Q3 2019 Earnings Call
Good day and welcome to the Fox Factory holding Corporation third quarter 2019 earnings Conference call.
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Please note. This event is being recorded I would now like turn the conference over to Dan Robbins Senior Director of Communications and Investor Relations. Please go ahead.
Thank you good afternoon, and welcome to Fox Factory third quarter fiscal 2019 earnings Conference call.
On the call today, or Mike Dancing cheese, Chief Executive Officer, Rich Winters, President powered vehicles group Chris.
It in specialty sports group.
In Threeq, <unk>, Chief Financial Officer and Treasurer.
By now everyone should have access to the earnings release release, which went out today at approximately four or five PM eastern time.
If you got a chance to review the relief it's available on the Investor Relations portion of our website at <unk> Block's dotcom.
Please note that throughout this call, we will refer to Fox factory box or the company.
Before we begin I'd like to remind everyone that the prepared remarks contain forward looking statements and management may make additional forward looking statements in response to your questions.
Such statements involve a number of known and unknown uncertainties, many of which are outside the company's controlling can cause future results performance or achievements to differ significantly from the results performance or achievements expressed or implied by such forward looking statements [laughter] important factors and risks that could cause or contribute.
Such differences are detailed in the Companys, earning release issued this afternoon and in the annual report on Form 10-K filed with the Securities and Exchange Commission.
Except as required by law the company undertakes no obligation to update any forward looking to work other statements herein, whether as a result of new information future events or otherwise.
In addition, within our earnings release and in today's prepared remarks, non-GAAP gross margins non-GAAP operating expenses non-GAAP income tax non-GAAP adjusted net income non jet non-GAAP adjusted earnings per diluted share adjusted EBITDA and adjusted EBITDA margins are referenced it does.
An important to note the dealer Nongaap financial measures that we believe are useful metrics get better reflect the performance of our business on an ongoing basis.
A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures are included in todays press release, which has also been posted on our website.
And with that it's my pleasure to turn the call over to our CEO Mike Denison.
Thanks, Dan Good afternoon, everyone. We appreciate you joining us on todays call to start I'll discuss our third quarter, but nothing financial highlights. What's your Chris will then provide an update on their respective businesses. The brand development. They will then review the third quarter financials and discuss our 2019 guidance.
After that well open the call for questions.
Turning to our results, we feel very good about a record third quarter results, which exceeded our expectations for both revenue and profitability. We benefited from continued strong growth primarily powered vehicles grew at a modest increase our specialty sports group.
Our third quarter sales of 211 million increased 20% compared to similar strong growth my you're in the prior year period strong performance in the period was associated with our Tuscany Division, which develops in markets aftermarket truck solutions sold through dealerships across the U.S. In addition, we're continuing to see significant demand for.
Our off road power sports products, which indicates strong consumer preference for our products in North America.
In the quarter, we achieved the highest volume shocks ever shipped a significant achievement in the manufacturing environment already stretch with volumes up.
Well profitability perspective were reported non-GAAP adjusted earnings per diluted share of 83 cents.
Representing an increase of 11 cents, an adjusted EBITDA of 44 million or an increase of 11%.
We're really pleased with our ability to control frictional costs associated with manufacturing in California, as well as stale plan with the expansion in Georgia.
Speaking of Georgia during the third quarter. We also completed and opened our advanced Engineering Center at Red Atlanta, which will drive innovation across both our off Road L Street performance businesses.
In summary performance, we completed our first full quarter with right Tuck in acquisition, we finalized in Q2, Oh, we're pleased with the results.
And definitely sport, we continued to perform well against a modest industry demand backdrop and remain comfortable with our mid to high single digit growth targets for the year. Our success is fundamentally due to our innovative product offering strong demand for end customers and ability to lead markets in both North America Andrew.
As a result of our strong year to date quarterly result, and our current view of the markets. We serve we're raising our outlook for the year wouldn't be will outline for going a few minutes.
We look forward to executing our opportunities for continued growth in 2019, and believe boxes diversified product offerings will continue to resonate with our customers demonstrating our commitment to product innovation and growth of box brand in both existing and new categories.
We appreciate the strong efforts of our team as we continued to deliver differentiated products up to our passionate customer base, which reinforces the value of our brands.
Before I turn the call over to rich on behalf of the entire two at Fox I'd like to Thank me first 12 years the CFO .
I wish you luck in his future endeavors.
He has been an integral part number of our executive team, having fix definitely helped us transition our business through privately held a publicly traded company.
