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Edited Transcript of BDE earnings conference call or presentation 12-Mar-18 9:00pm GMT

Q4 2017 Clarus Corp Earnings Call

SALT LAKE CITY Mar 13, 2018 (Thomson StreetEvents) -- Edited Transcript of Clarus Corp earnings conference call or presentation Monday, March 12, 2018 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Aaron J. Kuehne

Clarus Corporation - Chief Administrative Officer, CFO, Secretary & Treasurer

* John Walbrecht

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Conference Call Participants

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* Andrew Shuler Burns

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

* Peter Clement McGoldrick

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

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Presentation

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Operator [1]

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(technical difficulty)

meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are made based upon 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 statements 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; 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 acquisition strategy; the company's ability to successfully execute its acquisition strategy or that any such strategy 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; changes in governmental regulation, legislation or public opinion relating to the manufacture and sale of bullets by our Sierra segment and the possession and use of firearms and ammunition by our customers; the company's ability to protect patents, trademarks and other intellectual property rights; any breaches of or interruptions in our information systems; 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 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 March 26, 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, claruscorp.com. Any redistribution, retransmission or rebroadcast of this call in any way without the express written consent of Clarus Corporation is strictly prohibited.

Now I would like to turn the call over to the President of Clarus, John Walbrecht. John?

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John Walbrecht, [2]

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Thank you, Cody, and good afternoon, everyone. It's a pleasure to be joining you. First, I would like to express my appreciation to our Board of Directors for their confidence in appointing me as the President of the Clarus Corporation in supporting the future as we are trying to create it. It has been with the -- I have been with the company for approximately 18 months, and during this time, we have instilled a clear strategic focus throughout the organization and, hopefully, within the industry, reinforcing BD as one of the most disruptive brands in the outdoor industry. We expect to apply the same playbook at Sierra.

My appointment as President also solidifies our new focus. While our key priority is integrating and growing the Sierra business, it's important to reiterate that we also remain fully committed to the long-term capital acquisition strategy. As we evaluate future opportunities, we now intend to be focused on the outdoor and consumer industries. We believe straying too far from the company in this space would underutilize the great people and the significant capabilities and goodwill we've built in these industries at both the Clarus corporate and in the digital brand levels. We look forward to updating our shareholders as this more industry-focused M&A strategy unfolds.

Now on to our financial results. We ended 2017 on a strong note, growing fourth quarter sales by 27%, with our Black Diamond segment up 11%. This strong performance was broad-based, driven by growth in North America and Europe and across all the primary product categories of climb, mountain and ski. In fact, we grew our ski category by 24% in the fourth quarter, driven by 33% sales growth from our PIEPS brand. PIEPS has benefited from Black Diamond's focus on a broad collection built around snow safety and leveraging the Clarus platform under our 2-brands, one-company approach. A strong winter in Europe also helped beat consumer demand for our winter gear, and we've entered 2018 with what we believe to be clean inventory levels with our retail partners in this region.

Our Conrad category grew 19% in the fourth quarter, fueled by the continued rollout of rock shoes line as well as the early launch of our new spring harnesses. Other products that performed well in the fourth quarter included trekking poles, gloves and packs, all of which were categories of strategic focus entering into 2017.

Our apparel initiative also remained strong, and on a year-to-year basis, we were comparing to a fourth quarter last year that had quite a bit of discontinued merchandise moving through the channel due to our recalibration of the line. However, if we compare in-line sales on a year-over-year basis, apparel grew in the fourth quarter by 12%. While an unseasonable dry weather in the Western United States was a slight headwind to our apparel growth, our overall sales growth of 11% at Black Diamond segment highlights what we believe to be the power of diversification and the desire of our customers to participate in alternative outdoor activities when mother nature does not cooperate. Our exposure to climbing is a great example of this.

Underlying today's strong financial results was a strategy that we've been communicating to our retail partners, consumers and investors all year. This message is clear. We believe we are innovating our products with a quality and pace faster than our competition, and we're improving our fulfillment rates in a way that is enhancing reorder levels and making Black Diamond a company that is easier to do business with. And last, but certainly not least, we have a clear marketing strategy that speaks to our core consumer. We believe that this strategy has not only driven strong sales throughout retail and driven today's results but is helping to build our retail partners' growing support for our brand into the future.

