Cody Slach – Director-Investor Relations John Walbrecht – President Aaron Kuehne – Chief Administrative Officer and Chief Financial Officer.

Dave King – Roth Capital Andrew Burns – D.A. Davidson Jim Duffy – Stifel.

Good afternoon, everyone, and thank you for participating in today’s Conference Call to Discuss Black Diamond, Inc.’s Financial Results for the Fourth Quarter and Full Year Ended December 31, 2016.

Joining us today are Black Diamond Inc.’s Chief Administrative Officer, and CFO, Aaron Kuehne; Black Diamond Equipment’s President, John Walbrecht, and the Company’s Director of Investor Relations, Cody Slach. Following their remarks, we will open the call for your questions. Before we go further, I would like to turn the call over to Mr.

Slach, as he reads the Company’s Safe Harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please go ahead..

Thanks Brian. 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 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; the financial strength of the Company’s customers; the Company’s ability to implement its reformation and 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 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 would like to remind everyone that this call will be available for replay through March 20th, starting at 8:00 PM 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 blackdiamond-inc.com.

Any redistribution, retransmission or rebroadcast of this call in any way without the expressed written consent of Black Diamond Inc. is strictly prohibited. Now I would like to turn the call over to Black Diamond Equipment’s President, John Walbrecht.

John?.

Thank you, Cody and good afternoon everyone. It's a pleasure to be joining you. Our fourth quarter was highlighted by growing retailer confidence in the core products that define the Black Diamond Equipment brand.

We also continued to experience growing momentum in our direct-to-consumer and independent global distributor businesses, as both channels continued to grow in strong double-digits.

With the majority of our constant currency sales decline driven by our poor European winter conditions and our deliberate focus to reduce SKUs in you apparel, I'd like to expand on the positive effects that nearly offset that decline.

Our fourth quarter benefited from the strong sell through of carabiners, climbing accessories, trekking poles, packs and our protection lines, as well as our Pieps Micro Beacons and avalanche kits. We also saw great reception to our Helio collection of carbon skis, gloves and poles.

On the you apparel side, our First Light Hoody and dawn patrol lines sold through very well at retail. After more than a year of restructuring, we believe we're poised to scale the brand 2017 through the implementation of a clear growth plan.

This entails an unwavering focus on the roots of our brand, and the continued investment in products that have made Black Diamond synonymous with the sports we serve for the last 28 years.

We are also focused on enhancing our brand equity through innovation in adjacent product categories, and targeted media impressions centered around the consumer's experience with our products.

We believe this strategy optimizes our position to achieve sales and margin expansion, along with improved levels of consumer service and more efficient working capital management.

Before going into more detail on our strategy as well as some of our regional results, I'd like to turn the time over to our Chief Administrative Officer and CFO, Aaron Kuehne, for a detailed financial overview..

Thank you, John, and good afternoon, everyone. For clarity, any comparisons made to prior periods are from continuing operations and exclude the results of POC which we sold in October of 2015. Sales in the fourth quarter of 2016 were $41.4 million compared to $44.1 million in the same year-ago quarter.

Excluding the impact of foreign exchange, sales were down 2%. This was due to poor European winter conditions impacting our ski product sales, and our measured approach to scaling back our apparel line.

Partially offset by continued strong climb and mountain equipment product growth, especially within our direct-to-consumer and independent global distributor distribution channels. In fact, direct-to-consumer was up 19% in the quarter, and our distributor channel was up 12%.

Gross margin in the fourth quarter was 29.1% compared to 33.5% in the same period last year. Foreign currency headwinds accounted for 290 basis points of this decline. Excluding the impact of foreign exchange, gross margin was 32%.

The 150 basis point year-over-year decline on a constant currency basis was the result of a combination of additional costs associated with the continued ramp up of Black Diamond's recently repatriated manufacturing activities from Asia to the U.S. And an unfavorable mix of lower margin products.

Fourth quarter SG&A, which excludes restructuring, merger and integration and transaction costs, was down 16% to $12.4 million compared to $15 million in the same period last year.

This decline is a direct result of the reformation that we announced last year, and the realization of the savings that were forecasted for that restructuring During Q4, we incurred modest restructuring charges associated with the formal closure of our legal entity in China.

Although we no longer have any ongoing manufacturing operations in China, we expect to continue to incur modest amounts of restructuring charges in 2017 as we continue to formally liquidate and remove our legal entity in China.

