Q3 2020 Fox Factory Holding Corp Earnings Call
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Greetings and welcome to the Fox Factory holding Corporation third third quarter 2020 earnings Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone.
Keypad I've. A reminder, this conference is being recorded it is now my pleasure to introduce your host David Haugen. Thank you David do you may begin.
Thank you.
Good afternoon, and welcome to Fox Factory third quarter fiscal 2020 earnings Conference call.
I am joined today by Mike Anderson, our Chief Executive Officer, and Scott Humphrey, Our Chief Financial Officer and Treasurer.
First I will provide business update.
I will then review the quarter financial results and the outlook followed by closing remarks from Mike.
We will then open the call up for your questions.
By now everyone should have access to the earnings release, which went out today at approximately four or five P.M. eastern time.
If you have not had a chance to review the <unk> piece, it's available on the Investor Relations portion of our website at Investor Dot ride 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 and management may make additional forward looking statements in response to your questions.
Such statements involve a number of known and unknown uncertainties, many of which are outside the company's 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 and in today's prepared remarks, non-GAAP gross margin 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's important to note that these are non-GAAP financial measures that we believe are useful metrics that better reflect the performance of our business on an ongoing basis.
Reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures are included in today's press release, which has also been posted on our web site.
And with that it's my pleasure to turn the call over to our CEO Mike Dennison.
Thank you David and good afternoon, we appreciate everyone, taking the time to join us for today's call.
Before we jump into our business and financial highlights I hope, everyone is staying safe and healthy and its trying times and I want to thank every single member of our Fox family has demonstrated incredible commitment and resilience to help us not only persevere lets you achieved a record quarterly performance third quarter of 2020.
I'm pleased to report third quarter sales of 260.7 million, which supports our conviction on the value and innovation. The fossil brand is bringing to our customers and our growing end user base.
The strength in our performance was the result of our best in class and diversified product portfolio within the specialty sports group, which grew over 32% compared to the third quarter of 2019.
Our PBGC segment further contributed to the strong performance growing nearly 18% as Oems came back from significant shutdowns.
As well as continued strong demand in the aftermarket where we have extended our leading market share through the STB acquisition.
This strong top line growth, coupled with gross margin expansion and operating expense leverage field, our third quarter profitability exceeding our expectations, finishing the quarter with an adjusted EPS of one dollar seven a growth of 29% over Q3 2019.
Within our specialty sports group, our business continues to benefit from the ongoing robust trend and outdoor recreational activities.
Importantly, the environment is attracting new and diverse participant the bicycling category, which is propelling demand for our product offerings in both OEM and aftermarket channels to record levels.
In the third quarter, we achieved the highest volume of shocks in fourq ever shipped.
This is a significant achievement environment, where production for practices and supply chains have to be constantly monitored to minimize the impact of COVID-19, and social distancing.
We have seen our customers and our suppliers is that to the extent that reality, we find ourselves in and we continue to successfully optimize our production to replenish pipelines and we expect exceptionally strong customer demand.
In the powered vehicles group, we're pleased that all of our OEM automotive and power sport partners are back in their full operation and the aftermarket channel demand has never been stronger.
What is worth mentioning is that we have managed to make this heightened demand and shipment volume without significant disruptions, while transitioning the new Georgia facility amid the global pandemic as well as California wildfires.
In our third quarter, we successfully completed the transfer of all of our aftermarket shock manufacturing to the Georgia facility and have already experienced significant productivity gains.
Furthermore, we are currently working with our large Oems to transfer automotive production line.
Georgia remains on schedule to complete the transition in 2021 and.
And we remain confident in our ability to drive improvements in supply chain and manufacturing processes.
Our relationship with our PDG automotive in Powersports customers are stronger than ever.
We are optimizing our R&D resources to handle the growth in new product and technology development.
I'm pleased to share some exciting news related to the ongoing validation of our unique technologies you have heard me speak regularly about our smart and connected shock technology called live valve.
