Clarus Corporation (CLAR) Q4 2018 Earnings Report, Transcript and Summary

Good afternoon, everyone and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the fourth quarter and full year ended December 31, 2018 and its outlook for 2019. Joining us today are Clarus Corporation's President, John Walbrecht; Chief Administrative Officer and CFO, Aaron Kuehne; and the Company's external Director of Investor Relations, Cody Slach. Following their remarks, we will open the call for questions. Before we go further, I would like to turn the call over to Mr. Slach, as he reads the Company's safe harbor 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, Sonya. Please note that during this call, the Company may use words such as appears, anticipates, believes, plans, expects, intends, future and similar expressions which constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are made based on the Company's expectations and beliefs concerning future events impacting the Company and therefore involve a number of risks and uncertainties. The Company cautions you that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. Potential risks and uncertainties that could cause the actual results of operations or financial condition of the Company to differ materially from those expressed or implied by forward-looking statements used in this call include but are not limited to the overall level of consumer demand on the Company's products, general economic conditions and other factors affecting consumer confidence, preferences and behavior, disruption and volatility in the global currency capital and credit markets, the financial strength of the Company's customers, Company's ability to implement its business strategy, the ability of the Company to execute and integrate acquisitions, the Company's exposure to product liability or product warranty claims and other loss contingencies, the stability of the Company's manufacturing facilities and suppliers, changes in governmental regulation, legislation or public opinion relating to the manufacture and sale of bullets and ammunition 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 carry-forwards, changes in tax laws and liabilities, tariffs, legal, regulatory, political and economic risks, and the Company's ability to declare a dividend. 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 10-K, Quarterly Reports on 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 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 this call will be available for replay through March 18th, 2019 starting at 8:00 PM 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 claruscorp.com. Any redistribution, retransmission or rebroadcast of this call in any way without the expressed written consent of Clarus Corporation is strictly prohibited. Now I would like to turn the call over to the President of Clarus, John Walbrecht. John?