Net loss from continuing operations in the fourth quarter was $1.4 million or a loss of $0.05 per diluted share, compared to a net loss from continuing operations of $31.7 million or $0.99 per diluted share in the year-ago quarter.

Please recall the fourth quarter of 2015 included a $29.5 million goodwill impairment charge which was required due to the decline in the Company's market capitalization in the fourth quarter of 2015.

Adjusted net income from continuing operations, which excludes non-cash charges as well as restructuring and transaction costs, was approximately $400,000 or $0.01 per diluted share in the fourth quarter of 2016. Compared to an adjusted net income from continuing operations of approximately $600,000 or $0.02 per diluted share in the year-ago quarter.

Moving on to the balance sheet and cash flow. Cash at December 31, 2016 totaled $94.7 million compared to cash and marketable securities of $98.2 million at December 31, 2015. We made no share repurchases in the fourth quarter.

But in 2016, the Company repurchased a total of 1.2 million shares of common stock for a total investment of $5.1 million or approximately $4.26 per share. Today, approximately $17.8 million remains on our $30 million stock repurchase program.

Our inventory reduction in 2016 exceeded our $5 million reduction target, declining $6.1 million to $45.4 million. This helped drive approximately $2.2 million of free cash flow during the year. Total debt was $21.9 million, which includes $22.6 million of 5% subordinated notes due in 2017, and $102,000 in foreign term notes.

Compared to total debt of $20.1 million at December 31, 2015. For flexibility, we continue to maintain a $20 million revolving credit facility which was renewed on March 3, 20117 and now matures on April 1, 2020. Subsequent to the end of the year, we fully paid down the 5% senior subordinated notes for $22.6 million.

As such, we estimate to have pro forma cash of approximately $72.1 million. The only remaining debt is the approximately $100,000 term note, however we expect to also pay this down in March and be completely debt free. Now, before providing our 2017 outlook, I'd like to make some brief commentary on our key strategic priorities for 2016.

We entered 2016 with the following strategic objectives. One, to right size our operating model through a reformation of the brand back to its 2012 pre-acquisition cost structure. Two, to improve working capital performance.

And three, to create a solid revenue base to build from after scaling back apparel and refocusing our independent global distribution, primarily in Asia. I am pleased to report that we have completed all of these objectives successfully, and in so doing eliminated $8.6 million of SG&A and reduced inventory on hand to $45.4 million.

We believe that Black Diamond Equipment is now well positioned to drive the business forward. That our product recalls were well managed and in the past and the brand is on solid footing for the future, which we believe will enable us to make investments both in innovation and in marketing to propel the business forward.

In fact, given recent favorable market dynamics in and around our climbing business, momentum in our refined approach to apparel as well as a strong dealer response to our newly innovated products. We have decided to make deliberate, yet calculated incremental investments into our brand.

This will come in the form of an added headcount in R&D, as seen by recent additions to John's team like Robert Fry as VP of Merchandising, and Trent Bush as VP of Apparel Design. In 2017, we expect to bolster the research and development headcount by a total of 10 to 12 people.

To support this purposeful investment in our brand, we have also added approximately $1 million to our marketing budget to drive brand awareness in mainstream media outlets that provide a significant amount of potential impressions. John will have more to say on this development in his concluding remarks.

So while we expect these strategic investments to impact our 10% brand level adjusted EBITDA margin target in 2017, we believe they are the right investments to drive long-term profitable brand growth. So with this as context, I'd now like to move to our 2017 financial outlook.

We expect sales on a reported basis to grow 3% to 7%, ranging between $153 million and $158 million compared to $148.2 million in 2016. On a constant currency basis, we expect sales to increase 4% to 7%, ranging between $154 million and $159 million compared to 2016.

We expect gross margin in fiscal 2017 to increase approximately 300 to 400 basis points, and range between 32.5% and 33.5% compared to 29.5% in 2016. With foreign currency representing an approximate negative impact of 50 basis points on gross margin in 2017.

Both our sales and gross margin guidance assumes the euro will trade around a $1.07 for the remainder of the year.

We expect gross margins to improve from reduced levels of discontinued merchandise, lower manufacturing costs, operational efficiencies associated with our supply chain and in-house manufacturing, and an improvement in our overall channel and product mix.

We also expect selling, general and administrative costs to be approximately $50.5 million compared to $49.9 million in 2016. Please keep in mind the $50.5 million includes approximately $4.5 million of cash corporate overhead expenditures, as well as the just mentioned increased investments in R&D human capital and marketing spend.