He's expertise that contribution to have been significant to our efforts to grow our global product portfolio drive sales and expand margins.
We previously announced on November 1st legal stepped down from his role as CFO , Our executive search remains ongoing to identify next CFO and John Baule sure our senior Vice President Finance will become interim CFO until replacement is identified the de will remain available to ensure a smooth transition through February 20 to 2020.
In summary, we're proud of our 2019 year to date results our outlook for the fourth quarter is robust and we're pleased to be in a position today, where we can laser annual guidance as box, we remain confident that in the quarters in years to come we're going to build upon our existing accomplishments to generate sustainable growth and value for our shareholders and.
With that I'll turn the call him in a rich.
Thank you Mike good afternoon, everyone.
In the third quarter of 2019 sales of our powered vehicles group products were up 37% compared to the third quarter of 2018.
We continue to see high growth across our diversified powered vehicles product lineup and the strong third quarter results exceeded our forecast.
Sales of off road in power sports products remained strong and we continue to build on our solid second quarter results.
Tuscany had very strong sales for the quarter with strong demand on the Shelby platform and the new Harley Davidson models.
In addition, the third quarter as Mike stated was our first full quarter with right.
Which is part of our newly formed Street performance Division.
We have completed the integration of right Tech, which has gone extremely well and and we're very pleased with the results.
To further promote our pushing to the street performance market Fox is continuing its relationship with road Atlanta, the iconic racetrack near our corporate headquarters and presence in Georgia.
Well, the Atlanta annually attracts more than 320000 visitors from around the globe.
Total than it is also now home to our new state of the R. Tech Center, the 12000 square foot R&D facility greatly enhances our product innovation and technology development capabilities.
We expect that the additional capacity will allow us to more efficiently address our current projects that support our future growth.
We recently launched our commercial long haul products through range truck parts.
Grain is one of the largest online retailers catering to the independent owner operator accessory aftermarket.
Market reception, so far has been excellent.
Capabilities, our capacities excuse me are still constrained until we are able to move into our new Georgia facility.
As I mentioned on our last call. We continue to make good progress on our expansion efforts in Georgia in early June we broke ground and started developing a new manufacturing facility in Hall County.
The first phase of this expansion project is still on track to be up and running in late second quarter 2020.
We continue to have a strong focused on our off road capable on road vehicle market with our OEM customers for Toyota and Jeep as they continue to market and sell their respective models.
20, 2020 products featuring Fox shocks. These OEM platforms, which are being very well received by media and consumers raise our brand awareness and inspire passion and enthusiasm to upgrade their current vehicles to be off road capable with our aftermarket bolt ons suspension solutions.
And our power sports business.
Let's talk you recently introduced the 2020 Terex KRX 1000, it's the first sport side by side in the 60 agents category and it features our Fox two and a half in 2.5 podium LSC shocks.
Combined with the launch suspension arms that gives care Act 1000, the longest suspension travel in its class.
As we gear up for more off road racing. This fall I'll conclude with a quick doesn't racing update.
In August Fox driver Bryce Menzies scored the overall when at the 2019 best in the Desert Vegas to Reno race. This was the first Vegas to Reno victory and the first when and as all new all wheel drive truck.
That debuted at the event last year overall stocks drivers earned 17 podiums across 10 classes that this or race and Im just dominated the off road racing season.
I would like to now turn call over to Chris.
Thank you rich good afternoon, everyone on the third quarter of 2019 sales, especially sports group products were up <unk>, 0.5% compared to the same period in fiscal 2018.
On a consistent currency basis specially sportster product sales were up 1.6% compared to the same period in fiscal 2018.
However, we remain committed to our mid to high single digit growth targets for the year.
And our last call I talked about our expanded relationship of quality bicycle products, which services more than 5000 bicycle retailers through its for U.S. distribution centers, we had a great initial quarter and we look forward to then helping us grow our U.S. aftermarket business.
Awareness awareness of our brand portfolio remained strong thanks to ongoing customer loyalty and engagement programs and initiatives style. Our new you tube serious about our you see iron Mountain bike World Cup race support efforts has a library that includes over 50 videos that have more than 1 million combined views.
This audience is highly engaged spending over 7 million minutes learning about our brand products technologies and how we help athletes reached the podium.
In September we sponsored the Marzocchi proving grounds. This was the first official Red Bull Rampage athlete qualifier. This high profile title sponsorship raised awareness with our OEM and retail partners, they're excited that we're aggressively promoting and investing in the Marzocchi Brad.
I'd now like to share some product newness.
