Q4 2019 Earnings Call
Greetings and welcome to the Fox factory, holding Corp. fourth quarter 2019 earnings conference call. At this time all participants are in listen only not a question and answer session will follow the formal presentation.
And you want to require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
I'll now turn the conference over to your host David Haugen General Counsel. Please go ahead.
Thank you.
Good afternoon, and welcome to Fox factories fourth quarter and fiscal 2019 earnings conference call.
On the call today are like Denison, Chief Executive Officer, and Johnbull Archer interim Chief Financial Officer.
By now everyone should have access to the earnings release, which went out today at approximately four or five PM eastern time.
If you have not had a chance to review the release, it's available on the Investor Relations portion of our website at Www Dot Ripelock Dot com.
Please note that throughout this call, we will refer to Fox factory as Fox or a 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 question.
Such statements involve a number of known and unknown uncertainties, many of which are outside the company's control and can cause future results performance or achievements to differ significantly from the results performance or achievements expressed or implied by such forward looking statements.
Important factors and risks that could cause or contribute to such differences are detailed in the company's latest form 10-Q 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 or other statements herein, whether as a result of new information future events or otherwise.
In addition, within our earnings release in todays prepared remarks, non-GAAP gross margins non-GAAP operating expenses non-GAAP income tax non-GAAP adjusted net income non-GAAP adjusted earnings per diluted share adjusted EBITDA and adjusted EBITDA margin are referenced.
It is important to note. These are non-GAAP financial measures that we believe are useful metrics that 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 measure measures is included in todays press release, which has also been posted on our website.
And with that is my pleasure to turn the call over to our CEO Mike Denison.
Thanks, David Good afternoon, everyone. We appreciate you joining us on todays call to start to discuss our kids business highlights then we kept our strong finish to 2018.
John will then review our financial results in more detail and discuss or 2020 outlook. After that we'll open the call for your question.
Turning to our results were very pleased that I referenced fiscal year.
Finish both revenue and profitability exceeded our expectations.
Our team executing well we benefited from continued growth in both our powered vehicles and specialty sports groups.
We remain confident our building to consistently generate strong growth across a diversified business model and achieve a long term target.
Overall, our fourth quarter sales of 186 million increased nearly 19% compared to the fourth quarter last year.
Our strong results were driven by the continued success more powered vehicles product lineup.
Particularly in the OEM channel and especially sports group, where our products were well received within strong sell through across multiple Oh, yes.
Well probably perspective, we reported non-GAAP adjusted earnings per diluted share of 65 cents, representing an increase of 4% and adjusted EBITDA of 34 million or an increase of 15%.
Focusing on powered vehicles group organic sales were up 24.2% compared to the fourth quarter of 2018 and powered vehicle products sales were up 33.8% in fiscal 2019 compared to prior fiscal year.
Continued to remain focused only on <unk> on the off road Campbell on road vehicle market I'm excited about the prospects with our automotive OEM customers for Toyota NFC a.
As I mentioned on our last call one of our new platforms and the all new 2020, Gladiator body, which desire to take on the extreme desert at high speed. It wasn't built by GE at the Chicago Auto show last month.
This vehicle featured box suspension component the most Fox products. However on a production vehicle and is designed with incorporates for box 2.5 internal bypass shocks. It also includes two of our bump stops which feature internal 40 piston that increases DAF in performance and bottom.
Bottomed out control the last few into the travel.
We're extremely pleased I've worked with estimated queued up a former CFO products honest latest vehicle <unk> Jude product lineup.
Automotive aftermarket technological first ever Harley Davidson addition, GMT pickup truck at the bare Jackson option on January 11.
Okay work closely with Harley Davidson to create a vehicle that a distinct we are.
The team grew inspiration from the Harley Davidson pathway model anything over 65 additional specific components in the model 2020 trucks.
The launch of note on the power Sports Oh inside Honda recently announced two news sports side by side model from 20.1 that feature box Lyondell technology. The town 1000 luck and telling 1000 or just wasn't response to customer request for QC models, featuring electronic suspension after the law.
The foresee version with Libelled last year, the town 1000 export.