Thank you, Cody, and good afternoon to everyone listening in. It's an exciting time to be joining you what for us will be the culmination of our first two-year strategy. As communicated in our earnings release today, the fourth quarter continued the solid momentum of our overall business and with our brands showing sales up 9% to $57.3 million compared to the same year-ago quarter. Both Black Diamond and Sierra saw strong growth again, up 8% and 14% respectively. The solid performance was a result of the dedication to product innovation, as well as providing our consumers a compelling product offering across all of the various categories. For example, Black Diamond's apparel category grew 60% in the quarter with strong results from nearly all segments including Stretch Rainwear program, bottoms, logo wear and sportswear. Additionally, we launched first-to-market with an innovative and redesigned line of lighting products and saw continued success across both gloves and footwear. Accompanying strong top line results in the quarter was a 300 basis point improvement in our gross margin as we saw higher proportion of full price selling and a favorable product mix and channel mix. Transitioning to the full year of 2018, we more than tripled adjusted EBITDA and generated $20 million increase in free cash flows versus 2017, which allowed us to enhance our shareholder-friendly capital allocation measures including the initiation of a quarterly dividend and share repurchases. It has also afforded us the means to continue to accelerate product R&D and innovation strategy, which we believe sets us up well for the rest of 2019. In fact, we expect that 2019 will see the introduction of over 300 new products across all of Black Diamond primary product categories and the continuation of our enhanced go-to-market strategy at both Sierra and SKINourishment, which is focused on new product introductions, expanded distribution and better consumer engagement. We believe that our current playbook of innovate and accelerate will continue to provide us with strong organic growth in 2019 enabling us to further scale and leverage our portfolio. We also remain optimistic in an M&A strategy that seeks to find other super-fan brands in which we can deploy our unique innovate and accelerate brand strategy. Before speaking more about the future, I'd like to focus on our fourth quarter results. First diving into category results within Black Diamond, which were aided by total brand impressions in the fourth quarter, increasing 14% compared to the fourth quarter of 2017. Starting with apparel, as I mentioned earlier, sales in the fourth quarter were up 60% driven by the continued strong demand for Stretch Rainwear, bottoms, logo wear and sportswear. Apparel continues to be our fastest growing category and we anticipate significant runway for continued growth. Our mountain business was up 10% due to the new lighting product introductions that were well received at retail along with strong performance in gloves. As we mentioned before, gloves are a strategic focus area where we believe that we can drive real innovation and product segmentation where our brand awareness is high. Our climb category was down slightly in the fourth quarter but only due to the fact that the year-ago quarter included launch of the new footwear initiative, the Momentum Rock Shoes. Also due to the seasonality of the climb segment, the fourth quarter is typically a lighter sell-in period given the winter activities favoring our ski and mountain products. Our ski business was essentially flat in the fourth quarter due to the delay in the launch of the Black Diamond Beacons and this strategic reduction of JetForce 1.0 shipments in anticipation of the entirely new Jetforce Tour packs expected to launch in fall '19. Regarding the delay in the launch of BD Beacons, we anticipate the bulk of this business to be captured in the first quarter of 2019, largely due to brand strength, as well as pent-up demand in the marketplace from a strong late winter particularly out here in the West and in Europe. In fact, the first quarter of '19, we have been chasing significant product demand in our winter products including various stock out in our avalanche safety gear. I'd like to quickly mention that in 2018, we were intently focused on the innovation and the acceleration of our brands and product offerings. And during the 2018 trade show season, Black Diamond products were recognized for 72 product awards, more than double the 35 in 2017. Turning to Sierra. As mentioned, the brand also generated strong organic growth, with sales up 14% from the fourth quarter of 2017. Since acquiring the Sierra business, we have been implementing the similar go-to-market strategy that we deployed at Black Diamond and we are very encouraged with the results to date. Our improvements to sales and marketing as well as order fulfillment, combined with our innovative new products is driving out-sized demand for the brand and strong financial results. Now onto some regional comments. Sales domestically were up 13% in the fourth quarter, again due to solid performance in our apparel and mountain categories as well as strong growth in Sierra. In our international regions, sales were up 4%, despite some product availability shortages in our core snow safety line, our international team has done an excellent job of positioning the brand with our retailers and creating awareness within each of our product categories. This effort also drove heavy traffic and interest to the most recent ISPO Conference. Additionally, we saw increased ASAP orders in Europe, and continued to strengthen in Japan and Australian markets, due to strong adoption across the Black Diamond hard goods offerings. All in all, our strong performance in the fourth quarter helped drive a record year in 2018. This is grounded by our strategic focus in creating the most disruptive brands in the outdoor industry by out-innovating the competition, building disruptive marketing campaigns around these products and an ease of doing business with mentally, as well as long-term capital allocation strategy and strategic M&A focus on other super-fan brands. With that, I'd like to turn the call over to Aaron to speak more in detail on our fourth quarter financial results. And then, I'll return to speak to you about our operational outlook for 2019. Thanks, Aaron.

