Q4 2020 Fox Factory Holding Corp Earnings Call
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Good afternoon, ladies and gentlemen, and thank you for standing by welcomed the Fox factory holding corporations fourth quarter and full year 2020 earnings conference call. At this time all participants are in a listen only mode of question and answer session will follow the formal presentation. Please note. This conference is being recorded I would now like to turn the conference over to you.
Host be vague, but cooney director of Investor Relations and business development. Thank you Sir you may begin.
Thank you good afternoon, and welcome to Fox Factory's fourth quarter and full year fiscal 2020 earnings conference call I'm joined today by Mike Dennison, Our Chief Executive Officer, and Scott Humphrey Chief Financial Officer, and Treasurer Force, Mike will provide business update then Scott will review the quarter and for.
Full year financial results and then 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 of five eastern time. If you have not had the chance to review the release it's available.
On the Investor Relations portion of our website at Investor Day, right Fox Dot Com. Please note that throughout this call we will refer to Fox factory as Fox or the company.
Before we begin I would like to remind everyone that the prepared remarks contain forward looking statements and the management may make additional forward looking statements and responses 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.
The 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 annual report on form <unk>.
10-K filed with 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, where appropriate in today's prepared remarks and within our earnings release, we will refer to non-GAAP financial measures to evaluate our business as we believe these are useful 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 website.
And but that it is my pleasure to turn the call over to our CEO Mike Dennison.
Thank you for V and good afternoon, we appreciate everyone, taking the time to join us for today's call.
As we all know 2020 was a year, we couldn't have anticipated and will not soon forget almost a year into the pandemic serious challenges continue to present themselves every day.
And we remain focused on the health and wellbeing of our people and our communities the.
Denmark has not only highlighted but also amplified our team's dedication of our ability to execute a well defined management strategy.
Our relentless focus we continued to demonstrate fox of diverse competitive advantages and our results reflect that in both our fourth quarter and full year performance.
Our wide ranging set of performance defining product offerings combined with our team's agility and perseverance has made in Q4 of 2020 the who.
Highest revenue quarter in our company's history.
I am pleased to report fourth quarter sales of $262 4 million, an increase of 41 two per cent compared to the fourth quarter of last year.
From a profitability perspective, we reported non-GAAP adjusted earnings per diluted share of 90 cents versus <unk> 65 cents, an increase of 39, 3% year over year.
The strength of our performance was driven by our innovative products expanded portfolio offerings and our team's ability to meet the significant demand fulfillment challenges.
We believe in today's times about product availability and supply chain responsiveness have become a key differentiator and we are growing market share based off of our ability to meet these unforeseen challenges.
But let's take a closer look at our business starting with specialty sports group product sales were up 44, 6% compared to the fourth quarter of 2019.
Making this ssg's best quarter ever for revenue.
For the full year SSG grew 22, 4% over 2019.
Given our strong lineup of innovative products and the ability to flex our production capacity, we were able to capitalize on the expanded writer base an unprecedented restocking cycle.
Through deeper penetration across sales channels, we had yet another record quarter for shock and for unit volumes.
These past few months represent not only tangible growth of our SSG business, but also an expansion of our intangible relationships with Oems.
I am very proud to say our team members demonstrated strong execution by successfully controlling costs and managing the operations to meet our Oems expectations, thus, helping customers manage evolving backlog and order trends.
To better serve our European customers, we opened a new facility in Germany, which operates as our EU distribution and service Center.
In addition, the ninth spec wins, we had mentioned in Q2 of 2020, well for a customer of yours and and customers alike.
That success of established a strong foundation as we moved into 2021.
As you've always heard me say innovation is at the core of what we do.
Building on our success I am happy to announce that our recently introduced 38 inch for received multiple awards for design and innovation.
Based on the survey conducted by a vital MTB and pink bike.
<unk> continues to be the number one brand and <unk> at number three with respect to intent to purchase for both ports and shocks.
Going back for a room for printing.