Finally within DPG, we continue to make excellent progress our efforts to expand our vehicles manufacturing footprint in Georgia. The development of our new facility in all County is on track. The first phase I phase of this expansion project itself that to be up and running late second quarter of this year.
Well, the outdoor especially sports group sales in the fourth quarter of 2019 were up 11.3% compared the same period in fiscal year 2018.
Annual specialty sports group product sales increased 6.3% in fiscal 2018, compared the prior year, which is inline with our mid to high single digit growth targets.
In 2019, many of our boss loci Raceway and these things like new products, where acknowledged by racking up consumer media wins here just a few other highlights our lifestyle technology enabled products at home. The Eurobike Gold Award winner design and Innovation award and when they get every year, but bicycling magazine.
Boxes named number one for can shocked by the readers of vital MTB.
Marzocchi bonds. The two sufficient work was named value product could be year by Pinsight and weighted every month byproduct by mountain bike magazine in Germany.
In the bike magazines readers award race face was voted the number one brand in bars installs for both traditional and new mountain bikes.
Our success is fundamentally due to our innovative product offerings strong demand for end customers a building to lead markets in both North America and you're in specialty sports, we continued to perform well I guess, a modest industry demand backdrop.
Our model of your 2021 products are being well received by our OEM athletes and we are optimistic with our overall spec position is shaping up product innovation continues to drive demand by Oems in the aftermarket.
We look forward to executing on our opportunities for growth in 2020, and believe boxes diversified product offerings will continue to resonate with our customers demonstrating our commitment to product innovation and growth of box brands and both existing and new categories.
Well our core business remains strong we are mindful of certain external factors that include the corner virus that may have an impact our business.
Cobot 19 is first and foremost a tragic illness thoughts are with those impacted around the world.
We're actively monitoring the potential impact to the buyers of our employees, our supply chain and end customer demand and while we have included a likely impact to the virus or first quarter guidance as well the minimal impact on the guidance for the balance of year, we caution that does viruses, a fluid situation, where implications of long term demand or so.
Flexion disruption cannot be fully quantified today.
As previously announced on February 12 toy.
We signed a definitive agreement to acquire 100% of the issued and outstanding capital stock and that's the eighth from Southern Rocky Holdings.
We believe this acquisition is complimentary to our Tuscany business, expanding our north American footprint for manufacturing, which can provide incremental efficiencies and capacity utilization and allows us to be in closer proximity to our customers.
Acquisition, broadens and Diversifies, our product offerings across its incremental truck to ask TV brands growing segment of the automotive industry. The combination of these benefits crazy leading platform with solid runway, but continued growth are powered vehicles business.
In addition, it will significantly expand our automotive dealer network, we look forward to working with their strong team [noise].
We remain on track to close the transaction by the end of the first quarter fiscal 2020 subject to customary closing conditions and as we discussed on our call to review the acquisition, we expect estimate to be accretive to boxes fiscal 2020 financial results.
In summary, you had a great into 2019 and begin 2020 with excitement about our opportunities to win at Fox. We appreciate the strong efforts of our team as we continued to deliver differentiated products to our passionate customer base, which reinforces the value of our brands.
We plan to build upon our existing accomplishments to generate long term sustainable growth and value for shareholders and with that I'll turn the call over to John.
Thanks, Mike Good afternoon, everyone I'll go over our fourth quarter results, then speak to our 2020 guidance.
Sales in the fourth quarter of 2019 were 185.9 billion, an increase of 18.5% versus sales of 156.8 million in the fourth quarter 2018.
Gross margin was 32.1% in the fourth quarter 2000, 1940 basis point decreased from 32.5% in Q4 18.
The decrease in margin was primarily due to the continued shifting customer and product mix at our larger North American OEM represented a higher proportion of sales. In addition, we continued to experience manufacturing and supply chain inefficiencies, which negatively impacted gross.
Total operating expenses were 33.5 million or 18% of sales in the fourth quarter 2019, compared to 28.1 million or 17.9% of sales in the fourth quarter last year. The increase in operating expenses on a dollar basis was primarily due to higher personnel costs as we invested product innovation operating costs related to right.
And increases in facilities and various other administrative expenses to support the growth of the business.
Non-GAAP operating expenses as a percentage of sales were 16.3% compared to 64.0% in Q4 18.