Thank you, John, and good afternoon everyone. Sales in the fourth quarter of 2018 increased 9% to $57.3 million, compared to $52.7 million in the same year-ago quarter. And on a constant currency basis, sales were up 9%. Along with the strong category and regional growth dynamics John mentioned in his opening remarks, the increase was driven by 8% growth from Black Diamond, with significant contributions from both apparel and hard goods, as well as the 14% growth from Sierra. Gross margin in the fourth quarter increased 300 basis points to 35.6%, compared to 32.6% in the year-ago quarter. The increase was primarily due to a favorable channel, and product mix across the portfolio, including strong product margins at Black Diamond apparel and Sierra. Another point on gross margin specifically surrounding the current trade war. The impact in 2018 was negligible. Based upon the tariffs enacted to date, we expect we will face an estimated $450,000 impact in 2019, which we are in the process of seeking to mitigate. While it is still unclear if additional tariffs will be levied, we are focused on four primary mitigating activities. First is resourcing. We are working with our diversified supply chains and coming up with different sources for the product coming out of China. Second is repricing. We are working with our retailers to pass along some of the costs. Given our pace of recent product innovation however, these conversations are a natural progression, and we believe will have a positive outcome. Third is recosting. We've been working with our vendors to renegotiate costing to offset some of the impacts of the tariffs. And finally, we are optimizing logistics to avoid the US on international shipments. Selling, general and administrative expenses in the fourth quarter were flat at $16.5 million, compared to the year-ago quarter. As a percentage of sales, selling, general and administrative expenses declined 260 basis points to 28.7%, as we drove the intended cost efficiencies across our brands, despite strong sales growth. This was partially offset by the continued strategic investments in demand creation and product innovation within Black Diamond and Sierra. Net income in the fourth quarter was $3.5 million or $0.12 per share, compared to net income of $6 million or $0.20 per share in the year-ago quarter. The fourth quarter of 2017 included an income tax benefit of $6.1 million related to the implementation of the Tax Cuts and Jobs Act. Net income in the fourth quarter of 2018 included $2.2 million of non-cash charges and $0.2 million of transaction and restructuring costs, compared to $1.7 million of non-cash benefit and $0.2 million in transaction costs, and $0.1 million in merger and integration costs and minimal restructuring costs in the fourth quarter of 2017. Adjusted net income, which excludes the non-cash items as well as transaction, merger and integration, and restructuring costs, increased 27% to $5.9 million or $0.19 per share, compared to $4.6 million or $0.15 per share in the fourth quarter of 2017. Adjusted EBITDA increased 30% to $6.6 million, compared to $5.1 million in the fourth quarter of 2017. As a percentage of sales, adjusted EBITDA increased approximately 190 basis points to 11.6%, compared to 9.7% in the year-ago period. Our increased profitability in 2018, along with strict management of working capital and capital expenditures, aided us in generating $8 million of free cash flow compared to utilizing $11.7 million of free cash flow in 2017. Now, moving onto the balance sheet. At December 31, 2018, cash and cash equivalents totaled $2.5 million and total debt was $22.1 million, compared to $1.9 million and $20.8 million respectively at December 31, 2017. Turning to our capital allocation initiatives. We remain committed to returning value to shareholders through a combination of higher earnings per share from organic revenue growth and margin improvement, share repurchases, dividends, and strategic acquisitions of super-fan brands. In 2018, in addition to generating strong organic revenue growth and profitability gains across the portfolio, we also executed on several capital allocation initiatives that we believe are significant drivers of shareholder value. First, after multiple extensions and increasing the maximum price from $7.20 to $8.00 on July 12, 2018, we announced the results of our $7.5 million modified Dutch auction tender offer. We accepted for purchase 417,000 shares of the Company's common stock for an aggregated cost of approximately $3.3 million, excluding fees and expense. The shares accepted represented approximately 1% of our total outstanding shares as of June 30th, 2018. Second, on top of our modified Dutch auction tender offer, during the fourth quarter, we repurchased an additional 100,000 shares of our common stock for approximately $1 million, bringing the total now purchased during 2018 to 519,000 shares, or $4.3 million. Under our $30 million share repurchase program, we have $13.5 million remaining as of December 31, 2018. Third, in August 2018, we announced the initiation of a regular quarterly dividend of $0.025 per share, or $0.10 per share on an annualized basis. The decision by the Board to initiate a dividend represents a significant milestone in our evolution and underscores our entry into a more consistent operating performance, growing free cash flow generation and a strong long-term financial outlook. Finally, in June 2018, we announced our new $150 million revolving credit facility, which consisted of $75 million revolving credit facility with an uncommitted $75 million accordion. This facility replaced our $40 million revolving credit line at more favorable rates as well as provided increased liquidity. This transaction represents a strong pillar in our overall financial strategy and is supportive of our long-term growth plans. The key features of the agreement provide flexible covenants with structural enhancements for our strategically-important internationally-based operations. In addition to significantly enhancing our financial flexibility, we also lowered our financing costs further strengthening our ability to pursue additional accretive acquisitions in the consumer and outdoor industries. These various capital allocation majors demonstrate our confidence in the financial management and strength of our Company. Our belief that we are settling into a more natural and consistent rhythm in our business provides a platform for a broader investor base. Additionally, we believe our high levels of organic growth, operating leverage and attendant cash flows from operations will allow us to continue to pursue opportunistic M&A in the consumer and outdoor industries, while still returning capital to stockholders. Ultimately, this strategic decision reinforces our commitment to delivering value to stockholders while investing for future growth. On the topic of acquisitions, in November of 2018, we announced the acquisition of SKINourishment, a provider of skincare and sport-enhancing products made from 100% food-grade and plant-based ingredients with distribution across 37 countries. The company sold its products across four brands with climbOn being the most well known across the climbing community and represents another super-fan brand that we have added to the portfolio. Additionally, we identified skincare along with sports supplements as a new category of focus with high growth potential. And we believe that our acquisition of SKINourishment provides an important strategic entrants. The acquisition also provides us with an overall gross margin accretive brand that we anticipate will have a large growth opportunity through tapping into our distribution and supply chain networks. With that, I'd now like to introduce our 2019 financial outlook. We anticipate fiscal year 2019 sales will increase approximately 8% to $230 million compared to $212.1 million in 2018. This assumes sales for Black Diamond to increase high single digits to low double digits, and Sierra to increase low single digits. We expect adjusted EBITDA to increase 20% to approximately $25 million in 2019 for a margin of approximately 10.9% compared to 9.8% in 2018. With this margin expectation, we have crossed the 10% adjusted EBITDA margin threshold, which was a long-term target we introduced a couple of years ago and is further proof that our operating strategy is working and that our brand portfolio is on solid footing. This outlook includes the appropriate amount of investment into our brands to drive awareness and product innovation, and we believe is a testament to the leverage we can drive throughout the organization. We also expect to generate free cash flows from operations of approximately $10 million after approximately $4.5 million in capital expenditures. Providing a little more commentary on our capital expenditures, this incorporates additional investments in our ability to create better consumer experiences, innovate and launch new products at a faster rate, increase production capacity, and to solidify systems for greater insights and scalability. We continue to implore a buy versus build approach focusing on designing and building the best product for our consumers and increasing gross margins along the way. This requires a leveraging of our ever-improving supply chains, implementing continuous improvement programs, and vertically integrating certain activities as appropriate. Before passing the call back over to John, as a reminder, our common stock continues to be subject to a rights agreement that is intended to limit the number of 5% or more owners, and therefore reduce the risk of a possible change of ownership to maximize the value of our NOLs. Any such change of ownership under these rules would impair our existing and significant NOLs for federal income tax purposes. As of December 31, 2018, we estimate that we have available NOL carry-forwards for US federal income tax purposes of approximately $141 million, a decline of $16 million from December 31 -- a decline of $16 million from December 31, 2017, due to increased levels of federal income -- due to increased levels of federal taxable income. Additionally, as a result of our NOLs and increased profitability in 2018, we lowered our cash taxes by approximately $3.3 million, which shows the ability of our NOL position to drive significant value creation over the long term. This concludes my prepared remarks. Now I'll turn the call back over to John.