Our marketing campaigns remain rooted in 2 important themes. First, we have returned our focus to Black Diamond brand and specifically, our new product innovations. And second, we are striving to enhance our brand equity through targeted marketing and PR campaigns centered around the brand experience and national advertising. This includes the regular creation of new digital content that we use on our website and throughout social media as well as the launch of our first-ever television campaigns for the Black Diamond brand, which aired during the 2018 Winter Olympics in mid-February.

We also had a banner year on the PR front. During 2017, we had 5.9 billion total media impressions, up more than 50% over 2016, spanning major outdoor publications like Alpinist, Climb, Backcountry, Backpacker, Trail Runner, Outside Magazine and Men's Journal to more mainstream publications like CNN and National Geographic, to core outlets like Gear Junkie, Teton Gravity Research, Adventure Journal, et cetera. We were also awarded 35 industry trade awards in North America and 18 in Europe throughout 2017 from publications ranging from Outside Magazine to Backcountry Magazine, Men's Journal to Powder Magazine. These awards were given to products that spanned all of our major categories, further supporting my earlier comment about the power of our product diversification.

Now a few comments on our performance by region. In North America, we grew our fourth quarter business due to broad-based growth in all product categories and by continued higher levels of support with our specialty retailers. In Europe, very strong at-once or ASAP orders. Particularly in snow safety, harnesses, gloves, trekking poles and ski drove double-digit Q4 sales growth in that region. It has been over a year since we reallocated our European headquarters to Innsbruck, Austria, and we continue to be impressed by our team's great efforts in execution and positioning the brand for continued growth.

In our independent global distributor business, which covers the rest of the world regions, including large markets in Asia, we experienced relatively flat results due to lower preseason orders, particularly in the mountain category, however the climb and ski categories were strong. In this region, we have returned our focus to growing the key territories of Japan, Korea, Australia and China.

In the fourth quarter, we translated our strong sales into robust gross margin improvements. Continued enhancement in our products, channel mix and the stabilization of our sourcing strategy, particularly our in-house manufacturing, better product fulfillment and lower levels of discontinued merchandise, drove a 670 basis point increase in adjusted gross margins.

Now on to Sierra. Our fourth quarter was the first full quarter owning the brand, and we spent most of the quarter focusing on an integration onto the Clarus platform, meeting with key customers and mapping out our strategy for 2018. Sierra has experienced some softness in the domestic marketplace, especially at retail, but we are experiencing a stable book of business with our domestic OEM partners, and we are active in executing the sales and marketing plans with our domestic retail accounts.

I will have more to say about strategic outlook with Sierra as well as additional business commentary after Aaron Kuehne, our Chief Administrative Officer and CFO, walks through our financial results in more details. Thanks, Aaron.

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Aaron J. Kuehne, Clarus Corporation - Chief Administrative Officer, CFO, Secretary & Treasurer [3]

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Thank you, John, and good afternoon, everyone. Sales in the fourth quarter of 2017 increased 27% to $52.7 million compared to $41.4 million in the same year-ago quarter. And on a constant currency basis, sales were up 25%.

Along with the strong category growth John mentioned in his opening remarks, particularly in climb and ski, the increase was due to our acquisition of Sierra Bullets on August 21, which added $6.8 million to our sales in the fourth quarter. Excluding the acquisition, however, sales still increased organically by a healthy 11%. In fact, the fourth quarter of 2017 benefited from a 10% year-over-year increase in preseason orders, while improved fulfillment rates and healthier inventory levels drove a solid 28% increase in at-once orders. As a result, our in-line business grew in the fourth quarter by 15%. These increases were partially offset by a 46% decrease in the amount of discontinued merchandise sold during the quarter, further reflecting the improvements being made in our supply chain, inventory management and streamlined apparel initiative. In fact, this point also ties in nicely to our gross margin performance.