Focusing on expenses in more detail.
Sales and marketing increased 1.5 billion due to our REIT subsidiary personnel costs and various other event and promotional related activities.
R&D was up 1.5 billion, primarily due to increased personnel investments to support new product innovation and costs associated with right Tech.
As we've consistently stated the timing of both R&D and promotional expenses often changes between quarters in years, depending on a number of factors including product lifecycle.
Our general and administrative expenses in the fourth quarter 2019 were 12.9 million compared to 10.6 million in Q4 18. The change was primarily due to facility and various other administrative expenses personnel costs and costs associated with right.
For the fourth quarter 2019, our effective tax rate was 10%.
This tax rate is lower than our mid to long term expected tax rate, primarily due to certain nonrecurring benefits in 2019.
Adjusted EBITDA was 34.4 million for the fourth quarter 2019, compared to 29.8 million in the same quarter last year adjusted EBITDA margin was 18.5% compared to 19.0% in Q4 is doing.
The lower EBITDA margin is primarily due to the change in gross margin highlight and in my earlier comments and the increase in non-GAAP operating expenses due to timing.
On a GAAP basis net income attributable POC in the fourth quarter 2019, with 22.5 million worth 58 cents per diluted share compared to 20.1 billion or 52 cents per diluted share in the prior year period.
Non-GAAP adjusted net income of 25.4 billion, an increase of 2.9 million compared to 22.5 billion in the fourth quarter the prior year period.
Non-GAAP adjusted earning per diluted share in the fourth quarter of 2019 was 65 cents compared to 58 cents in the fourth quarter 2018.
Now focusing on our balance sheet as of January Threerd 2020, we had cash on hand 43.7 million.
Total debt outstanding was 68 million compared to 59.4 million at the end of 2018.
Inventory was 128.5 billion compared to one of 7.1 million at the end of 2018.
Accounts receivable was 91.6 million compared to 78.9 billion at the end of 18 and accounts payable was 55.1 million flat compared to be into 2018.
The changes in working capital accounts are primarily attributable to the growth of our business and the impact from our REIT Tech acquisition.
Additionally, our net property plant and equipment increased to 108.4 million ever January three 2020, compared to 64.8 million at the end of 2018.
The increase was primarily driven by investments in our new PBG manufacturing facility in Georgia, which just affected to begin production in mid 2020.
Now turning to our outlook.
For the first quarter 2020, we expect sales in the range of 182 million to 190 million and non-GAAP adjusted earnings per diluted share in the range of 55 to 60 cents.
For fiscal year 2020, we expect sales in the range of 881 million to 906 million and non-GAAP adjusted earnings per diluted share in the range of $3 to $3.10.
As previously announced on February 12, Fox signed a definitive agreement to acquire Sta performance Holdings. Our fiscal 2020 guidance includes approximately nine months of Sta is expected results.
We expect full year 2020, adjusted EBITDA margin to be between 90.7% to 20.5%.
We expect non-GAAP operating expenses to be consistent with our stated long term range of 16% to 16.5% of sales our full year basis and expect some fluctuations between quarters.
We continue to expect production in the new Georgia facility to begin in the second quarter and ramped throughout the balance of the year. We expect some inefficiencies to can you continue as well as additional duplicative costs. During this ramp in 2020.
We expect expect Capex for 2020 to be in the range of 6% to 7% of sales above our long term capex rate of 3% to 4% primarily due to the Georgia facility, which we anticipate to be largely complete in fiscal 2020.
Our full year guidance assumes an annual tax rate of 15% to 19%, which is consistent with our mid to long term expected tax rate.
Due to timing of various tax items, we expect you want to be at or slightly below the low end of this range.
We continue to expect in quarterly fluctuation in tax rate to occur during the year during a time due to the timing of certain variables such as stock option exercises and stock prices that are difficult to predict.
Finally, I'd also point out that our guidance for the first quarter reflects our current view of known impacting the Corona virus on our supply chain as they stand today and we're actively monitoring the situation.
However, given the dynamic evolving nature of the situation, we cannot accurately predict potential future impact on our supply chain or that of our customers or end users.
