Q1 2020 Earnings Call
Greetings and welcome to Fox Factory, holding court first quarter 2020 earnings conference call.
At this time all participants on you listen only mode.
We've question to answer session will follow the formal presentation.
If any once you require operators that's just one accomplices. Please press start symbol on your telephone keypad.
As a reminder, discomfort being recorded.
And I'm like the turn of conference. So what's your host today, David <unk>, Vice President General Counsel in Secretary. Thank you Sir you may begin.
Thank you.
Good afternoon, and welcome to Fox factories first quarter fiscal 2020 earnings conference call.
On the call today are Miked Ellison, Chief Executive Officer, and John Blow shirt interim Chief Financial Officer.
By now everyone should have access to the earning is really switch went out today at approximately four or five PM eastern time.
If you have not had a chance to review the rhythm it's available on the Investor Relations portion of our website W.W.W. dot like Fox Dot com.
Please note that throughout this call, we will refer to Fox factory as Fox or the company.
Before we begin I'd like to remind everyone that the prepared remarks contain forward looking statements in management may make additional forward looking statements in response to your questions.
Such statements involved 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 their results performance or cheapness expressed or implied by such forward looking statements.
Important factors in risks that could cause or contribute to such differences are detailed in the company's blatant born 10, Q. and in the annual report on form 10, K. filed with these securities and Exchange Commission.
Except as required by law the company undertakes no obligation to update when you call, we're looking or other statements hearing whether as a result of new information future events or otherwise.
In addition, within our earnings release in today's prepared remarks, non gap gross margin non gap operating expenses.
Gap income tax Nongaap adjusted net income.
Nongaap adjusted earnings per diluted shared adjusted either D.A. and adjusted E.V.A. market are referenced.
It is important to notice that these are non gap financial measures that we believe are useful metrics that better reflect the performance of our business on an ongoing basis.
Reconciliation of these non got financial measures to their most directly comparable gap financial majors are included in today's press release, which has also been posted on our website.
And with that it it's my pleasure to turn the call over two hours CEO, Mike Denison.
Thank you David any good afternoon, we appreciate everyone taking the time to join it's for today's call.
We lost recorded earning a covert 19 pandemic as rapidly cause an unprecedented impact on our global economy, our daily lives in our business.
First and foremost our thoughts and prayers go out to all those affected by the virus I.
I would like to extend my son tourist appreciation to our employees.
Continue working in our facilities to keep our operations running where possible into all of the health care workers, helping to when this war eco good night too.
Our number one priority has been insuring that health and safety where employees and their families.
There are working together as an organization to be as informed and nimble as possible to also ensure the health of our big now into the future.
I'm going to start by sharing how we respond to this unprecedented.
Environment.
Oh, well then focused on key highlights of our business in the first fiscal quarter of 2020, along with some perspective on the month of April 2nd quarter.
John would then go through our first quarter result in more detail and provide perspective on our balance sheet cash flow and if you financial element of our business as we look for it.
As you would expect according to C.D.C. guideline, we had implemented new policies enhance our best practically excuse manufacturing and operational areas, including stepping up a sanitation social different things and helped you extra visitors at all of our facility.
We experienced approximately $1.8 million in a covert 19 related costs and the first quarter to support our operations, which is reflected in our gross profit result.
And for Q. too, we expect a step up to cope with 19 related costs.
As the costs are commensurate with the amount of time, we are impacted within a quarter.
We will keep these enhanced practices and procedures in place to ensure we're operating our business as responsibly and safely as possible getting new covert 19 environment.
Our teams me daily to evaluate the health financial and social impact of the pandemic is having our employees business and value supply chain until we M. partners.
Were responding quickly with majors policies and actions minimize any potential negative impacts.
<unk>.
There are new developments daily.
Out of how our team is consistently managing our way through a very unpredictable time and circumstances.
Shortly after the outbreak in China, Taiwan started taking measures to prevent the spread of covert 19.
Actions began much earlier than other countries around the world.
As a result.
Speaking Taiwanese maintaining likely business closer to normal, but most of other parts of the world.
You're fortunate that our operations in Taiwan, or running smoothly and we are continuously monitoring situation to ensure that we were able to anticipate any spawned any potential changes quickly.
In Canada in Europe, R.S.S.G.T., and then working closely with our customers they suppliers.
Talking to them daily to ensure we're <unk>, we're supporting them now and able to emerge stronger as partners in due course.
We continue to follow government to health authority guidance to ensure we practice good health measures, including social dismissing. It currently have a mix of on site operations employees working from home as we prepare to return to more normal operations on site.
In the U.S., we are faced with varying degrees of stay at home orders and several states that are impacting our manufacturing operations, Oh, we M. partners, and then cats and consumers.
We are in compliance across all of our affected locations and take the necessary action to adhere to the orders A.P. government guidelines.
That's the same time, we're working with government authorities at all levels can determine how best to continue to maintain minimum operations.
As it stands right now it all impacted facilities. We are currently able to remain operational at least at minimal level as we provide essential services to our communities.
It is important for us to continue to operate even that limited capacity to enable us to continue to meet customer demand and changing business they'd during these times.
We started the year was very strong business momentum with our diversified product to operate and differentiated market position ahead of the global spread of cold at night.