Gross margin in the fourth quarter increased 350 basis points to 32.6% compared to 29.1% in the year-ago quarter. The increase was primarily due to a favorable mix of higher-margin products; the stabilization of our sourcing strategy, particularly in 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 $1.7 million, adjusted gross margin increased 670 basis points in the fourth quarter to 35.8%. Excluding the acquisition, gross margin was up 630 basis points to 35.4%.

Selling, general and administrative expenses in the fourth quarter increased to $16.5 million compared to $12.6 million in the year-ago quarter. The increase was due to the continued strategic initiatives around new product introductions and increasing Black Diamond's brand equity as well as approximately $1.7 million of incremental expenses due to the inclusion of Sierra, which includes $900,000 of amortization expense associated with the allocation of the Sierra purchase price.

Now moving on to taxes. As you may recall, in 2015, we fully valued our net operating loss carryforwards, effectively leaving the company in the deferred tax liability position. As a result of the recently enacted tax law, the revaluation of our deferred tax assets and liabilities other than our net operating loss carryforwards drove an increase in the year-over-year tax benefit. As such, an income tax benefit of $6.1 million was recorded in the fourth quarter of 2017 compared to $400,000 in the year-ago quarter.

Net income in the fourth quarter improved to $6 million or $0.20 per diluted share compared to a net loss of $1.4 million or a loss of $0.05 per diluted share in the fourth quarter of 2016. Net income in the fourth quarter of 2017 included $1.7 million of noncash items, $200,000 in transaction costs, $100,000 in merger and integration costs and minimal restructuring costs compared to $1.7 million of noncash items, $100,000 in restructuring costs and minimal transaction costs in the fourth quarter of 2016. Adjusted net income, which excludes the noncash items as well as restructuring, merger and integration and transaction costs, increased significantly to $4.6 million or $0.15 per diluted share compared to adjusted net income of $400,000 or $0.01 per diluted share in the fourth quarter of 2016. Adjusted EBITDA increased significantly to $5.1 million compared to $300,000 in the fourth quarter of 2016.

Moving on to the balance sheet. Due to the acquisition of Sierra and repayment of our subordinated notes, at December 31, 2017, cash and cash equivalents declined to $1.9 million compared to $94.7 million at December 31, 2016. To help finance the acquisition, we drew down on our line of credit in the third quarter of 2017 by $27.4 million. During the fourth quarter of 2017, we generated free cash flows of $6.5 million, which were used to pay down the line, ending the year with $20.8 million in debt compared to $21.9 million at the end of 2016. Despite adding $10.1 million worth of Sierra inventory, we ended 2017 with days -- inventory outstanding below our target and believe we've begun 2018 with healthy inventory levels across most of our business.

I'd now like to introduce our 2018 financial outlook. We started our planning process for 2018 in the fall of 2017. There are certain trends within the marketplace at retail and even more generally, such as those associated with the political environment, commodities, foreign currency, taxes and duties, that all play into how we think and plan for the future. As these variables unfold, we plan to continue to provide updates along the way.

We anticipate fiscal year 2018 sales to grow 17% to 20% to approximately $200 million to $205 million compared to actual sales of $170.7 million in 2017. On a pro forma basis, as if we had owned Sierra for all of 2017, we anticipate fiscal year 2018 sales to grow 5% to 7% on pro forma sales of $191.2 million in 2017, which includes high single to low double-digit growth rates at Black Diamond and low single-digit growth rates at Sierra. On a constant currency basis, we expect sales to range between $197.5 million to $202.5 million or up 16% to 19% compared to 2017. We expect adjusted EBITDA margin to be approximately 8%, which includes $5 million of cash corporate overhead expenditures. This compares to an adjusted EBITDA margin of 3.6% in 2017.

While we have provided a gross margin outlook in the past, we believe presenting adjusted EBITDA will best capture our progress not just on gross margin expansion, but also leveraging our SG&A to increase free cash flow, which we believe positions us back if another attractive M&A opportunity like Sierra arises. With that being said, we thought it would be helpful to provide some specific commentary related to our gross margin and SG&A expectations in 2018.