This is best technology has now become a race winning solution and desert trucks, taking a first ever live valve victory. The premier classes. The Bluewater Desert challenge further authenticating semi active electronic suspension at the pinnacle of off road racing.
In addition life.
Well I'll technology also delivered a complete suite of the desert turbo raise podium by Fox athletes running Polaris ours. The ours, that's a 2020, new TV World Championship.
Well I'm not allowed for more control, which maximizes off road vehicle stability and minimizing the harshness. It is pulling tunable and rebillable and as we have proven race ready.
Well it makes sense, especially proud of the same technology platform is available on the Ford Raptor, Polaris, RDR and hospitality TV as well as a mountain bikes from pivot giant Scott and others.
Another big accomplishment for our PDG business was on the OEM side.
Board recently introduced the Ranger Tremor off road package and causes the most off road capable factory built ranger ever.
Featuring our off road termed Fox to plateau monitored dampers.
We remain excited and confident in our ongoing product development collaboration across four brands.
In regards to the current operating environment, we are cautiously optimistic that factory shutdowns either alone or customers are fundamentally behind us.
We have integrated the highest safety measures to keep our employees healthy and safe.
However, Fox like all other businesses today, we will be required to adjust our operations should strengthen several governments require us to take different actions.
Looking ahead, we believe we are well positioned for future growth.
In the near to mid term, we are hoping the pandemic will be in a river in there and the world will get back to normal.
Until then and as our results have demonstrated we will continue to work diligently to be flexible and agile leveraging strong leadership and nimble operations to navigate and succeed in all potential environments.
In summary, we are working to build upon our existing accomplishment and keep our complete safe.
And we remain confident in our long term financial objectives, as we generate sustainable growth and drive shareholder value.
Finally, and although we continue to operate in an uncertain environment. The view of our growth growth trajectory hasn't changed in the long term, we expect our specialty sports group segment to grow in the mid to high single digits and our powered vehicle group segment to grow in the low double digits.
In addition, our visibility into the current order book and overall outlook for our business enables us to re initiate guidance for the remainder of 2020.
Scott will elaborate more on this when he discusses our financial.
And as I'm sure you understand our guidance assumes there are.
No additional government restrictions or other unforeseen coated related impacts and.
And with that I'll turn the call over to Scott.
Thanks, Mike Good afternoon, everyone.
I'll start with our third quarter financial results and then review our guidance.
Sales in the third quarter of 2020, or 260.7 million, an increase of 23.4% versus sales of 211.3 million in the third quarter of 2019.
The specialty sports group experienced a 32.4% increase in sales compared to the same period last year driven by high demand in both the OEM and aftermarket channels.
Sales for the powered vehicles group.
Reflected a 17.7% increase compared to the third quarter of 2019, primarily due to sales from SCJ, which we acquired in March of this year.
Gross margin was 34.3% in the third quarter of 2028, 130 basis point increase from 33.0% in the prior year period.
Non-GAAP gross margin increased by 110 basis points to 34.5%.
The increase in gross margin was driven by our SP, a acquisition better product and channel mix and improved supply chain efficiencies.
Total operating expenses were $43.9 million or 16.8% of sales in the third quarter of 2020 compared to 34.5 million or 16.3% of sales in the third quarter of last year.
The increase in operating expenses on a dollar basis was primarily due to the inclusion of FCC operating costs of 4.4 million.
Amortization expense of 3.6 million and acquisition related compensation costs of $1.3 million.
However, looking at non-GAAP operating expenses as a percentage of sales demonstrates the operating leverage that we believe is inherent in our business as we further scale our operations.
For third quarter, non-GAAP operating expenses decreased by 90 basis points to 14% compared to 14.9% in the prior year period.
For the third quarter of fiscal 2020, our effective tax rate was 12.5%. This.
This rate is slightly lower than our previous long range guidance, if team to 19% primarily due to the realization of foreign tax credits and excess benefit related to stock based compensation.
Adjusted EBITDA increased by 38.1% to 60.1 million for the third quarter of 2020 compared to 43.6 million in the same quarter last year.