Both of our businesses that great results for the first half of the quarter and while they ultimately had unique demand profiles from early March onward were generally happy with their ability to sustain revenue in spite of the rising pandemic.
In general the powered vehicles group is currently experiencing a temporary slow down with O.U.M. customers, but his booking strong sales me after market military and commercial vehicles product line.
Within the powered vehicles group, we continue to make excellent progress or efforts to expand our part vehicles manufacturing footprints in Georgia.
The development of our new facility and Hall County remains on track.
First phase of this expansion project is set up to be it's that to be up and running later this quarter and we're beginning prefecture work as we speak.
The specially sports group experiences slight shifting sales late in the first quarter pool cue one into cute too.
But has been a bright spot based on what we have seen the order books from their channel.
Overall, the first quarter, we generated sales of 184.4 million 814 per cent increase compared to the first quarter last year.
Our results for driven by the continued success of our broad powered vehicles product line up, particularly in the O.U.M. channel prior to the pandemic.
Powered vehicles groups product sales were up 24.6% compared to the first quarter of 20 late kids.
And especially sports group sales, we're down to 1.8% of the first quarter compared to the prior year quarter, reflecting is shifting timing of Oh, Oh M. orders as mentioned earlier.
In mind, especially sports group sales were up approximately 30 per cent in Q1 of last year, creating a difficult you're on your comparison.
That said you are pleased that are especially sports grip model, you're 2021 introduction.
I've been well received by both the after market and fully and thus far.
While it is difficult to fully quantify we believe operating with limited production beginning in March impacted our overall sales by approximately 5% to 7%.
Focusing on our post to one trend during the month of April Oh, Yeah. Those were shut down in the U.S., which impacted or P.D.D. results during that time.
You had at the same time.
She was able to function any more normalize production environment.
While our top line results in April I've been severely challenged we're pleased with our order bucks for both sides, but business.
We do expect hard vehicle group sales in Q2, 2020 to me down Barsi part of your quarter.
In addition.
We are assuming the potential for some intermittent challenges as it began to revamp up hard vehicle production back to more normal light levels.
As many of you likely no majority vote, we had this plan to restart the production throughout the month of May.
The exact conning in pace at which production razor was it still developing.
The good news is that we are already starting to see indication of bikinis coming back from work <unk> Oh, yes.
And we view this as a beginning of a more positive trend.
Keep in mind, we strongly believe these issues are more transitory nature of the work through this unprecedented operating environment, resulting from the covert 19 pandemic and not and market demand issue.
[noise] consumer staying at home or traveling let's have turned to our part vehicle, especially sports products as they are inherently outdoor recreational activities enjoyed by friends and families while keeping physically distance.
We expect demand to wreak celebrate move into a post coping 19 environment and believe that growling consumer base could emerge much stronger for both.
As North America and Europe.
Begin to reopen their economies, we remain optimistic and corpus about the growth opportunities ahead of us grounded in our strategic initiatives as well because it's a little wealthy in power of the Fox bread.
We continue to remain focused on the off road capable on road vehicle market and are excited about the prospects with our automobiles automotive Oh young customers Board tell you that yeah.
We believe consumer demand for the tracking g. platforms were on remain strong.
Back to see that reflected in the revised fork out as they make moves to bring their plants back online.
We are pleased to have completed the acquisition of S.T.A. in mid March.
Conjunction with the closing of the transaction, we amended our credit facility and believe that in combination with our cash on hand, and operating cash flow provides us with sufficient financial flexibility as we move forward.
As we previously stated S.T.A. is complimentary to our Tuscany business.
Spending or north American manufacturing footprint, and diversifying our brand and product portfolio.
The combination of these benefits create the leading platform with solid runway for continued growth in our powered vehicles business. In addition, it will significantly expand our automotive dealer network. In fact, it at first quarter expanded are actually a dealer base by nearly 100 dealers, which led to wait 22%.
Higher than average monthly volume portrait.
Positive trend continued into April with another solid increase for trucks shipments.
This was driven by attractive truck prices and great financing options from Oh, yeah.
Another notable datapoint is focused online, where where S.T.A. generated 25% sequential increase in internet lead from Q. for last year to Q1 of 2020.
This drove actual internet led sales up 17%, but the same period.
The team has to execute extremely well in the last several weeks since we close the transaction and we look forward or continued growth and development as part of the Bucks team.
In summary across our organization.
We are taking necessary safety support and other measures the best manage our business.
Operating environment as we continued to deliver performance defining products.
That'd be half of our board of directors and executive team. We appreciate the strong efforts of our team as they continued to deliver differentiated products to our passionate customer base, which reinforces the value of our bread.
We plan to build upon our existing accomplishment and remain call for that long term financial objective as we generate sustainable growth and value for shareholders and what's that all turned to call over to John.
Thanks Bye.
Good afternoon, everyone.
You are first quarter.
And then go over the status you can access.
<unk>.
Yeah.
They open the first quarter of 2004 or 184.4 about yet.
14% versus say over 161.7.
She got from 19.
<unk>.
6.5.
It was floating in March.
But it wasn't very first quarter.
Oh I see each back already marks due to the Kobe 19 shelter or more later in the hot.
Prior to the shelter at home orders, our sales in the quarter company and it <unk> <unk> <unk>.
Gross margin was 13.7% first quarter of 2000 flight.
Pointing pays for 31.6%.