In 2019, the vital MTB audience survey their readers for the fourth consecutive year voted Fox has been both the number one suspension fork and the number one rear shock to buy.
At Eurobike in Germany, we introduced the Fox, Eli valve system, which garnered positive media and industry reactions.
The live valve system that we launched last year, Chuck called one of three Eurobike Gold Winter Awards. The 2019 gear of the year Award from Bicycling magazine, and the 2019 design and Innovation award from Eurobike.
From Enduro Mountain bike magazine.
We also introduced our new Marzocchi easy to E bike forfeit eurobike displaying it and other products and a standalone marzocchi exhibit to showcase the Brad.
In August to crank works Whistler, we introduced our new race face apex, our dropper see post and affect our crank. We also unveiled the new Easton E. Cseventy, an easy 98 next adventure cross wheels, using an all digital approach designed to increase awareness to the eastern cycling brands E Commerce site.
I'll conclude with a glimpse at our most recent rates results are sponsored athletes earned 14 Enduro World series podiums have four MW Lessdrops 40, you see I MTB World Cup podiums at five events 14 podiums at crank works Whistler and seven podiums at the USIO MTB World Championships, Inc.
About Canada, and now I'd like to turn the call over the GE to review our financial results.
Thanks, Chris Good afternoon, everyone I'll focus on our third quarter results then review our guidance sales in the third quarter 2019 were a record $211.3 million, an increase of 20.2% versus sales of $175.8 million in the third quarter 2018.
Gross margin was 33% in the third quarter, 2019, 100, and paid 40 basis points decreased from 34.4% in the prior period, while our non-GAAP gross margin decreased 100 basis points to 33.4%.
The decrease in non-GAAP gross margin was primarily due to the continued shift in customer and product mix as our not larger north American powered vehicle Oems represented a higher proportion of sales.
In addition, we continued to experience manufacturing and supply chain inefficiencies as a result of the increase in demand, which negatively impacted gross margins. However, we did did see some slight improvement in the quarter versus earlier in the year.
Total operating expenses were $34.5 million or 16.3% in the third quarter of 2019 compared to $29.1 billion were 16.5% in the third quarter last year.
The increase in operating expenses on a dollar basis was to support our growth is primarily due to higher personnel costs as we invest and product innovation.
Operating costs related to ride tech and increases in facility and various other administrative expenses to support the growth on the business, partially offset by lower patent litigation related expenses.
non-GAAP operating expenses stated as a percentage of sales were 14.9% compared to 14.3% in the prior period.
Focusing on expenses in more detail sales and marketing increased $2.1 million due to our recently acquired write checks subsidiary personnel and various other event and promotional related activities.
R&D was up approximately $1.6 million, primarily due to increased personnel investments to support new product innovation and costs associated with ride tech, partially offset by lower prototyping expenses due to project timing.
As we consistently stated the timing of R&D and promotional expenses often changes between quarters in years, depending on a number of factors included product, including product launch cycles.
Our general and administrative expenses in the third quarter of 2019 were $12.7 million compared to $11.2 million in the prior year period.
The change was primarily due to $1.2 million and payroll related costs point $7 million facility and depreciation expenses point $4 million professional fees and various other items, partially offset by a 1.1 million dollar decrease in litigation related expenses.
For the third quarter fiscal 2019, our effective tax rate was 12.9% compared to a tax rate of 19%.
In the third quarter fiscal 2018.
The decrease was primarily the result of lower U.S. rates applied to certain foreign activities and ongoing benefits from our Q4 2018 restructuring activities.
Adjusted EBITDA was $43.6 million for the third quarter of 2019 compared to $39.3 million in the same quarter last year.
Adjusted EBITDA margin was 20.6% compared to 22.4% and the prior year quarter. The lower EBITDA margin is primarily due to the change in gross margin I highlighted in my earlier comments and the increase in non-GAAP operating expenses due to timing.
On a GAAP basis net income attributable to Fox in the third quarter of 2019 was $29.5 million were 75 cents per diluted share compared to net income of $24.3 million or earnings.
62 cents per diluted share in the prior year period.
non-GAAP adjusted net income was $32.7 million, an increase of $4.5 million compared to $28.1 million in the third quarter of prior year period.
non-GAAP adjusted earnings per diluted share for the third quarter of 2019 was 83 cents compared to 72 cents in the third quarter of 2018.
Now focusing on our balance sheet.
As of September 27, 2019, we had cash on hand to $32 million total debt outstanding was $73 million compared to $59.4 million as of December 28, 2018.
Inventory was $131.2 million compared to $107.1 million at the end of 2018.