Thanks, Aaron. Before moving to review of the new and innovative Black Diamond products which will be released for spring and fall of 2019, I would like to quickly mention how encouraged I am with the fourth quarter and the full-year 2018 results. The double-digit revenue growth from both Black Diamond and Sierra in 2018 are proof that our dedication to a consumer-centric product innovation strategy is paying off. This was met with increased gross margins across the portfolio as well as throughout the majority of our product segments. We will continue to look to innovate and accelerate in our existing businesses, bringing to market new product introductions, expanding our distribution and increasing consumer engagement. In fact in 2019, we opened our second retail location in Anchorage, Alaska, and in the fourth quarter, established a pop up outlet in Park City, Utah. Both of these test cases have proven our ability to activate core market and effectively move inventory through an outlet format, which we'll expect to continue to pursue in 2019. We will also continue to drive efficiencies and strategically reinvest in our brands in an effort to drive further EBITDA margin gains and free cash flow growth. We believe these gains combined with our strategic capital allocation policy of share repurchases, dividends and opportunistic M&A of other super-fan brands have the ability to drive significant shareholder value for the long term. Now onto a product discussion for our upcoming spring and fall of 2019 seasons. For both seasons, our products team has been hard at work developing new products as well as innovating on our core lineup. Now over 150 new products slated for launch in the spring and another 150-plus for the fall. The initial reception of this offering has been strong and in fact, Black Diamond was one of the Top 3 brands mentioned by Gear Patrol as brands to see at the latest January Outdoor Retailer Show. This is a great honor considering that tens of thousands of brands being represented including the biggest outdoor brands in the world. Starting with spring '19, for Black Diamond, we plan to launch the most aggressive collection of innovations in the outdoor industry to date with over 150 new and refreshed products being released across all four categories of climb, mountain, apparel and footwear. We are very excited about the anticipated launch of our new C4 cams alongside our new trekking poles, headlamps, beacons, JetForce Tour and Pro packs, distant 8L packs, deploy jacket, and several others. Supporting these product initiatives will be a robust marketing campaign focused on our super-fans across climbing, backcountry skiing and trail running. On the heels of a very successful Dawn Wall and Free Solo documentaries, which showcase both Black Diamond athletes and products along with the inclusion of climb in the 2020 Summer Olympics, we see significant momentum within the climb industry. I believe Black Diamond is well positioned to benefit from this momentum and increased awareness, and we believe our spring '19 product line-ups provide consumers the most compelling offering yet to date. Now turning to fall 2019. Starting with Black Diamond Equipment, product innovation continue to be our focus for fall '19 with new innovations across apparel, including the Vision Down jacket, which is our strongest and warmest down jacket ever. This jacket has already been well received and won Outside Magazine Award for favorite gear of Outdoor Retailer Winter Market, and Gearpatrol.com award for the Best New Outdoor Gear at the OutDoor Show. Also, we are excited about the release of the new Approach Down, which is the lightest down jacket in the industry and the Boundary Line Mapped Jacket, which has stretch-wool base layer that provide active thermal regulation and moisture management. Next, gloves continue to be a major focus for fall '19 with the Solano heated glove, which deploys supplemental battery-powered heat and won the coveted ISPO Gold Award for the outdoor apparel category. We're also excited about our upcoming ski gloves and tactical liner releases. Backcountry skiing and snow safety continues to be a significant emphasis at Black Diamond Equipment with the expansion of our most innovation collection of JetForce packs featuring the JetForce Pro, the Tour and the ultra light. The collection was an award-winning for the most feature filled avalanche pack at the Outdoor Retailer and ISPO shows earlier this year, and won the top-deck for Men's Journal and Outbound Collective. Supported by the industry's only Bluetooth beacons, Black Diamond continues to innovate snow safety for the backcountry enthusiasts. Finally, with the latest innovations in headlamps, trekking poles, ultra-light apparel, packs, Black Diamond has built an exceptional expansion of offering for fall 2019. PIEPS. Moving onto PIEPS, which is the global leader in Alpine snow safety that is pushing the limits in both technology and providing products that are faster, lighter and stronger. The brand has expanded its collection of products in beacons, probes, shovels, and avalanche safety packs. After a year that has set record for avalanches in the Western states in Europe, PIEPS continues to provide products highlighted by the JetForce family and superior beacons that saves lives and promote mountain and backcountry access. Additionally, from Kicking Horse, British Columbia, to Verbier, Switzerland, PIEPS continues to be the Alpine dominance with its newly sponsorship