Excluding the fair value inventory step-up charge expected in Q1 of 2018 of $1 million, which is associated with the Sierra acquisition, we expect full year adjusted gross margins to continue to improve on a year-over-year basis. This is expected to be driven by an improvement in our overall channel and product mix and operational efficiencies associated with our supply chain and in-house manufacturing. As a result of the Sierra acquisition, we expect amortization expense in SG&A to increase from $2.4 million in 2017 to $4 million in 2018. Depreciation expense is also expected to increase from $2.9 million in 2017 to approximately $4.5 million in 2018.

As part of implementing a long-term incentive plan for the executive team, noncash stock-based compensation is expected to increase from $1.2 million in 2017 to approximately $2.5 million in 2018. And as I stated, we expect $5 million of cash corporate overhead expenditures. Taking this into consideration, we expect to generate free cash flows of $5 million to $10 million in 2018 after approximately $3 million in capital expenditures, which is dependent upon any necessary increases in inventory to support growth opportunities in the marketplace for spring 2019.

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 existing and significant NOLs for federal income tax purposes. As of December 31, 2017, we estimate that we have available NOL carryforwards for U.S. federal income tax purposes of approximately $157 million.

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

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John Walbrecht, [4]

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Thanks, Aaron. Before moving to our strategic outlooks, I'd like to recap our fourth quarter results. The parts of our business that we use to measure execution are on track. Sales were up across all major categories, geographies and channels, and our gross margins have continued to improve significantly. On a full year basis, these metrics, for the most part, were directionally the same. We are investing in sales and marketing campaigns that are driving enhanced consumer awareness, which have driven both strong ASAP orders and strong bookings for 2018. And we are well on our way to integrating Sierra and building cash flow to help further our acquisition capabilities.

Now pivoting to product and a few comments on our fall '18 lineup. We are very excited about the brand's momentum heading into the fall '18 season, which we expect will feature the introduction of more than 50 new products across all 3 categories. Now having recently finished trade shows in both the U.S. and Europe, we continue to see strong brand momentum both in product innovations as well as our aggressive marketing on lighter, faster, stronger.

In climb, we continued our innovations with ice, launching the industry's lightest [UL] ice screw and the new Reactor ice tool. New innovations in chalk with the launch of Pure Gold, a chalk additive that increases moisture absorption by 10x. We also expect new developments in bouldering pads, bouldering accessories, alongside new colors of our rock shoe collection, will continue to build momentum in the ever-growing bouldering category.

Within the growing popularity of backcountry skiing and boarding, BD continued to push the innovations in our ski and snow safety category with the new Helio ski collection and in the award-winning Boundary Pro Ski series, new ultralight bindings, new Black Diamond beacons, new Whippet ski poles, expanded skins, the new Recon stretch jacket and pants, Helio Active ski touring shell, expanded gloves and finally the launch of snow trekking carbon skis with built-in skins.

Finally, mountain saw BD launch numerous different new products, including the [zipped backpacking light], new packs and the expansion of our award-winning First Light Jacket series. As we look to the future in spring '19, we plan to launch Black Diamond's most aggressive collection of innovations in the outdoor industry to date. Along our aggressive marketing and the addition of TV ads, our goal is to strengthen our awareness both amongst our super fans as well as our growing outdoor athletic community.

Now moving to Sierra. In 2018, we will seek to replicate the playbook we are executing with Black Diamond. We can do this because, like Black Diamond, Sierra has an authentic brand with a product rooted in best-in-class performance. So in 2018, we expect to leverage our very strategic and financial resources to establish a foundation of growth. Focused on category segmentation of compete, hunt, protect and defend, Sierra plans to make investments that will seek to enhance both sales and marketing, including social and digital capabilities; a new print campaign; strengthen our retail partnerships; improve fulfillment; expanding with both law enforcement and military channels; and of course, continue to innovate new products like the new [spectra bullet] we launched this past January at the SHOT Show. In support of the new attention to Sierra, we successfully launched new booths at both SHOT Show and the IWA Show in Germany, putting the industry on notice that we are going to be disruptive in both our product innovations as well as our marketing initiatives.