Happy to share that in the fourth quarter, our products the name of our athletes to dominate at various racing events.
<unk> 49 podiums.
<unk> wins and three World Championships.
Moving onto our powered vehicles group, we posted another strong quarter as PPG grew 38, 7% compared to the fourth quarter of 2019.
For the full year PPG grew 16, 1% versus the prior year.
What is truly impressive is that we were able to achieve these results with a typical interruptions from the ongoing factory transition.
And the fact that our key manufacturing sites are located in the areas of the U S. The suffered from very high rates of COVID-19 spread in the fall of 2020 the.
This caused high levels of absenteeism and created several supply chain challenges.
Also want to highlight that the full year growth in P. D. G was accomplished despite over 60 days of our own factory shutdowns or partial shutdowns.
Caused by the pandemic during the first and second quarters.
Speaking of our Georgia facility for the fourth quarter, we successfully commenced the transfer of our large automotive OEM production lines, which we expect the finish before the end of second quarter 2021.
Georgia remains on schedule and we remain confident in our ability to drive improvements in efficiency and productivity.
However, we are closely monitoring the increased demand for our power sports customers and may need to adjust the timing of some product line transfers in order to meet customer commitments as of.
We have previously stated we will continue to experience duplicative costs until the transition is fully complete however, we expect to see margin improvements from the second half of this year.
Turning to our OEM of partnerships Q for us on the launch of the all new Wrangler $3 92.
The eagerly anticipated power Jeep showcasing of Fox as aluminum body two inch dialer shocks.
This launch further solidifies our relationship with Jeep, which began in Q4 of 2018 with the launch of the Jeep Gladiator Rubicon.
Another example is the all new third generation Ford Raptor, which was recently introduced as you all know the raptors the Genesis of the.
Performance truck market one of the key elements that gives raptor, the prestige and legacy of commands the.
Fact that while it's of Baja race ready truck. It can also be used as your daily driver.
To our innovative performance defining suspensions.
For the small year, we developed an all new revolutionary three one inch live valve suspension exclusively for the Ford Raptor, which automatically measures of the speed and train 500 times a second.
Moving onto our accomplishments and the raising of world, where our products are developed in the Baja 1000, Fox once again showcase for our suspension achieves the pinnacle of performance with 15 class win sweeping the top for overall with Luke Mcmillan and Larry Rosenberg, taking first place in U T. V's, we swept all for tea.
All for U T V classes taken the top five spots from the forced induction class the top.
<unk> for the naturally aspirated class and the top 10 positions of all UTV classes combined.
Needless to say I am very pleased with our 2020 of accomplishments and proud of every single Fox team member our team of showing we can not only navigate but also of thrive in any environment and with that I'll turn the call over to Scott.
Thanks, Mike Good afternoon, everyone.
I'll begin by going over our fourth quarter and full year financial results and will then review our guidance.
Sales in the fourth quarter of 2020 were $262 4 million, an increase of 41, 2% versus sales of $185 9 million in the fourth quarter of 2019.
For the full year sales increased by 18, 6% to $890 6 million versus $751 million in the prior year.
The specialty sports group delivered a 44, 6% increase in sales in the quarter compared to the same period last year driven by high demand in both the OEM and aftermarket channels.
For the full year SSG sales grew $22 four per cent.
Our powered vehicles group delivered a 38, 7% increase in sales compared to the fourth quarter of 2019, primarily due to higher growth in the power sports business as well as sales from the FCA.
For the full year of PV G grew 16, 1% primarily due to the addition of FCA.
Excluding the impact of the SCA acquisition revenue in <unk> declined approximately 1% year over year.
Putting that result into perspective T V cheese OEM customers were shut down for approximately 60 days during 2020 and near the onset of the COVID-19 pandemic.
Fox factory is gross margin was 31, 8% in the fourth quarter of 2020 of 30 basis point decrease from 32, 1% in the prior year period.