Area.
Okay first mortgage.
80 basis points.
<unk>.
Decreasing gross margin, but primarily due to approximately 1.8 by a factor you costs associated with a cold at night.
<unk>.
If I catch it makes it nice costs will continue and most likely increase in the second quarter due to continue to get back to cover 19.
He's costs are difficult to protect the N. no way shelter whores.
Total operating expenses were 45 or 24.4% sales in the first quarter of 2000 quite compared to 29.2 million or 18.1% of sales in the first quarter of last year.
The increase in operating used at the dollar basis.
Acquisition costs related.
Along with.
Operating costs and amortization expense.
First quarter pencil also include operating possibly.
Acquired in a second quarter, if you're talking 19, I vote increases in line with <unk>.
Okay.
The percentage of sales for 16.7%.
18.7%.
A year period.
Focusing on expenses in more detail.
Sales and marketing increased 2.8.
Inclusion of R.
F.B.I. subsidiaries higher condition and various other expenses.
Already was up slightly by approximately $700.
Have you consistently stated <unk>, r. and D. and promotional expect as often changes between quarters in years, depending on a number of factors, including product talk part one cycles.
Our general Administrate expenses in the first quarter to 11.4 22.4 million compared to 11.
The first quarter.
Right.
The change was primarily D.C.S.T.A. transaction cost and operating costs totally.
They call it.
<unk>.
Expenses, partially offset by lower patents litigation expenses.
For the first quarter of fiscal see that 140.
I think 5% error rate is lower.
<unk> primarily.
In a foreign capital they get a quarter remarkable past finishes.
Adjusting D.V.D.A. 31.3 million for the first quarter, if you haven't quite compared to 30.1 billion N.S.A. last year.
Adjusted even g. market, what 70 per se.
2.6% and the first quarter.
But what were given d., marking is primarily due to the change in gross market highlighted in my earlier comments at the increase in non gap operating expenses.
On a gap basis getting kind of like have you double the box in the first quarter of 2000 quite well they probably three no yet what 21 fast.
Compared to 18.1 go yet or 46, that's pretty good to share under pressure period.
Oh yeah.
<unk>.
Hey decrease approximately 1.1 compared to 26 million in the first quarter last year.
Gap adjusted races, Moody chair for the first quarter to seven quite with 52 sets compared to 55 steps in the first quarter 2019.
First quarter E.P.F., a slightly below original application.
We do to get back related 19.
Parks.
Focusing our galaxy.
I thought April 3rd keep having twice Okay January 37 point, we ended the first quarter with cats.
Six point you know.
<unk> 85.7 million compared to 91.6 million.
He was 156.6 million compared to what 28.5 million.
Another graph for 75.8 million.
Accounts payable was 88.6 million compared to.
One diet and total bit upstanding was 479 2 million compared to 68 million.
Leverage ratio are pro forma basis, with approximately 2.3 times and approximately 2.8 times are gross basis.
Changes it accounts receivable inventory I cast panel reflect the addition of S.T.A. along with our business drove impact on the cover 19.
Shipment collection cycles.
Increasing prepaid and other crap, that's was primarily due to S.T.A. related items, including vehicle chafee deposits.
Retention incentive.
Oh <unk> property.
Increase to 147.6 million.
April 13th typing quite compared to 108.4 million at the end of 2000 I can't.
<unk>, Yeah see acquisition as well as investments in our new P.G.
Facility in Georgia.
I mean off on April like we have taken <unk> conserve casting aside what what sir.
<unk>.
Furloughed hourly and salaried employees.
Temporary pay reductions of management and executive position by 20%.
We will continue to monitor situation further I needed.
They came to 30, we expect to reduce our annual cafe.
10 million or more or you know class.
Will continue to invest in the new towards the facility.
Somebody remains on crack and we expect to be production this quarter after after about a year.
We anticipate.
<unk> during this production.
And are working to medicate these costs were awful.
Finally.
We have these $250 million revolving credit.
It might imagine we believe we have a financial flexibility just <unk>.
<unk> based on our cash on hand, operating cash flow and availability.
Right so.
Oh, the second quarter will be challenging <unk>.
We believe we will continue to remain within complies.
Out 24 hour.
Due to the rapidly evolving working conditions domestically and internationally in response to the Kobe 19.
The focus to get to that 1.5 thousand harks third main suspended oh, you're not intend to provide quality guys until we have the visibility necessary for White Sox fans.
But that I would like to know how critical path.
Thanks, John in closing.
Health and safety of our employees remains number one priority and we believe where a well position with our diversified biking powered vehicle businesses have managed through the situation and emerge stronger.
Zillions of our people the power of the Fox bread and our performance defining ride dynamic products combined with the strength of our value O.U.M. partners will continue to be competitive advantages in the market as we move forward.
I would now like to open the corporate questions operator.
Thank you at this time, we were conducted question answer session.
To ask a question. Please press star one on your telephone keypad.
<unk> indicate your line is in a question cue.
You May press Star too if you would like to remove your question from the queue.
For participants using speaker equipment, they may be necessary to pick up your handset before prejudice talkies, one moment, while we pull for questions.
I first question <unk> with C.G. Securities peaceful C.B.C. question.
Right tanks and no. Good afternoon, guys. Good to hear your voice who's going to hope junior families are getting real pretty okay.