Before I conclude, I would like to say a few words about the current environment. We are stricken by the grief over the unconsolable school shooting that took place in Parkland, Florida. It is impossible to grasp the senseless loss of life, both in Parkland and in other recent incidences. Our hearts go out to the victims and to their families, and we share a strong desire of our community to make this nation safer. At Clarus Corporation, including Black Diamond, Sierra and PIEPS brands, safety and responsibility are our core values. We do not produce firearms of any kind. Our products foster experiences that enrich the lives of our enthusiast user base across the world, and we are dedicated to the mission that enhances this experience through training, education, safety and social responsibility. As a company, our position is that every civilian who engages in the use of firearms should be extensively trained in their safety, use and care in both the outdoors and in the range. There are a number of organizations that provide certification and training in the use of firearms, and we support all of them. Furthermore, our Board of Directors and management are regularly evaluating the causes of great importance that we support through the brands we own. This includes corporate and social responsibilities and the continuous evaluation of our respective business partners, which includes our entire supply chain and wholesale and distribution partners. We believe these important partners understand the differentiation of our brands and our support of our mission.

So in closing, the fourth quarter culminates a very important year of transition in our business, positioning the company for what we feel will be a record 2018. We believe the proactive steps we've taken to invest behind our brands and introduce best-in-class products, all the while supporting this innovation with a clear marketing strategy that speaks to our core consumer, is resonating well with our retailers and building a level of trust that we believe forges long-term relationships. As such, we expect our momentum to continue and look forward to reporting on our progress along the way.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we will take our first question from Andrew Burns, D.A. Davidson.

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Andrew Shuler Burns, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [2]

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Just a quick one on the weather. Clearly, a bit of a headwind in the Western U.S. but beneficial in Europe. Would you say when you sum up all the different parts, categories and regions, the weather materially impacted results one way or the other in 4Q?

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Andrew Shuler Burns, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [3]

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Just a quick question on weather. I'm not sure what happened there. But when you look at the various regions and categories, it was tough in the Western U.S., beneficial in Europe. Would you say that, rolling it all up, weather had an impact, one way or the other, material on the results for 4Q?

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Operator [4]

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And we will take a question from Jim Duffy of Stifel.

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Peter Clement McGoldrick, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [5]

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This is Peter McGoldrick on for Jim. I was curious, as you look forward to high single-digit Black Diamond growth, could you size the opportunity between your categories and channels?

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Peter Clement McGoldrick, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [6]

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This is Peter on for Jim. I was curious if you could break down the drivers of the high single-digit Black Diamond brand growth between channels and categories.

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Aaron J. Kuehne, Clarus Corporation - Chief Administrative Officer, CFO, Secretary & Treasurer [7]

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For sure. Do you want me to take it, John?

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John Walbrecht, [8]

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Yes.

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Aaron J. Kuehne, Clarus Corporation - Chief Administrative Officer, CFO, Secretary & Treasurer [9]

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So this is Aaron, Peter. First of all, at the channel level, what we saw was our domestic business grew 10%. Our international business was up 12%. The North American business was up 9%. Europe was up 17%, and this communicated our rest of world was a bit flat. The primary drivers here was -- in North America, in particular, was associated with our climb business, the continued rollout of our climbing shoes, ropes, harnesses, but also some early launch products for spring '18 such as trekking poles. We also had a very strong initiative around our gloves and also our snow safety. And in Europe, with the weather, the way that it was, it was strongly driven by snow safety, that of beacons and also Jetforce.

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Peter Clement McGoldrick, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [10]

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Okay. And regionally, with the weather in the Rockies and the American West, was that an impact? Or did that patch up as fourth quarter progressed?

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John Walbrecht, [11]

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It was definitely an impact. I mean I think everybody will -- felt that. As we said in the report, I think we -- it is both the blessing and the curse of BD, the 33 categories of products that we perform in. When it's bad, we're able to balance our business into other areas that are growing. And likewise, if it was really huge, we may not get a full impact of it because it's only partial of our business. We win some. I mean, I would say it's probably in total balance because Europe was up so strong when the U.S. West was down. But as a backcountry ski brand, we're more of a Rocky Mountain to Northwest brand than we are a Midwest ski brand.