Furthermore, adjusted EBITDA margin expanded 250 basis points to 23.1% compared to 20.6% in the third quarter of 2019.
The increase in EBITDA margin is primarily due to the impact from higher sales and gross margins as highlighted above.
The positive impact of SCJ on our results and improvement in supply chain efficiencies.
On a GAAP basis net income attributable to Fox than the third quarter of 2020 was $38 million or 90 cents per diluted share compared to $29.5 million or 75 cents per diluted share in the prior year period.
On a year to date basis earnings per diluted share was $1.46 cents compared to $1.80 cents for the first nine months of 2019.
Non-GAAP adjusted net income was 45.4 million, an increase of approximately 12.7 million or 38.8% compared to $32.7 million in the third quarter of last year.
Non-GAAP adjusted earnings per diluted share for the third quarter of 2020 was one dollar seven cents compared to 83 cents in the third quarter of 2019 on.
On a year to date basis non-GAAP adjusted earnings per diluted share was $2.12 compared to $2.07 for the first nine months of 2019.
Now focusing on our balance sheet as of third quarter ended October 2nd 2020, compared to our 2019 year end on January 3rd 2020, we ended with cash on hand of 278.2 million.
Our accounts receivable was $114.1 million compared to 91.6 million.
Inventory was $135.7 million compared to 128.5 million.
Prepaid and other current assets were $31.6 million compared to 17.9 million.
Accounts payable was $101.4 million compared to $55.1 million.
And total debt outstanding was $389.2 million compared to 68 million and our third quarter net leverage ratio on a pro forma basis was approximately 0.95 times the changes in inventory accounts receivable and accounts payable reflects seasonality.
As well as timing of vendor payments.
The increase in prepaid and other current assets was primarily due to SCR related items, including chassis deposit and contingent Retentions summit held in escrow.
Our net property plant and equipment increased to 156.8 million as of October 2nd 2020.
Compared to $108.4 million at the end of 2019.
The increase reflects the CA acquisition as well as investments in our new manufacturing facility in Gainesville, Georgia.
Between the cash we now have on hand, and the borrowing capacity under our credit facility of $250 million. We believe we have total liquidity and financial strength to manage through any ongoing economic uncertainty, while continuing to proactively execute on our long term strategic object.
Good.
Finally, an update on our outlook for the remainder of fiscal 2020, we are re initiating our practice of providing sales and non-GAAP adjusted earnings per diluted share guidance. Given the success, we have had in managing through this uncertain environment.
Our visibility has improved and we want to provide the market with the most accurate forecast possible.
So for the fourth quarter 2020, we expect sales in the range of $240 million to $250 million and non-GAAP adjusted earnings per diluted share in the range of 72 to 80 cents per share.
I'd also like to note that we're not providing guidance on GAAP EPS as it cannot be provided without unreasonable efforts due to the difficulty of actually predicting the elements necessary to provide such guidance and reconciliations with that I would like to now turn the call back over to Mike.
Thanks, Scott in closing as we look to a strong finish to 2020 and heading into 2021, we.
We believe box is well positioned to extend our lead and capitalize on any opportunity.
Given our diversified product lines to support our growing customer base and when things, yes that use our products to make their lives exciting enjoyable and active.
Our third quarter results clearly demonstrate the strength of our agile operating network. The resilience of our people the power of the fossil brand and our performance to find products.
We believe these core competencies when combined with the strength of our value OEM partners and the aftermarket network will continue to be our competitive advantage in the market as we move forward.
I would now like to open the call for questions operator.
Thank you we will now be conducting a question answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the sarkis.
One moment, please while we poll for questions.
Thank you. Our first question comes from Jim Duffy with Stifel. Please proceed with your question.
Thanks, Good afternoon.
Yes, I'm, hoping you can provide more color on the powered vehicle group trends can you comment on what you saw in the third quarter.
After market business outside the us UK with your auto Oems and then with the non automotive Oems.
Thats what changes do you expect to see with respect to this business in the fourth quarter.
Hey, gentlemen, like so a good question you know, let's sell power sports in the third quarter that continue to be a very strong product category for us.
