Clarus Corp (CLAR) 2017 Q3 法說會逐字稿

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the third quarter ended September 30, 2017. Joining us today are Clarus Corporation's Chief Administrative Officer and CFO, Aaron Kuehne; President of Clarus Outdoor Group, John Walbrecht; and company's External Director of Investor Relations, Cody Slach. Following their remarks, we will open the call for questions.

Before we go further, I would like to turn the call over to Mr. Slach as he reads the company's safe harbor statements within the meaning of the Private Securities Litigation Reform Act of 1995 and provides important cautions regarding forward-looking statements.

Cody, please go ahead.

Thanks, Rebecca. Please note that during this 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 the 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 statement used in this call include, but are not limited to, the overall level of consumer spending on the company's products; general economic conditions and other factors affecting consumer confidence; disruption and volatility in the global capital and credit markets; the financial strength of the company's customers; the company's ability to implement its growth strategy, including its ability to organically grow each of its historical product lines; the ability of the company to identify potential acquisition or investment opportunities as part of its redeployment and diversification strategy; the company's ability to successfully redeploy its capital into diversifying assets or that any such redeployment will result in the company's future profitability; the company's exposure to product liability or product warranty claims and other loss contingencies; the stability of the company's manufacturing facilities and foreign suppliers; the company's ability to successfully integrate Sierra Bullets; the company's ability to protect patents, trademarks and other intellectual property rights; fluctuations in the price, availability and quality of raw materials and contracted products as well as foreign currency fluctuations; the company's ability to utilize its 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 SEC, including the company's annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

All forward-looking statements included in this call are based upon information available to the company as of the date of this call and speak only as of the date hereof. The company assumes no obligation to update any forward-looking statements to reflect events or circumstances after the date of this call.

I'd like to remind everyone this call will be available for replay through November 20, starting at 8:00 p.m. Eastern tonight. A webcast replay will also be available via the link provided in today's press release as well as on the company's website at claruscorp.com. Any redistribution, retransmission or rebroadcast of this call in any way without the expressed written consent of Clarus Corporation is strictly prohibited.

Now I'd like to turn the call over to the President of Clarus' Outdoor Group, John Walbrecht. John?

Thank you, Cody, and good afternoon, everyone. It's a pleasure to be joining you. We believe our third quarter was an important confirmation of our strategy is right on track. Our focus on the core Black Diamond Equipment consumer generated sales growth across all of our primary product categories of climb, mountain and ski. In fact, in climb, we grew 17%, driven by strong growth in a more approachable bouldering and gym segments. This aligns with the theme that we've been communicating that climbing is becoming more mainstream. Specific products that performed well included our newly launched footwear line, specifically the Momentum rock shoe as well as ropes, climbing accessories, helmets and harnesses.

Our apparel initiative grew 10%, driven by strong fall and winter preseason bookings, which was aided by improved fulfillment rates. We are seeing strong growth in our first line collection as well as our full stretch air perm insulated jacket series. As anticipated, the recalibration of our apparel line was largely completed in the second quarter, paving the way to the growth we experienced this quarter and will the coming quarters.

We also grew our ski business by 9% due to increases in snow safety equipment. In addition, as anticipated, improvements in our product mix and our channel mix, the stabilization of our sourcing strategy, particularly in-house manufacturing, and lower levels of discontinued merchandise drove a 300 basis point increase in our adjusted gross margins.

In North America, we grew our business due to the product categorizations that I mentioned within our climb and ski business, the further development of our apparel initiative and by higher levels of support within our specialty retailers.

In Europe, strong fall '17 bookings, higher-than-expected at-once or replenishment orders and increased fulfillment rates drove growth in this region.

As mentioned on the last quarter's call, we accelerated the timing of various sales and marketing initiatives to further boost what we expect to be a strong fall '17 and even stronger spring '18 selling season. Given our third quarter results, we are seeing these campaigns have their intended effect, and we'll continue to remain positive on our spring '18 outlook.