of the World Freeride Tour. Next onto Sierra, where we are well underway on our strategy to replicate the playbooks we are executing at Black Diamond. Like Black Diamond's category segmentation of climb, ski and mountain, at Sierra, we are focused on compete, hunt, protect and defend. In August 2018, we released the Tipped GameKing product, which we rightfully named the GameChanger. The product has a strong initial sell through and replenishment orders at launch, and during the fourth quarter, we saw continued strong demand and consumer response to the product. Long famous for producing some of the most accurate component bullets on the market, the Sierra name is equivalent to precision shooting. Building upon this heritage, in 2019, we announced our entrance into the ammunition category with our innovative GameChanger loaded ammunition, featuring long-range precision with a polymer-tipped boat tail GameChanger bullets. The ammunition carries on the tradition of long-range accuracy that Sierra has so deservedly earned, and we look forward to leveraging Sierra's brand strength in this large adjacent product category. We anticipate more ammo expansions and extensions to follow in 2019 and beyond. We believe the continued roll out of our strategic playbook at Sierra will drive further growth opportunities, while leveraging the very attractive financial fundamentals the business possesses in terms of both its profitability and its cash flow conversions. Finally SKINourishment. As Aaron mentioned, we acquired SKINourishment in late 2018, a super-fan brand most well known for their climbOn skin care products. SKINourishment has a portfolio of high margin, innovative and differentiated product, which have fostered adoption at both the core user and the athlete level, including strong loyal followers like world-renowned climbing athlete Tommy Caldwell. We expect the platform we have built at Clarus to provide growth opportunities for SKINourishment's existing portfolio, while targeting other sport-enhancing products using natural, organic, cannabis-infused or alternative all-natural ingredients. We believe that we are uniquely capable to significantly grow SKINourishment's brand and product portfolio given our global brand ambassador team, our distribution footprint, and most importantly, our commitment to innovation and a strong focus of sales and marketing. and a go-to-market strategy. At the Outdoor Retailer Show in January 2019, we relaunched the climbOn suite of products in new and redesigned packaging and it was very well received. The product relaunch will be supported by an aggressive advertising and expensive social media campaign, engaging our athletes' testimonials through video content. In fact, the reception we received at the Outdoor Retailer Show was so strong that it confirmed the underlying strength we saw in SKINourishment along with a long runway of product expansions, which you'll see later in 2019. Finally, similar to the playbook we utilized at Sierra, which was built off the successful transformation process implemented at Black Diamond, we have several initiatives we will be driving that SKINourishment. We believe these initiatives will accelerate product innovation, sales and marketing, supply chain, logistics, and product management. M&A, which continues to be a hot topic, it is important to reinforce that our primary focus continues to be on organic growth and increasing the profitability of our existing brands, as we believe these provide the highest level of returns on our invested capital. Having said this, a main component of our capital allocation strategy is opportunistically acquiring super-fan brands. Our opportunistic approach to M&A continues to be supported with a steady pipeline of opportunities, focused on super-fan brands, whether they be tuck-ins to our already existing portfolio or another leg to a consumer-facing activity. We define super-fan brands as brands with leading product market share, and significant awareness amongst their core consumer. These brands typically have extensive growth opportunities through market share gains, increasing brand awareness outside the core consumer and through accessing our distribution and supply chain platform. We are constantly looking at brands that will fit in well with our current portfolio. Supporting our ability to make strategic acquisitions are the profitability of cash flow improvement our current portfolio has produced, and are expected to continue to derive in 2019, as well as our increased liquidity under our new credit facility. Before getting to Q&A, I'd like to say how encouraged I am by the strong results the organization produced in 2018. We have created a momentum across all of our brand portfolio by focusing first on product innovation and then by accelerating new products through brand awareness. This is evident in our outlook for 2019, which calls for high-single-digit sales growth and 20% adjusted EBITDA expansion. In fact, we have already seen a strong start to Q1 in 2019, which has thus far been supported by the fulfillment of our strong spring 2019 product offerings, improved product availability in our core snow safety line and the strong execution by various teams in positioning the brand with our retailers and creating awareness within each of our different product categories. These results are reflected in our 2019 outlook. With that, I'd like to now turn the call back over to our operator for any Q&A before my closing remarks. Operator?

