Black Diamond's CEO Discusses Q4 2013 Results - Earnings Call Transcript

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 |  About: Black Diamond, Inc. (BDE)
by: SA Transcripts

Operator

Good afternoon everyone and thank you for participating in today's conference call to discuss Black Diamond's Financial Results for the Fourth Quarter and Full Year ended December 31, 2013. Joining us today are Black Diamond's President and CEO, Mr. Peter Metcalf; and the company's CFO, Mr. Aaron Kuehne. Following their remarks, we'll open the call for your questions.

Before we go further, I would like to take a moment to read the company's Safe Harbor statements within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Please note that during the 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 the future events impacting the company, and therefore, involve number of risks and uncertainties.

The company cautions you that forward-looking statements are not guarantees and actual results could differ materially from those expressed or implied in the forward-looking statements. Potential risks and uncertainties that could cause the actual results of operations or financial condition of the company to differ materially from those expressed or implied by forward-looking statements used in this conference call, include, but are not limited to, the overall level of consumer spending on the company's products; general economic conditions and other factors affecting consumer confidence; disruption and volatility in the global capital and credit markets, the financial strength of the Company's customers and the Company's ability to implement its growth strategy; the Company's ability to organically grow our historical product lines, our new apparel line and our recently acquired businesses; the Company's abilities to successfully integrate and grow acquisitions; the timing and results of the Company's exploration of strategic alternatives to monetize its Gregory Mountain Products business; 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 trademarks and other intellectual property rights; fluctuation in the price, availability and quality of raw materials and contracted products; foreign currency fluctuations; the Company's ability to utilize its net operating loss carry-forwards; and legal, regulatory, political and economic risks in international markets.

More information on potential factors that could affect the Company's financial results is included from time to time in the Company's public reports filed with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. All forward-looking statements included in this conference call are based upon information available to the Company as of the date of this conference 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 press release.

I would like to remind everyone that this call will be available for replay through March 17, 2014, starting at 8:00 p.m. Eastern Time 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 www.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 the Chief Executive Officer of Black Diamond, Mr. Peter Metcalf. Sir, please go ahead.

Peter Metcalf

Thank you, Cole, and good afternoon everyone. As many of you are aware, just three weeks ago, on February 11, we held the conference call to discuss our outlook for 2014, and while our 2013 audit was not complete at that time, we provided full year 2013 revenue and gross margin estimates, to use as the base line to model our 2013 expectations.

At the close of the market today, we issued a press release announcing our actual financial results for the fourth quarter and full year ended December 31, 2013. These results are right in line with estimates provided in our February 11th call. In today's call, we plan to briefly discuss actual fourth quarter financial results, and provide some limited first half 2014 guidance.

In 2015, we will plan to hold one conference call in late February or early March 2015 to discuss our full year 2014 actual years and our outlook for 2015.

At this time, I will hand the call over to Aaron Kuehne, to discuss our fourth quarter performance and our first half 2014 guidance. Following Aaron's remarks, I will speak briefly and open the call for questions. Aaron?

Aaron Kuehne

Thanks Peter and good afternoon everyone. Black Diamond's consolidated total sales in the fourth quarter of 2013 increased 24% to $60.4 million compared to $48.8 million during the same year ago. This increase was right across the entire Black Diamond portfolio, as we experience healthy double-digit organic growth across all of our brands and major geographies.

Sales benefited from the fall launch of BD apparel, as well as increases in Gregory sales in Japan, due to a step-up in pricing from the transition of the distribution assets from our former Japanese distributor, to our own in-house operation in Yokohama, Japan. Almost every quarter, foreign exchange markets contribute some level of volatility to Black Diamond's financial results due to activities across multiple currencies, primarily the U.S. dollar, the Euro, the Yen and Swiss Franc. Due to net strengthening of foreign currencies against the U.S. dollar, on a consolidated level fourth quarter sales were positively impacted by approximately 90 basis points of 0.9%.