These investments continue to be centered around the following 2 key themes. First, we have returned to our focus back to Black Diamond Equipment and specifically on new product innovations. And secondly, we are striving to enhance our brand equity through targeted marketing and PR campaigns centered around brand experience and national advertising.

We also continue to strengthen our team with 8 new hires in engineering, including individuals like Dan Rowe from Nike Innovation, [Alex Cella] from Giro, [Laura Smith] from Patagonia, the promotion of Jake Hall as Director of Design and Derick Noffsinger, specifically in apparel and footwear and even in direct-to-consumer sales.

Lastly, but certainly not least, we kicked off our redeployment and diversification strategy with the acquisition of Sierra Bullets. As the only pure-play bullet brand in the world, Sierra shares our commitment to the consumer by delivering a product backed by world-class manufacturing and the industry's highest quality control. These attributes have driven the financial characteristics we are seeking in our acquisition strategy, mainly high recurring revenue and a strong cash flow that we can expect to maximize through the utilization of our significant net operating loss carryforwards.

I'll have more to say about the acquisition as well as additional business commentary after Aaron Kuehne, our CFO and Chief Administrative Officer, walks through our financial results in more detail. Aaron?

Thank you, John, and good afternoon, everyone. Sales in the third quarter of 2017 increased 16% to $45.8 million compared to $39.4 million in the same year-ago quarter. And on a constant currency basis, sales were up 14%.

Along with the strong category growth John mentioned in his opening remarks, mainly in climb and ski, the increase was due to our acquisition of Sierra Bullets on August 21, which added $3.5 million to our sales in the third quarter. Excluding the acquisition, however, sales still increased a healthy 7% during the third quarter. In fact, the third quarter of 2017 benefited from a 12% increase in preseason orders compared to last year, while improved fulfillment rates and healthier inventory levels drove a solid 23% increase in at-once orders. These increases were partially offset by a 63% decrease in the amount of discontinued merchandise sold during the quarter, further reflecting the improvements being made in our supply chains, inventory management and streamlined apparel initiative.

Gross margin increased 210 basis points to 33.4% compared to 31.3% in the year-ago quarter. The increase was primarily due to a favorable mix of higher-margin products and channel distribution, the stabilization of our sourcing strategy, especially our in-house manufacturing, and reflected more normalized levels of discontinued merchandise as we expected. Excluding a fair value inventory step-up associated with the Sierra acquisition of $420,000, adjusted gross margin in the third quarter was 34.3%. Excluding the acquisition, gross margin was 33.7%.

Selling, general and administrative expenses in the third quarter increased to $14.4 million compared to $11.5 million in the year-ago quarter. The increase was due to continued strategic initiatives around new product introductions and increasing Black Diamond Equipment brand equity as well as approximately $630,000 of incremental expenses due to the inclusion of Sierra.

Net loss in the third quarter was $1.6 million or a loss of $0.05 per share compared to a net loss of $400,000 or $0.01 per share in the third quarter of 2016. Net loss in the third quarter of 2017 included $2.7 million of noncash items, $1.9 million in transaction costs and minimal restructuring charges compared to $1.9 million of noncash items and $300,000 in restructuring costs in the third quarter of 2016.

Adjusted net income, which excludes the noncash items as well as restructuring and transaction costs, increased 72% to $2.9 million or $0.10 per diluted share compared to $1.7 million or $0.06 per diluted share in the third quarter of 2016.

Adjusted EBITDA increased 79% to $3 million compared to $1.7 million in the third quarter of 2016.

Moving on to the balance sheet. Due to the Sierra acquisition, at September 30, 2017, cash and cash equivalents declined to $1.7 million from $94.7 million at the end of 2016. A portion of the acquisition was funded by our revolving credit facility, and total debt was $27.4 million at September 30 compared to $21.9 million at the end of 2016.

