitive advantage. In fact, for the products we manufacture our Asian operations have allowed us to mitigate much of the inflationary price pressures arising out of Asia, as well as become more responsive in our supply chain.

Secondly, we continue to augment our staff throughout the world as we build our supply chains, [IT] and sales and marketing functions to maintain our growth while being vigilant to increase efficiency.

In addition, after a rigorous and nearly six-month long [RSD] process, we have initiated implementation of a major new MIS project provided on this global sales dealer service system. This state-of-the-art B2B software we anticipate will both increase our effectiveness and efficiency in all aspects of the dealer-selling servicing cycle.

The requirements gathering team are now making rapid progress into RSD process for a new BtoC transactional software platform as well.

On the marketing side, catalogues have been an integral part of the Black Diamond brand since day one. During Q1, however, we were proud to have launched our first ever on-line dynamic digital catalogue. This premier issue promotes our family of Alpine products in a dynamic setting and is focused on the climbing around [Shamanic] one of the world's great bastions development systems.

We also launched a new [Tratra] boot with a focus of repositioning Black Diamond in Europe and staged a week-long European media event with the ski outdoor and climbing world.

Finally, as part of our plan to drive higher sales to both our existing and new doors, we made steady progress on our new strategic bigger merchandising initiative, which showcases our products more prominently in the shops of our retail partners. We will be selectively beta testing an array of prototype fixtures and related images this fall prior to commercializing a large number.

Looking toward the rest of 2012, we believe we are in a strong position to sustain our organic growth through continued product innovation and further capture of macro active lifestyle trends currently working in our favor.

Speaking of the second half of 2012, it is at the end of this calendar year that we will be selectively launching through the trade our expected fall 2013 apparel collection. Our plans currently call for launching with select retailers in North America, Europe and parts of Asia. We have received back the first round of [canvas] samples from our factories and we are testing the goods and making the appropriate modification.

The fall 2013 collection has been established and the SKU count is set. Although we are still refining the line, it's exactly where we want it to be. We have received strong and affirmative feedback from all key retailers we have met with and we have also initiated work on our spring and fall 2014 collection.

Our current strategy contemplates additional new collection rolling out over six concurrent seasons to span a three-year period. The apparel team is working well together and received some great new additions during the quarter including a direct-to-merchandizing [firm] of apparel in Europe, who will be responsible for merchandizing and promoting the line as well training our sales people.

On the acquisition front, our strategy remains unchanged and, as most of you know, we have augmented our balance sheet to expand our short-term capital capacity. At the same time we have continued to develop the pipeline of acquisition targets. As we mentioned in our last call, we are engaged in advanced discussions with one company in particular and we are hopeful that a transaction will be consummated.

So with that, I'd like to conclude our prepared remarks. We are certainly optimistic about our prospects for the future and believe the continuous steps we've taken in early 2012 further positions Black Diamond for continued growth.

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

Thank you, sir.

And I just want to say, add, that Robert and I are off to the Baird Conference in Chicago this afternoon so we have a pretty firm three-thirty PM Mountain Time cutoff for the questioning.

(Operator Instructions). And our first questions comes from the line of Sean Naughton with Piper Jaffray.

Hi; thanks for taking my question and congrats on a great quarter. I guess in terms of the growth in Q1, can you talk about the contribution from new doors domestically versus some comp store growth and then I guess secondly, can you also talk about the percent of the inventory increase that is associated with carryover products from the slower ski season versus an increase to support higher sales levels?

Okay, hi Sean this is Peter I'm going to -- and thanks for those comments and I will take the first half of your question, then pass it on to Robert for the second half.

So, as far as the growth, that 19% growth that we have experienced here in the first quarter, that is for all intents and purposes all existing doors. Now we do open up and refresh our dealer base of new doors but we have not had a meaningful number of new doors open. So when you're looking at these numbers, this is about growth within the existing dealer base with existing doors around the world and not about opening new doors at this time.

So I'll pass the second half of this on to Robert to talk about inventory in your question about how much of the inventory growth is residual inventory that we intend to carry through to next year versus how much of it is for the growth that we're anticipating achieving.

When looking at the details behind our inventory build compared to the last year, we have been blessed with growth each quarter since we've been public and so there's a good large portion of the growth is just natural expansion of inventory to be able to supply our dealers.