As you probably know from a lot of our customers who have reported their demand signals considered extremely strong there are still so work to try to re inventory showrooms across the country across the world. So we saw that growth since it was for Q3 and we believe that will come to you all for Q4 and into the early part of the total.
After the market didn't slow down at all you know as we saw that as a real recovery out of Q2 into Q3, our aftermarket business say, that's the a as you mentioned.
I'd say it'd be stroll to support for us and for our legacy business at the same time of course as you know in Q3 were moving that production from California to Georgia. So it was a pretty amazing corpus less material that has delivered that increased demand.
While transitioning so we're really proud of that and then I think we'll finally, when we look at kind of aftermarket going forward, it's hard to really get a early forecasts yet on total 21 for aftermarket shock business, but we believe this rate.
And very broad.
Strength in that category, there wasn't anything significant to call out the weakness was a concern.
Okay, Great and then Mike it's clear from your.
Yes, yes.
Operator, I didn't catch that did you hear what Jim said.
Mike I'll come again with the Oh, it's clear from diligence in the channel that.
Fewer lots are depleted of inventory how's your visibility with respect to those powered vehicle OEM category working out in just 24 months.
Yes, the powered vehicle today again, I kind of break it into two pieces with the power sports and automotive you're right on both on both cases, the dealer lots are pretty depleted.
I see yeah, we see that reduction that happened in Q3 on the automotive side, which as opposed to where weve been shutdown in Q2, when they shut down for 60 days that create a hole that was really hard to their factories to recover for the Q3 that will slowly improve as we go into Q4 and into 2021, but yeah. There's definitely.
A gap in vehicles that lots.
Especially with the demand in the high end of the truck in EPS is new market, that's complicating matters, which is driving a lot of people to buy used trucks and of course, we don't mind that trend that allows us to sell the aftermarket. So it's a good trend for us as well.
Our sports it like I mentioned earlier this.
So those are pretty low and I think they stay low.
We are working as hard as we as we can to fulfill the increased demand for those powersports customers throughout Q4, that's what in the Q on Idol, Yes, I don't envision.
That those showrooms will be replenished.
It's definitely use the base until.
Q2 of next year.
Before one probably at a minimum.
Great. Thank you Mike I appreciate the perspective.
Yes.
Thank you. Our next question comes from Larry Solow with CJS Securities. Please proceed with your question.
Great good afternoon.
Congrats on the quarter, thanks for taking my questions.
Quick quick follow up maybe to Jim's question.
Thought to Jims question on the powered vehicle side so.
Clearly the covert Tom.
Lifted fit a renaissance on your on the.
Bike side.
[laughter] sports growing whatever over 30% this quarter.
Power vehicles, I know it sounds like demand and the F. The channel you mentioned is stronger than it's ever been.
Organic sales were flat on last couple of quarters, which is great and you know in this environment or this quarter is that sounds like it's more of a function of supply than demand, which.
Seems like its running way ahead of that so is there like a nice tailwind for a couple of quarters to three quarters to sort of get back into you know what true demand is.
Yeah, I think there is where you know from my perspective.
We've got a record number of Israel projects in the queue right now in power sports and in automotive.
Oh you side. So yes, we're looking forward and we're seeing the demand coming from the end markets. This really has been a more of a a supplier recovery. So in Q3.
With our partners and just at the markets in general So I think that creates a tailwind in 2021.
So we're not in a position yet to give guidance for totaled 21 million.
You'd have to go over the year, but I would tell you we have a very good insight into what demand signals look like on a local basis and what our automotive customers in powersports customers.
Our asking us to go do it on a longer period of time with that information, where we're already looking at 2021 in planning for a revenue north of a billion dollars and again, we'll give you more detail on that as we get closer to 24 and incentives with oil.
We're very confident in what we're seeing signals from the market today.
Right. Okay, that's very helpful and how about on the on the progression of Georgia.
Georgia, you actually mentioned that that risk.
Scott mentioned that you are actually experiencing some productivity gains is that sort of sequentially or do you would you say that overall the sort of the transition is at least no longer.