I'd now like to move on to our financial outlook. We are raising our 2017 sales outlook and now anticipate our fiscal year 2017 sales to grow between 11% and 13% to approximately $165 million to $168 million compared to 2016, which reflects an estimated contribution of $9 million from the inclusion of Sierra. Our prior outlook called for sales between $153 million and $158 million.

We now expect gross margin in fiscal 2017 to increase approximately 200 basis points and to be around 31.5% compared to 29.5% in 2016. On an adjusted basis, which excludes a fair value inventory step-up associated with the Sierra acquisition, we are expecting adjusted gross margin in fiscal 2017 to increase approximately 300 basis points and to be around 32.5%. Our prior outlook called for gross margins to be in the low end of the 32.5% to 33.5% range.

We expect selling, general and administrative costs, including approximately $5 million of cash corporate overhead expenditures, to be approximately $54.5 million compared to $49.9 million in 2016. For additional perspective, our prior outlook called for SG&A of approximately $50.5 million.

Through increased profits and the decrease in seasonal working capital during the fourth quarter, we expect to experience a decrease in the amounts currently drawn on our revolving credit facility by approximately $10 million. Finally, we continue to expect approximately $2.5 million in capital expenditures in 2017.

While highly focused on integrating and growing the Sierra business, it's important to note that we also remain fully committed to a long-term capital redeployment strategy. To reiterate, this strategy is to acquire high-quality, durable, cash flow producing assets that are potentially unrelated to the outdoor equipment industry to diversify our business.

Before passing the call back over to John, as a reminder, our common stock continues to be subject to a rights agreement that is intended to limit the number of 5% or more owners and therefore reduce the risk of a possible change of ownership to maximize the value of our NOLs. Any such change of ownership under these rules would impair our existing and significant NOLs for federal income tax purposes. As of September 30, 2017, our NOL balance remained at approximately $172 million.

This concludes my prepared remarks. Now I'll turn the call back over to John.

Thanks, Aaron. The parts of our business that we highlighted as critical to driving our shareholder value are on track. We are growing sales in our fundamental equipment categories. Our gross margins have improved significantly. We are investing in sales and marketing campaigns that are driving enhanced consumer awareness, which have both driven strong ASAP orders for fall '17 and improved even more the stronger bookings for spring '18. And we have made what we believe to be a strong acquisition under our redeployment framework.

Now a few comments on our spring '18 product lineup. We are excited about our brand's momentum heading into the spring '18 season. With the winter gym season approaching, we will continue our focus on award winning rock shoes, shipping and retail in November, and in our climbing sportswear category, we continue to see stronger-than-expected demand. We will also see the launch of new developments in both climb and mountain. We anticipate seeing growing momentum as we continue to invest in new products alongside more disruptive marketing.

In addition to the launch of the rock shoe collection, a few of our new products include the expanded spring Stretch Rainwear collection, a new belay device called the ATC Pilot, patented trekking poles, updated harnesses, expanded packs, sportswear, logo wear and more. In total, more than 50 new products for spring '18. Looking forward to 2018 and beyond, we have more than 30 new product initiatives in the works across more than 30 product categories BD currently offers.

In terms of marketing and advertising, through 2017, BD has held true to its promises, strengthening our sell-through and marketing efforts, achieving more than 4.5 billion impressions, en route to our goal of 5 billion impressions for 2017 in PR and editorial alone. In addition, we will complete 2017 with an aggressive national ad campaign, which encompasses both print and television, focusing on our Defy the Dark headlamp campaign and our backcountry skiing campaigns.

Our partnerships with key photographers like Tim Kemple, Jimmy Chin and Chris Burkard continue to drive very strong branded impressions. We experienced many firsts from Black Diamond athletes, including Adam Ondra's climb of the Dawn Wall, Babsi's free climb of the Zodiac, Joe Kinder's Bone Tomahawk, Alex Honnold's free soloing of Freerider, Nalle's achievement of the first V17, Adam's achievement of the first 5.15d and the Joe Grant's podium finish up the Hardrock 100. These achievements continue to drive dominant impressions with our consumer. Coupled with our aggressive marketing, we have been able to boost our Instagram followings by more than 45% in this year alone.