As you know, we do have about 15% of our sales that are related to ski and when we look at our inventory, that is the area where we do have a little bit more carryover product from fall '11 into fall '12. These are bigger ski ticket items. This is ski boots, skis and actually we do have some gloves as well.

In terms of dollars, a little hesitant to do that but let me try to give a little bit of color. If you look at the kind of the areas where we've grown with the mountain products and ski products, lights and poles, harnesses and ice gear, those inventories, we're taking a little bit longer position in those inventory levels to make sure that we don't lose out on any ASAP sales. So if you look at our normal -- our growth in those product categories, we're gone a little bit longer in our inventory levels to be able to support our ASAP sales.

Then relative to ski hard goods, we're carrying a little bit more than what we'd like but we do feel that most of it will roll into fall '12 and some of it might roll into the fall '13. So, while we're a little bit higher, we still feel pretty comfortable about our inventory levels relative to being able to move it through the channels and not have to sharpen our pencils too much to where it would meaningfully decrease our gross margin.

Got it and then maybe, Peter, you can talk a little bit about if there's anything in particular of some of the new innovations that kind of hit in Q1 that you think really helped to offset some of the weakness that you were having in gloves, whether it's in the lighting category or poles or anything you were seeing out there that was particularly exciting out there?

So, Sean, yes because the spring did come early and we've got a lot of momentum in both the mountain categories and the climbing categories, the categories that were really moving well for us including climbing, of which we have some new karabiners, lighting has been -- and poles have been especially robust. And then it's kind of been spread throughout the rest of the categories that we're in. Certainly our pack business, both for BD and especially for Gregory, it has gotten off to a great start this season and that's primarily driven by new models, as well as strong marketing and sales programs that were behind them.

But I won't say that there's any one specific product right now that's driving it but I will say because there isn't, it's just general strength and market share momentum for some of our leading categories, which is protection and karabiners. It's packs, trekking poles and lighting right now.

Okay got it, and then I guess, just lastly, the gross margin a little higher I think than what most people were looking for; is there any way if you guys do continue to see this momentum in the business, is there a possibility that you could exceed the gross margin levels that you had from last year? Thanks.

Good question, Sean. This is Robert. For now we are -- really we're pleased with the gross margin expansion in Q1. Relative to that continuing, to some extent it will depend on the inventory levels that we're carrying but I think the way I'd like to answer that question is that we would like to reiterate the guidance that we gave last year is that we believe that this year's gross margin will be comparable to last year where we ended up at 38.7 or 38.5, so I think if we ended up 2012 at that range I'd think that would be okay.

Great. Best of luck in the second quarter.

Joe Altobello, Oppenheimer.

Just a couple quick ones. I guess first on the gross margin, since you guys left off there, it sounds like the back half you're expecting a little bit of weakness and is that because of the discontinued inventory is going to be flowing through?

It's all right, Joe, hi, this is an excellent question and you're talking about margin specifically?

Yes, gross margin, I'm sorry.

You know, I'll let Robert jump in in a minute here but it is a combination of -- [less] that and more related to we have differing margins in different categories and it is the fall numbers are reflective of just that that the mix of products that we sell and where we sell them in the fall aggregates up to a slightly lower gross margin than the spring/summer business.

Yes I mean year-over-year though, it sounds like you're expecting -- I mean, obviously with the first quarter being so strong and you're saying that you're going to be flat with last year on a full-year basis it implies a bit of a decline at some point throughout the year so I am just curious if that's because of the discontinued inventory is going to be flowing through.

Joe, this is Robert. Certainly there will be a piece of the inventory that will flow through that will pull down margins from what they could be if we didn't have those sales but, as I mentioned on the script, or maybe on Sean's call, I don't think it's necessarily going to have a meaningful impact compared to last year. So we're sitting at 40.1 at Q1 and we're happy with the expansion because of reiterate what we mentioned is that the product mix and also what we mentioned in the script through the channel distribution.

Let me give a little bit of color on what I am referring to is that if we look at -- and we've been talking about this for a while, being able to put like Gregory on our European platform and also giving Gregory a stable permanent home, we're starting to see the fruits of those efforts and we're starting to see a little bit of margin expansion through those efforts in Europe and also through also North American sales relative to Gregory that by having a little bit more ability and a little bit more focused on certain investments, they've been able to realize some nice (inaudible) so that's in part why our margins are also expanding.