Excluding the corporate expenditures of $4.5 million, we expect the Black Diamond Equipment business to be free cash flow positive in 2017 after approximately $2.5 million in capital expenditures. While it continues to be too early to provide any specific guidance or details around the redeployment of our capital, we remain absolutely committed.

And are very active in our strategy to acquire high quality, durable, cash-flow producing assets that are potentially unrelated to the outdoor equipment industry in order to diversify our business.

Finally, 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 in order 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 December 31, 2016, 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. Now I'd like to spend a few moments discussing our performance by region. North America and our direct-to-consumer. Our North American business, particularly in the U.S., continues to perform well due to the strength of our foundational climb and mountain categories.

We believe the retail channel is relatively stable, and with a few exceptions our larger key accounts continue to perform well with our brand. In addition, our direct-to-consumer business continues to grow strong double digit, and is resonating quite well with our core consumers which we believe bodes well for the future wholesale business as well.

IGD and our independent global distributors. Our independent global distributor business, which covers our rest of the world regions, includes large markets in Asia, was strong again in our fourth quarter.

Solid execution with preseason orders, healthier inventory levels in several key markets, and the significant effort to encourage distributors to increase our brand presence within retailers has been the driving factor. Apparel.

In apparel, we've begun to see early signs of success with our refocused approach to speak directly to our core consumer while also achieving industry-appropriate margins. We experienced strong sell-through in the fourth quarter which has continued so far for our spring orders, and fall 2017 bookings have also been very strong.

Europe, foreign currency pressures. Our overall scaled back apparel line and a dry winter were the primary headwinds in our European business. Brexit impacted our UK business due to a dramatic drop in the pound compared to the U.S. dollar.

However, Northern and Southern Europe experienced solid results on a constant currency basis due to our strong ASAP or replenishment sales, and due to strong sell-through and increased brand awareness. We are also pleased to announce that just three days a ago, we launched our eCommerce site across Europe.

And considering the success of our direct-to-consumer platform domestically and the secular shift to consumers shopping online, we are optimistic about this new sales channel in this important region for our brand. The repatriation. The repatriation project was initiated in late 2014 and is now complete.

And while our Q4 gross margins were still slightly hampered by inventory supply and our manufacturing operations in Salt Lake continued to show steady improvements in efficiency, quality, and more importantly, output.

The strength of these improvements has never finished and we will continue to look for ways to optimize our business and enhance our gross margin, both on this initiative as well as on our manufacturers that supply the remaining 80% of our products. I’d now like to expand upon my comment, about growing retailer confidence in our core BD products.

Since joining the Company five months ago I’ve had the chance to meet with the majority of our customers during our last rounds of trade shows, both in North America and Europe. The recurring take-away was retailers’ perception that Black Diamond had been distracted over the past four to five years by various strategic initiatives.

While most of these customers were relatively supportive along the way, they weren’t as engaged with the BD brand as they could have been. Why? Because their perception was that BD was distracted from its core equipment focus. As a result of our fall 2017 sales and marking campaigns centered around the following two key messages.

First, we have returned to focus back to Black Diamond Equipment and Black Diamond Equipment only. We are investing in product teams to drive the very best innovation across the categories of equipment Black Diamond has spent nearly the past 30 years helping to define. Additionally, we are bringing innovation to adjacent product categories.

Secondly, we are thriving to enhance our brand equity through targeted marketing, centered around brand experience and the aspirational natures of our products. Simply put, we believe that if we succeed in these two key areas and achieve better on time delivery, we will see improved sell-through and greater confidence in the brand looking forward.

The early response of our consumers has been very positive. Evidenced by not just strong fall 2017 bookings, but also by our improved spring 2017 ASAP orders. So to highlight some of these major launches, we’re offering a powerful range of lighting products for spring 2017 to continue to separate BD from our competition.

We actually pulled spring 2018 lighting designs forward one year in response to the market demand and delivered the line to retail a couple of weeks ago. The response has been strong both in terms of retailer feedback as well as the level of buy-ins or what we call load-ins into the market.

Highlights of the new line include lights with higher lumens, fully waterproof and dust proof as well as USB chargeable. Trekking poles also continue to be a strong category and we look forward to an updated outline series launch in this spring, as well as a launch into women’s additional trekking poles.

Our zone harness and kids full body harnesses will hit the shelves this spring rounding out the most complete harness assortment for the growing number of families getting into the indoor climbing. We will also continue to emphasize climbing accessories that are targeted to gym climber.