In regards to Sierra, I would like to conclude my remarks by speaking in more detail about our acquisition of Sierra Bullets on August 21, 2017. Sierra Bullets is a leading bullet company in the world and has been in business for 70 years. From local and international shooting competitions to sport and hunting, Sierra offers best-in-class accuracy and precision that hunting and sport shooting enthusiasts have come to depend on.

In Sierra, we also acquired a business with industry-leading brand recognition and a very strong management team, all of whom we expect to remain with our team. Along with the brand, we also own the state-of-the-art underground testing range. It's the reference range in North America and a strong asset that supports their commitment to R&D and quality control. In fact, Sierra builds custom machines to have complete control over the manufacturing process in order to achieve the tightest tolerances in the industry.

Sierra also has a highly diverse customer base. In addition to a wide base of retailers, Sierra customers include distributors, law enforcement agencies and industry OEMs. This diversification is further enhanced by an approximate 400 SKU offering, which has historically mitigated customer and product concentration risk. As a manufacturer of premium products targeting outdoor sportsmen, we believe Sierra has been relatively insulated from the demand volatility. These premium sales channels have also historically been less susceptible to discounting, driving higher margins for Sierra retail as well as the OEM customer base.

From a financial perspective, Sierra has a very strong cash flow and margin profile. They generated 95% free cash flow conversion ratio with limited ongoing CapEx requirements and an average EBITDA margin of more than 35% from 2007 to 2016. For Clarus, our return on invested capital is expected to benefit from our large tax carryforwards.

We expect to leverage our various strategic and financial resources to accelerate Sierra's growth. This includes investments that will seek to enhance both sales and marketing, including social and digital capabilities; improve distribution; forge new customer accounts, especially within law enforcement and government; and of course, continue to innovate new products. We will follow a very similar process as we have the last 12 months with BD.

So in closing, we are really pleased about where our business stands today. We believe our retailers continue to invest behind brands that have momentum and are bringing truly innovative products to the market.

At Black Diamond, we believe we are innovating best-in-class products, bringing true innovation to the marketplace and doing so more rapidly than our competition, all the while supporting this innovation with a clear marketing strategy that speaks to our core consumer. This strategy is driving sell-through at retail, and in return, is building their support for our brand. We expect our momentum to continue and even build and look forward to integrating Sierra into this model.

I'd now like to turn the time back over to our operator for any Q&As before my closing remarks. Operator?

(Operator Instructions) And your first question will come from Dave King with Roth Capital.

So maybe first off, congrats on some of the improvement you've been able to show for the legacy Black Diamond business. And I'm trying to look at that a little bit. It sounds like bookings are up. ASAP orders are up. You talked about stronger demand. And then if I sort of think about the guidance a little bit, it looks like you took it up for the kind of third quarter upside and maybe the addition of Sierra, but not much else. I guess are there any takes we should be concerned about there in terms of our offsets there that make you a little more cautious about the near term? Or how are you thinking about just the intermediate -- near and intermediate-term outlook for that business?

Good question. So let me take you back a little bit, Dave, and give you our perspective on it. We started a year ago, Aaron and I, putting together a program of fixes that we knew would start to take place and show results in the quarter, the third quarter. And those have happened. What we're most proud of is the improvements in these key areas. When we -- going into fall '17 compared to fall '16, one of the hangovers that we had to get rid of and did successfully was the DM business, all our discontinued merchandise. If you take away the DM business for our third quarter, as a whole, we're up 11%, Black Diamond is globally. If you subtract the DM, apparel is up 70% and our D2C is up 24%. We see that momentum continuing. Now realize that the fourth quarter is all about ASAPs. And so we can control what we can control, which -- I can't control the economy. I can't control the weather, the currencies, our competition. If things continue, we feel very positive about the future. But again, it's an ASAP-driven business. Now we have improved our ASAPs by increasing our marketing, and that has had an impact. And we saw a significant increase this quarter in ASAPs. And then the other side of that that's improved is our fulfillment due to buying more inventory. And so we see that continuing. Are we conservative in keeping our guidance? Yes, because again, it's an ASAP quarter, and our goal is let's prove by results and build our momentum that way. So I don't see any headwinds. We don't see anything in the trade right now that is negative to us. We're going to keep doing what we've done through the third quarter into the fourth quarter. And our hope is that we will meet or exceed your expectations at the next call.