Now, whether or not -- the reason I want to reiterate that our guidance is for the 38 or and a half, 38.7 level of last year is there's a lot of things that can happen between now and the end of the year and I feel that the best strategy or tactic to take at the moment is just to be a little bit conservative. Would I hope that they would be a little bit higher? Yes but it at a lot of spots will depend on how we're able to move certainly inventory through those channels and how the continued growth of -- through the channels, what that mix looks like.

Okay thanks, Robert, that's helpful. And then in terms of the warm winter you mentioned obviously having an impact on sales, your number on the top line was pretty strong and it sounded like the warm winter also had a sort of a benefit in terms of pulling some sales forward or was an early onset to spring. Would you guys say that the warm winter was an overall neutral impact on sales in the quarter or do you actually think you might have benefited from the early spring?

Joe, this is Peter. I mean clearly the latter half of the quarter benefited from the early spring. There's no question about that because spring sales kicked in really quickly and very strongly. However, if we look at last winter, which we were doing a couple of weeks back or a month ago, we had amazingly strong ASAP sales for spring alpine touring equipment, both in Europe and here. I mean it was it stayed strong right into March and we didn't have that this year.

So, if I was to say which would I have preferred, which is slightly better for Black Diamond, it would be a winter that stays good right into the beginning of March with a nice touring season and then you get spring kicking in in April. That would be better. However, because winter was as anemic as it was, basically a lot of the trade kind of wrote off winter by the latter part of January and said it's time to look at our spring business. Spring is coming. People are asking for it. People are engaged in the more warmer weather activities and that resulted in some retailers moving their orders up a bit and also was an accelerator to ASAP business in the spring goods.

So, in summary, no it was not beneficial to our overall sales but the way it played out was it didn't hurt us too much.

Okay got it. Just one last one, in terms of acquisitions, you mentioned that you're still pursuing an acquisition. You mentioned the same acquisition, I think, on your last earnings call so I am curious what's been sort of the delay in getting this done.

Okay well, first off, I want to add plural that we are at any one time actively out there pursuing acquisition at various levels of investigation and discussion etcetera and that runs the gamut of preliminary discussions to much further along. Yes we did talk about this one in our last call and relative to your question about what's delaying it, I mean, as you know, just the diligence process in a complex deal can run -- I'm not saying that's what we're doing but I am just saying that the diligence process in a complex deal can easily run 90 days from beginning to end if it's complex so all I can say at this point in time is reiterate that we're far along. We're actively working on a transaction and when we're ready to communicate additional information we will do that and we'll do that with enthusiasm when we're able to do that.

Okay thanks, Peter.

Sean McGowan, Needham & Company.

I also have a couple of questions. First, could you help us quantify to some degree how much you think business may have been pulled forward from the June quarter as a result of either the actual weather or the retailers just were looking for something to sell?

Hi, Sean, Peter. That is -- to do that is such a subjective statement when I look at our global business and that's why we only give guidance on a seasonal basis because that question of whether or not spring goods shipped on March 30th or 29th versus April 2nd. It's just not a big deal to the dealers. What is clear to us as we looked our business we can tell that winter ASAP business in late January, February and March was anemic yet we were doing very nicely with both shipping preseason and pretty good in ASAPs. It was not winter product, so that's why we're sharing that, those insights.

But it's really hard for us to give you in any meaningful way what percentage of this was dealers moving preseason's into the first quarter versus what last year had shipped in April. I think what we are comfortable saying is that we'll stick with the guidance we gave for the first half of the year and we'll stand by that. We feel very good about that guidance and I think that's the best we can do at this time.

No that does answer the question. So then you mentioned at the very outset of your commentary, Peter, that there were some favorable shifts including distribution channels. Could you specify how that would affect your gross margins?

Yes what I was referring to is two things. One is obviously, and I think I made a comment on this to Joe, is that different product categories have different margin so and I think I said that some of the ski categories aren't as high as some of the mountain products. That's why.

And then secondly, if we are selling -- we have different margins in Europe than we have in North America and then, as you know, our export business to independent global distributors has a lower margin, has also a much lower cost structure attached to it because we're not responsible or the sales forces, the warehousing, the inventory risk, the inventory markdown, the marketing expenses, but it does have a lower margin so where we have the highest margins are North America. So if we're selling the goods more in North America we're going to get the highest margins out of that. So that's what we were referring to relative to this first quarter the margins were in part impacted by both the product mix and in part where some of those goods were sold.