Fourth quarter gross margin was 38% compared to 36.3% in the same period last year, although gross margin increased compared to the same period last year, there are several offsetting factors to consider. For comparative purposes, cost of goods sold in the fourth quarter of 2012 included $1.2 million or 240 basis points for inventory fair value of purchase accounting adjustments related to the acquisition of POC and PIEPS.

Fourth quarter 2013 profit included a 120 basis point negative impact from discontinued merchandise or DM, and a negative 310 basis points, due to unfavorable production and shipping variances, as well as inventory adjustments associated with older discontinued winter seasonal product. This was partially offset by a 70 basis point net benefit from foreign exchange. Taken together, these factors lowered our fourth quarter gross margins in 2013 by approximately 360 basis points.

Fourth quarter SG&A, excluding restructuring and merger and integration costs was $21.5 million compared to $19.1 million in the year-ago quarter. Increased SG&A in the fourth quarter was primarily related to ongoing investment in our apparel infrastructure, and other variable costs associated with the 24% increase in total sales. We also incurred approximately $149,000 in costs associated with what we believe will be the final integration expenses related to POC and PIEPS. As a percentage of sales, fourth quarter SG&A decreased to 36%, compared to 39% in the same year ago quarter. As we mentioned in the February 11th call, we expect to realize increasing operating leverage in the business in 2014 and beyond, and plan to continue to lower our operating expenses as a percentage of sales over time.

Fourth quarter adjusted net income before non-cash items, a non-GAAP term, increased to $3.6 million or $0.11 per diluted share, compared to $1.6 million or $0.05 per diluted share in the fourth quarter of 2012. We continue to be pleased by our working capital requirements, primarily for more efficient sourcing and better inventory management, while total sales for the 12 months ended 2013 grew 15%, total inventory actually decreased by approximately $6.6 million or 11% to $54.1 million.

For the full 12 months ended 2013, the company generated $3.1 million in free cash flow compared to an $8.9 million decrease in free cash flow for the 12 months ended December 31, 2012. At December 31, 2013, we had $10.3 million outstanding on our $30 million revolving credit line with Zions Bank, compared to $20 million at December 31, 2012.

Total debt stood at $38 million, which includes $17.2 million of 5% subordinated notes due in 2017. This compares to total debt of $40.5 million at December 31, 2012. On Friday, February 28, we amended our loan agreement with Zions Bank, to lower our cost and decrease the total size of our facility from $55 million to $40 million. This amendment is consistent with our recent strategic pivot towards organic growth and away from acquisition-less growth. The original facility contained a $30 million revolving credit, a $50 million term facility, and a $10 million unused acquisition facility.

The revolving credit remains in place, the term facility has been reduced to $10 million, which is the amount currently drawn on the term loan, and the acquisition facility has been terminated. We will no longer pay unused fees on $15 million of available capital, that we currently view unnecessary. The term of these facilities remains unchanged, with the revolving credit having a maturity date of March 8, 2016, and the term facility maturing on March 8, 2023.

You may be aware that on our February 11, 2014 conference call, we provided 2014 sales and margin guidance, as well as insights into our strategic direction for 2015 and beyond. To reiterate that guidance, we expect fiscal year 2014 sales to range between $235 million to $240 million, which would represent an increase of 16% to 18% from our 2013 sales. For the first half of 2014, the six months ending June 30, 2014, we expect sales to range between $95 million and $100 million, which represents an increase of between 6% and 11% over the same time last year.

For the second half of 2014, the six months ending December 31, 2014, we expect total sales to range between $135 million and $145 million, and the increase of between 19% and 28% over the second half of 2013.

Finally, recognizing that we view an operator business in two six-month business, and while we have not historically provided quarterly revenue guidance, we expect to realize roughly 55% of our first half revenue in the first quarter, and approximately 45% in the second quarter of 2014. There are a couple of business activities, such as shipments from factories, warehouses and pre-season strike [ph] dates, that can shift a week or two of business from one quarter to another. However, we believe these will not have a material impact on the spring-summer season or first half.