Okay. Great. That's encouraging that you've built in the conservatism there. And you have what discounted product was as a percentage of sales in the fourth quarter of last year?

Yes. So last year, DM represented about $2.6 million of total revenues.

So as a percentage, that would have been 5.5%.

Okay. That helps. So then maybe switching gears, in terms of inventory increase you had, I think some of the year-over-year increase we saw actually last quarter and I think you alluded to it, John, in terms of a lot of that's new products, can you just talk about how you feel on that front? And I guess more importantly, how quickly do you think you will be able to bring that balance down?

So we focused into the third and fourth quarter.

Yes, sorry, let me just highlight a few components here, Dave. This is Aaron. It's important to note, first and foremost, that as part of the Sierra acquisition, we acquired or put on the balance sheet about -- approximately $12 million worth of inventory associated with that acquisition. And so if you strip that out of our numbers, we're sitting at about $55 million in revenue compared to the $45 million that we had at the end of the year. As we look at the fourth quarter and head into the spring '18, this is where we are balancing 2 different components. One, we want to continue to ensure a high level of fulfillment rates. This is a strategy that we've implemented and have continued to execute throughout the year, and it has provided great results. However, at the same time, we obviously also want to continue to tightly manage our working capital and increase our overall free cash flows. As a result, as we think about the next 3 months and what they will produce, I do expect that those inventory levels, sans the Sierra acquisition, will decrease approximately another $5 million. And that will enable us to continue to have the level of fulfillment rates that we expect and desire, especially with the very strong [S18] line that John has already highlighted, while also being able to bring down some of inventory levels and generate some additional cash.

Okay. Okay. That's helps. That's good color. And then one more off the back. Just a follow-up on Sierra a little bit. So you talked about the limited volume and price volatility relative to the end market. Obviously, the end market for ammunition -- or I guess the end market for ammunition has been under pressure, I think, for better part of a year now, almost a year now. Can you help us better understand how Sierra's business has trended in that time to help us see that it's been more limited volatility relative to that end market or give us comfort on that front?

Okay. So ideally, we're not 100% insulated from it because we specialize in the niche within the bullet business, i.e., the most accurate bullets, and therefore, a little bit more unique as in the premium side of it. I think we have seen some volatility in their sales in that over the last 12 months but less impacted as we watch others' reports on the ammunition business, both in the third quarter and in the first half of the year. And similarly to the -- what we've done with BD, we can't control the weather, the currency, the economy, the fluctuations in the bullet business. What we can control and what we will invest in is very similar to how we follow the BD model. We're going to invest in continual innovation in the bullets unique to Sierra, and we're going to start to invest more in the sales and marketing aspect of Sierra to limit that the volatility. And we feel comfortable with that process moving into the next year. We also -- just so you're aware, knowing that, we knowingly underwrote Sierra at what we thought was a much lower level than the marketplace at the time, feeling like that we captured some of the valuation in our buy.

And next, we'll hear from Andrew Burns from D.A. Davidson.

Just a follow-up on the Sierra Bullets line of questioning. A couple of times in the prepared remarks I've heard there are some areas that you can invest in within that, whether it's sales and marketing, to further grow the Sierra Bullets business. Should we think about 2018 being a year of investment for that acquisition? Or are we able to look at some of the historical data, the $34 million in revenue, generating $12 million, $12.5 million of EBITDA as being a good run rate heading into next year?

