Good afternoon, everyone, and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the third quarter ended September 30th, 2018. 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'll 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, Haley. 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. 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, financial strength of the company's customers.
The 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 by our Sierra segment, and the possession and use of firearms and ammunition by our customers.
The company's ability to protect patents, trademarks, and other intellectual property rights, any breaches of or interruptions in our information systems, fluctuations in the price, availability, and quality of raw materials and contracted products, as well as foreign currency fluctuations, the company's ability to utilize its net operating loss carryforwards, 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 Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. All forward-looking statements included in this call are based upon information available to the company as of the date of this call and speak only as of the date hereof.
The company assumes no obligation to update any forward-looking statements to reflect events or circumstances after the date of this call. I'd like to remind everyone that this call will be available for replay through November 19th, starting at 8:00 P.M. Eastern Time tonight. 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 express written consent of Clarus Corp is strictly prohibited. I'd like to turn the call over to the President of Clarus, John Walbrecht. John?
Thank you, Cody, and good afternoon, everyone. It's a pleasure to be joining you. The record results of the third quarter continue to prove the momentum of our brands and reinforce that our strategy is again gaining strength. We realized 12% growth from Black Diamond, driven by 17% growth in mountain, 14% growth in climb, and a 40% growth in apparel, as well as 35% pro forma growth in the Sierra brand. These results were due to our continued focus on, first, product innovation and second, an accelerated go-to-market strategy supported by strong order fulfillments. We leveraged these strong top-line results into even higher profitability growth and increased Adjusted EBITDA by more than twofold to $7.1 million.
In addition, we improved the free cash flow during the first nine months of 2018 by approximately $24 million to $5.8 million, compared to a negative of $18.5 million during the same period in 2017. We expect the momentum of our business to continue through 2018 and have increased our outlook as a result. The momentum in our business is supported by key product initiatives across all of Black Diamond's primary product categories, particularly within climb and apparel, and executing a go-to-market strategy at Sierra focused on new product introductions and consumer engagement. Within Black Diamond's performance, apparel was up 40%, driven by continued strong demand for our new rainwear line, the increased fulfillment of our bottoms program, as well as gaining traction in both sportswear and logo wear.
Our mountain business was up 17% due to continued growth in trekking poles and gloves, which are focused strategic initiatives that we have begun investing in nearly two years ago and are beginning to show well in the results as of today. We grew our climb category by 14% due to continued success in our new footwear line, which is an important product segment that we continue to expand with additional styles and colors and growth in our core climbing product categories of protection and cams, helmets, ropes, as well as climbing accessories. Our ski business was down in the third quarter due to the timing of early deliveries in the third quarter of 2017 that created a difficult comparison.
We fully anticipate that our ski business will experience a solid rebound in Q4 as we expect to deliver for the first time the new family of Black Diamond beacons that feature both Bluetooth capabilities, leveraging the technology of PIEPS. We believe this provides us with great opportunity to segment the marketplace and gain even more market share within the snow safety category. The 35% pro forma growth we expected and experienced in Sierra business was the continued result of executing a go-to-market strategy that leveraged our key partner relationships while being more disciplined with our manufacturing activities, ensuring higher levels of commercialization and fulfillment. Following the disciplined path to what we successfully deployed at Black Diamond over 21 months ago, we are similarly starting to see gains in sales, margin, and fulfillment rates. More to come on this after Aaron's remarks.
Now to some of the regional comments for Black Diamond. Sales domestically were up 5% in the third quarter, again due to solid performance in climb and mountain categories. In our international regions, sales were up 17% due to our European team's continued great efforts positioning the brand for continued growth. We experienced solid pre-season bookings and increased ASAP orders as well. We believe the strength of the brand continues to build due to our enhanced sales and marketing efforts, and we also experienced strong performance in both Japan and Korea. As we continue to communicate, the foundations of our results is being driven by the focus on our core consumer through the quality and pace of product innovation, a clear marketing strategy, the fulfillment of strong order demand at retail, and our ease to do business with strategy.
With that, I'd like to turn the call over to Aaron to speak in more detail about our third quarter financial results. Aaron?