Accounts receivable was $106.8 million compared to $78.9 million as of December 28, 2018.
And accounts payable were $64.9 million compared to $55.1 million at the end of 2018, the changes and accounts receivable inventory accounts payable and debt are primarily primarily attributable to the growth of our business and normal seasonality as well as the impact from our ride Tech acquisition.
Additionally, our net property plant and equipment increased a 100 $102.6 million as of September 27, 2019, compared to $64.8 million at the end of 2018, which includes $18.6 million due to the impact of new lease accounting standards adopted in the first quarter of 2000.
Our team.
Turning to our outlook for the fourth quarter of 2019, we expect sales in the range of $175 million to $181 million and non-GAAP adjusted earnings per diluted share in the range of 57 to 62 cents.
For fiscal 2019 were raising our outlook and now expect sales in the range of $740 million to $746 million.
We expect non-GAAP adjusted earnings per diluted share in the range of $2.64 to $2.69 for fiscal 2019.
We continue to expect full year 2019, EBITDA margins of 19.5% to 20% and non-GAAP operating expenses to run 15.5% to 16% consistent with our previous outlook I would also like to point out that our guidance continues to include the impact tariffs and higher input costs based on current condition.
Yeah.
We continue to expect production in the new Georgia facility to begin in the second quarter of 2020 and ramp throughout the balance of the year.
And while we're not yet providing guidance for 2020, we would expect some inefficiencies to continue as well as additional duplicative costs. During this ramp next year.
We expect Capex for 2019 to be in the range of 5.5% to 6.5% of sales, which reflects the impact of our previously announced operations expansion.
Our guidance now assumes an annual non-GAAP tax rate of 12% to 14%, which is slightly lower than our previous expectation.
We continue to expect some quarterly fluctuation in tax rates to occur during the year due the timing of certain variables such as stock option exercises stock prices that are difficult to predict.
I'd also like to note that we're not providing guidance on GAAP EPS as a cannot be provided without unreasonable effort due to the difficulty of accurately predicting the elements necessary to provide such guidance and reconciliations.
Before I turn the call back over to Mike I'd like to first thank the board of directors and every one of Fox, we're making the past 12 years so rewarding.
It's been a privilege to work alongside such talented and dedicated team.
I look forward to continue to work closely with Mike in the team during the transition I'd like to now turn the call back over to Mike.
Thanks.
We now I'd like to open the call for questions operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before passing the keys.
A question. Please press Star then too.
This time, we'll pause momentarily to assemble roster.
First question today comes from Michael Swartz with Suntrust. Please go ahead.
Hey, guys good evening.
Hey, Mike.
Hey.
Just wanted to touch on gross margin gross margin for a second I think.
The fourth straight quarter, we've seen that accelerate.
Quarter over quarter, So maybe give us a said the on how you're thinking about gross margin playing out for the rest of the year and then and then into 2020.
Specifically with the ramp at the new facility going on how should that how should we think about that playing out.
Yes, as we stated during the course of the year, because we're moving into Georgia or expanding in Georgia, we're not making some of the longer term investments youd ordinarily make while you're in a facility thats stretched in terms of capacity. So we're experiencing basically two big factors that are contributing to the decline in gross margin factor number one which is Milan.
Your factor is the shift.
We would tell you that the shift the powered vehicle business is the faster growing of the two businesses long term growth rate for that business is low double digit rate, while the long term growth rate for the bike business is mid to high single digit rate, though that business tends to have more of a larger powered vehicle Oems. So you would tell you.
It's not a temporary.
It's not a temporary situation where existing in in terms of some reversion of mix.
In terms of the inefficiencies, we expect them to continue and in some to some degree increase for next year as we'll probably have lower inefficiencies, but on the other handler and have some of the ramp up costs from the new facilities.
Pretty significantly because we think there's a lot of efficiencies to be had in the new facility in Georgia, but it will take a little time to play out.
Well I think it's too early to give 2020 guidance, but we would tell you that the factors that are going to be negative drags on on margins are the new facility will have a little bit of different negative impact, but on the other hand, we are doing a better job on mitigating the inefficiencies. So I think it's a little too early we don't know with the final mix will be the powered vehicle business.
While it has north American large Oems does have a fairly robust aftermarket business as well so I'm not prepared to give guidance for 2020 at this point.
Okay fair enough fair enough.
And then just next question I think last quarter, you called out automotive revenue to give a sense of maybe how big that is or how quickly. That's great. That's something you could offer again this quarter.
We actually called out last quarter, just to give an indication.