I think we will follow, Andy, a very similar view to how we approach BD. Where the ROIs make sense on our investments relative to Sierra in sales and marketing and the goal to get more growth of it in future years, we will invest. I think we will obviously manage toward it. And like this year, we think some of those investments will have sooner than longer returns. But yes, I think we're going to keep it within the range. We're going to invest in it, and we're going to look at it as a long-term value to Clarus and the Outdoor group. And like I said, I don't believe in coincidences. I think a lot of what we've gone through the last 12 months is very applicable to helping Sierra in the next 12 months. And I expect we're going to see similar investments and similar results.

Great. And I was hoping you would spend a little more time on the footwear initiative. It sounds like rock shoes are starting out incredibly strong. Just wondering about your ability to ramp within that category, and being able to scale those volumes, sort of what the 3, 5-year type opportunity is for that category and thoughts on expanding beyond that core rock shoe category?

So it was a very disruptive strategy, as you are aware, with us. We've launched the category itself at OR and just previously at the Grassroots Show. And we were shipping to our major key retail partners within weeks of that show. The sell-through has been strong, exceeding expectations at our major key retailers, and the reorders have met or exceeded our expectations. We were bullish on the innovation and the market responded. And as we've said previously, we won all of the rewards for the Momentum and the flyknit rock shoe direction. We planned early knowing this and so have developed with our sourcing base a pretty aggressive plan to meet the demand. And we are shipping earlier again. So spring '18 shipments will start to take place in November of 2017, and our accounts and consumers are excited about that, both from a D2C strategy as well as a retail strategy. We have planned for this demand, at least aggressively planned for this demand. It may exceed our expectation, which would be fantastic as it is trending that way. But we've planned for it. Footwear is -- rock shoes are not the only initiative within BD, within footwear. We will continue to look at climb and Alpine as well as Approach and other categories. And we think that within BD, footwear can represent a strong percentage of our basis. And we will invest in the product teams and in the marketing to drive that initiative.

(Operator Instructions) Next, we'll hear from Jim Duffy from Stifel.

A number of questions for me. Starting on the Sierra business. The 8-K filing gives perspective on 2016 as a baseline. Aaron, is that a good reference point for the margin structure of the business?

It is, yes.

Okay. And then the SG&A run rate, there's management member fees included in that. How should we think about those?

So those related to the prior owner, Jim, and will be excluded from the ongoing operations.

Got it. And then any thoughts you can share on seasonality of the business?

Yes. So it's about a 55% business for the spring, and then the other 45% is in the back half.

Great. Shifting to the organic business in the third quarter. Aaron, did the gross margin come in as you expected in the quarter?

Yes. It was right in line with our expectations and very proud with the improvements that we realized.

Great. And then the adjustments, I want to make sure I'm clear on that. I understand excluding the step-ups, does your reported and guiding margin include a mix effect from the beneficial inclusion of Sierra?

It does. And so if you think about what we recorded in Q3, Jim, we recorded 33.4%. However, that included $420,000 of an inventory step-up. So if you adjust that out, our adjusted gross margin would be 34.3%. And as mentioned in the BD PIEPS business or the core business prior to the acquisition of Sierra, we came in at 33.7%. So that highlights the contribution that Sierra provided or made to the business in Q3.

Got it. Okay. And then SG&A in the quarter, on an organic basis, came in a little heavier than I thought. Is that what you guys were planning? Does that reflect timing across the quarters? I guess implied in the guidance, it looks like a little bit more SG&A on an organic basis assumed for the balance of the year.

Yes. So there was a little bit of a timing impact here related to the BD PIEPS business associated with some sales and marketing initiatives that we wanted to continue to pursue. However, I will restate that as we think about the outlook for the rest of the year, the components associated with Black Diamond and PIEPS really have not changed in totality. We've just been shifting and reallocating in terms of timing but also areas of focus. One of the things that we are seeing as well, Jim, though, is that Sierra is expected to contribute to the overall revised forecast for 2017, about $2.6 million in SG&A. And then also, we are seeing some additional noncash items related to stock comp, et cetera, that was outside or above what our initial expectations were.