Okay and two more questions, one is I think more for, Peter. You know, you read the headlines of what's going on in Europe and you just kind of conclude that it's a disaster and yet you see your results and some other companies' as well, it doesn't seem like such a disaster. So how do you figure that you're able to buck the economic trends and the true consumer sentiment trends coming out of Europe?

Okay let me begin by saying that we're anxious about them. I man I don't want to not say that. We watch them. We look at them. However conversely, having been at this for 30 years, what I have seen and what we have seen over the 30 years is that participation in doubt or activities in the mountain canyon crag sport as well as just in overall interest in sort of this outdoor lifestyle, it has been very resilient and it might not be "recession proof" but it is certainly very recession resistant and these are activities that people seem to continue to do, even in tough economic times.

As a matter of fact, if you look all the way back to the great recession of the 1930s, that probably was one of the strongest catalysts to pushing ski mountaineering, climbing, alpinism forward in Europe because people had time on their hands and took it took the limited money and all their time to go get gear and go do the activities.

And it wasn't people just climbing mountains so they could jump off I'm sure.

Not to the best of my knowledge, I'm more of a student of alpinism than suicide with business cycles but there is surely come concern but so far what we're seeing is that retailers are holding up and business is holding up and consumers are out there so that's great that this is continuing to prove what we've seen over the last many decades is that it is recession resistant. So we're guardedly optimistic here about our prospects in Europe for the coming year.

Okay thanks and then last question, a quick for Robert, can you just give us a snapshot on actual shares outstanding going into the second quarter?

So, Sean, we have a base now of 30.7 million shares and so the share count that we're showing on our income statement and our press release is a weighted average shares, so we had January and then halfway of February at the old share base of roughly 22 million shares and then subsequent to February 22nd we then count the days where the total share base is 30.7 so I think we ended up around 30 -- or excuse me, about 25 million, 26 million. The share count rolling into Q2 should be the 30.7 as of today.

Great that's helpful. Thanks a lot.

Andrew Burns, D.A. Davidson.

Thanks. Congrats on the quarter, Peter and Robert. A couple questions for you here; just in terms of the growth rates in the first quarter relative to the rest of the year, it was very similar growth rates for both the domestic and international. It sounds like the way to model this going forward moving into fall is potentially domestic actually outgrowing the international, given the way the backlog is shaping up. Is that a fair assessment?

Andrew, this is Robert. Yes we were pleased to see that both international and domestic grew at almost the same pace within about 20 basis points of each other. I think when we look out for the remainder of the year we are fairly confident in our international global distributor business. The fall for the IGD sales looks actually, the bookings look rather robust and we're quite bullish on that.

Relative to Europe, I think we've got to be a little bit cautious and a little bit conservative in how we're looking at that. We all kind of read the same things and we're not exactly sure how that will fully play out but we are pleased with the bookings that we have seen in many categories. There are a few categories that are a little bit below but there were a number of categories, meaningful categories, that were up nicely and so when we -- the general statement I think is going to be a bit of mixed bag in our channels. We think North America will be solid. I think IGD will grow nicely in the back half of the year and then the wild card, as it has been for a while now, will be what happens in Europe.

Thanks. That's helpful. And, just some follow-ups on the inventory, I just wanted to confirm. It sounds like the bulk of the inventory you'd be carrying over, it would be in skis and boots and source products so no sort of manufacturing capacity utilization issues to think about there. And then secondly, you talked about potentially carrying some higher ASAP inventory in the fall so I was wondering if you could help us better understand when we would start to see the inventory growth rate start to get closer to the revenue growth rate. Thank you.

Andrew, Peter here. So I am going to start and then I am going to pass it on to Robert but I wanted to just give a little bit of color to this and first say that relative to your question about our own manufacturing capacity, that is correct. We continue to use that very, very nicely, lots of demand there on the product that we ourselves make and it's great to feel that pressure. Everybody performs well here with that.

And then secondly, relative to the inventory and some of the bigger ticket items, we've looked at this very thoughtfully, very carefully and we have concluded that one, what everybody knows is that it's past which has been a bit anemic, sales were not robust in many parts of the world, most parts of the world, bigger ticket items. There is product in the pipeline. We all know that but we also know from having done this a long time that there's a certain psychology that occurs with ordering and after a bad winter retailers often believe with the items that did badly that they do badly for the rest of their lives. And conversely, after a good winter like last winter, people believe that things that have done great will do great for the rest of their lives. Neither are correct assumptions but it's the psychology of the human being and the ordering cycle.