It Wasnt <unk> Wasnt a factor we were going to call out every quarter you know on occasion, we want to give you guys. Some guidance just to give some clarity to the where the breakup of our business what looks like in the different elements, but that guidance. We gave for that delineation we gave last.
Quarter on aftermarket versus versus automotive.
You will become a unique what off we will we will do it again, but we're not going to working during the quarter.
Okay. Thank you.
Your next question today comes from Ross Jabber set of Bank of America Merrill Lynch. Please go ahead.
Yes.
Hi, Good afternoon, it's ray Thanks for taking my question.
Yes.
I just I first want to ask on the.
On the likes of spring or are the specialty sports segment.
Decelerated to this quarter, but you're reiterating the guidance for the year.
But can you sort of with some of the dynamics there might be driving deceleration why you're still confident about the full year outlook.
Yes, I mean, some of that seasonality or or quarter to quarter mix shift so timing of things.
In the bike business have a tendency to reflect what happens in one quarter versus another.
A bit like the prior quarter, we weren't surprised about where we will the end in Q3 timeframe and we're not surprise, but what we're going into Q4 timeframe. So we feel pretty good about it but this year. There has been some more timing adjustments based on when new product stars were happening.
The things in the bike business around E bikes and equipment and parts in just the whole supply chain that don't relate to us, but that have the impact on what our product actually gets installed new biking sold in the market. So yes, we had a few folks factors like that but but again as Chris said, where we'll call. It was where those numbers will end up for the euro and what we thought.
It will.
We'll be.
And then can you talk about just the end market trends you're seeing.
Mountain bikes I said, you feel about the inventory levels.
Yeah, Dan it's tough in some of those in some of those areas, but what we're seeing in mountain bike is the premium bike category or the higher end part of the mountain bike business is is.
Very strong sell our spec position on that is.
Really good.
So I actually believe the going into next year, we're still very well positioned we've got I think Chris nine new product launches next year. So we just feel great about kind of where we are stacking up to close between 18 and go into 2020 will give you at the 2020 guidance next in the next earnings call, but no.
There is nothing here that the Wifi as a significant headwind. We just think there were still beating the market where the markets not.
The margin not add.
At 5% rave in general so for us to be between we own the mid to high single digits is pretty good move.
We're okay with it.
And then the final question for me.
Good luck.
The gross margins from some of the larger Oems are.
And just talk about the like the overall EBIT margin for error.
Those Oems.
Even as the gross margins come under pressure.
The operating margin.
Sure.
Yes.
Yes.
Yes look we think that I think thats entirely true actually exactly true.
Sometimes a lower gross margin also equates to a longer lower EBIT margin sometimes not.
Depending on when you have higher gross margins.
I would have.
A more diverse SKU counts.
Lower I mean, which means you might have more R&D costs et cetera to support that customer so it doesn't necessarily translate one to one.
With all that said I guess, what we feel good about as are we had put on a long term EBITDA margin in excess of 20%. We don't we still feel very good about achieving that long term EBITDA margin. Once we get pass some of the inefficiencies were experiencing while we're ramping up Georgia.
We think.
You know, we think that the customer relationships, we have with the profitability dynamics are very very healthy.
Okay that makes sense very helpful. Thank you.
Thanks, Rick.
The next question today comes from Larry Solow CJS Securities. Please go ahead.
Great. Good afternoon. Thanks see you just first of all good luck to you it's been a great working when do you. It's the last six plus years. Since you went public in not wish you the best of luck.
Just couple of follow up on the on the question on the.
On the margin on the power vehicle side.
As you.
Ramp up and get passed at the ramp up stage.
Look down to 21 beyond its just something you mentioned pretty you see material opportunity. There. It's just something that we could sort of compare to the Taiwan opportunity you had on the on the.
What was by both bikes out and specialty sports today.
You were increasing gross margin by at least on the.
Next on 100, Betsy years, that's something we could.
Sure look forward to.
Our vehicle side as well.
No I think it's a little bit different I mean, the labor the difference from labor and other cost, California, Taiwan is as much greater than the differential in labor.
Other costs between parts certain parts of the U.S. and other parts of the U.S.. So I don't think Thats. The case again I think what I would point to is I do feel we do feel confident about the 20% EBITDA margins.
But whether we I don't think we were willing to say that its 22 or 23, but we're willing to say that we believe we can be an excess of 20% EBITDA margins on a long term sustainable basis.
Yes.
Learn from my perspective, our ability to run.
Production and manufacturing solution.