Thank you, John, and good afternoon, everyone. Sales in the third quarter of 2018 increased 22% to a record $55.7 million compared to $45.8 million in the same year-ago quarter. On a constant currency basis, sales were up 21%. Along with the strong category and regional growth dynamics John mentioned in his opening remarks, the increase was due to our acquisition of Sierra Bullets on August 21 of 2017, which added $8.4 million in total sales or $4.9 million in incremental sales during the third quarter. If we had owned Sierra for the full third quarter last year, pro forma sales growth was 15% and included in this figure is 35% year-over-year growth in Sierra. Excluding the Sierra acquisition, Black Diamond sales were up a healthy 12%. Gross margin in the third quarter increased 230 basis points to 35.7%, compared to 33.4% in the year-ago quarter.
The increase was primarily due to a favorable mix of higher-margin products, including strong apparel growth and distribution channels, as well as more normalized levels of discontinued merchandise, as we expected. A final point on gross margin, specifically surrounding the current trade war. Based upon the tariffs enacted to date, we will face a negligible impact in 2018 and an estimated impact of $450,000 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, resourcing. We are working with our supply chain to come 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 have been working with our vendors to renegotiate costing to offset some of the impacts. Finally, we are optimizing logistics to avoid the U.S. on international shipments. Selling, general administrative expenses in the third quarter increased to $15.8 million compared to $14.4 million in the year-ago quarter. The increase was due to the strategic investments we are making to drive innovation and growth in both Sierra and Black Diamond, as well as higher stock-based compensation and purchase accounting amortization associated with Sierra. This was partially offset by the prudent management of cost in the other areas of the business, particularly given the quarter's strong revenue growth.
Net income in the third quarter improved significantly to $4.1 million or $0.14 per share, compared to a net loss of $1.6 million or $0.05 per share in the year-ago quarter. Net income in the third quarter of 2018 included $2.8 million of non-cash items and minimal transaction and restructuring costs, compared to $2.7 million of non-cash items, $1.9 million in transaction costs, and minimal restructuring costs in the third quarter of 2017. Adjusted net income, which excludes the non-cash items as well as transaction and restructuring costs, increased significantly to a record $7 million or $0.23 per share, compared to $2.9 million or $0.10 per share in the third quarter of 2017.
Adjusted EBITDA also increased significantly to a record $7.1 million compared to $3 million in the third quarter of 2017. As a percentage of sales, Adjusted EBITDA increased approximately 500 basis points to 13% compared to 7% in the year ago period. Free cash flow during the first nine months of 2018 was $5.8 million compared to a utilization of $18.5 million in the same period in 2017. Now moving on to the balance sheet. At September 30th, 2018, cash and cash equivalents totaled $3 million compared to $1.9 million at December 31, 2017. After multiple extensions and increasing the maximum price from $7.20 to $8, on July 12th, we announced the results of our $7.5 million modified Dutch auction tender offer. We accepted for purchase 417,237 shares of the company's common stock for an aggregate cost of approximately $3.3 million, excluding fees and expenses.
The shares accepted represented approximately 1% of our total outstanding shares as of June 30, 2018. We also maintain the $30 million share repurchase program, which still has approximately $14.4 million available. On August 6, 2018, we announced that our board of directors approved the initiation of a quarterly cash dividend program of $0.025 per share, or $0.10 per share on an annualized basis. On October 26, we announced our quarterly dividend will be paid on November 16, 2018, to shareholders of record as of the close of business on November 2, 2018. These various capital allocation measures 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, and provides a platform for a broader investor base.
Our debt balance at September 30, 2018, was $22.7 million compared to $20.8 million at December 31, 2017. As a reminder, on June 28, we entered into a new $75 million asset-based revolving credit facility agreement, plus an uncommitted accordion feature providing an additional $75 million with JPMorgan Chase. We still believe our high levels of 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 returning capital to stockholders. Ultimately, this strategic decision reinforces our commitment to delivering value to stockholders while investing for future growth. I'd now like to discuss our 2018 financial outlook. We now anticipate fiscal year 2018 sales will come in at the upper end of our previously stated range of $205 million-$210 million.