I would also like to note that we're not providing guidance on GAAP EPS as it can't be provided without unreasonable effort due to the difficulty of accurately predicting these elements necessary to provide such guidance and reconciliation.
I would like to now turn the call back over to Mike. Thanks, John We would now like to open the call for questions operator.
Certainly at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad confirmation John will indicate your line is in the question Q you May press star to if he would like to remove your question from the Q for those using speaker equipment and maybe necessary.
He did pick up your handset for pressing the star keys.
One moment, please mildly poll for questions.
The first question is from Mike Swartz with Suntrust Robinson Humphrey. Please go ahead.
Hey, good evening guys.
Hey, Mike.
Just just starting on maybe some of the commentary around the the nude Georgia facility and just the timing of that doesn't sound like anything's changed since the last time you've talked publicly.
I guess, just what everyone is trying to understand better. It's just the cadence of some of the inefficiencies and and costs throughout the year associated with that project [laughter] give us a little sense of how that would impact gross margin as we work at work for the year.
Sure.
So here in Q1, we've already started a little bit of activity. So don't be some of that activity in Q1, it tends to ramp a little bit in Q2 in Q3 at you and we start to bring on people and inventory the training duplicative training costs and things of that nature. I think you kind of leveled off here in Q3, if you kind of look think of it that way as we start to get efficiency and Mike One thing I'd.
I would comment we also talked about it happens that.
As we as we get into that kinda back half of the year in production starts up in Georgia.
We are expecting to get some partially offsetting operational efficiencies in our west coast operations from as a result of that transition so it'll be a little bit of balancing on it you'll get some partial offset about that but did that help you give you color on how that might play out in the year.
Yeah, I know that that's exactly what I was looking for [noise].
And another question just in terms of guidance.
But the numbers you gave us from a couple of weeks back, but do you see hey acquisition I presume wouldn't have changed in terms of the nine month impact.
No no consistent.
Okay.
I think that's hey, Mike also be Michael that you know, we're expecting to close late late this quarter as we've talked about it could change you know weaker due to some of that but who knows how that'll go go a little bit TBD, but now it's still consistent.
Thank you.
The next question is from Craig Kennison of Robert W. Baird and company. Please go ahead.
Hey, Thanks for taking my questions as well I wanted to touch on the this corona virus hard to get away from that.
You know to what extent does your supply chain get affected at all maybe just add a little more color.
Curious if you have component suppliers that have shut down or had any temporary shut down and then whether any of your OEM customers.
Have struggled to stay open because other of their suppliers are not operational even if you may be.
Yeah, Let me, let me try and cycle that Craig. So you know what we did as we saw this kind of become a a real global issue.
Put together team are folks from both business and supply chain and I understand all went onto a component level, where we thought our supply chain might be affected we do those reviews weekly and for where we sit today with information we have.
I'd say that impacted our supply chain very minimal.
A few things move down slightly it within the quarter.
Nothing that would be a material change from a supply Joe perspective that that is.
That's that's what we know today, let's go play that out as as things change globally of course, what with its buyers on the end customer demand.
Did you know so far we've got strong signal from all of our customers that things continue if not as normal as close no as you can be in these circumstances. So we feel pretty good about it.
Again, I think as this virus.
No.
Spread globally that could be some implications of that but as of where we sit today, we think it's pretty minimal within our guidance for both the quarter end year and and so I think it's imperative for us to stay very focused on it and it very conscious of the.
The potential implications.
Thanks, and then a few quarters back you acquired ride tack I'm wondering if you'd provide an update on how that integration is going and what opportunities have been developed since you've acquired the company.
Yeah, right. That's gone very well you know that was our launch industry performance of the category, we fully integrated business towards the back half of last year.
It's functioning.
Trimble, well, let's say, we fully integrated yeah, there's still a few things we need to do like Oracle implementation et cetera, but from a a business operations perspective.
You know we were fully integrated so we think thats a long a low growth curve as we get industry performance, we think right to execute piece of it and it's performed at or above our expectations since the acquisition. So.
And we feel good about it.
Thanks, and finally shifting to cash flow you mentioned, the capex being elevated this year, what would that figure returned to and 2021 and also with respect to working capital kind of working capital draw should we expect in 2020.