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Peter Clement McGoldrick, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [12]

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Okay. And then in previous calls, you discussed the lifestyle apparel opportunity. How is -- can you speak a little bit about how that is progressing?

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John Walbrecht, [13]

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We feel very strong on apparel. As we said -- I mean, this -- what you saw in the third and fourth quarter of last season was the start of our execution of the new apparel program, lifestyle being a part of that and mainly around climb. And specifically, you'll see that as we move into spring and summer aspects of it. Our business is predominantly, in the fall and winter, based on outerwear, typically driven along the West -- the ski market. And so our apparel didn't have as much lift as was potential, given the Western winter.

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Peter Clement McGoldrick, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [14]

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Okay. And then finally, I was just curious on your gross margin outlook. You mentioned channel mix and supply chain being opportunities for continued expansion, especially with Sierra Bullets. Are you seeing input cost pressures? And if you could dimensionalize those, that would be great.

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Aaron J. Kuehne, Clarus Corporation - Chief Administrative Officer, CFO, Secretary & Treasurer [15]

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You bet. So as communicated, we are focused more on the adjusted EBITDA percentage this time around as we -- this is where we want to focus our investors but also provide us with the flexibility as we continue to grow and scale the business. We are expecting an expansion of gross margins at the BD level; it is due to the channel mix and also continued improvements in our sourcing and supply chain activities as well as our in-house manufacturing. At the Sierra business, we are seeing some headwinds or pressures on the business due to its reliance on certain commodities such as copper and lead. For example, about 50% of its overall cost of goods sold is a component of copper and lead, and with the increase in those 2 commodities on a combined basis of about 30 basis points -- sorry, 30%, we are seeing some pressures of about 500 basis points on that business' gross margins that we are actively looking at of how we can mitigate but also improve from here, whether it be through higher levels of throughput and maximizing the output of our manufacturing facility but also through new innovation and being able to reset pricing along the way as well.

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Operator [16]

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(Operator Instructions) And our next question will come from Andrew Burns of D.A. Davidson.

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Andrew Shuler Burns, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [17]

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John, I know you've talked about some distribution opportunities in some of your more popular categories, whether it's lighting or trekking poles. Is there any distribution expansion in '18 that's going to be helping out, whether it's running specialty or something broader in the lighting category?

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John Walbrecht, [18]

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Yes. We are definitely expanding our lighting into broader distribution as well as broader categories. As you mentioned, specifically, trail running is a strong initiative for Black Diamond into 2018 and beyond. We will see growth not only in the distribution opportunities but also in expansion of both the SKU level and the door level in lighting amongst our top retailers. I think headlamps have proven to be here for the future.

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Andrew Shuler Burns, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [19]

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Great. And I appreciate the commentary on the M&A strategy, and I'm just curious. I understand it's a very different business than it was a few years ago. But when there was sort of a more industry focused to the acquisition strategy, valuation was frequently a sticky point. Is that still the case? Or do you see valuation at more sensible levels for potential acquisition targets?

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Aaron J. Kuehne, Clarus Corporation - Chief Administrative Officer, CFO, Secretary & Treasurer [20]

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We'll continue to be focused on valuation but, more importantly, on the opportunities. Every time we look -- we evaluate a potential deal, it's all about how it would fit into the current organization but also how we'd be able to leverage our time as management and also what it contributes to the overall ecosystem of Clarus. And so we'll continue to be, once again, mindful of the valuation. We expect every deal to be accretive from the get-go, but we also recognize, as we continue to focus on the outdoor and consumer industry, specifically, that those opportunities come with a certain type of valuation or certain type of thesis along with it, and we recognize and we're embracing that.

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Operator [21]

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And with no further questions in the queue, I'd like to turn the call back over to Mr. Walbrecht for closing remarks.

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John Walbrecht, [22]

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Thanks. Thank you, Britney. We'd like to thank everyone for listening to today's call. And we look forward to speaking with you when we report our first quarter results. Thanks again for joining, and goodbye.

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Operator [23]

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And ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.