<unk> can you hear from him.
Yeah, great. So just a couple of questions and then you realize you you're not giving guidance pine I.
Recommend that.
Terms of a and it sounds like the power vehicle policemen short run is probably going to get.
Has <unk> get impact little bit more due to closures and whatnot and build it up purchased vehicles, but could you give us an idea just what you're seeing in April in terms of I mean, no more than a power vehicle side, and then sell coming down I suppose.
Well into the double digits right I mean, I don't know if you can sort of just give us an idea of what April April looks like I'm, a I'm a cell phone.
Yeah. This is Mike let me give you some data points here that should be helpful. You know.
<unk>.
Customer demand so think about it from the standpoint of my my prepared comments on on S.T.A. are up in business I see in Tuscany that that remain incredibly strong actually in April and you probably have seen report just in terms of trucks sales across the U.S.
Remains strong said that that's a function of I think financing options and and and good deals being created by the Oh Williams to move to move vehicle. The thing that they've been Packers <unk> is their factories being shut downs when you think it powered vehicles.
Think of you afford in in Chrysler and Toyota.
Yeah, those facilities were fundamentally shut down across the board for April so they weren't receiving or taking any product from us which means our facilities were shut down in conjunction with that or at least running very you know small production runs.
Somewhere in in power sports different across the water. When you think of Taiwan or bike business. You know the that was running closer to normal and April was was was good. So you know it's a bit of a different story, depending on the part of a business is coming from other parts of our business to remain strong of course for military.
That didn't really lived to be write checks business was was phenomenal.
And commercial truck Little continued on so you know is it really was a function of the factories that we support.
Directly into in terms of William being shut down.
When the major factor you once you some of that NAFTA market, just because it a lot of the environments, where we tell into our our channels in the after market you know distributors and retailers. Some of those folks were shut down as well. So you saw some lumpiness in the month of April with that and you'll probably see some of that continue and you'll see some of that in may relative to the the.
Oh, Yeah, and empower sports I mentioned earlier as they're not all online as you know first of May it's kind of throughout the course of maybe come back on line.
Right, Okay, no, but that does sound like I know, you're always truck sales have been good and obviously, there's been a lot of incentives and work you know and like you said, it's super hard to sort of predict what happens in the short run and I guess, yeah. A better question would be you know you're you're in prior recession's or economic slowdown.
Especially on that specialty sport certain apart bike side.
Customers had been you know super resilient.
Yeah viewed these things is no more because that's even discretionary how about on a on the power vehicle side things you know obviously early on it sounds like trucks out doing okay, but just turns it profiling your average customer impacts to the economy might you see maybe a mic shit, we didn't power vehicles.
Get the outdoors, you know activities actually up now so maybe people are buying more by by ties in other vehicle, but maybe some of these big ticket items. There's a slowdown eventually you know the as we look out the 21 and economies to win you know struggling to get some bugs in there.
<unk>.
Yeah, I guess my position or not Larry would be you know a couple a couple of points. One you know in customer demand has remained strong it hasn't been it hasn't been a recessionary kind of response, it's been a pandemic response and I think those rose slightly different now do your point, if we stay in a pandemic.
They should long enough does that have an impact on our end customer demographic, which is probably a more salary person was probably working at home today versus an hourly employees may not be able to go to work.
Or or get a paycheck. So you know I think it right and then.
Again, a bit of across the ball I think it's really hard to predict you know out into 2021, what end customer demographics are going to look like we believe right now in Casper demand stayed strong we believe that our products, albeit premium product or those products that people, who want to go outside enjoy time with their families.
Social distancing sort of way can use our products and and be very happy in in the outdoor so we think that's still resonates really well you know given the current circumstances.
Indeed, Okay and then just this last thing how 'bout just you know that's sort of <unk> benefit. If you will call you know I hate to call <unk>, you know spinning off benefits, but in terms of a little bit of it slowed down on the power vehicle saw it maybe that helps you.
Sort of you know catch up a little bit in terms of your bill Dahlia capacity and they've been in Georgia and then also.
Some bigger opportunities waiting in the wings, particularly on the tractor trailer commercial truck sites and maybe that'll affords you the ability to get in there in early 21, Yeah, you know any thoughts on that too.
Yeah, We're we're really happy about the pace in which we're getting Georgia built out and and into production. So that's that's a great opportunity for us we won't we won't call anything associated with the the pandemic when pierpoint as you said, hi, Larry but I do think it gives us a an opportunity maybe a pause in.
Another high volume production activities to to migrate business or my Red production.
To the Georgia facility. So I think I think there are some thing do we can take that we can then we can take advantage of over the next several months or do we think about Georgia in getting ready for 2021, which we still believe is gonna be fantastic opportunity for us.
Right. Thanks, I appreciate that.
Oh My next question comes from Mike Sports with some trust people seem to question.
You guys good good evening.
Yeah, you guys were out a a couple of weeks ago.
It's one quarter of results and you're you're.
Laid out a number of cost cutting in in cash preservation measures that you take in you've you've highlighted some of those again Tonight is there any way to think about maybe with the annual like benefit from some of those actions Ah Argh is.
Yeah like a good question, that's a pretty tough one that really specify though you know when we think about furloughs. It depends on how long is for those are in place. That's that's directly correlated to windows production facility start back up.