A headwind to margins and maybe closer to a push right now in terms of the next year or have you already sort of reached out pinnacle's switching to positive.
Okay, we're still climbing the hill. So yeah, we did see productivity gains and gave US a lot of confidence your long term view of what George will bring to us as I've talked to you about quite a bit I believe that's in front of us or we're going to be able to achieve some great. There was the Georgia. So I'm really happy with what we saw in the quarter that aside we're not out of one.
Out of the process, yet we're still we self duplicative manufacturing in California, and Georgia, that's going to continue on.
You know until the second quarter of next year. So we've got puts and takes is the way I think about it Larry we're going to see some things that are they improve in Georgia and some things are continuing today.
Headwind out of California, I'm proud of what the yield so far and I think we're incredibly as you saw the numbers.
Achieving the expectations that we set for but.
More work to do and latest accurate.
Okay, just switching gears real fast on the CA acquisition, obviously pretty early in the in the game, there and covert probably maybe skew things a bit just.
Six months later, how has the integration been relatively on plan.
Tuscany able to have actually been able to get some cross selling opportunities and sort of leverage off of.
Yes, she is much see as much larger base of dealers and relationships or is it sort of too early to call that sort of skew that.
In the quarter, we actually into the integration between EPS fuel Tech will benefit of that integration will will really start to deliver improved 21, but we feel good about where that business, where we are.
Clearly happy with is the team that we were integrating the box and with the strategy that we've got in that business. So it's performing at or above our expectations and you know nobody expected the coated at the time that we did the acquisition. So that's the anomaly that we're all kind of deal with this year, but when we look forward into.
For the future with the as the test business.
We're incredibly excited about it it allows us to do a lot of vertical integration of the company and opens the doors in new channels for us to adjust that as you know got that element in the quarter, which allows us to sell products through our bellmon system like we have with the.
For the Ford Chrysler and GM so.
Really really good story for us and I think great progress in the quarter.
Great. Thanks, a lot I appreciate the color.
Thank you. Our next question comes from Mike Swartz with Suntrust. Please proceed with your question.
Hey, guys. Good <unk> good evening.
Just wanted to touch on the powered vehicle side of the business looking at the 10-Q it looks like.
Moody's correctly Sta with something low twentys in terms of revenue in the quarter, which would imply basically flattish.
Revenue organically in that business, maybe if you could give us a view of some of the puts and takes in the quarter with any supply chain costs or just anything kind of that you are fighting through still in the third quarter.
Yeah, Great question like there were challenges throughout the quarter between California wildfires admitted evacuated facility for a period of time.
Two.
With the whole notion of social, but we're going to manufacturing plants pretty difficult and nothing was elevated in the quarter, we had to kind of fight every day one.
[music].
Yes, well it was actually above our original expectations pretend damages based on model changes and things like that to achieving organic flat in the quarter was was actually a strong a strong as though I would say that the one that I probably didn't cover like my prepared script was that we did in the quarter with some backlog that will.
Then play out into Q4.
Yeah, It wasnt it wasnt.
An astronomical number that we used.
We are used to but it was the backlog that we just couldn't get out because of the transition as a George you know to what we're trying to do so yes, I think when I look at powered vehicles in Q3.
I'm proud of the team they did a lot of good work in productivity in Georgia.
David on a local basis did exactly where we want it to be anywhere in the right direction.
Okay great.
Second question, just just on EBITDA margins I know long term, we've talked about kind of the 20% plus target.
And now with some of the investments wrapping up then in CA, obviously being accretive to the mix and as I look at your third quarter year, Clyde guidance or margin guidance for the fourth quarter. It looks like you're still kind of shooting for that low twentys. So are we now at a point where.
20% plus is kind of the new the new normal.
Well, we've hit 20% plus in the past and as you know is a mentioned we did better than that in Q3, and we are looking good for Q4, yet we're not ready yet to give 2014 guidance on it but I do believe as I said to you, Georgia brings a lot of guidance to us too a lot a lot of productivity, which will help us on the EBITDA.