In our apparel business, we look forward to updated climbing sportswear the Liquid Point Shell, which is our best selling GORE-TEX shell. Spring 2017, we will also be the first sell-through period for our new ropes launched and generally a new category for climbing and for BD. Looking to fall 2017, we expect several new product launches.

Our ski category will be focused on avalanche safety and back-country skiing. We will introduce the new route series of skis, which we have the price point of touring skis and feature technology from our highly acclaimed Helio carbon skis all mounting to a sharp retail price points for such fantastic products.

Also within the Helio family we’ll be introducing the Helio glove which was the ISPO AWARD Winner designed for weight conscious ski mountaineering and alpinism. The glove featured an ultralight Dyneema ripstop shell with goat leather palm and fingers and power cuff with a one hand drawcord closure.

We will also offer the new Boundary Pro skis for the gateway consumer heading for inbounds to the outbounds. And we will continue to focus on skins and poles. At outdoor retailer in January, Gear Patrol awarded Black Diamond’s equipment Boundary Pro 107 ski with the editor’s choice, which again showcases the best of gear for the show.

The Boundary Pro 107 was one of only 14 products recognized and only one ski in the category. We were also awarded Gear Patrol’s editor’s choice for the Boundary Pro 107 and we also look forward to introducing the Fritschi tacked on binding an updated Vipec binding which featured market leading safety and ski performance.

The tacked on binding was awarded Gear of the Show by Outside Magazine, by GearJunkie.com and by the manual.com. As a reminder, Fritschi is a Swiss manufacturer of Alpine tour bindings and accessories and we are the exclusive distributor for their products in North America.

Apparel will launch with new expanded First Light program, including the First Light jacket and a Hybrid jacket as well. We will also continue to focus on climbing sportswear for the fall and winter gym climbing season.

In climbing harnesses we look forward to a new men’s and women’s four season harness, the technician utilizes fusion comfort technology in a three season to four season harness and we’re also introducing the new ultra light vision harness for Alpinists and ski mountaineering which is the ultimate light weight Alpine harness appropriate for long hanging delay sessions.

Lastly, but certainly not least, fall 2017 marks our launch into climbing footwear. We will launch rock shoes featuring new engineered knit technology, as well as engineered precision rubber mold Rands and soles. We will launch a test in the U.S.

only and then expect to continue to expand our distribution in spring 2018 and continue to add high performance models to the collection. As stated earlier, connecting with our community with a solid marketing strategy continues to make real progress.

With the continued rise of climbing gym popularity, we are seizing on the opportunity to market our products by collection versus product by product. For example, in Europe we agreed to be the primary sponsor of the Innsbruck Climbing Center from 2017 through 2022, which will be the largest climbing gym in Europe.

The sponsorship and cooperation includes branding. placement throughout the gym and marketing material as well as a BD store inside. We will be outfitting the staff with gear and apparel inclusive of the pro shop, online kiosk to drive revenue through BD.com.

The project we project the gym to draw a 100,000 visitors per year and we also are the exclusive climbing sponsor of the world championships in September 2018 and the junior world championships in September of 2017.

We project more than 40,000 spectators along with comprehensive TV and media coverage as 130 TV stations expect to broadcast this event globally. Both partnerships are assets to seek to establish our leadership position in climbing, particularly that of the gym, to be a brand leader in climbing hot spot region of Innsbruck.

And is an effective form of marketing leading up to the 2020 Tokyo games where rock climbing was recently approved as a first time event. Based upon climbing and climbing gyms expansion in the mainstream fall 2017 will mark our first launch into television advertising.

We will feature a 30 second commercial branded Defy the Dark, telling the daily story of a BD athlete through the lenses of a BD headlamp. The commercials are expected to start airing this coming fall. We are also significantly stepping up our print advertising, also into mainstream as well as core publications.

We will be running approximately 170 print ads in magazines like Alpinist, Rock and Ice, Climbing, Grit, Backpacker, Outside, Men's Journal, Trail Runner, Ultra Runner, Powder, Back Country Skiing, Gear Patrol and the like.

Readership for these publications spans in the tens of millions, and is in our opinion a stark contrast to our 2016 ad campaign which measured approximately 12 inserts.

Before turning the call over to your questions, I’d like to conclude with a quick review of why we believe 2017 will be a pivotal year in the history of Black Diamond Equipment brand.. First, our reformational activities are complete.

Our repatriation initiatives are largely behind us, and we are poised to scale the brand in 2017 through the implementation of a clear growth plan. Supported by investment in product innovation and targeted marketing plans that we believe exposes the brand to a much wider audience.