Yeah layoffs, we haven't publicly stated the value of reduction associated with a lay off you know it's it. It it was definitely helpful to our cost measures of course and then we also has you know doesn't pay cuts for our management team executive team.
Myself et cetera. So those those all help you know they really offset incremental costs associated with limited production run a extra safety measures and things like that so.
It it's.
I mean, you do wonder to make sure you can do the other is the way I think about it and we haven't put we haven't put a number on it I don't think from here in John via the meals too.
Yeah.
Okay. So I mean, the best way to think about it is in some of these cost reductions is nearly offsetting some of the temporary headwinds you're facing and and I guess, you just can't backs down six to 10 million as well so.
Yeah cats.
That was about six to 10 million and that was just associated with moving things out for 2021 things that weren't necessary for the 2020 year based on what we're currently at so obviously, we're looking at every every nickel, we spend and and if we don't need to spend it right now we're not going to spend it. So that's just kind of the mentality that we've started as we went into this yes.
<unk> well continue with that same mentality to the balance of it.
It it in with regard to some of the costs related to Cove. It I think you you've outlined $1.8 million that she faced and the first quarter is there a way to think about that on a run rate basis I mean.
Just as we attempt to.
Estimate what that could be for the second quarter mean is there.
Rule of thumb or anything.
It's really difficult my guess, John because they're they're kind of direct costs with that initial you know fan closures incremental costs and then there's kind of worked over a cost of as well relative to you know not being able to produce those last a couple of weeks and more so.
Ah, it's really difficult to to get an estimate of number right now.
Change he do you think about some of the things. We're we're also doing here as we begin to ramp up and production again back to our P.D. facilities. There who's Gonna. These name from L. stand relative to you know nothing goes back yeah for this new kind of new environment, we're operating and so.
It's really difficult they predict I paper, it's pretty safe to say that we do see filling out from you know where we were in in keep one though yeah. One no like that that I would mention too is that where we got into Hillary factories shut downs in mid March in California, specifically, we weren't sure how long this.
Continue if you remember those are initial nelson's from the governor and from the <unk> the the.
The different counties in California, they talked about shutting down for a period of time. We we believed then in the middle of March that it was probably a two or three week midterms shut down and so what we did instead of following employees immediately with we actually kept even over our production.
Employees on the payroll and just to go home be say, we're going to go and cover your costs until at least April 7th it wasn't until that time that we recognize that was going to be all of April temps longer and leads moves on for a loads and lay off the you know obviously, we just we we had to do didn't want to do but had to do.
So those costs did change of course, you know in March those costs for higher because we literally had our entire workforce production workforce of employees on on payroll, even though we weren't producing so you would see that's shifts from that you wanted to cure to time frame that doesn't that doesn't comply encourage you to to like it didn't Q1, if that's.
Helpful.
Yeah. That's that's very helpful. Thanks for that Guy.
Oh My next question comes from Craig Kennison would bear pleased to see if it's a question.
Good afternoon, Thanks for taking my questions as well I'm trying to understand against what's going on in the bike market from a retail perspective sounds like you're optimistic we bred anecdotes of the outdoor lifestyle being attractive during then shut down phase of the pandemic.
But they're also reports of some dealers that may be struggling in this context, so I guess I'm not sure what to believe in terms of retail trends, but I'm sure you have better data than we do.
That's great Great question, Craig in you know, what there's a lot of different data points out. There. So you have to E.F. you can mix them altogether to try to come up with a perspective, you know going into cue to our backlog was our order book. If you will was was really strong a lot of that was associated with some great products for for muddled 21.
Bikes that we'd already we've already talked about in prior conversation. So yeah, we were set up really well into one going into cute too.
We believe in some parts of the business have definitely perform better than others. You know shimano was reported it and it had some challenges with their you're on your revenue you as you probably know we didn't see those same issues. We believe that's probably associated with just a niche products are wrong in the end of things.
We do in this space.
<unk>, where we sit right now is that that you know that.
And customer demanded both Europe in in the U.S. in North America, which is which is the predominant majority where we sell our our bikes has remained strong and our dealers remain you know operational in most cases in most states and they're selling a lot of product so that.
Seems quite positive I think I'd be hesitant to say.
Yeah that that's just going to be perpetually. The same scenario. We don't know yeah. What you think you for looks like yet we'll have to see how that that that market demand profile hold up as we get for them to indicate to and then into you know seeing what two three and keep what looks like bluish it right now, though we feel like we're we're.
As we have done in the past.
Beating the market so to speak in terms of how we could form.
[noise]. Thanks for that Mike do do you have visibility into the independent bike dealer channel.
As to whether you know all of those dealers are open or whether some may be closed because of stay at home orders curious just you know if that channel is still functioning well and if you're confident that dealers can make it through this a tough time.
We we have it it's a bit it's a bit situational you know, we we know a lot of the bike dealers, we work with a lot of the bike dealers in different parts of the country. So we <unk>, we well I couldn't speak to every one of them. We have lots of examples of very positive situations, where they're selling outta bikes. They can't keep yeah. There are higher.
People to service bikes, because people are looking for something to do in a bringing or bikes in for service. How however, all those bikes maybe.
So so you know what we can tell and this is again the kind of a European slash North American comment bikes have been able to remain open in bike shops.