This compares to $170.7 million in 2017, or $191.2 million if we had owned Sierra for all of 2017. Given our ability to drive strong Adjusted EBITDA growth so far in 2018, we are also increasing our expectation for Adjusted EBITDA margins. We now expect Adjusted EBITDA margin for the full year to be approximately 9.5%, compared to 8.5% in our prior outlook, which includes $5 million of cash corporate overhead expenditures. This compares to an Adjusted EBITDA margin of 3.6% in 2017. Long term, we are targeting an Adjusted EBITDA margin of greater than 10% for our consolidated business. We continue to expect full year adjusted gross margins to continue to improve on a year-over-year basis.
We also expect to generate free cash flows from operations of $5 million-$10 million after approximately $3 million in capital expenditures, which is dependent upon any necessary increases in inventory to support growth opportunities in the marketplace for spring 2019. Before passing the call 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 U.S. federal income tax purposes. As of September 30th, 2018, we estimate that we have available NOL carry-forwards for U.S. federal income tax purposes of approximately $157 million. This concludes my prepared remarks. Now I'll turn the call back over to John.
Thanks, Aaron. Before moving to our strategic outlook, I'd like to recap our third quarter results. The metrics that we have communicated to measure our progress continues to build momentum. Sales achieved a new record high for a third quarter, and our gross margin continues to improve considerably. This has been driven leverage in Adjusted EBITDA and free cash flow growth. We strategically invested in sales and marketing campaigns that have driven enhanced consumer awareness, and they are showing their effectiveness in our results. August marked our one-year anniversary of owning Sierra, and the execution of our brand-enhancing playbook grew stronger in the third quarter. Combining these results with our strengthening balance sheet, and we believe that we are well-positioned for future organic growth, as well as acquiring additional super fan brands. Now on to the discussion of product for the upcoming seasons. Fall 2018.
Our current fall 2018 seasonal lineup features the introduction of more than 50 new products across our three major categories. This is on top of more than 40 new products introduced in spring 2018, resulting in almost 100 new products launched in 2018 in total. As a signal of our product strength, so far, for fall 2018, Black Diamond has won 28 awards from various leading trade and media organizations, from Backcountry Magazine to Ski Magazine to even Runner's World. In fact, a few of these awarded products have driven our strong Black Diamond growth in this quarter. In climb, we continue our innovations with ice, launching the industry's lightest ultralight ice screw and the new Reactor Ice Tool. The new developments in bouldering pads and bouldering accessories, alongside new colors in our rock shoe collection, continue to build momentum in the ever-growing bouldering category.
Our BD rock shoe program continues to exceed our initial expectations and the initiative we expect to continue to innovate each season. This past September, BD hosted the IFSC Climbing World Championships 2018 in Innsbruck at our Black Diamond partnership gym. This event helped set the stage for the competition for the Tokyo 2020 Olympic Games in Tokyo, Japan, an event we expect to expose the great sport of climbing to millions of viewers. We are proud of how well it went off.
With the increasing popularity of backcountry skiing, Black Diamond continues to push the innovations in our ski and snow safety categories with the new Helio ski collection and the award-winning Boundary Pro series, the new ultralight bindings, the new BD Black Diamond beacons, the new JetForce Tour avalanche pack, the new Whippet ski poles, expanded skin collections, the new Recon stretch jacket and pant, the Helio Active touring shell, and the launch of our carbon trekking skis with built-in skins. Finally, our mountain category continues to see growth, with BD launching numerous different products, including the zipped Backpacking Light, new packs, and the expansion of our award-winning First Light jacket series. Spring 2019.
For Black Diamond, as we look into the future of spring 2019, we plan to launch the most aggressive collection of innovations in the outdoor industry to date, with a plan to release 177 new and refreshed products across all four categories of climb, mountain, apparel, and footwear. Black Diamond continues its success in innovation and product award recognition, receiving many highly coveted awards, such as the 2018 Outdoor Winter Industry Award for our Distance 8 pack, the gearinstitute.com Best New Gear award for our Camalot C4, Men's Journal's Best New Gear at Outdoor Retailer for our Distance 8 pack, the Outdoor Retailer's Editors Pick for our new C4 and Zone climbing shoes, and the Backpacker's Editors Choice award for our Whippet ski poles. Our transcending Deploy shell was awarded an Editor's Choice award from the Gear Patrol.