I'll take the first half or John have the second one so we believe capex is a function of 2021 goes back to us.
More normal range of 3% to 4%, we think once we get through Georgia again.
Envision, Georgia It gives us enough expansion that we are in great shape for a number of years.
And in our Capex should come back to the 3% to 4% range.
Yeah metric on <unk> on the working capital.
Thank you need any near term, we're going to be putting a inventory in additional in front of the Georgia factories. So I think it's there they're going to get additional need for working capital also with the acquisition. It I see a you know got those finance vehicles on it I think it kind of goes up a little bit then leveled off and I think longer term, what we're expecting out of that Georgia facility and I don't want you to work together.
But we're definitely expecting some improvement on the inventory and be a working capital.
At that factory, because that's a much more elegantly designed and efficiently design factory that are currently waiting.
Great. Thank you.
The next question is from Scott Stember F.C.L. King. Please go ahead.
Good evening and thanks for taking my questions.
It's got [noise].
Just looking out a I appreciate the fact and thanks for the the information about what you're seeing right now from the Corona virus that maybe.
Just give us an indication of how reliance you are on our parts from China, whether its subcomponents.
Or fully Designcon, Poland is just trying to get a sense, what we should be looking for in the event that things do get worse.
As your progress thanks.
Yeah, you know China.
Is there a bigger supply chain around aluminum components aluminum parts things like bearings, and it's not a zonda enormous list of different components.
And most of those factories as I said earlier functioning.
We're getting inventory we need so no significant issue, we do also get wheels from China.
For our up getting business. So you know we're tracking that we were okay, there too but.
Yes on the powered vehicle side, it's really kind of a wheels supply chain on the buy side, it's more aluminum components berries stuff like that.
And on the demand side in China can you, maybe just touch on that.
We don't sell much into China, I think China, John Craig if I'm wrong with China's about 1% of revenue. So very small it's not we don't have a demand issue there for sure.
Got it and just look at the FDA.
Acquisition, just trying for modeling purposes from an interest expense they pointed to balance sheet standpoint, just remind us.
Of where you expect the leverage to be when the deal closes where do you expect it to be I don't know with a 12 18 months and maybe just give us an indication of where what kind of expense interest expense, we should be looking at on a quarterly basis at least initially.
Sure, let me take that way so so the entire the deal was financed along with the additional working capital also this quarter. If you talk about having our Capex, we've got a high capex.
First half this year relative the George expansion going on.
And then some additional working capital increases so I'm expecting somewhere around the two and half times EBITDA, a trailing a coming out of the quarter here and then I think over the next 12 months in 12 18 months, we get that down.
I don't want to give a number but certainly our comfort zone is more in the one to two range. So I think we'll kind of get that down year over the coming 612 18 months handling.
Got it down the interest expense line.
I would just assume market I mean, I've given you that we've given you then the value of the transaction you know you've gotten can modeling capex networking and run. It. So you just assume market rates I think is the best way to kind of estimate that interest expense.
Perfect.
Alright, Thats all I have thank you.
Thank you.
The next question is from Larry Solow CJS Securities. Please go ahead [noise], great. Thank you and good afternoon.
Couple of follow up on the on the specialty products or specialty sports excuse me.
Nice growth in Q4, new and you're sort of rebounded to the lower end of your long term ranch I know you don't necessarily guide bye bye bye each segment, but how long is taking a bunch of new product platforms coming out and 2020.
A good decent amount more than they were 19 any thoughts on on that and sort of.
Outlook.
Generally speaking you know terms is that sort of normal range or.
Yeah, I would say the Alex will normal range, though we're still going to guide that business.
In 2020 on the mid to high single digits, but we feel great about the product launches that we're doing this year offered the actually for modeled 2021 bikes, but those bite amount in 2020 right.
So we feel great about that so we're really looking forward you'll get your with the yes as GE business could you give us any color on some of the you know some of those new platforms. You know again from from a high level maybe or.
Yeah, the ones that we've talked about the pass or all around forks to end suspension systems, we haven't given a lot of color on the components of our business. We see some good from happening there too we won't actually announced which bikes were on because that kind of front runs our customers. So we'll have those come out and get introduced by the by the Oems.
But.
A lot of new platforms like I said around on suspension in core products.