This first half guidance reflects currently mild winter weather, in places like the Western United States and parts of Northern and Central Europe, and the fact that our current seasonal balance is weighted more heavily towards bold winter, than it was in 2013. A larger fall-winter seasonal balance in 2014 is a reflection of our fastest growing business, POC and Black Diamond Apparel, which are more heavily fall-winter weighted. We expect that as POC's road bike event launches and grows and as our spring apparel business becomes larger over time, our seasonal diversification will return to more historical trends. Keep in mind, that our spring introduction of POC's road bike line is a limited launch, with a scarcity gender, similar to BD Apparel last fall.

On a constant currency basis, we are forecasting consolidated gross margins for fiscal 2014 to be approximately 39.5% to 40.5%. As you know, BD Apparel and POC are both among our fastest growing and higher gross margin businesses. As a result, over time, we expect these segments of our business to drive higher year-over-year gross margins for the next five years. As we mentioned on our February 11 call, we expect investments in the form of SG&A to increase up to $12 million during 2014, of which approximately 80% is brand specific investments and about 20% represents investments in our operating platforms. At the same time, we are planning to invest approximately 5% in capital spending across the business, of which approximately 50% is expected to be dedicated to BD Apparel and POC, approximately 30% is expected to be reinvested in our operating platform, and the balance in maintenance CapEx across the other brands.

For context, this level of investment is consistent with the anticipated building [ph] style and SKU counts planned for 2014, which we discussed in our third quarter call. Our fall 2013 months encompassed approximately 25 styles and 440 SKUs which was on the shelves of approximately 240 of our best retail doors. Our spring 2014 collection builds the line to approximately 50 styles and 608 SKUs and will be available in approximately 400 retail doors. Our fall 2014 line raises our total expected commitment to 119 styles and 1,945 SKUs, which we expect to be sold through approximately 800 retail doors. Finally, we are expecting 2014 BD Apparel revenue to be about 3.5 times our actual 2013 apparel revenue.

This concludes my prepared remarks, now I will turn the call back over to Peter. Peter?

Peter Metcalf

Thank you, Aaron. 2013 was an investment year and a year of significant strategic accomplishments, which included the launch of Black Diamond Apparel, the establishment of our own distribution business in Japan, and the final integration steps for both POC and PIEPS. We expect 2014 to be a year highlighted by continuing growth and a strategic shift toward our fastest growing businesses.

We are incredibly proud of everything Black Diamond has accomplished in its first 3.5 years as a publicly owned enterprise. Today, both Black Diamond and POC are gaining market shared, achieving tremendous public attention and visibility, and in our opinion, poised for a compelling multiyear and multi-channel growth facilities.

We attribute the positioning and growth opportunity to our continuing ability to design, develop and bring to market innovative new products, and organizational skill sets cultivated over many decades of growth, dating back to our origins more than 50 years ago. We believe we exited 2013 with our healthy inventory levels in several years, and our early spring 2014 bookings are strong. Our line up of new products for 2014 is highlighted by the spring launch of POC's road bike collection, continued expansion of apparel, and our new JetForce avalanche technology, which we plan to make available this fall across each of the Black Diamond POC and PIEPS brands.

We hope that, those of you who watched the Winter Olympics in Sochi, were as gratified as we were by the incredible media exposure of our POC brand. A 134 athletes wore POC helmets and goggles. Bodi Miller, Julia Mancuso, and the Swedish ski team are POC sponsored athletes. The balance of those athletes chose to wear POC helmets for the safety, design and performance characteristics. We believe that the halo effect from this event will be beneficial to POC for a long period of time.

This summer, we expect to see significantly more POC exposure, due to the Garmin-Sharp pro-racing team at the Tour de France, which may the most widely viewed worldwide event after the World Cup.