[Operator Instructions] Our first question comes from Dave King of ROTH Capital. Your line is now open.

Thanks, afternoon, guys.

Hey Dave.

Hey, maybe starting with that last comment there, John, in terms of the Q1 guidance. It sounds like Q1 is going pretty well. How should we be thinking about that versus the 8% target you laid out for the year, and then how should we be thinking about the progression over the course of the year given the timing of certain product launches you talked about? Thanks.

So, Dave, this is Aaron and I'll take that one. As John mentioned, we are seeing strong momentum in Q1, and we do anticipate that the overall growth rate in Q1 will exceed that of our current outlook, but as mentioned it is baked into how we're thinking about 2019, et cetera. And so, what you'll start to see happening is that Q1 will post some strong results and then it'll tail off a little bit in Q2, and we'll also start to see a shift in the seasonal mix being heavier-weighted towards the back half. So in 2018, we finished at about a split about 47 to 53, and we expect that that will be closer to about 45 to 55 in 2019.

And Dave, we've always had the strong belief that our goal is to meet or exceed.

Fantastic. Okay, that's helpful. And then switching gears on Sierra. Do you have the growth breakdown in the quarter between OEM versus green box? And then just as we think about that business going forward, what can you share about the initial retail response either in terms of early bookings et cetera for the ammo launch, and then how have the OEMs reacted to that? Thank you.