Non-GAAP gross margin decreased by 10 basis points to 32.0% versus Q4 of 2019.
The decrease in margin during Q4 was driven by a shift in channel mix as well as duplicative costs due to the Georgia facility transition.
For the full year gross margin was 32, 5% an increase of 20 basis points compared to the prior year.
Non-GAAP gross margin was 32 seven per cent for the year also 20 basis points higher than in 2019.
The increase from year over year gross margin was driven by our FCA acquisition as well as better product and channel mix offset by higher transition costs and incremental costs related to COVID-19.
Total operating expenses were $45 8 million or 17, 5% of sales in the fourth quarter of 2020 compared to $33 5 million or <unk> 18 per cent of sales in the fourth quarter of last year.
The increase in operating expenses on a dollar basis was primarily due to the inclusion of FCA operating costs of $4 5 million amortization expense of 3 million and the acquisition related compensation costs of $1 2 million.
However, looking at non-GAAP operating expenses as a percentage of sales our non-GAAP operating expenses decreased by 130 basis points to 15 point O per cent compared to 16, 3% in the prior year period.
For the full year total operating expenses were $175 4 million or 19, 7% of sales compared to $129 9 million or 17, 3% of sales.
The increase in operating expenses was primarily due to the inclusion of FCA operating cost of $16 2 million amortization.
<unk> expense of $11 7 million in acquisition related compensation costs of $3 7 million.
In addition, G&A and R&D expenses were up approximately $22 million and $2 5 million respectively.
Driven by increased personnel investments to support our new product innovation and to lay of the infrastructure foundation to support future growth.
Non-GAAP operating expenses in 2020 were $139 4 million or 15, 7% of sales versus $116 3 million or $15 five per cent of sales in the prior year.
For the fourth quarter and full year 2020, our effective tax rate was nine 2% and 12, 2% respectively. The.
Its rate of slightly lower than our previous long range guidance of 15% to 19% primarily due to excess benefits related to stock based compensation and the optimization of of U S deduction for certain foreign activities.
Adjusted EBITDA increased by 48, 8% to $51 2 million for the fourth quarter of 2020 compared to $34 4 million in the same quarter last year.
Furthermore, adjusted EBITDA margin expanded 100 basis points to $19 five per cent compared to 18, 5% in the fourth quarter of 2019.
The increase in EBITDA margin is primarily due to the impact from higher sales lower opex as a percentage of sales and the positive impact of SCA on our results.
On a full year basis Fox delivered adjusted EBITDA of $176 3 million of 26% increase from $146 2 million in the prior year.
Adjusted EBITDA margin expanded 30 basis points to 19, 8% in 2020 versus the prior year.
The increase in EBITDA margin is primarily due to the leverage from higher sales and the positive impact of FCA on our results offset by incremental costs related to the COVID-19, pandemic and higher general and administrative costs as we bolster our requisite infrastructure to set up Fox factory for future growth.
On a GAAP basis net income attributable to Fox in the fourth quarter of 2020 was $31 8 million for 75 cents per diluted share compared to $22 5 million or 58 cents per diluted share in the prior year period.
On a full year basis earnings per diluted share was $2.22 compared to $2 38 for the full year of 2019.
Non-GAAP adjusted net income was $38 2 million, an increase of approximately $12 8 million or <unk> 50 per cent compared to $25 4 million in the fourth quarter of last year.
We delivered 90 cents of non-GAAP adjusted earnings per diluted share in the fourth quarter of 2020 compared to 65 in the fourth quarter of 2019.
For the fiscal year 2020, non-GAAP adjusted net income was $123 8 million versus one of $6 3 million, an increase of 16, 4% year over year.
We delivered $3.03 of non-GAAP adjusted earnings per diluted share in the fiscal year 2020 compared to $2.72 in 2019.
Now focusing on our balance sheet as of year end 2020 on January one 2021 compared to our 2019 year end on January three 2020, we ended with cash on hand of $245 8 million.