Basis so.
I do think we're we're we're going to stay focused on delivering north of 20, and and we'll come back to you in the near term and talk about where we're going.
Three days.
Okay, great. Thanks, a lot.
Thank you. Our next question comes from Scott Stember with CL King. Please proceed with your question.
Good evening guys.
Good evening.
Last quarter, you guys had talked about how I.
I guess supply issues weren't just a shortage of lower price spikes in the chain.
Lets consumers to buy more expensive bikes, but certainly helped you guys out.
Are you still seeing that trend as we speak.
Yeah, you know I think you see a couple of things happening right now there's still an extreme shortage advice in showrooms.
And we're seeing kind of an increase in the demographics.
Purchases like last quarter Q2.
People just by word of advice is available I think you'll see that start to trend.
That that trend will start to dissipate as lower end bikes are to refill show is able to go back to people looking for yield.
Premium bikes and E bikes and near the higher end of the of the range, which of course is where we play. So yes, I don't know if that's a material difference in kind of thinking relative to your oriented consumer audio consumers, though more asset affluent buyer.
And where are.
We're seeing that continued growth in our order book and what we're looking at.
For Q4 at least the first half of the total score.
Got it and the commercial truck offering that you have can you talk about how that's playing out and how that plays into your.
Your your estimates for the power vehicles going forward.
Yes, both both commercial truck and and military are areas that have seen growth military probably more than commercial truck just recently, but both are areas of growth for us growing inventories will what is the expanded Georgia facility.
Especially with regards to commercial truck, where where we really can't fulfill the demand in front of us out of our Oklahoma facility. So we live in Georgia up and running in a more mature state for for commercial truck to pick up steam.
Hi, just last question just bigger picture you know obviously you know talk of.
A COVID-19 vaccine coming out shortly there is some folks out there that are concerned that people go back.
Their normal ways of recreating just just talk about high level, how do you guys think about.
How sticky is the customer base, the new customers are coming to the market and.
What do you think that this definitely no matter what happens when the vaccine.
That your business will benefit no matter what going forward.
Yeah, you know Scott, we don't see it that way at all we're really excited obviously as everybody is on the planet that lot of the country that a vaccine is apparently near term. So I don't think that's a surprise for anybody right. We've all been watching the news.
Tracking all these.
On his pharmaceutical companies as soon as back to emerge. So we're excited about that we think thats a positive to two sports in general in devices, specifically I don't think it I don't think it takes away from his Renaissance for sale in the bison space all of our vehicles based by the way.
We think it actually brings people back to work and and creates prosperity and allow people to.
Invest into the hobbies it created over the last year or nine months as it may be so we were not on the same page of some of the articles in the us where people's opinions out there to say this is the end of the kind of the outdoor lifestyle sporting they'll be voting, resulting or biking, I think its a.
Yes, I think these are trends that are going to.
Maintain and grow over time.
That's great. Thank you so much.
Thank you. Our next question comes from Craig Kennison with Baird. Please proceed with your question.
Hey, good afternoon, Thanks for taking my question.
Yes to your point, we've seen just tremendous demand in the end markets for your product and then youre customers are really desperate to build more units. So I guess I'm wondering to what extent can you more aggressively flex your capacity to really produce a lot more in.
Fourth quarters to that so.
Some of your customers can catch up I mean, they depend on hundreds of suppliers. So you're not the only one that I think if they can have more product and.
Build more they would.
But I'm wondering to what extent you can you can flex your own capacity to meet that demand.
Great Thats a great question you know one of the things we've been doing throughout Q3 will continue during Q4 is add workforce, we've literally dead job fairs in some cases drive through job because of because we need to do it because of coated we've done job fairs, and probably four or five factory locations in the U.S., including California, we've done.
In Taiwan, where they will continue to do it you know, it's a function right now getting enough people daily.
In these factories to support the capacity, it's it's about adding production lines in Georgia, adding production lines in Taiwan, all of which all of which were doing that.
Those things are overnight, while we can hire people and get them trained and let's call. It two expected probably.