So the way to look at the first part of your question, we don't announce or project how our business will be broken down between the green box and the OEM business this early in the stage. Green box is a function of the marketing and the product innovation, and OEM is solely a function of how we innovate and drive new product introductions with them. And so it's a little more driven on their timelines than our timelines. Our goal is to constantly re-innovate and reinvest in that process. To your second question, the response to the ammunition was very good. Mind you remember that we launched 5 calibers. So our goal is to find out the reception specifically in hunt for precision accuracy in ammunition rather than just bullets, which we clearly did. You will see that as we continue to invest in more and more ammunition opportunities. And then to your final piece, we are working in tandem with our OEM partners on the development of the on-staged ammunition, and they are both participants and excited about the direction we're going with each of the different OEM partners. So as we expand more opportunities within the hunt, compete, defend and protect, we work with the different OEMs to develop not only the bullet innovations required for their businesses, but the ammo opportunities that we are looking at jointly between Sierra and these OEM partners.

Okay, great. Thanks and good luck with the rest of 2019.

Thank you.

[Operator Instructions] Our next question comes from Michael Kawamoto of D.A. Davidson. Your line is now open.

Hey guys, thanks for taking my questions. Just building on the Sierra comments, can you elaborate just a little more on what you're seeing there for the outlook for low single digits for '19? It seems like quite a deceleration from 2018. And then just any other color on what you're seeing in the industry as far as bullets and ammunition would be helpful.

I think the industry as a whole continues to be weary and concerned as to the overall category success in -- late coming out of 2018, and I think into 2019. I think as we get to 2020, the industry as a whole gets a little bit more positive. We believe that during the downtime in an industry as we've said previously, the way to be competitive is to innovate faster than the competition and to keep the gas on during the downtime, and as the market responds, which we are anticipating it will be going into the end of '19, maybe it's 2020 that the rising market share that we've gained over that period of time both in 2018 and 2019 will set us up well for when the rising tide comes again. So we're prudent, we have a lot of innovations in the works, we have a lot of plans in the works, both in the bullet and the ammunition world. We think it's prudent to put a plan together that's a high-single digit, similar to what we said last year. And then our goal is to continue to innovate and accelerate and see what happens as the market trends.

All right, that's helpful. And then just a follow up, maybe for Aaron. You guys come a long way on the gross margin front, but it seems like there's still room to move higher. How are you thinking about gross margin for next year?

Yes, so for 2019, we anticipate seeing a modest improvement in gross margin that definitely continues to be a focus, but as you are aware, Michael, we were able to make really good strides in 2018 with certain initiatives around what we call value leakages. And as we head into 2020, we also have some other initiatives at play, you know that we're working through, but as I say, those will start to manifest themselves until -- they won't manifest themselves until spring of 2020. And so, our focus on 2019 continues to be on that of product mix, channel mix and just continue to work with our suppliers and also what we do at retail. And so it is little more modest improvements that we're expecting to see in '19 with some further opportunities expected to be present in 2020 as we continue to work through some of these gross margin enhancing initiatives.

Got it. Thank you and good luck for the rest of the year.

Appreciate it.

Thank you. Our next question comes from Chris Krueger, Lake Street Capital. Your line is now open.

Hi, good afternoon.

Hey, good afternoon, Chris.

Hi. Most of my questions have been answered, but I just have one. You said you're introducing over 300 new Black Diamond products. How many products are discontinued or go away at the same time, or is that a net number? How should we look at that?

We look at new products as any time we launch something completely new or any time that we put resources on redesigning, re-leveraging current product. So there is always a fallout at the bottom and we don't make that -- I would say a strategic start out. That's a function of the planning of the business. Our real goal is to look at every single product, every season by category and ask the question relative to our competition, why does BD exist today, and can we make our products lighter, faster or stronger, and if so how and be disruptive. Clearly, at the end of each season, retailers by their vote, determine what -- at what level and what loses out. So both the winners and the losers and then we retrench and rethink of that each time. So we don't go into it with a preset strategy, all right. Eventually as you just go through, you innovate everything and it continues to re-move the needle up.

All right, that's helpful. Thank you.

Thank you. And at this time, this does conclude our question-and-answer session. I would now like to turn the call back over to Mr. Walbrecht for closing remarks.

We'd like to thank everyone for listening to today's call and we look forward to speaking to you more with the good news as we report on the first quarter results. Thanks again for listening in. We appreciate it, guys. Bye.

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