In the powered vehicle space, where we've got a higher degree of automotive OE type customers is actually really good for us because it creates predictable sustainable manufacturing you can vertically integrated you have good load forecast they don't change daily.
It's just a really good product manufacturing environment I think there's a lot we can do with its hard to do that right now in California, just because you are stretched so far.
But I think in general that can be a really good solution for us in the new expansion plan and frankly, the fact, we actually shipped a record level shots last quarter out of our California factories.
It is pretty impressive.
It was.
Quite a feat to get that done right absolutely.
Okay, and then just just on the on the bike side I guess in on one thing worth noting is supposed to sports here.
Difficult comp.
Q3 last year I think you grew over 20%. So you said some maybe some time it comes into effect or not.
It's like time, unless you are yet to.
The best quarter the year by far so maybe that's just.
Made this quarter is timing exaggerated timing a little bit.
Okay.
All right I think Larry Thanks for pointing that out I would tell you are our business the seasonality from year Ada your be it changes for for different reasons every year and right.
As as as Mike said, and Chris said, we're really pleased with achieving on track to achieve our mid to high single digit growth targets for the year and we're pretty excited about the product lineup.
This year and future years, just sticking with bikes and I know you don't break out gross margin Bye Bye Bye segment, but just qualitatively since we've discussed the power vehicle side, where there's still a little bit of pressure there I'm more group growth pains anything but on a on the steps to sports side, obviously, you've moved past your.
Years, where you had some pretty nice gains there, but if you were to isolate that not maybe not quantify exactly but gross margins. There they sort of flattish are they going up a little bit how are you going down a little bit of price points, but pretty small amount I guess will be our overall products. So can you give us any idea, what you know where that where their direction there huh.
We'd rather not comment on the gross margins what we would tell you is that we've gotten that if that facility is a lot more efficient we've been there a number of years now and we've gotten a lot of the efficiency that we'd rather not comment on gross margins by segment.
I would say, they're doing a great job [laughter] fair enough and just lastly, any update on the on the.
Commercial tractor trailer up to anything you could tell us there I think this year. It seems like it's pretty modest amount of sales, but could we expect.
Growth going forward incrementally as you look out over the next few years.
Yes, you know I've talked about this a little before Larry you know, we're really relying on the Georgia expansion to get to capacity to meet from the demand out there, but I'll tell you and rich mentioned us we launched with ratings, which is the largest.
Aftermarket.
A long haul type.
In the country the sales our product now we also put our catalog online lives. So people can actually go on the catalog and by parts. So we're seeing a demand thats actually creating increased demand increased demand. The right now we're we're not fulfilling.
And we'll kind of holding some of that business back until we can get to a more elegant manufacturing solution, but the rainy launched this last quarter.
And the go live on the catalog were a couple of big steps to had extended right track. It sounds like it sounds like a somewhat of a high class problem to have too so.
Yes, exactly excellent alright, thank you very much.
The next question today comes from Scott Stember with CL King. Please go ahead.
Good evening and thanks for taking my questions.
Hey, Scott.
Maybe just circling back to the bikes I do I do appreciate that youre going up against very difficult compares to last year, you had a phenomenal year, but can you just remind us how.
You guys from a spec perspective did on the last year.
So we just get an idea of how successful your products warning.
Maybe just give us a little.
What you're thinking about four or the next to 2021 model year.
Hi, Scott Kristen here, we were very well positioned last year, our our sales are organically tied to.
Our customer so as as bicycle sales go up our sales would go up on the OEM side. So we had great spec last year. We're early in the specs season is going into this next model year and I think that again, we're positioned well as Mike mentioned earlier, we have nine new suspension platforms, we're launching and we have a number of different component wheel products launching so we have a lot any product that lot of.
Marketing initiatives and a great market share. So we're excited going into next year.
And as far as aftermarket just aftermarket whether either segments and obviously, it's a smaller piece that apply the last few quarters, but maybe just give us an idea about just qualitatively how.
Qualitatively the the growth levels there.
Sure.
We've had some really bright spots in Canada for instance in a few other markets internationally has done extremely well for us.
So.
Trends to aftermarket being very very strong again strong product offerings strong brands. All those things have helped for sure our carbon carbon crank business we've shipped.
An immense amount of carbon cranks the share on the component side. So thats also helped our aftermarket business, which components, primarily as a higher shift aftermarket versus OE.
So again, we're feeling really good about we've had great race results without a lot of demand for product news on that would not lot of new product in the pipeline on its way through to the consumer.