We are in a nice position strategically and we strategically put ourselves in this position, which is that we have product cycles in the bigger ticket ski product categories that typically run for years, not everything. And we keep refreshing different families of boots or skis so what we are attempting to do here is go a little bit longer than we normally would in some of these categories where we can roll the product into '13 if we need to with the attitude that hey look, if fall '12 turns out to be a just normal winter as opposed to one of the worst winters in the century, not even being a great winter, we believe the ASAP business will accelerate.

And we want to be in a position, to within a reasonable level, meet that as opposed to enter the season with very marginal ASAP capability on top of what has been a rather anemic order book for bigger ticket ski product. And we've attempted to do that in those product groupings where the product could roll another season into fall '13 if need be without discounting because they will still be in line in fall '13, so it's selective how we've done that. And then, with that, I'll pass on to Robert the question on numbers.

Andrew, when I think about the question you asked and it's certainly a question we look at and think about often, I think we're going to have better visibility as the inventory levels, and this may seem like a long way out but it will be next March, because like anybody who has ski hard goods, they're probably going to roll them into fall '12 and, as Peter mentioned, to a large extent it's going to depend on the weather. If it's a really good winter those products are going to move nicely. If it's a winter like last year we, like everybody else that has ski hard goods, will be carrying a little bit more than ideal into fall '13. So I think the next place, next time really to take your pulse of ski inventory will be at the end of March 2013.

Okay thanks and then the last question here, I thought you spoke a bit about some fixture prototypes that you'll be beta testing this fall. Could you talk about if that proves successful when we'd see a broader rollout? Is that spring or fall '13 and just what you think that could do for your business, that existing account? Thanks.

Yes thanks, Andrew, for the question. Yes we're going to -- we've been working on this for the last really five, six months now, utilizing a -- our internal people and an outside firm, which this is all they do, developing the concept, the cost models, prototypes of what we plan to launch, so it will be very limited. As is said, it's a beta test for selective product categories, very selected dealers here this fall to see what it does in the way of generating additional sales for us in certain categories and then, based upon that feedback, we will do a significantly broader launch as we go into spring '13 and more so in fall '13.

And one of the goals of this has been -- or two of the goals have been obviously -- or three of the goals are one, to raise the Black Diamond brand profile at retail so that you visibly see it when you walk into a shop. Currently we are with many of our specialty retail partners one of their top three, in some cases top two, overall vendors. Yet when you walk into a store unless you walk around the store area by area and look for product and realize that Black Diamond is in probably more categories than any other supplier, you wouldn't know that BD has such an integral and strategically important supply role with these retailers. So that's goal number one is just to raise the visible profile to the customer walking into a store.

Secondly, obviously we wouldn't be doing it if we didn't believe it would be accretive to our sales ambitions of accelerating the velocity at which our product goes in and out -- goes out of those stores.

And then thirdly, we feel it's absolutely integral to the success of the apparel line that we have got to have strong visual merchandising to put the apparel line and those dealers who are being invited to help us with the fall '13 rollout will have and will be required to take the apparel visual merchandising installation in order to appropriately showcase that product come fall '13. What it comes down to right now, how many retailers in what parts of the world that we anticipate having to send in spring '13 and fall '13.

I don't have those numbers handy and honestly we don't have them yet calculated because it depends upon still what the final cost model is or cost structure for the various units, how much we want to try it in spring, how far we want to go in spring before adjusting it further, and fall. But those are numbers that we will be in a better position to share later on this year as we finalize details of what we're doing. But it will probably be quite late this year before I think we're ready to share with you a greater insight into the numbers and how many stores and that sort of thing. But look for it late in the year.

Thanks and good luck.

Rob Young, William Smith.

Congratulations on the quarter and look forward to hearing about Q2. I was curious on the acquisition front on these various targets that you're looking at, how competitive is that bidding process?

Hi, Rob, Peter here. I have to be obviously careful how I answer this and let me say this is that it really varies because some of the potential acquisitions that we're looking at and have been talking to the owners and the Boards, some of these are being done as part of a small or broader process with investment bankers. And then some of these are being done just by ourselves without anyone else involved but I don't want anybody to mistake the idea that it doesn't feel competitive even if there are not competitors because those who have a successful rapidly grown business rich in [IP] accelerating brand halo know that they are a coveted acquisition target for others, even if they're not talking to anyone else.