And we'll go to Matthew Campbell with Laridae Capital.

John, did you say apparel was up 10%? Did I hear that right?

Apparel was up 10% with the DM drag. If you take out the DM drag, apparel sales for the third quarter were up 70%.

Okay. So it was up 70%. But as investors, how should we think about apparel for the next 2 to 3 years? I mean, 70% growth is probably not sustainable. So how should we think about that sector of your business? And what kind of margins -- can you remind me what your gross margin is for that business?

Yes. So our gross margin in that business is north of 10 points better than our average margin in the whole category. So we should be looking at mid-40s and above. In regards to apparel, like I said, we were heavily carried over at DM from the previous round. If you take that out, fall '17 performance, 70% up was in line with our booking expectations for fall '17, and we've kind of intimated towards strong apparel growth. We will continue to invest in apparel, both in engineers/product people as well as our marketing initiatives. We are an equipment apparel brand, so we are focused on category killers. And we will continue to do so. And we think apparel is a very important, strong growth initiative for BD over the next 3 to 5 years.

Great. And...

And as we have said earlier, between footwear and apparel, both in the climb market as well as outside of the climb market, those are strong growth categories for us: sportswear, logo wear, outerwear, all aspects of apparel.

Got it. Yes. That was my second part of the question. You spoke to the logo wear. I've not heard you guys talk about logo wear. Could you just expand upon that? And what are you thinking about in that side of the business?

Okay. So if you and I were on the street looking at teenagers and we saw a kid wearing a Hurley shirt or a Billabong shirt, what would you guess his sport of choice is?

Got it. Yes.

So surf, right? If you saw him wearing Adidas Salmas, you'd think he's a soccer player. If he was wearing Under Armour, you'd think he's a 3-ball sport kid, right? If Vans, maybe a skateboarder. There is a climbing momentum, gym momentum that is growing feverishly. What is the jean of choice, T-shirt of choice, sweatshirt of choice, beanie of choice, trucker cap of choice, backpack of choice for the kid who's anywhere between 12 and 25 who sees climbing and specifically gym climbing as his sport of choice? What is his brand reference and apparel that gives that away? And we are seeing great growth in that, T-shirts, hats, sweatshirts, logo wear all the way across the board.

Are those margins similar to the other apparel margins?

Higher. Higher. Higher. Yes. And if you think it was logo wear that drove the surf market from the mid-'90s well into the 2000s.

So what's the size of that market -- of this division for you today? I mean, in terms of revenue?

Apparel today represent about 10% of our business but obviously growing at a faster rate than the rest of the group. And we don't see that slowing down in the short term.

Yes. And the logo wear is a much smaller part of that, I would imagine?

It is, but it also has to one of the biggest upside opportunities.

Great. And if I can sneak one more in. With regard to Sierra, how many sales people did they have before you took them over? And what are your thoughts to increasing that opportunity?

Currently, they have a small dedicated sales team that's focused on their green box and their OEM business. And that's been their service model. We will -- similar to BD, we will focus on the sales and marketing opportunities and think there is a lot of opportunity that just by the size of our sales force, or the focus of our sales force, were not a clear target previously.

Great. You guys are going to be at any investor conferences between now and the end of the year? I'd just love to see you guys.

Yes, we're contemplating a list of them. We'll make sure that Cody gets to that around to you. And then obviously, you're always welcome to come visit us in Salt Lake and see Utah.

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

Thank you. We'd like to thank everyone for listening in today's call, and we look forward to speaking with you when we report our fourth quarter and our full year results approximately 3 months from now. Thanks again for joining us, and we pray that it continues to snow as we see it today in the mountains of Utah.

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