All right last question on powered vehicles is you led the way talking about Tuscany, So I imagine that at one of the biggest impacts to a positive side can you just maybe just give us a little more granular details of what's really moving there and what's driving.
What's driving the forward progress.
Yes, I'll start and I'll, let rich jump into so yes definitely had a really strong quarter for us we don't really break out we don't break up their numbers independent of the other ones on the call, but they had the Harley Davidson lodging and that was a great opportunity for us to do a tremendous amount of volume of quarter.
Usually a big quarter for them anyway, and it just happened to be a great quarter. This year. So some of that was timing.
And some product opportunity that moved in from what would've been Q4 to Q3. So we took advantage of those and I think that.
Production solution that we haven't Elkhart.
Really kind of hit stride almost 100% throughout the quarters, there were making a tremendous amount of vehicles on a per day basis, which really helped and get the if those shipments out the door. So.
It's kind of function of both operations and good good production and Harley Davidson launch, which really helped US then as we got into volume, which would you adding bill.
Alright, Thats all I have thank you.
Thank you.
The next question today comes from Alice.
Of Baird. Please go ahead.
Hi, gentlemen, this is Allison for Craig. Thanks for taking my question on many of them Theyve been answered, but I'm just wanted to look at your Q4 guidance I think that revenue midpoint implies kind of low double digit growth on the P.S. midpoint is more like low single digits and that's a wider gap I think than we've seen in recent quarters. So what are some of the factors driving that disparity.
I think the biggest issue we had a really low tax rate last year yeah.
Probably the biggest factor.
Okay, and then and you did note. The tariffs are included in your guidance anyway to quantify the had when you've experienced in 2019 and maybe what your expectations for that are in 2020.
It's not that material, we talked about a couple of pennies here and there and is not that material, we felt the need to call. It out because there's so much focus about it and various industries, but it has not been a big issue for Fox.
Normally expected nor nor based on what we know today, we expect it to date to be now subject to change.
We of course will change our Mike Reserve our might reserve our.
Turning to change our opinion.
Great. That's all for me thanks.
2000.
The next question comes from Jim Duffy with Stifel. Please go ahead.
Thank you good afternoon.
Question on the powered vehicles, we all know the automotive OEM growth has been strong but it seems you have a lot of momentum in the aftermarket offerings with Tuscany sport truck and other things. So looking to 20 do you expect OEM revenue to continue to outpace the aftermarket revenue. It was is that mix drag to margins ease as we look into.
During 2000.
Look as we said I think we don't I don't think I want to give guidance for next year at this point yet it's too early for us to comment about that.
We think that I guess, what I was trying to point out my earlier comments as we don't necessarily expect it to revert back weather weather changes, whether only if it becomes a bigger portion of sales at this point, rather not comment about it until we give guidance, but we're not I don't think we think there's going to be a big drag.
On margins next year because of mix.
And Jim I think a pop Jim I think a positive on on what we see as you kind of look out in the outer years is.
Is the breadth of portfolio, meaning the different vehicles were on in a different Oems that were with so yeah. We've talked about totally that we've talked about FC Amy talked about.
Ford.
As you look back several years ago would have been pretty much afford only show. It's now a much broader butter portfolio that I think that helps us in the long term I think some diversification here is good and we're actually seeing the cycles by which they are renovating and innovating and developing new vehicles is happening quicker than it used to in Detroit. So that's an opportunity for us.
Because they're making better and better trucks and they're looking for us to help them.
Fulfill those those vehicles with higher caliber product. So I kind of look forward and think that that's a good part of our business that gets stronger overtime.
Great No I wanted to dig in on the powered vehicle aftermarket growth a little bit can you talk about the types of vehicles that are of.
Driving growth there is it.
You know intrexon pricing is up.
Yes, it's a good question, it's not just the types of vehicle, maybe I can help kind of corralled out a little bit you guys vehicles and Thats, what were doing outfitting and Thats very clearly no Ford GM et cetera.
Is it really drives most the demand in that space.
But in aftermarket Shaw sales that we fell through dealers distributors and through sport truck themselves out into a wide range of deferred b to b.
Solution that that's across the board and we're seeing that being driven by new innovation, new product launches that we've done throughout the year.
And that really helped us.
Tell tell the Fox story, and Bts and Jake asset of brands that we have.
Out into a pretty wide audience annual you'll see that.
Really being driven on the GE platform.
Platform GM platform the Ford platform, it's across the board and did that help that figure that after market diversity really gives us more predictable growth in closing more sustainable business.
That's helpful. Thanks, Mike.
Yes.
The next question today comes from Alex Moroshka of Baron Burke. Please go ahead.