And then on the on the margin outlook it sounds like gross margin they'll still be some inefficiencies.
At least through the first half for the year.
Maybe I guess for your more gross margin, maybe down a little bit but for sure you're actually guiding to a little bit higher on the EBITDA side. So do you pick up a little bit on on operating leverage operating efficiencies or how should we look at that 20, and then could you can you sort of help us yeah.
I got to follow tight yeah, yeah, we get a little bit ex just don't forget we get a little bit of extra lift on the FDA and I think there even a margin growth world Cabot above the legacy Fox.
He data certainly helps you a little bit okay. That's the primary driver.
Yes, Okay, and then how about as we look out to 21 and beyond so certainly a you know 20 seems like a still another transition year, but clearly we don't we will expect some benefit.
Bounced back to where you are and then hopefully you get some some pretty good benefit as you consolidate a move a lot of your stuff into.
Newer capacity and outside of a higher labor area I'm not in the West coast, they're selling that comes out I don't know what did you quantify the impact, but when you moved to Taiwan and on the bike side two years ago. It was a multi.
Hundred several hundred bips over a several year period, but how should we look at it on the on the on the.
Power sports.
I think you're absolutely opportunities for efficiencies in manufacturing supply chain I would say, it's even greater than just the people impact.
Clearly.
Access the labor or access to talent has has is going to be easier for us in Georgia that it is we're out in California, but more importantly, you guys supply chain does vertically integrated most of it housed in the building so within one building versus within suppliers in hobbies and nodes all over the western part of the United States. So.
It's just a much more efficient supply chain, where you can get machining anodizing and manufacturing normal thing building. So that that is where we're going to stand to gain.
Significant opportunity would you start expected to suit should we start expecting no. So obviously the all wants to put in 21, sorry, moving up into right direction.
Yeah, I think though you know I think 2020 is a is a is a year where were in transition where we're going to get as John mentioned before summit efficiencies in California.
While the brand while they have Georgia, but you're really going to see the weight of the value of Georgia start to hit us in 20 tool and if I'm.
Hi, good talking to them that we've been moved from California, Taiwan that was a significantly different cost structure than a move to California George.
Yeah, Yeah, Yeah, Yeah, I don't want to think they forget there that's the.
But also you know not quite to that magnitude, but you know I'm hopeful that somewhat you know obviously, you'll get some of the you know some similar cost benefits not quantified not not really is not not as great right.
Last question just on the on the commercial.
Tried to trailer or any updates on that and are you, including any you know sales in your guidance for 20.
For 2020.
No. We kept the guidance is very small on commercial for 2020, just because you know it's going to come into the Georgia solution later in the back half the year or the very end of the year.
Won't be the first thing that we moved so it George is required to get to the scale and volume that we need to support our customer base. So yeah. We consciously kept that is a very small company over 2020 guidance. Okay. Hopefully by 20 wanted beyond hopefully, we'll we'll start seeing a little more material effect absolutely great. Thanks, So much I appreciate it guys.
The next question is from Jim Duffy Stifel. Please go ahead.
Thank you a little guys.
And then Jim.
Hey, just to start given through the the K It looks like Ford was an 11% customer in 19.
In the past you guys have disclosed automotive per cent of the mix, maybe it's in there and I haven't seen it yet, but can you speak to where auto stands as a percent of the mix for 2019, and maybe haven't right.
Glad younger let me, yes, let me take the fund that made me Mike and.
When we did that we've done at once so far and we kind of guided that we were not going to be doing that on a regular basis that it's a it's a periodic basis, we're going to be doing that so I don't think we disclose that.
Yeah, but you're right Ford was an 11% in the year.
For us.
Okay. Yeah for me for me for form is great for us and Tolentino with the range of Raptor and the Raptor products. It was just you know pretty significant volume, which was fantastic to see and of course as we've talked about the past thats a little bit of why that frictional cost in California. Her we just exceeded.
Our our greatest forecast.
Okay sounds about business.
Great.
Then shifting gears, a especially sports can you talk about the mix of business. Your seemed between E bikes in traditional bikes I'm curious is E bikes driving all the growth are you actually seeing growth than the traditional bike business as well.