During our February 11 conference call, we talked about our strategic pivot. With the current launch, the POC and PIEPS integration substantially complete, and the business positioned to double digit compounded growth rates over the next several years, we provided several of our important strategic conclusions. These include, first, Black Diamond Apparel and POC independently represent the company's most significant long term opportunities for compounded multi-channel multi-year revenue growth and profitability.

Secondly, we prefer to invest our capital resources in the growth and development of our fastest growing assets, rather than acquiring additional brands in a [indiscernible] marketplace.

Thirdly, over time, e-commerce, direct-to-consumer and some form of still to be defined strategic retail distribution model will play a meaningful role in the development and distribution of all of our brands; and fourth, a long term commitment to BD gear and equipment that we believe and our customers perceive to be brand defining.

These conclusions form the foundation for strategic pivot and is already underway, and we believe that when we have a [indiscernible] in 2014, will have served as a paradigm change in a series of decisions.

We are also in the midst of focusing resources of brand defining products and categories, that we believe will result in long term operating margin objectives. Secondly, working with corporate minds, we are in the early stages of interviewing candidates for a new senior leadership position, we expect this candidate to be hired in 2014.

Thirdly, we remain committed to our specialty retail partners globally. But we believe strongly that our own e-commerce and direct-to-consumer distribution will be important growth components of our business today and in the future. We expect 2014 to be the year in which we define the role of retail within our strategy.

Four, we are prepared to fund retail and e-commerce investments from our existing balance sheet and from our existing operations. We are also exploring strategic alternatives for Gregory Mountain projects business. Through Rothschild, we have received substantial global interest in the brand. We believe that this particular initiative has the potential to meaningfully augment our balance sheet with growth capital. We hope to be in a position to tell you more when we report first quarter of 2014 in early May.

In summary, we are excited about possibility of accelerating Black Diamond's long term growth rates, in excess of 20% through incremental investment in our fastest growth brands.

At this time, Aaron and I would like to open the call for a 30 minute question-and-answer session. Okay, operator?

Question-and-Answer Session

Operator

(Operator Instructions). And our first question comes from the line of Sean Naughton with Piper Jaffray. Please go ahead.

Sean Naughton - Piper Jaffray

Yes good afternoon. Can you talk a little bit about POC and the success obviously we all saw with the Winter Olympic athletes. But can you talk a little bit more, maybe about where you are in the distribution with that particular brand. I believe part of the opportunity was from distribution and expansion, potentially in North America, and then just, how that brand is performing may be in Europe versus North America today?

Peter Metcalf

Hey Sean, this is Peter. Thanks for the question. Let me just express just by saying, that we are not at this point in time, segmenting the businesses up and reporting by business. That said, I will share with you that, yes, we have been expanding towards, both for ski accounts in North America, as well as now with the road bike launch, we have targeted somewhere between 100 to 200 premier road bike shops, racing shop worldwide to place new [indiscernible] this spring, and those goals have been achieved.

So doors are expanding, growth is solid, and the numbers of doors being opened has expanded in both skiing and in bike.

Sean Naughton - Piper Jaffray

Okay, that's great. And then on the core Black Diamond business, may be on the hardgoods side, including the payroll, I am not talking about POC and PIEPS, but how do you expect that business to grow in 2014, and just for modeling purposes, how should we think about the growth of that hardgoods category at Black Diamond over time?

Peter Metcalf

Okay Sean. BD has grown its business. I think at the time we did the SKU and seeing you know, we have talked about our historical CAGR and that at the time that we went public, BD had a CAGR that was in the neighborhood of 12.5% to 13% for the 20 years previously. And we remain quite bullish on BD gear and equipment's growth prospects on a global basis, and its not always consistent season to season, just depending in part upon what are the products that we are launching, a little bit on how weather is, and where we are investing into our various businesses. But we remain, as I said in my remarks, we remain very committed to BD as -- BD gear and equipment, as both a vibrant platform for apparel, as well as a steady growth driver for the business.