Black Diamond's Deploy is one of only 10 products that was given this honor from the 150 brands and thousands of products that were considered. At $129 retail, Black Diamond's Deploy wind shell takes the lightweight outdoor clothing to a new extreme. The windproof outer layer is only 48 grams, or roughly 1.7 ounces, which was made possible through our close collaboration with our materials manufacturer. The fabric is a five-denier nylon made by Toray Japan that's exclusive to Black Diamond, and the zipper is a YKK super lightweight zipper, which is 40% lighter than any other available on the market today. The Deploy also folds easily into one of its own pockets in the back of its neck. We believe the Deploy shell also highlights the innovation we are integrating within our apparel offerings, as well as transcending qualities being developed for the outdoor and mountain enthusiast.
You will see additional developments using the Deploy technology in other categories in the near future. Sierra. Regarding Sierra, we are well underway in our expected strategy to seek to replicate the playbook we are executing with Black Diamond. Like Black Diamond's category segmentation of climb, ski, and mountain, at Sierra, we are focused on compete, hunt, protect, and defend. The new tipped GameKing product, which we are calling the GameChanger, launched at retail in August, representing our first real innovation in hunt. We are pleased with the initial reception of this new product and seen strong sell-through and replenishment orders. This continues to reinforce Sierra's hunt heritage and provides us with greater confidence as we look to expand our hunt-focused product offerings. This is also the first product to market since acquiring Sierra that we worked on together from day one.
Over the next several months, we expect to introduce many more products, having our own product development, design, and innovation stamp of approval. In fact, during Q3, we hired Tim Jansen as our VP of Innovation at Sierra Bullets, a similar position he held while at Barnes Bullets, a subsidiary of Remington. He will help drive and accelerate new product innovation and support scaling the business operationally and from a product perspective as well. We continue to make investments in our go-to-market process, seeking to enhance social and digital capabilities and a new print campaign launching in more than 12 magazines for this fall. Of course, we intend to continually work to strengthen both our retail and OEM partners through new product introductions and better fulfillment of existing seasonal products.
We believe the continued rollout of our strategic playbook at Sierra will continue to fuel future growth opportunities while leveraging the very attractive financial fundamentals the business possesses in terms of profitability and cash flow conversion. We continue to be quite pleased with the acquisition of Sierra and believe it is in strong momentum for the future. Investor relations. During the third quarter, we were actively out on the road telling you our story to both new and existing shareholders, and we're also active on the conference circuit. It was invigorating to sharing our progress and laying out our many opportunities to come. We enjoy the process and look to continue our active investor relations strategy through the remainder of 2018 and well into 2019.
In summary, given our recent financial momentum, our brand outlook, and more flexible capital structure, we believe our strategy is both working and well-positioned to create shareholder value. We still expect to maintain a focus on acquisitions of super fan brands that may benefit from our unique outdoor experience and look forward to updating you on our shareholders when appropriate. I'd now like to turn the call back over to our operator for Q&A before my closing remarks. Operator?
Thank you, sir. Ladies and gentlemen, at this time, if you would like to ask a question, please press star then one on your telephone keypad. If your question has been answered or you wish to remove yourself from the question queue at any time, please press the pound key. Once your question has been stated, we ask that you please place your line on mute to prevent any background noise. Our first question will come from Dave King of Roth Capital. Please proceed.
Sure. Thanks, and good afternoon, guys. First, on the 35% pro forma growth at Sierra, looks like that was an acceleration from prior quarters. I guess, can you talk a little bit about what's driving that? Are you able to share how much of that growth was on the green box side? Whether that's from new products, what have you, and how much was from the OEM side, through better fulfillment, et cetera?
Good afternoon, Dave. Good to talk to you again. As discussed previously, we continue to follow the same playbook as we have on Sierra. We believe that, A, it first comes from product innovation. The launching of the GameChanger was a driver in that process. Subsequently, better partnerships with our OEM business, without question. We continue to invest strong in those opportunities with them, both in new bullet technology as well as sharing with them the strength of the brand. We haven't broken it out specifically between green box and OEM, and our belief being that for both of them, they both have their own requirements for how we grow the business. In the end, it still comes down to product innovation and building better fulfillment and brand awareness, consumer demand.