We're seeing a traditional bike business as well and the problem ended that space that we've seen really nice uplift you bites are still emerging in that category because as you know initially you bikes really were much for the mountain bike category. There are more city bikes and things like that as that transition some more of a mountain bike in a premium mountain bike at that.
We think thats a little opportunity for us. So we're really focused on that in 2020 and beyond but historically a lot of our brothers come from the traditional space.
Okay, and Oh, you know some of your key platform providers are coming out with high profile E. Bikes. This year is that a meaningful driver to the the category.
I think it here because I think he by I think you'd like to extend the demographic that you can tell a mountain bike into other premium mountain bike into a I believe that it allows people to do more biking mountain biking, they would have otherwise.
And I think for a long term basis, that's a real significant lever for us.
Okay last one for me.
Just kind of Blue sense 2019 head of 50, Threerd week, John how should we think about that as modeling for the fourth quarter anyway to size that contribution.
For the last quarter 19, you mean.
Yes.
Yeah, you know it's interesting we going into it we were thinking that the holidays played out we're going to you know the extra days, we're gonna be around holidays and things like that I would tell you. We think it helped us a little bit.
You know with where we came in you know I want to give you a number but it did help with a little bit I wouldn't say it was all it was you know it was the entire thing was relative that I think that's when the strength of itself is very strong we probably picked up a little bit here because the extra couple of days.
So not big enough to really think about as we model for fourth quarter 20.
Right correct.
Okay. Thank you guys.
The next question is from Alex Meraki as Darren Burke. Please go ahead.
Hey, good afternoon. Thanks for the question. So looks like powered vehicles are now 60% of business and they seem to be on track to hit around 65% by the end of this year could you just remind us how dilutive somebody contracts already group margins and what you think you could do in the long term for adjusted EBITDA margins once the Georgia plants online.
Yes, so a couple of things I think your numbers are right relative to the percentages of of you know powered vehicles versus SSG. Yeah. We don't talk about the contract specifically, we believe we've got contracts that match our type of business went out of commodity supplier, we're not a broad line supplier. These companies we sell a branded.
Product, it's a premium product you know in terms of where we go with margins George will help us significantly we have not actually qualified what those numbers are there relative to target goals. Although we've said they are meaningful.
You know what I think for US aftermarket is always a good balance any equation. So even powered vehicles, we have a significant aftermarket business, which has higher margins typically than than OEM business. So yeah, we're balancing that for a number of different ways and we will stay focused on their balance comes in we think it's healthy for the overall margins the business.
Yeah, John Nadel from kind of follow on to that at the FDA acquisition that we did an aftermarket channel.
Channel.
And so there their margin tend to be able to hire as well that adds to that that PBG waiting.
Okay makes sense and I know, you're not going to give specific contract details, but we're getting close to the end of life cycle for the generation to Ford Raptor. Its its an important part of the business says you gave the 11% number can you just give us any sense of how pricing at the end of the current lifecycle, maybe affected margins in 19.
Okay, and what we could expect in 20.
Couple of things are happening in 28.
Well you're back to actually the Mojave deal that we struck with with the Sta on that vehicle, we actually have six product. So when you think about our ability to sell revenue into a a per vehicle basis, having industrial you know 50% components on on the vehicle. It helps us a lot. So we're increasing our value per view.
Vehicle odd on two fronts really on the the premium product category with live valve and things like that as well as the number of components. So we yeah. That's how we kind of attack it and we think you know with Raptor their next generation Raptor, and it's sort of new products coming out from from both F.C.A. important.
And others that I think you know I think.
We're looking pretty positive about the long term growth aspects of it both margin and revenue.
Okay. That's helpful. Thanks, guys.
[noise] as a reminder, star one to ask a question.
The next question is from base, Yeah grows that as bank of America Merrill Lynch. Please go ahead.
Hi, good afternoon, Thanks for taking my question.
I.
Oh <unk> on the mountain right.
Mark.
That.
Got it Mark.
Just discuss more than overall mountain bike and then.
We feel about your.
Right.
If you were breaking up a little bit so I'm not sure I caught that completely usually go down bikes in market share can you just repeat that left yes.
I I think you mentioned that.