Sean Naughton - Piper Jaffray

Okay. Then maybe just lastly, a clarifying question, how much of a benefit, Aaron, do you think you get from the unused acquisition facility with Zions in 2014? How much did that cost you in 2013?

Aaron Kuehne

Good question Sean. We got to map that out a little bit more closely, but looking at -- obviously that was reflected in our interest expense for the overall year. We incurred unused credit fees of about 40 basis points to 60 basis points, and so, right around the $100,000 or so.

Sean Naughton - Piper Jaffray

Okay. Thank you.

Operator

Thank you. And our next question comes from the line of Dave King with ROTH Capital Partners. Please go ahead.

Joe Bess - ROTH Capital Partners

Good afternoon gentlemen. This is Joe Bess for Dave. First question is on SG&A line, as we think about the $12 million investment going forward, can you attribute what percentage of that increase will be from R&D investments, and how does that differ year-over-year?

Aaron Kuehne

Yes. So the way that we talked about this, is that 80% of that incremental investment will be dedicated to the brands. Now that's going to manifest itself in a variety of different ways, whether it be in R&D, marketing, sales efforts etcetera, and its literally just focused on continuing to enhance the overall brand awareness and continue with our overall growth initiatives.

Joe Bess - ROTH Capital Partners

Okay great. Then thinking about how has sell through been thus far? I know that we talked just a few weeks ago, but any sort of update as to how things have gone over the last couple of weeks, would be nice?

Peter Metcalf

Yeah. We don't take a temperature of retailers on a day-to-day or even a week-to-week basis. But I will say relative to apparel is that, we sold out to fall 2013 line -- our customers are selling through the product now, and we are very pleased with how we have ended up, we are shipping spring 2014 right now. We know the product is beginning to move, that's the first feedback. That was early. The first reports are very good, and we believe that the -- what's in the marketplace, down to a pretty modest amount at this point in time. So that's what we know, but not until the winter's really over, could we give you a clear report. As you know, its thumping right now in the northeast, and hopefully, there is a little bit there, and less for those who need it.

Joe Bess - ROTH Capital Partners

Okay great. Thanks for that. Then this last question is, it sounds like you have some exciting things in pipeline for your e-commerce business. Is there any sort of milestones that we should be looking for in 2014, as you guys start to invest there? Anything along that lines would be helpful as well? Thanks.

Peter Metcalf

I don't think there is anything specific to point out. As you know, we made significant investments in 2013 in our e-commerce platforms. It was a new dynamic platform, with demand where, a new skin for BD, a new skin for Gregory, dynamic, multi-lingual, multi-currency, and we had BD, BD Apparel and Gregory on to that, and it goes -- that's where we are focused now, is now that this is up and running, it's working well for us. We saw good double digit year on that last year. We are going to continue to drive it forward in the same manner in 2014.

Joe Bess - ROTH Capital Partners

Okay, great. And should we expecting the e-com business sales growth to be kind of outpacing your organic growth rate that you see for 2014? Is that a safe assumption?

Aaron Kuehne

Yeah, so this is Aaron. Obviously, BD Apparel and POC continue to be our primary focuses, but e-commerce will definitely help, in terms of overall growth rate, and so, that's an opportunity for us to continue to grow the business.

Joe Bess - ROTH Capital Partners

Okay, great. Thanks for the color.

Operator

Thank you. And our next question comes from the line of Camilo Lyon with Canaccord Genuity. Please go ahead.

Camilo Lyon - Canaccord Genuity

Good afternoon guys. Thanks for the question. Peter, I wanted to ask you on, the strategic pivot. Are you looking into the multiple avenues that could unfold in the next few months and the quarters? What, assuming some of these assets, so I'd assume, less of it's in Gregory. What would you use that cash -- what are your plans on the reallocation of the fund that you'd receive from a purchase of that [indiscernible].