We believe this strategy positions us to achieve sales and margin expansion, along with improved levels of consumer service and more efficient working capital. I’d now like to turn the call back over to the operator for Q&A before my closing remarks..

Thank you. [Operator Instructions] And we’ll now take our first question from Dave King with ROTH Capital..

Thanks. Good afternoon, guys. I guess first off on the guidance, what's assumed in that or what visibility do you have in getting towards that top line growth? It sounds like some of it's going to come from new products. But I guess I'm trying to get a better sense of the trajectory for the year.

Are the winter – is the winter dryness still having a negative effect in Europe as we speak? When do you expect that to abate? And then as we think about the expenses and the ramp-up in R&D spend and marketing, is that also going to take place at the beginning of the year or should we assume that with in the back half? Thank you..

So the answer to your first portion of that question, I think as we move more into 2017 you will start to see the positive response as we refer in this, the retailers taking the time off, off of the brand and taking their foot off the brake.

They have not yet put their foot on the gas and that hints why we are focused on improvement and investment in new products as well as in our marketing message. And depending how successful we are in both of those initiatives, that that will determine how rapidly the retailer puts their foot down on the gas.

We are pleased by the response already as the retailers have taken their foot off the brake and are starting to see momentum, both in fall 2017 bookings as well as in our spring 2017 ASAP orders.

But as you said, because we can control the fall 2017 window and we can see today the booking trends there, the majority of our investment in marketing will tend towards the second half of the year.

In terms of product investment, we’re making those investments now and you will see new products in spring 2018 and then you’ll see even more new products in fall 2018. And our belief is those are the two things that we can control.

We can control how fast we innovate product and we can control the message to our consumer on how much we invest in our own brand. Beyond that, the currencies, economy, the weather in Europe or the U.S., our competition, those are things I can’t control..

Okay. That’s great color. Thanks for that, John. And then I guess maybe for Aaron. In terms of the free cash flow guidance for the year, getting that to positive, it seems like that assumes some benefits on the, further benefits on the working capital front.

I guess maybe can you talk about where that should come from? Is that further inventory improvements? I guess what else should or what should we be thinking will drive that to get to that assumption?.

So once again, that assumption excludes the corporate overhead costs that we have of $4.5 million. And so we’re really actually, we’re coming out of 2016 very comfortable with where our non-cash working capital is and we look to continue to refine that.

However, most of the cash flow generation in 2017 will come from improved operations of the business versus continued refinement or improvement of our working capital..

Okay, okay. That helps. And then lastly from me I guess, the February debt paydown, it sounds like you’re planning for the rest of it here in March. That’s really encouraging.

I guess in the absence of the capital redeploy, I guess what are the thoughts here on more aggressive buyback activity, I guess particularly with the stock only trading at a 6% premium to book value. I guess what are the thoughts, current thoughts on that? Thank you..

So, first of all, the sub debt was coming due at the end of May of this year regardless. So we made the conscious decision to realize approximately $333,000 worth of cash interest savings by paying off the debt early. And as it relates to the redeployment, we will always continue to be opportunistic with repurchasing our shares.

However, that is not the primary focus. We are focused on growing the business and then also we are active in redeploying the capital.

We are actively looking at different opportunities and as communicated in the prepared remarks, it’s too early to talk about the specifics but we are definitely active in the market place, looking at the different opportunities that are out there.

But once again, our focus is on finding something that is, that we’ll take advantage of the significant NOLs that we have on our balance sheet and that is durable and is high cash flow producing..

Fair enough. Thanks for taking my question guys and good luck with the rest of 2017..

Thank you..

We will now take our next question from Andrew Burns with D.A. Davidson..

Hey, guys..

Hi, Andrew..

So it's encouraging to hear you invest in R&D and marketing, especially around core and adjacent categories. I'm just trying to better understand the timing of investments and revenue benefits. It sounds like marketing ramps up second half 2017, the product engine with these new hires kicks into high gear 2018.

Should we be thinking about another step-up in marketing investments when that product cadence really accelerates, or is this $1 million in incremental marketing investment just sort of a one year bump? How should we think about that?.

I think the best way to answer that is obviously we have a percentage of marketing that we invest. So as we grow the business, so grows our investment in marketing.

I think short term and more importantly, the investment that we’re doing now is more of a investment back into the strategy that BD is focused on BD and not away from the distractions of the past.

And like I said, there’s an effort to reiterate and remind both our core consumers and our core retailers that Black Diamond Equipment is focused on being one with the sports we serve and being absolutely indistinguishable from them and that our goal is to maintain being number one climbing brand in the world, continue to grow our ski business and continue to grow our mountain business.