Accounts receivable increased to $121 2 million compared to $91 6 million.
Inventory was $127 1 million compared to $128 5 million.
Prepaid and other current assets increased to $87 9 million compared to $17 9 million.
Accounts payable was $92 4 million compared to $55 1 million and total debt outstanding was $389 6 million compared to $68 million and our fourth quarter net leverage ratio on a pro forma basis was approximately 1.04 times.
The changes in inventory accounts receivable and the accounts payable reflect seasonality as well as timing of vendor payments the.
The increase in prepaid and other current assets was primarily due to SCA related items, including chassis deposits and contingent retention incentives held in escrow.
Our net property plant and equipment increased to $163 3 million as of January one 2021, compared to $108 4 million at the end of 2019.
The increase reflects the SCA acquisition as well as the 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 the liquidity and financial strength to manage through any ongoing economic uncertainty, while continuing to proactively execute on our long term strategic objectives.
Now turning to guidance for.
For the first quarter 2021, we expect sales in the range of $255 million to $275 million adjusted.
The EBITDA margin in the range of $19 five per cent to 2025 per cent.
And non-GAAP adjusted earnings per diluted share in the range of 75 to 85 cents per share.
For the fiscal year 2021, the company expects sales in the range of one point O three 5 billion to 1.085 billion.
Adjusted EBITDA margin in the range of 19.5 to 21 five per cent and non-GAAP adjusted earnings per diluted share in the range of $3 30 to $3 60.
The company's full year 2021 guidance assumes the tax rate range of 15% to 19%.
We continue to expect some quarterly fluctuations in tax rate to occur during the year due to certain variables like stock option exercises.
We will also keep a close eye on the new administrations policies to adapt to any changes in federal tax law.
We expect Capex for 2021 to be in the range of 4% to 6% of sales primarily due to completion of the Georgia facility, which remains on schedule.
For the long term, we expect the capex rate of approximately 5% of sales.
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.
Finally, as we all know the business World is adapting to the new normal we continue to work closely with our suppliers and our customers to overcome the evolving challenges presented by the global pandemic. However, we remain conscious of the risks created by COVID-19, especially the impact on both our supply chain.
And those of our customers.
As positive as we may feel about our prospects in 2021, we remain cautious about presenting optimistic guidance without also highlighting the obstacles we may face this year.
Which Mike will touch upon shortly.
As our understanding of the global business environment evolves, we plan to provide incremental updates each quarter regarding our expectations for 2021 with that I would like to turn the call back over to Mike.
Thanks, Scott in closing 2020 was challenging, but we exited the year of stronger and more resilient both of the team and the company.
Our organization is more agile and nimble capitalizing on all of the learnings from the past year.
We feel confident that through continued innovation and new and existing product categories. We will remain maintain our momentum and extend our market leadership.
In 2021, we expect to surpass $1 billion in revenue for the first time.
Generating long term sustainable growth and value for our shareholders.
We are also excited that the vaccinations are progressing and we are confident that in the future. The world will be much safer and will return to normal once again.
However, near term, we remain very cognizant of potential macroeconomic headwinds and pandemic related uncertainties that could arise and materially impact our performance.
We are especially focused on significant price fluctuations in raw materials, and commodities like steel and aluminum as well as possible OEM shutdowns or issues related to automotive chassis supplies.
Thus, we will continue to monitor the situation and adapt accordingly, while continuing to integrate the highest safety measures to keep our employees healthy and safe.
I always we will continue to delivering against our goals, while making the lives of our growing customer base active exciting and enjoyable.
And lastly, our executive chair of the Board Larry Enterline has announced his retirement from the board effective April <unk> 2021.
Larry has been instrumental in creating what Fox is today and has been my mentor since before the before I became the CEO of Fox.
He has been integral part of the company for almost a decade first of the CEO then of the executive Chair and has maneuver the company. It's for global expansion private to public company transition and several successful acquisitions Jeff.