Peter Metcalf

Sure, great question. As to just elaborate a little bit on the remarks I made here, that both direct-to-consumer in the online space and retail, are both key channels as you know. You can soak up and take a fair amount of investment, and also give you a very nice return on that. But those are the two areas that should we successfully monetize at a good price, some or all Gregory's assets, those are specifically the two areas, more than any, that we would focus those resources on. It could be some others, but are the two that I think we should highlight.

Camilo Lyon - Canaccord Genuity

Well I assume that you are going to be investing in them anyways. So what incremental capital would you devote to those two areas, just call it DTC for simplicity. Would that fast forward some of your capabilities, would that enable you to do things at a quicker pace than you would have expected? I am trying to understand, what the advantage would be to you, that you get from the sale, and is it a timing thing, is it ability to have more points of display at retail, sooner. I mean, we are just really trying to see what the benefit, and [indiscernible]?

Peter Metcalf

I appreciate the question, good question. What we have been guiding for, as you know is, right now we are seeing that, as we look forward with this business, we have been talking about 15% to 20% CAGR for the business as we look forward. This year, we are talking about 16% to 18%. But 15% to 20% is the range. As I share today, if we could monetize some or all of Gregory's assets, we believe that we could take that growth rate up over 20%, and it would be done by investing at a higher level and a quicker cadence, into especially D2C and retail, and again, the other place is within the POC and BD Apparel, I think we could certainly make use of those investment, and that's why we are sharing, that we believe we could take the growth rate up over 20, if we are successful in doing that.

Camilo Lyon - Canaccord Genuity

And the timing on that bump-up in the growth rate, would that be a 2015 event or that will be 2016 and beyond?

Peter Metcalf

I think at this point, we are going to have to see if we are successful in monetizing some or all of Gregory's assets. When does that happen, and that point, we can give you better color on that. If and when that happens, I think its just too academic to attempting to put a timeframe on that, because if and when it happens, what will have a great impact, as to when we would begin to see the results of that.

Camilo Lyon - Canaccord Genuity

Fair enough. Just final question for Aaron. You mentioned on SG&A expense, the incremental SG&A this year, up to $12 million. What's the bottom range of that up to $12 million? Are we thinking $6 million to $12 million, and what's prohibiting, or what's the swinging factor on the deltas between the [indiscernible] range?

Aaron Kuehne

There is a couple different dynamics at play. I guess it comes back to, once again, considering that 80% of this investment will be going towards the brands. I just want to make sure, that we continue to remind ourselves, that that is where our focus is. There will be focus on marketing, sales force, R&D, e-com and furthering our distribution channels, but for range standpoint, I'd call it anywhere from $10 million to $12 million, call it around that range.

Camilo Lyon - Canaccord Genuity

Okay. That's very helpful. Thanks guys and good luck.

Peter Metcalf

Thanks.

Operator

Thank you and our next question comes from the line of Andrew Burns with D.A. Davidson. Please go ahead.

Andrew Burns - D.A. Davidson

Thanks and good afternoon. I understand how direct-to-consumer will be an important part of your growth strategy in the coming years. I was curious if you see this strategic visit as an emancipation of your apparel strategy, or is it also a function of your core equipment business, and as that equipment business is part of that decision, could you discuss how that side of the business is evolving? Thank you.

Peter Metcalf

Hi Andrew, its Peter here. I will answer that. Let me put it this way that, clearly apparel more than anything is the catalyst to really invest in the direct-to-consumer business; because with apparel, it is rare that you get -- its almost impossible to get a single retailer to take that whole line in and highlight it and show it in the way that you want. With gear and equipment, you are often in a better position to get a large segment and sometimes all of your line, on to somebody's website. But with apparel and having multiple seasons, wanting to show it in the way that we want to show it and tell our brand story, which is more important to apparel than it is with your equipment, that is why we are so committed to the direct-to-consumer component of this and building up a pretty robust business there, because we believe its integral to the vibrant future of apparel.