So I would say right now that, to answer your question, that for the companies that are doing well that are on the ascendancy that are accelerating have a unique set of competitive advantages, it's quite competitive. I mean nobody is waiting for somebody to knock at their door and whisk them off their feet for a very cheap price.

Okay great thanks. Regarding some of the strategies that you have within those acquisitions, can you differentiate between what you're prioritizing on a revenue synergy or a cost synergy standpoint?

I'm sorry; I'm not sure I understand.

You said we're prioritizing cost savings over revenue gain.

Correct, correct.

I think when we -- we're looking for several things, Rob, but number one is any deal we're looking at we're going to assume as we look at it, identify where are the cost savings because the way we've reengineered Black Diamond over the past 18 months has been to respectively bring companies onto "our operating platform" and get the advantage of our corporate overhead team and that's on a global basis. If a company couldn't benefit from either of those for some reason and meaningful savings couldn't occur, that would throw a big question to how they would fall in priority relative to the opportunities we're looking at.

However, that's not the driver. Cost savings is not the driver. The driver is to find beautiful premier specialty growing IP rich competent brand that have the -- all the ingredients to really grow either as quickly as they're growing or more quickly than they are by receiving the benefit of our global distribution, our global operating platform and save them the -- more than hassle, it's the very, very huge amount of incredible focus and discipline it takes to create a truly global sales distribution network and a really robust global operating platform.

So the driver is sales, sales growth. However, we are of course looking at the fact that we can save money from bringing the two companies together, achieve that growth at a lower cost than that company could on their own.

And then the third component of it is we're looking for -- I hate to use the overly used term of synergy but synergies that can be brand synergies, cross marketing synergies, as well as brands that are accretive to how we've talked about and shared with the markets that we envision Black Diamond Inc. to be about, these premier specialty [IP] rich passion based brands so that when our retail customers look at the brands we have, they recognize the fact that this is a brand owned by Black Diamond. It is a brand at BD Inc. It is a brand that they want to do business with because of how it's going to be managed, how it's going to be stewarded and run and how it's going to grow.

Okay great and then just two quick ones if I could; Robert, do you have the cash tax rate? Is it around -- what? 5%, 10%?

The effective rate was the 39%.

Right.

But that's -- yes that's not cash tax. So, Rob, I -- well, let me ask you. You'd have to go to our net income before adjusted non-cash items.

Okay and then back into it.

And back that into it.

Okay and do you have the free cash flow number for the quarter?

We do. Let me flip a few pages. I usually roll into these meeting with stacks of paper, just to make sure. Okay so actually we're negative about $1.1 million of free cash flow. CapEx for the quarter was 1.6 and so net cash from operating activities is positive about $0.5 million.

Got you. Okay perfect. Thank you very much and congratulations again.

We have time for one final question. Our final question comes from the line of Lee Giordano with Imperial Capital.

Just following up on the apparel launch, can you give us a sense for how many SKUs you anticipate launching initially and then breaking that down, will most of the products be technical or will there be some casual and fashion mixed in there? Thanks.

Right now we do have all that information but we want -- we don't want to give it out yet. We want to give out this information all at once with the launch and we will be doing that this fall when we do our launch to -- of the product line, to selected invited retailers, so you're going to have to wait on that. I will say though that Black Diamond has followed a certain playbook every time we've entered a new category and that is to launch very technically.

We always want to prove our mojo, make sure that our core customer base sees that what we're doing is accretive to the very core position of Black Diamond and once we've proven that we can design the most technical and start off the product by our core customers, then that gives us permission to begin to build off of that into more popular price points, broader based products that have -- would appeal to a broader group. That is the same plan that we are going to follow with apparel.

That doesn't mean that people who just need product to keep them warm in certain less than super technical or demanding environments or who are in urban environments wouldn't want the product, but it will be what we are going to be launching with is the more technical product because that is -- has proven to be a very effective strategy for Black Diamond and we will be doing that with apparel initially as well, at least in season one.

That's great. Thanks a lot.

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

Okay well I want to thank everyone for the time this afternoon here. We greatly appreciate the question and answers with you. We hope that our presentation provided more insight to our performance for the quarter and the outlook for the rest of the year and Robert and I look forward to speaking with you all again very soon, so thanks again very much.

Ladies and gentlemen, this concludes our conference for today. Thank you for your participation and you may now disconnect.