<unk> of total shareholder return of over 400% during his tenure.
To continue our success Dudley Mendenhall will return to his prior role as independent chair of the board of directors and Gmail E will become chair of the audit Committee.
Wish Larry all of the best in his much deserved retirement I.
I would now like to open the call for questions operator.
At this time, if you'd like to register to ask a question. Please press. The Star then one on your telephone keypad.
Ask that you. Please limit yourself to one question one follow up during today's Q&A session again. It is star then one to ask a question as a reminder, please pickup your handset for optimal sound quality.
We will take our first question from Larry Solow with CJS Securities. Your line is open.
Great Good afternoon and.
Congratulations on a really good year in a very challenging environment.
Could you maybe just.
I know you don't guide by.
By category or by segment, but with the sort of 20, 20% ish targeted growth and coming off of a really remarkable year on.
SSG can you, maybe just give us a little bit of color on how you see gross shaking out this year between the two segments.
Yes sure Larry This is Mike good to hear from you.
You know, we see both segments, having some significant growth opportunity for both challenge within the different risks associated with that growth.
S G. As I've said to you in the past and continue to say has seen remarkable bookings that go through throughout 2021, as we have a pretty good view of that was the only caution than maybe in the back half of the year.
On the supply chain challenges were components on the bike we're not the full bike as you know right well and some of other components cause for pushing or pull out the push outs of bike manufacturing that could affect us. So it won't be conscientious of that and thoughtful about what that means in the back half of the year, but for right now we look at the SFC and.
In 2021 and considered the continues to be kind of an oversized growth rate compared to the the long term expectations and DDG also a great year for growth in our <unk>.
<unk>.
With that growth, we have a couple of challenges relative to the chip issue for automotive as you've heard about in the press.
The chassis volume coming from the big automotive guys.
One of the things that we have to kind of work for as well as that transition of the Georgia, but we actually belief of both businesses will perform have the opportunity to perform quite well relative to our guidance in 2021 and the numbers that we've talked about in the past if not better.
It sounds like the concern maybe if there would be one or the challenge might be more on the on the supply side than demand and what's the order book looks like today is that fair to say.
That's fair to say, Larry I think that's really isn't the demand problems. So far this range really about supply chains in and all of the pieces that make up the all come together.
And you mentioned on the you mentioned the Georgia facility just briefly.
And in your prepared comments I know you talked about that you actually expect some margin improvement in the back half of the year in it.
From that and it does look like.
I guess your Q1 guidance versus your full year guidance you for you we've got numbers a little bit higher so im just trying to get.
The idea of how you used to see how that's going to shake out obviously, you're hopefully getting some increasing benefit from that but.
Perhaps it gets a little bit loss from the shuffle with the the Covid inefficiencies and whatnot and then.
Excess demand, which was probably a high class problem, but still hurts your margins in the short run so maybe a little more color on the short run and more importantly, where do you see like long term. If we look out three to five year of sort of opportunities from this move to Georgia.
Yeah.
Yes, it's a good question and I'll, let Scott Collins as well in terms of loans, we've seen improvements in margin but.
I'm I'm still committed to the we're still committed to getting that margin improvement of the back half of the year and things have share.
A little bit here and there relative to as an example of my prepared remarks power sports, we're seeing some record level bookings in the businesses as you know from other some of our customers who have reported and that.
Does the impact kind of the fluids of the or the or the nature by which we want to move that business. So we're working through those right now, but it doesn't change of the macro level, where we expect the emerging from it to be and when do we start to the expected to come into the year.
Covid by then hopefully as the other significant factor although is a very significant factor in Q4 for us relative to the absenteeism, but.
We expect that the abate and get back to of a more normal manufacturing business day in the U S. So Scott do you want to comment on the margin piece.
Sure sure Larry how are you doing.
Thanks Scott.
I add.
I think as we move through the transition and you know what.
No all of the analysts have been asking for a while but what we expect.