At the same time, as we have seen this year, certainly the gear and equipment business benefits from that. But my point is and our point is, we wouldn't have made this level of investment for just the gear and equipment. We have strong retail partners, made them do a good job with gear and equipment, so this would not have been able to rationalize the investment. But once you've put on apparel to that, as well as our other brands all -- Gregory is now beginning to benefit from that, and we do intend to get our other brands up on that. We do sell direct-to-consumer with POC. We are seeing good growth on that. It’s a more basic site. We have not put them on the site yet. But we do intend to do that in the not too distant future. But again, the driver first and foremost is apparel, and then the gear and equipment benefits in a meaningful way.

Andrew Burns - D.A. Davidson

Okay. That's helpful. Thanks. Something you could speak at a high level, around the potential products that could emerge from POC's collaboration with Volvo. Is the idea of an electronic device for cars or cyclist's detection something that could happen within a three year time horizon? Any color would be helpful. Thanks.

Peter Metcalf

Yeah Andrew, great question. I mean, you are talking about the right kind of products, as to why we are working together with Volvo. But until we are ready to make a specific announcement with those guys, I am going to have to refrain from saying anything more than -- you're certainly talking about the right kind of products. That's where we believe there are opportunities. But we are not ready yet to give a specific product launch date on product.

Andrew Burns - D.A. Davidson

Okay. Thanks.

Operator

Thank you. And our next question comes from the line of Mark Smith with Feltl and Company. Please go ahead.

Mark Smith - Feltl and Company

Good afternoon guys. Quickly, can you just give us any more insight into PIEPS, just how you feel about current results in that business, and then, kind of plans on what we have done to improve results here over the next year two?

Peter Metcalf

Yeah, hi Mark. Peter. We feel very good at this point about PIEPS. With any acquisition you do, there is always a significant amount of effort involved in the integration part to that acquisition. You come across some things at times that you aren't really enthusiastic about, as of the vector, which we've already talked about. But PIEPS ended the fourth quarter very strong. If you look at a market date out of Europe, they continue to be one of the leaders in avalanche transceiver technology. We certainly were able to accelerate the growth of PIEPS here in North America. The DSP to DSP [indiscernible], the senior products at launch, did really-really well, and we believe in 2014, we are going to see very nice growth out of PIEPS, primarily in avalanche transceiver technology, and that would be throughout the world. The product has good margin. Obviously, its not a large business.

You know what it was when we acquired it. But its integrated now. Its running at all six cylinders. It has got good orders coming in for 2014, and I think as important, if not even more important, was the very critical role that PIEPS played in partnering the Black Diamond R&D team on the electronics and compliance components of the jet force airbag, which we have gotten just incredible response around the world, its really the next paradigm, and we wouldn't be here, as a global set of companies POC, PIEPS, Black Diamond, if it had just been Black Diamond on it's own, it really needed the partnership of piece. And having all three brands now selling it and getting very strong response, has been very gratifying.

So, its not on the scale of POC or the scale of Gregory, but from the standpoint of growth, profitability, providing good technology and also, very strong relationships into the professional user community in the Austrian-German markets, where its dominant. That has all been very gratifying. So we are very pleased with where we are at. We believe it was a super worthwhile acquisition for us to do, and we have got a year of big investment of time and effort behind us in 2013.

Mark Smith - Feltl and Company

Great. Thank you.

Operator

Thank you. And our next question comes from Joseph Altobello with Oppenheimer. Please go ahead.

Unidentified Analyst

Hi, this is [indiscernible] for Joe. My first question is, you talked about the 80% of the $12 million that you invested in brands, of that 80%, would you be able to tell me about how much is going to go into apparel?

Aaron Kuehne

So this is Aaron. Similar to how we don't break out the different business results of our brand at the revenue line, we also don't break that down in terms of investment or SG&A spend.

Unidentified Analyst

Okay. My next question is, where do you expect FX to be on the top and bottom line for 2014?

Aaron Kuehne

Sorry, can you say that again?

Unidentified Analyst

Yeah. Where do you expect FX to be on the top and bottom line for this upcoming year?