When you talked about the overall industry that you're seeing is modest growth can you talk about your overall market share trends within the industry and then.
Yes overall for growth.
Yes, we think in mountain bike <unk>, yeah. It tends to still remains at a modest growth business, we talked about it kind of tracking to GDP of course, our growth is significantly higher than that on that is a function of share.
The function of new products as well, so we're really comfortable with our.
They're spec share in 2018 is great and 21, it looks to be as good or better and I again, when you get down to a a market where you're one of two players on the pool ended the business, maybe it's kinda give and take each year to some extent, but we continue to win awards in the when races.
So I think that that tells you that we're holding our own and probably do a little better than our own if you will.
And you see additional categories opportunity in mountain bikes that you're not in a major yet.
We do you know there's a couple of things or were you know that we think are interesting for us what is the by categories opened up a notion of needing a lighter more functional fourq in shock set up then then.
Then the judicial biased a little bit different we think the gravel bike category is interesting for US now that's a huge category, but one is growing and whether we think can be interesting for a damping system of sometime.
And of course, they get a free ride business, where marzocchi really plays it's been great for us. So we think those are good categories to grow them and then on the rate case Eastern side York Harbor wheels are going in both mountain bikes and road bags and will it that expands its interesting spaces that we that we can grow too. So we think there's a lot.
No, we really loved that business.
I know, it's not the yeah the market that the business as an industry doesn't grow as fast as others, but yeah. We're we're where we feel about it's we're number one or two in those spaces to and we like that positioning.
And then just follow up and yes, yes acquisition or it's more of your acquisition strategy going forward.
<unk> was something larger than prior acquisitions acquisitions, you've made push the leverageable a little bit higher.
And going forward can you talk about.
After you deliberately what the acquisition strategy is like what are the characteristics in terms of.
Size target multiple.
Categories that you'll be looking for additional M&A.
Yeah, you know just because we did a large acquisition doesn't rule wouldn't do a small until we find a technology or a business that opens the door for us or gives us a capability. We didn't previously have yeah. We're fine to do smaller size acquisitions right Tech being a good example that at the same time you know we have a limited.
Bandwidth for a management team so buying small companies that takes about as much work is by a big company, sometimes by a big company you get a fantastic management team with the acquisition.
Which is the case CA and those are much easier to integrate those are much easier to bring into the failing and running the business. So we like those bigger acquisition, they have a bigger impact on our or business faster and and as we grow.
It's kind of the is the love Big numbers. So we need to do you have bigger deals in terms of valuations. It really depends on the deal you know, we like we'd like to get things of the values. So we we like to buy assets. There that are not premium price or the same time, depending on the market and the space. We're trying to acquire into sometimes you pay more of a.
Market price you know.
For for that for a target. So we're not afraid of it but it really has to meet the strategic direction of the company. What we're going we want to stay completely on track with who we are how we run our business and our culture. So we we use those any big filters to make sure that when we acquire somebody yeah, there were getting the right.
Team the right company with the right product that matches, what we do so that's kind of when do you go over that outs.
Yeah, that's really helpful and started to do some one more ones as GAAP guidance.
In terms of the guidance for 2020, it looks like.
Again it grows.
It's very strong in the first quarter, and then sort of moderates in quarters. Two through four is there anything specific that that's driving that on organic basis conservatism or I'm. Just can you just help us understand the cadence throughout the year for for the topline growth.
Yeah, Let me there's going to take that one first of all I'd remind you that we acquired right back in the second quarter last year. So it's not it wasnt into Q1, so that's part of that growth.
So you're you're calling it organic there. Additionally, I think there's a little bit of seasonality this year within our PBG side, because typically I'm, especially the both on the platform changes the timing of some of those things it's kind of shifting around from probably from in from Q2 into Q1, it's a little bit. So the combination of those two things is why do you see a little bit of a little bit more excel.
The rate in Q1, and you know kind of going down to kind of a more normalized rate in the back half study that's what's going on.
Okay. Thank you through <unk>.
[noise]. This concludes todays question and answer session I will now turn the call over to make Denison for closing remarks.
Thank you. We appreciate your participation in questions on todays call. Thank you for your interest in Fox, We look forward to speak with you. When we report our 2021st quarter have a good evening.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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