Okay. Fair enough. On the guidance, if I look at it, and then maybe start with revenue. You've had double-digit growth there for the past couple of quarters. Looks like it is sort of implied at decelerating to, say, 5% growth in the fourth quarter. Can you talk about the puts and takes there? Is that just conservatism? On the margin side, similarly, looks a little bit like a deceleration in terms of the amount of margin improvement, because the margin improvement story has been fantastic, frankly. Can you just talk about how we should be thinking about that and gross margins, expenses, et cetera? Thanks.
First of all, as we head into Q4, there's a couple different elements that come into play that cause us to point us towards the upper end of the outlook when it comes to revenue. That's at the BD side. Remember, Q4 is a heavily laid in replenishment or ASAP quarter for us. There is a certain level of reliance on weather as well. Also on the Sierra side, that's traditionally, from a seasonal basis, a lower quarter. We do anticipate that we'll continue to gain traction or continue to see the momentum within the brands. From our perspective, we just want to be prudent with how we continue to provide guidance or outlooks to the street, but also recognizing that Q4 does present some dynamics that we just need to be aware of.
Similar to that of the Adjusted EBITDA margin outlook, we have seen great performance or improvement every quarter in this regard, and we continue to expect that that will continue into the future. We are continuing to be opportunistic in the way that we think about certain investments. As we just think about what Q4 can bring, we do anticipate the momentum will continue, but we do want to continue to be fairly cautious in terms of how we provide the communication or the guidance or the outlook in general.
Confidence and consistency, Dave.
Okay. Well, thanks for taking the questions and nice momentum. Nice progress, guys.
Thanks, Dave.
Thank you. Our next question will come from Jim Duffy of Stifel. Please proceed.
Thank you. Good afternoon, guys. Hope you're doing well.
Good. Thank you.
First question is, obviously a very nice quarter on the top line. In the BD business, the difference between international and domestic growth rates, notable. Are there any kind of unique things going on with compares in the regions that would cause that?
I think it's a combination of two things. In certain regions, people want more of their preseason bookings early, and other regions, they want it spread out over the length of the quarter and the second half of the year. Part of it. Always a function of mix. Third quarter ending in September. In Europe, ski goes earlier than it does in North America, for example. We managed against all expectations of pre-season bookings and, like I said, a combination of is when you receive your orders and the inflow of the product for fulfillment.
Fair enough. Aaron, is there any sort of geographic mix impact on the gross margin?
No, nothing out of the ordinary.
Okay. How are you guys positioned on inventory? Do you have inventory enough to cash in on upside capacity if the ASAP materializes in the fourth quarter?
Yes.
Okay.
Specifically in the core products.
Okay, good. Last one from me, John, maybe you're just digging in more on Sierra. You've owned it for a year now. Are the opportunities what you thought there'd be? Are there any incremental opportunities after having been able to spend a year managing the business that have revealed themselves? We're very pleased with what we're seeing from growth there and what is a challenged industry. Can you share some thoughts on where you might see incremental opportunities?
I think, as we've said previously, we saw Sierra as a super fan brand, and I think maybe others saw it as a bullet manufacturing plant. As we've followed the same script at BD, which is to innovate first and invest in innovation and product innovation, both in the teams as well as new products. Then once upon innovating, accelerating the market and the go-to-market process with our sales reps, with marketing, with our OEM partners, with our best retail partners. I think that every season we see more opportunities for product innovation in that mix. Then as we look into 2019 and beyond, we will look at product extensions within that. So, we'll see announcements coming out of SHOT Show as we extend into other areas, and clearly that opens up more potential.
Definitely, no shortage of bullet innovation opportunities. As we've said to the marketplace, we see ammo opportunities as the extensions as well.
Very good. Thank you, guys.
Thank you. Our next question comes from Michael Kawamoto of D.A. Davidson. Please proceed.