An open and functional for the for the majority of the time and have done quite well I think I'd have to caviar debt by saying in certain situations where of course you. The the shut down processes are much more fears, let's say, Italy, or Spain, certain parts of Italy, or Spain, or New York City.
Clearly in those markets you know bike trails going pretty severely impacted doesn't doesn't take a rocket scientists are probably understand that and and any on some of those markets as in like New York is probably not one of our larger mountain premium mountain bike markets to begin with so you know again I think.
In the markets of where we where we produce or sell a lot of of our product.
We're doing okay and for the most part this bike shops remained open.
And then how would you frame after market trends in both the the bike market and the.
It gets powered sports marketing are you able to service demand for aftermarket components.
Do you need more direct to consumer options in the event some of that channel is not functioning well just curious how the after market in general is performing for your business units.
<unk>, yeah, and I'll give that t. into pieces on the S.S.G. side or after marking is through those biked religious reference or those remains strong and people are getting your bike service and upgrading and then their bikes.
<unk> ride them. So that's been that's been fine on the powered vehicle side, a lot of our product so through large distributors and retailers, who had real strong online presence and what we've seen.
Notionally from those channels and from our partners then they're retail business has been down to their online business has been up and we benefited from that that factor and I think that's consistent with what you've seen in other industries rather than market. So we believe that online function is is important piece I would.
I would also suggest though that a lot of our our high performance products require installers on people to actually put those things those products on vehicles. So in markets, where those disorders, it's been shut down for a.
Part of the time of a period of time or still shut down your that does cause an implication on the after market size because it requires a dollar to do that work.
That's helpful. Thanks, so much Mike.
Thanks.
Oh My next question comes from Scott's Timbrook would see okay pleased to see what the question.
[noise] Oh, good evening effects, taking my questions.
It's got.
[noise], Yeah, we lost you I don't know if.
I'm not sure what were we lost about your mind your life you can speak get Eric.
<unk>, Okay, sorry about that yeah, I'm talking about the bikes side of the business. It seems like obviously, that's holding up a lot better than powered vehicles, you talked about power vehicles being down your during the second quarter would you expect that the other side of the business wouldn't be up in the second quarter as well.
Oh.
Yeah. It's you know if the trend continues we think S.S.U., we'll do we'll do better in the second quarter. Just just from my standpoint of the model your change that I talked about earlier and from the the order book going into the quarter again, I I want to be careful though in in stating that things are pretty fluid right. So.
So.
We can see the order book to understand what's happening we feel good about bike, but but again I I want to be cautious and try to not I'm not gonna give guidance as you know, but let's see how things play out over the course of the device back half a cue to include drinking for.
Okay. That's that's fair enough.
Structure could you just remind us the variability of your cost structure and you know how easy to see guys to flex up and down when the market strange.
Yeah. This is John so in the in the manufacturing side of our of our cost structure. The manufacturing cost tend to be more variable than six you got things like material. We've got some you know direct labor and those sorts of things so they tend to be more variable than there.
No obviously whenever you whenever you have to pay they make a change in direction or something like that it takes a little time to kind of you know kind of move in that direction down in the operating expense site. You know those those expensive tend to be able to more fixed and variable their people related primarily obviously you know we've talked about some of the.
Expense man to things that we're doing relative to you know pay cuts and and you know other types of things I, just kinda discretionary spending be like travelling expense various various other expenses. We every me I guess, though pretty tightly but in the operating expense that those tend to be a lot more but fixed and very.
Because we're primarily back and people.
One thing no two I'll just add you know in California, which is probably almost.
The most impacted the of course with our vehicles business. We did we always had a temporary workforce means temp labor as well as fulltime labor.
It's a temp labor is a more valuable resource for us and things like that so we were able to flex that up and down based on what we need.
That is helpful. As always have a percentage of your production workforces temporary labor.
I got it and then on the ballot cheat again, just remind us of what you're you're covered it's our and.
Lastly.
Trying to get guidance out of you guys, but do you expect to remain a castle positive over the next quarter or so.
<unk>.
Yeah, So so our company ratios it 3.75.
On our our I I my script that yarn, yet elaborate ratio came into quarter at around 2.3 gross at about 2.8, I think it's important done it on a gross I didn't I remember right. Okay keep in mind that yeah, we pulled him. Some additional cash with you know the quarter for near term liquidity you know with you know if we were that kind of and a quarter earnings.
Normal castle balances that.
She would've been more like 2.6, you know from 2.8.
<unk> I didn't get quarter going to be a challenging quarter force. A is it is a lot of this will depend on how quickly we can kind of ramp up and.
I shouldn't be like Taiwan like you said is continue to produce and and I'm really not impacted their I think from from from a Walker cast perspective, you know we dealer you know, we're we're confident our ability to you know.
Came part of cash flow and and I think right now you know we've got.
I think that'd be good.
A little it'll be the did a little bit dependent on the cash flow in game. Two two we'll have to see how this kind of goes I think on a longer time basis.
We'd get pretty confident about our cash position in our ability to manage it in our confidence.
Yeah.
[noise] Oh My next question <unk> Rich with Bank of America pieces. He was your question.
Hi, good afternoon, it's really stink, thanks for taking requirements.
<unk>.
<unk> you mentioned you were book is is strong you just give a little bit more color.
How long yours would be times are and how much visibility you you have for from the order books.