And it was a point of confidence boost to our retailers, the same way you’re feeling, they’re saying the exact same thing. We can’t be critical. You’re telling us you’re going to invest in new product and you’re going to invest in growing the brand. You’re going to be easier to do business with, deliver on time and have better sell-through.

What part of this strategy do I not want to partake in?.

Great. Thanks for the color John. And Aaron, just a question for you on the Salt Lake facility, the gross margin guidance certainly shows improvement year-over-year and it sounds like there’s been progress there. But it can still be optimized.

So just wondering about the push points there in 2017 and how much margin benefit is left to be had as that facility is optimized. Thanks..

So we – first of all, we do expect to see year-over-year improvements each quarter during 2017 compared to 2016. There will continue to be improvements to be had throughout the course of the year. We are aggressively continuing to look for ways to further improve our gross margin targets and performance.

Not only via our in-house manufacturing but also through mix, through mix of product, mix of channels and just the way we go about the different channels in geographical regions with our sales and marketing efforts.

So once again, we do anticipate seeing year-over-year improvements each quarter this year but our focus is also transitioning more to the underlying fundamentals of the business as it relates to our product categories and the way that we sell those products via the different channels and geographies..

Okay, thanks. And then one last one if I could. Just your outlook for the health of your key brick and mortar retail partners in 2017.

It seems like every week we hear about store closures across the entire industry there and thoughts on that outlook as well as if you could provide us how big your DTC business has gotten as a percentage of sales that would be great. Thank you..

So I would say for us, we believe that Black Diamond is a disruptive differentiator in the marketplace, i.e. that you either have BDE or you don’t mindset. It allows us to pick the best specialty retailers and also to work with at our choice the best key accounts or multi-store retailers.

We believe that our retailers that we’re choosing to play with in 2017 and beyond are in much better shape than the past and many of the retailers that have struggled have been retailers that we haven’t played with. Obviously D2C continues to grow for us and we use that to support and help our wholesale business as well.

D2C right now is trending at 12% and growing as a function of our business..

Okay. Thanks and good luck..

Thank you..

[Operator Instructions] We’ll now take our next question from Jim Duffy with Stifel..

Thanks, hi everyone..

Hey, Jim..

A couple questions from me. I'll build some on Andrew's line of questioning.

The repatriation inefficiencies, when, Aaron, do you expect those costs fully through the inventory position?.

That will continue to go through the inventory position through the first half of the year..

By second half, you should be at a normalized situation..

Yes..

Okay. And then Aaron, you've seen a lot of currency pressure to the gross margin.

Has there been any pricing strategy or thought around pricing strategy to recapture some of that?.

We thought it out, that is something that we are actively looking at along with some other opportunities we believe with the business that we’re currently evaluating. But we definitely continue to be very aware of what is happening in the currency markets.

As a reminder this is partially why we also moved our European office from Switzerland to Innsbruck was to place that operation in a more euro denominated environment versus the Swiss Franc et cetera, et cetera and having some of the foreign currency structure risk that we have, we’ve been able to successfully move that office and mitigate a lot of that exposure.

However, we continue to be aggressively looking at ways to further mitigate it in particular at the gross margin level..

Okay. So if we look at the gross margin outlook for 2017 and better than that is some first half hangover from repatriation and then if we look beyond 2017 what would you see as capacity for further gross margin improvement..

That’s something that we’ll have to come back to you later on as we continue to refine how we think about, one, product mix and also channel mix in addition to – just overall distribution activities on a global basis..

And just how we price the brand….

Okay. And then….

EM product that we will get rid of it in 2017 that will affect that margin..

I see. Maybe that’s a good segue to another line of questioning.

Where do you stand with your inventory positions on end of life product? Is there a lot of clearance to carry through in 2017 or are you in good positions now?.

We’re in a relatively good position. We’ve always targeted to be somewhere around 5% of overall inventory, being that of DM or end of life inventory. We came out of 2016 right in line with those targets..

Great.

And then Aaron, what are the D&A expectations for 2017?.

Fairly consistent to that of 2016 or $3.3 million..

And how much of that would you say is included in that $4.5 million corporate expense line?.

None..

All right. Fair enough. Thank you guys..

Yes. That $4.5 million just for clarification purposes Jim. That $4.5 million is highlighted as cash expenditures..

Got it. Okay, Thanks for all that detail..

Appreciate it..

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