Hey, guys. Thanks for taking my questions and congrats on another good quarter. Just to build on the Sierra line of questioning, you guys launched GameChanger around, I think, the time of the last call, which you talked about. Can you maybe talk about how you're thinking about expanding that hunting category for Sierra going forward? Is it fair to say that's one of your bigger opportunities there, just the level of innovation you guys have going on?
Yep. We think that this combination of tipped GameKing interfaced with terminal impact has a great opportunity within the hunt business. We'll continue to innovate in bullet technology beyond the first five calibers that we launched as the GameChanger, which have exceeded our expectations in this first hunt season. As we go into SHOT Show and beyond, turning that into ammo specifically for the hunt market, which is quite a bit bigger than the 1.8 size of the reloading market. We see opportunities in there, but we believe very strongly in the whole innovate and accelerate strategy. Constantly innovate product, and then look to accelerate that once you've innovated. We believe that playbook is one that Sierra and BD continue to execute well on.
Once you've done that, as we focused on in the last 18+ months with BD, and now the last, I would say heavily, the last 6 months with Sierra, it's all about fulfillment. Once you've innovated and accelerate, make sure you can fulfill on-time delivery and better fulfillment and maximize the consumer demand that you build.
Awesome. Thanks. I was hoping to spend a little more time on the footwear initiatives. It sounds like that business is doing well with the momentum. What are your expectations for the new rock shoe styles you have coming out next year, and maybe your thoughts on 2019?
We're bullish about footwear as a category. It has been one of the fastest-growing categories within the climb segment. It's an area that we've really focused our innovation on in specifically rock shoes. We have launched new styles for fall 2018, we launched new styles for spring 2019, and we have new styles for fall 2020. We continue to keep the gas on that category, and think that it will continue to see strong growth rates for us. Again, in that category, fulfillment is critical. It's inventory on hand is repeat orders.
Great, thanks. Just last one, maybe for Aaron. You've got a tougher comp for gross margin in 4Q. How should we be thinking about that for next quarter?
Yeah, it is a little bit of a tougher comp, and we've been able to see a lot of gross margin improvements through year to date, September 30th. We do anticipate that we'll be able to continue to see improvements. It is a bit of a tougher comp, and that's where we get back to our Adjusted EBITDA guidance, in that there's a couple different puts and takes that we're still working through, especially as it relates to some of our continuous improvement programs. We do anticipate that we'll be able to continue to see improvements in gross margin. I wouldn't expect Q4 to be much different than that.
Got it. Thanks for your time and good luck the rest of the year.
Thanks. Thank you.
Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question at this time, please press star then one. Our next question will come from Matt Campbell of Laridae Capital. Please proceed.
Good afternoon, guys, and great quarter.
Thank you.
You're welcome. How would you characterize the inventories at your retail channels and your OEM partners at this point for BD product?
I think as you go through seasonal transitions from summer into winter, at this point, given our ASAP orders, I would say the channel has been very positive and relatively clean. Obviously, every brand can play differently into that. For BD, we've really focused on the last 12 months to having better fulfillment of the core product and eliminating the DMS issues that had plagued us of the past. We're really tight on our DMS inventory and strong on the key drivers that we continue to market. Our ASAP rates and quarterly results show that. I think it's also a function of having a tight distribution for BD and being heavily focused on the specialty market.
Got it. Just a couple quick ones. In regard to commodity prices, what are you seeing there? Any headwinds there? Are you seeing some tailwinds from the commodity pricing as of now?
It's a bit moderate right now. Yeah.
We've been able to benefit from some of the tailwinds that occurred throughout the course of the year. As we sit here today, it's a bit moderate, but we are still looking at ways how we continue to mitigate that exposure and take advantage of some of the opportunities that surface from time to time.
Got it. Just remind me if you can, last year, the winter quarter, it was a really tough quarter in the U.S. for snow. Is that right? I just can't remember.
It was, yes.
Got it. Okay. Great. Thanks a lot, and good job once again, guys.
Thank you. Appreciate it.
At this time, this concludes our question and answer session. I would now like to turn the call back over to Mr. Walbrecht for any closing remarks.
Thank you. We'd like to thank everyone for listening to today's call, and we look forward to speaking to you when we report our fourth quarter results next. Thanks for joining in. Appreciate it. See you on the road.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.