More like 60 to 90 days to add lines and staff them and get them up and running with the supply chain. So keep in mind that there. It's not it's not a digital scenario, but we are ABS, we've been doing it now for a couple of months and we'll continue working hard to increase that capacity. These are not big Capex spend we didn't really more about production lines and people.
But.
We are.
Tightly aligned with our largest partners in those yeah.
FSC and PBG to establish the capacity they need going into 2021.
And that their relationship alone that is really helping us understand how best to serve their needs and to make sure that we get back to those you will find in times like this is the guidance in limbo and fast and agile factories can achieve expected and more volume that every day and so.
As a manufacturing Guy we're pretty focused on that's definitely going to drive that throughout Q4 and into Q1.
Thanks, and I guess, you know a lot of our clients are pretty excited about the E bike market as a potential commuter option.
Could you just shed a little more light on where you see the Fox opportunity in E bikes and in particular, it's on a higher end mountain bike, which may not be that commuter unit, but.
You know how excited should people be about that marketing scheme of all of Europe in the context of all of your opportunities.
I think its big I think one of the primary growth drivers.
Not in bike business, and I think they'd be under our belt and bike business recently.
The entry into the category that does exist, but I'd tell you that word, but doesnt exist, but it's called we've got what we call it new cyber or EPS TV.
And and likely will be what it is is kind of the comedy Central city bite and a mountain bike. It's got some cases, both especially in some case glencore.
We've seen a huge increase in demand for our logo key product on the STB category.
[music].
We think thats, a very interesting dynamic play out because this is a.
Now it is a site that people right.
And we're seeing price points of 5000, 6000, 7000, especially in Europe, where the words are really popular related transportation. When you can load your groceries or your dog, if you will and headed into town that category really allows for high performance mountain biking products.
On a road application not go there similar to what you feel like a Ford Raptor, So think about it.
We are strengthening.
Strengthening and broadening of the other other category profit, we buy to let that play in ways. We haven't in the past is significant success that we are that already.
On the printing side again that the prices get better and better they get lighter and lighter as expenses are getting better or lighter we've become a price out of that to supply product of that is that category not just this expenses, but what are the rules and the post a crane handlebars so devices did.
That's a real important part of how we think about our technology roadmap going forward.
Hey, Thank you so much.
Thank you. Our next question comes from Alex Moroshka with Darren Bird capital markets. Please proceed with your question.
Hi, Good afternoon, guys tagging on to Scott's question on deflation earlier. So your agent partners continue to report underwhelming numbers can compare to year specialty sports for which I'm assuming is all related to my chain constraints.
Can you slow play quite OEM versus aftermarket and help us impaired historic rates.
Are you talking about the Hey, Alex are you talking about between.
Aftermarket and OEM and SSC, specifically are you talking about a broader question.
They're just an EPS Jason.
Okay, Yes, so we're seeing growth consistently across both ends of that spectrum and FSC, where a lot of our product is in the early on category.
Well the volume is there so.
That's where you're seeing some with the price intelligence for single partners because they are unable to get sort of a competitive and we are.
Our thing is a tendency for some.
Component manufacturers.
No fairly slowly towards capacity.
Engine and so that does cause some of those partners.
Larger challenges that said in the premium phase not as big of an issue so probably a bigger issue for more broad line or low lower cost guidance comported not as big an issue for US we are working hard on our supply chain to make sure to keep up with demand signal.
Having pretty good luck in that hasn't been a major issue. It's just a full time full time event for our teams to manage.
So we're we're seeing strength across aftermarket and are we pretty consistently lots of strength in the premium product category seeing some are our partners.
We're not not not reflecting within growth level. We are I think again, that's a function of low cost versus mid price point bikes versus high end premium by who we tend to do well when the high end food banks are in.
Finished demand.
Okay. That's helpful. And then secondly are sitting on a pretty significant amount of cash right now we're almost through the Georgia facility. So what would you be prioritizing for internal investments going forward and then are you seeing any assets in the market right now either price or PTC that would easily fit into that business at a decent price.