Hey, good afternoon, guys. Thanks for taking the questions. So first one is just a follow up on one I heard earlier on in regards to the commercial products. It sounds like the sales are pulling through it up pretty nicely, but where sales right now in relation to your expectations and how is it related to gross margins given that capacity is not as high as you'd like for this trial.
Right.
When you talk about commercial product can you clarify what you're referring to.
For the long haul trucking.
Yes. It is it is still we're very excited about the space, we think that it can be one of the many drivers we have to continued growth, but the impact in margins is very small.
At this point, it's still a very small part of our business. The part we like about it adds into an aftermarket space, so margins tend to be a bit stronger and and which is where what we've talked about aftermarket and it as we're focused in that area.
As we do expand the volumes and actually support more and more of the dealers and retail shops that are those.
That should help us so.
On a go forward on a forward looking basis it looks it looks very attractive we've got a ways to get there.
Okay that makes sense and then one more on products you brought up marine and military in the past can you just give any updates on what you're seeing right now in those markets.
You know they they're pretty predictable marine is not a volatile market for us or we can you kind of look out over the year on year basis in no. We're going to go do it's a little bit constrained just from the four rigs low long haul businesses constraints because as you do something factories is as our OE and aftermarket business. So.
We have.
Optimism around that long term, what should we kind of unconstrained if you will.
Ed because it's such a small part of our business now as such a big Tim Yes, It has definitely significant growth opportunity.
Going forward.
Okay got it and then last one is on OEM contracts, what do you guys sitting in the market right now for more of these offered vehicle similar to a Ford Raptor achieve gladiator in terms of contracts that might be coming up soon and then opportunities abroad.
Yes, so we can't talk about the agreements in the platforms that were entering into before the before the Oems actually announcing publicly so we don't will front run those announcements, but at the same time, we can see the heavy success or the great success of the Ford Raptor has kind of lost the entire new.
Dr of trucks in and obviously that benefits us in AD. They create conversations that we probably would have had before with different with different folks.
And.
When we think about the platforms.
In the future that were auto will be on.
It's it's pretty compelling so.
I think that whole notion affiliate hero truck that the Raptor created.
Everybody took notice and said no what I was a J.T. rubicon, if your Gi Bill.
New GM product.
They want to have a similar vehicle that kind of capability in the portfolio.
All right that's great. Thanks, a lot guys.
Your next question today comes from Ryan Sunbeam of William Blair. Please go ahead.
Yes, hi, guys. Thanks, right. Thanks, taking my question.
Hi, Mike what's that acquisition right Tech off to I guess, it sounds like a good start here and now the opening of the R&D Center at the throughout Atlantic track could you, maybe just take a step back and provide some color on what you think success looks like for the Street performance group, maybe here in the near term over the next year or so.
And then.
At that business kind of grows and it establishes itself.
What's the timeline when you think that that business starts to kind of support that next I get growth you talked about.
Yeah, Yeah, I've talked before as you know right about about strip performance. So well I think we that category, though it has a follows a similar footsteps to what we've done off road in the powered vehicles group in that no getting a marginal North Carolina Center opened up getting the road Atlanta R&D Center opened up it gives us access.
To vehicles and to raise applications and allows us to we would develop through some very interesting technologies that can not only be other racetrack, which will be on the road.
Yeah that hole that whole.
In the opening of our door industry performance right. Doug has has performed well, we superbly well the future.
It won't be a short road, you typically longer roads to get to meaningful revenue and profit.
And your that Tam is so big that along the way you really have to pick what part of that Tim you want to be a part of what were where are you going to fill those product into.
And as you know, we're not really we're not commodity supplier at all we're going to focus on highly innovative high technology product that multiple go faster further and is on base tracks in roads and and I think over the years through your planning five you're planning it becomes a pretty meaningful part of our business.
Not quite ready yet to go give guidance on was that will be overtime, but.
With what rich in the team are doing any investments, we're making in both product and capability I think.
I think you guys you just see it kind of a continual for progression as we go to extend that business.
That's great. Thanks for that because there Mike and I just want to say congrats to just be as well as you move here for the next phase.
Thanks Ryan.
This concludes our question and answer session I would like to turn the conference back over to make Denison for any closing remarks.
Thank you for your questions and your interest in talks our team has done a tremendous job year to date and I would like to thank all of them to them for their hard work there collaboration with our customers and suppliers remain an important to our continued success. We look forward to speak with you again, when we report our 2019 fourth quarter fiscal year results Hello, Good evening.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.