Yeah. It depends on the quarter, you know clearly going into Q2 or or <unk> a lot of the modeling you're 21 products getting produced we're ready for for you know retail sales.
In in the balance of the year. So we had a real nice as a billion like you know towards the end of March going in April. So that was great. <unk> you usually get about a quarter ahead. So you always talking to you at the end of at the end of a cue one U.M.T. Q3 kind of at the end of two two which is why in some of the q. They early.
<unk> I reference I don't want me to add to my skin you say your whole years, we fantastic with bike because we really don't think you three until the end of too too because I think that's and that's why I think it's a bit fluid put back after the years still.
Okay.
Really helpful and then.
The retail demand has been strong likely even through the the manufacturing shut down period.
So as everything reopens like whenever that happens do you think there could be pent up demand on the other side or or do you think sale is better you know from the shut down period, our our loss.
Rape I I think I think there's a little bit of both depending on the parts of the business you're talking about so I think there isn't any pent up demand, especially in our powered vehicles business for coming out of this and I'll tell you what am I, what am I concerns actually so I'll give you. Another part of your question that you didn't that is you know just to make sure that we get enough vehicle.
It was from or are always like g. forward et cetera. So it along with if they shut down the the more <unk>.
Backlog, we get into the vehicles need to sell the dealers are still through dealers. So.
I think there could be almost a demand issue because of the pent up demand that we can fulfill if or supply issue because of the demand, especially with some of those products.
And and other parts of the business.
I think it's too early to tell but I do I do believe that it's not as perishable as you might think in terms of demand I think it'll I think it'll hang in there as long as we get back to people you know out about illegal spending money.
And then I think is in the past you you've you've highlighted like key racing events and and some trade shows is important in showcases for your product.
Especially on the after market side I think a lot of those events this year would probably be.
Food or cancel bike like how did you think that will impact you work. Your 2020 business. If we move product launches around to to just for that or is there any other way you can you can be allergy parking.
That's a great question, we reacted very quickly to that obviously, there's a couple of <unk> parts are one way to save some money by not doing a lot of that we we were really big of you know in events in the end trucks getting trucks to event on the both the bikes site and the power vehicle side, having staff at the events a lot of events across North America.
In Europe and elsewhere. So so that's obviously been a cost savings at the same time, we really amped up a marketing around go to market and how to reach those consumers with new product launches and make sure that we're supporting our partners, whether it be new bike launches or new vehicle launches. So we just helping the different direction to go away from.
Using event as or or or launch pad for new products to doing that more to digital way in partnership with our channels and.
So.
I think we're doing good I think we're doing well not in there and we intend to do it differently than we used to.
That's a temporary thing, we'll get back to doing events and things like that hopefully in the very end of 2020 and 2021, but for now we're <unk>, we're getting to those same launches a different way, it's working it's working right.
Great. Thank you it's very helpful.
Oh, that's a question comes from Jim Duffy, what Stiefel pleased to see if it's a question.
[noise] takes good afternoon guys.
Might then I'm going to start with a couple of questions on the part vehicle side you mention the possibility of increase mix of your vehicles. Once production turns on can you speak to some of the indicators fine that comment.
Increased mixed to some of our vehicles.
You said that when manufacturing production ramps up you think there may even be an increase mix of with euro yams of vehicle platforms featuring your products.
Yeah, you know my perspective in terms they wrong maybe.
Well I don't Yeah, I think I think I might have been referring to something else, but I can't speak to the question. So which is how do we do when he was when these companies rent backup yeah, I think what you've seen in the market Tonight I'm talking about powered vehicles first yeah, well the only m.'s are clearly tilting their their business towards S.U.V.'s and pick up and like.
Pickup trucks, that's been a big winner for them and it's going to be the thing that brings them back to help a lot faster. So we're going to see we're already seeing a lot of those the order books for those those vehicles support for those vehicles revamping of those vehicles strong.
Input from from those companies to us to to make sure they're already so we feel pretty good about that we've we believe they're going to really use those as their their way to get back to health benefits. I think we also see it strong just from the standpoint that as as markets turned back on and people can go out and do things they will.
Spend their money on vehicle like side by side car vehicles other things. They can do in the outdoors versus you're going on big family vacations are doing things that they might otherwise done. So we think that benefit does <unk> as well in a different categories that we serve.
Same loyal to on the bike side little bit different but the same holds true on the back side, but people again may not take a vacation, but they'll go spend a bit extra money on on a new mountain bike, whether it's to me biker traditional mountain bike.
And those cases, you will benefit from that trend as well.
Got it and then as it relates to the impact of the pandemic on the strategies of the <unk> do you expect any impact to the timing of new vehicle introductions.
[noise], it's because it's a really good question yeah <unk>.
Potentially potentially but I think you know.
Challenging like powered vehicles, if you think about a pickup truck they had planned to produce x. amount of units for their 2020 year.
A lot of cases, though supply chains were constructed a long time ago contracts for drop it a long time ago. They still need to produce those same vehicles are just got pushed from April to made let's say as an example.
So as those get pushed does that mean their their future mixture model start a bit later than they would traditionally do I think the answer is probably yes. Jim. So you know I think what we'll see is those those 2020 miles get completed as as they went back up with them 2020.
2021 vehicles I guess.
Well start a little bit later.
Okay.