Yeah couple of recall that Scott jump in on this one too so as you know you're right where theyll Casco, we took on that additional cash that we could be opportunistic and pay off as we think that the liver lead say before we're still in open territories down both in SSG and Npvs you've got to.
Gary evaluations and committed price both of these companies are also asking for in an acquisition model or just.
Not not in line with our our culture, our approach or our view of the business going forward. So we're going to be pretty thoughtful in pretty conscientious about moving forward in time. It is notable that it seems to us that weve fairly inflated that said, we're going to continue to use those dollars.
To invest in organic growth person organic growth track and so we will keep looking elusive working it and we are small acquisitions will occur along the way the material to kind of the broader public, but we'll give those to help vertically integrated parts of our business and to continue to expand our portfolio and our technology space. So where do you continue to do that but.
To have a big which which I would like to.
A nice large acquisition like like us today.
They will be valuations come back into line with what we think the market should there Scott, but yeah. The only other thing I would add to that is especially on the PDG side, where we're in the midst of a huge transformation with bringing everything across the country from California, Georgia, and so where were we.
Weighing any kind of transformational acquisitions on that side of the equation a little bit.
A little bit more heavily.
In terms of not burdening the business too much.
When they have so much in their plate from an execution perspective, because obviously you can see from our results.
They are very busy.
Alright, great I appreciate the color.
Thank you. Our next question comes from Ryan from these with William Blair. Please proceed with your question.
Yes, hi, good afternoon.
Thanks for taking my question.
All right, Mike and Mike.
When you look at favorable demand environments like that to wonder and.
In tight supply that usually create from a marketplace. That's supportive of higher pricing I'm. Just wondering if you've been able to lean into that this year and maybe take more price than normal just because of that.
Yes.
Yeah.
Would it be careful on that they've got really low through partnerships with really great customers in and to go in a market like this insight to.
Increased prices just because they are really valuable product in volume for life is not really a good long term strategy for creative partnership. So we can try to and I know, that's probably what you're suggesting that we try to avoid scenarios like that we do try to drive innovation and technology.
And things like that to drive price increases and as you know and can envision over the years are the price points of our product. It consistently got up year on year, So pretty focused on that and we'll we'll use innovation and technology to drive value, which drives product prices and we're pretty focused on and going up into the down.
And try not to be a commodity player.
That said I think our biggest opportunity right now for margin enhancement comes from Yale supply chain management extensive.
Factories and from becoming more profit that product is.
Efficient in the manufacturing process, so not a lot of price increases relative to just supply and demand right. Now is really more about driving technology innovation to keep our price points higher and reflected the value, we're bringing to those customers.
Got it.
Helpful color, there and then just some innovation front.
I guess when you see your OEM partner, certainly see profit demands and trying to just get.
Right back into the store.
Okay does that conversation changes that replenishment become more vocal point over the next six months and maybe innovation becomes less important to them or are you still seeing trying at pipe bracket.
Well, let me say two different sides of a partner business, though the supply guys are absolutely will knock at the door everyday accurate.
Add more product crude more capacity and get as much volume up doors is on.
On the engineering side. All these companies are looking at this as a new got US all the growth in automotive appellate court or biking, and so they're also doubling down in some of the innovation technology to try to make sure that they are a winner as they act as we exit this kind of anomaly that the pandemic. So we're really driving both right.
Like I said I think in the prepared remarks or after we.
When we have more engineering projects in powered vehicles today.
Directly related to a power sports or automotive customer that we've ever had.
Pat.
So.
It has not slowed down but then the fact that there is we're adding resources to support it but.
At the same time.
So.
We believe that the supply chain those are really focused on volume and the design guys are focused on new product launches.
Got it thanks.
Yes.
Thank you there are no further questions at this time I would like to turn the floor back over to Mike for any closing comments.
Yes. Thanks, everyone. We appreciate your participation and questions on todays call as always we appreciate your interest in thoughts factory as well and in closing we ask everyone to stay safe and have a nice evening. Thank you.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful.
Okay.