Aaron Kuehne

So the guidance that we provided you was based off of a constant currency basis. Obviously, as we go throughout the year and as FX changes up or down, that will have its impacts. But our guidance is based off of a constant currency view.

Unidentified Analyst

Okay. My next question is, what was CapEx for this year, and then what do you expect it to be for next year?

Aaron Kuehne

So CapEx this year was right around $4.4 million and our guidance for 2014 CapEx is $5 million.

Unidentified Analyst

Okay. Thanks. Then my last question is, I may have missed this, now you've launched the BD Apparel line, how has your view of the opportunity, the growth or the profitability with this business changed?

Peter Metcalf

Not at all, other than that, it has been very affirming that the retailer base embraced it. That the consumers who acquired it, have given us back kudos and accolades. That line, the spring line was oversold. That fall 2014 has been expanded to nearly 800 doors. That the line was very well received by both consumers who saw it, pros who got to see it, as well as the trade, and we are as upbeat and positive about the opportunities for Apparel as we have ever been. I'd just leave it at that. We think it's a great opportunity for the business and its proving to be.

Unidentified Analyst

Okay. Thank you. Appreciate it.

Operator

(Operator Instructions). And our next question comes from the line of Molly Iarocci with Stifel. Please go ahead.

Molly Iarocci - Stifel Nicolaus

Hi guys. This is Molly in for Jim. Just wondering if you can give us any color on POC apparel, and when you're considering a launch?

Peter Metcalf

Sure. Hi Molly, Peter here. The POC Apparel actually is launching for spring 2014. I do not believe its going to ship yet. I believe we start shipping around April 1. That's within a couple of weeks of what we have planned; and it consists of -- its technical apparel for serious road riders, everything from waterproof garments to [indiscernible] to just pant to various tops, etcetera. All following the strategic of AVIP, attention, visibility, interaction and protection, trying to provide a higher level of visibility and protection for the rider to avoid the number one cause of injury in bike riding, which you get hit by cars.

So we are about a month out from -- around a month out from shipping that, but pretty excited about it. I mentioned earlier in the call, the response globally has been very good to the launch of the AVIP line, which is the apparel, the [indiscernible] and the electronic device.

Molly Iarocci - Stifel Nicolaus

Then are you guys planning anything for the fall with the POC brand?

Peter Metcalf

With the POC brand, we are all planning for the pre-season. I mean, POC is absolutely a two-season brand with being both in cycle and snow, and we haven't yet announced what is -- I mean, in the fall line, we just came out of the trade shows, you've got new race helmets, you've got new gloves, you've got new goggles. There is a really beautiful new line of POC for fall 2014, it has been unveiled both at the SIA Show in Denver and ISPO in Munich, Germany; very well received, beautiful; and all of our brands, POC, PIEPS, Gregory, Black Diamond, is always going to be driven by, first and foremost, innovative new products based on a higher level of engineering and beautiful design, and those will always drive the brands, supported by very strong marketing and solid sales.

Molly Iarocci - Stifel Nicolaus

Okay. All right. Thanks. And then a couple of housekeeping items for you Aaron. Just wondering, if you can quantify the benefit to the fourth quarter from the transition of the Japanese distributor?

Aaron Kuehne

That benefit that we have received from the conversion of the Japanese distributor in-house has been benefiting us all here, and has been part of our overall operations, and consistent with what our brands and how we discuss the overall operations. We are not going to break that down specifically related to that transition.

Molly Iarocci - Stifel Nicolaus

Okay. And then, I am also curious how you guys are modeling stock based compensation for 2014?

Aaron Kuehne

Its going to be more consistent with what you saw in 2012.

Molly Iarocci - Stifel Nicolaus

Okay. Great. Thank you.

Peter Metcalf

Thank you, Molly.

Operator

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

Peter Metcalf

All right. Thank you. We look forward to directing you next on our first quarter call, which we expect in early May. Thanks everyone for joining us today.

Operator

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

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