And then turn question for you on the balance she can you help us with more detail on the S.C.A. call out with respect to receivables and <unk>, notably different about the business model there.
And can you speak to the mention of vehicle chassis deposits. Please.
Sure Yeah, there's there's going to be done more more detail you know and accuse that I that we filed.
You know from from any stuff about working capital standpoint theory are there they tend to be a a fairly light on the inventory side I think you're there A.R.A.B. would be very similar to our historical kind of numbers.
You know I think with the vehicle chafee's away those work and it's it's similar to how we have thing that Tuscany, it's it's a little bit dependent on the L.A.M. itself, but for you know the chapter how that works in both come in on our lives like we've talked about four is a cool little come onto our credit line whenever they they shift to us.
And then they can go ahead and when we ship them out they they come off of those there's a prepaid amount in you know into balance sheet for the chassis from S.C.A. that kind of whatever a bit now keep in mind. We've always had the same similar type of thing by some of our Tuscany chat as well just at the age is a larger out there.
So so that's kind of where that increasing pretty big.
I I wouldn't say also too you know it's one of those things were we don't charge for the Cathy just kind of it is a password type of thing for us. So you know that helps you get all.
<unk>.
You guys appreciate it.
You bet.
Oh. The next question comes from Alex Morocco, <unk> pleased to see if it's a question.
Yeah, you could even guys. Thanks for taking my questions can you give us an idea of big group or decline in especially sports group without by the way I'm shift for the quarter.
[noise]. So yeah I think we had this one prepared remarks, so let me just comment on it again.
Last year that business group 13 per cent in the same quarter. So the compromise pretty tough in this quarter <unk> factor that and and then I you know we talked into prepared remarks today about you know we think the March impact just based on pandemic in shifts and things was you know five to seven.
Percent. So you can kind of model what you know what that would look like again, then and bike it's been interesting because it really depends on when model years you know.
Production shifts and changes so it can you can easily be you know a few million bucks the ships for one quarter. The next to it doesn't really looks like change the year at all it just changes from one quarter them next.
Okay got it that's helpful.
And second one is on a and market trends in a recession and then coming out of it I know that it's a bit different whether it's a side by side that dirt bike et cetera, T. you just give us a sense of the mix of your non auto powered vehicles. So we can judge what the recovery looks like.
Non auto power vehicle recession recovery.
Well I guess the way I would try to frame that for you. So we parked all of our or automotive business and we just talked about things like power sports, which is side by side. So bills all those kind of products.
No I think it's a function of those companies are our partners in the space and and then they are what kinds of financing options. They have what kinds of go to market trends you. They have a lot of based on their ability to bring you know consumers and to to to get loans and financed vehicles or to buy vehicles. I think this is.
Very different scenario today than a normal then like Oh wait Oh nine a recession.
I think we're fairly recession resistance back in those days in fact, I don't have the numbers affirming so I can't or I quote them for you, but I think our power sports business annoying Oh, no no I didn't quite well and so I would expect that even though this is different than that recession that we'll see a nice nice resurgence of those markets as as.
People are allowed to go you know get out of the house will go do something.
Okay very helpful. Thank you and stay safe down there.
Yeah, Thanks to.
Next question comes from Ryan some be with <unk> P.C. the question.
Yeah, Yeah. Thanks for taking my question.
Hmm might I guess, just a false and when it jumps questions there.
I guess, a drawing in partners being kind of course that to step back and shut down manufacturing for a period of time.
Do you think this could ultimately create a bigger or longer term opportunity for you to kind of sit down at his partners and build you know new business plans from the scratch or an innovation plans from scratch.
Maybe this opens up some doors to to when new sex admission that that maybe you just hadn't had before and the past.
Yeah, right and let me answer that question carefully.
So what other things it's been interesting about this shut down from their production facilities with our large L.E.M. partners.
I've been a shutdown of their engineering teams from those partners and we've had a lot of work happening between our teams in those two and a new product development throughout this time period. So in a way of answering your question with maybe not answering your question I'd say, yes, I believe there's a great opportunity for us to find.
New opportunities with our Oleum partners to go on business of course, that's not a tomorrow type events.
Typically pretty long, but it's been a great opportunity for us to go work on those during this downturn.
<unk> that's helpful. And then just to just to follow up on the power vehicle kind of demand question.
Just like help us understand what what did demand look like through.
<unk> yourself through mid March and then you know what happened to watch two weeks.
This is going to have a perspective on that.
Yeah, you know going into the beginning of March that I I can almost remember the days specifically, we we were seeing fantastic results were pretty affiliated with what we saw for the quarter and for the year in terms of demand signals in terms of production everything everything was great and then.
It just wasn't it literally was almost you wake up one day and all of your customers, calling and saying sorry, we've shut down or factories. Please don't ship any more product.
Really that much of a apply the brakes stop everything towards the end of middle to end of March. So it was drastic it was dramatic in was it was incredibly hard for the team I think it in a great job working through it.
Horribly hard situation for us to try to bring production facilities to stop that basically overnight.
Thanks picture color.
But.
At this time I would like to turn to call back over to management for closing comment.
Things operator, you know we appreciate your participation questions on today's column. We thank you for your interests and Fox stay safe out there have a nice evening, we'll talk soon.
This concludes today's teleconference. You may disconnect. This time and have a greedy.
[noise].