I think once we get through the full transition you know you're looking at let's say between 250 350 basis point improvement on on the gross margin for that that shock business, you know kind of the traditional legacy biz.
And the PPG, but we.
We're still moving lines over.
From from El cone, and we still have to worry about the moving of power sports business as well. So we still have of ways to go in that transition, which as you know.
Incredibly hard to do and meet your customer demand.
At the same time that that demand is obviously very robust.
Excellent okay, great I appreciate that thanks, guys.
And we will move next to Jim Duffy with Stifel. Your line is open.
Hi, guys hope, you're all doing well.
My best wishes to Larry and congratulations for Dudley I imagine they're listening.
All of the start on specialty sports guys can you speak about the backlog of and the runway of visibility that that provides you. So you currently have visibility well into the second half of the year and that type of business.
And then I'm curious you've flagged.
OEM challenges related to perhaps other suppliers are there specific issues that you're seeing right now that are impeding that the backlog in the bike business or is that more just to call out of something that could happen.
Hey, Jim it's Mike so thanks.
Thanks for the comment on Larry and Dudley.
They are listening so I'm sure. They appreciate that in terms of efficacy, we're seeing we're seeing backlog or order book, if you will probably the other side of the equation out into 2022, So we're seeing.
A much further view of what the demands of our based on the <unk>.
Lead times, especially and you know we've been talking a lot of the lead times and lead times in the bike business. If you're reading. The reports are going up north of 400, 450, even 500 days and some components, we've been able to with our extra capacity to bring that back down. So we're not where we're supposed to be at let's say 45 days of work a lot closer to 300 day.
Yes.
So we've got a pretty good view of what's going on in that space and so we.
Assuming all macroeconomic stuff stays intact I think we look at this year and in the next the next year is really strong in terms of.
Calling you out of the component issues, we're not seeing anything specifically today other than the pushing for all of the day on a daily basis of working through the supply chain challenges deal of suppliers.
Reinforcing their capacity, making sure they understand the need to do to the.
For us so nothing to cause specifically as of now I just want to call it out of <unk>.
Forward looking basis as as a concern that we need to be very vigilant on two.
To ensure that we get the all the right components for our business and our and our OEM partners get all the way the components of complete those bikes I think people made a lot of progress in the last couple of quarters things have at.
At least improve from a visibility perspective, so I think that's a net positive, but we've got a low long way to go to get back to the more normal environment SSG. So we'll watch it closely.
Okay and another question on just inventories and supply Mike your inventories look super tight.
What's the what's the path to delivering on that strong first quarter guidance, given how lean inventories are.
And then I'm curious if you can speak to the outlook for SCA and what Youre seeing in terms of the availability of chassis to support that.
Yeah, two really good questions Jim So our inventory is tight where we're shipping pretty much wherever we can make.
As a general thing so.
Working really hard we've had from improvements in in Q4, let me give you a couple of numbers just to.
The kind of give you a reflection of what the churn rate is in Q3, we had as a company.
Give or take 10 round number 10, COVID-19 cases that that debt caused us issues of our factories.
In Q4 alone we had 175 and if you think about 175 of that might not sound like a lot of somebody of lots of me, but what that means of 14 days per case of quarantine the minimum.
And if you do the math of that Jim that means you have 2450 days of 202100 plus days of of of Unproved other productivity in your factory as you're trying to hit these revenue numbers right. So that that creates a massive headwind that we had to deal with in Q4 and I think some of that has had.
<unk> has abated in Q1, and that's going to help us get that get that.
Production two to deliver the results we need so we do we do keep a very close day in Covid. We think it's still a challenge for us from the first half of this year, but.
It seems to be still a little bit better and that's going to help us in Q1 and Q2.
Thanks, and then the FCA.
Mike.
And I don't see a yes, a good question so on the FCA.
Our working very closely with our biggest partners.
The chassis that we require the chips. The you hear about in the news that.
The other short.
So we are getting creative and working with the with the different automotive suppliers to provide what we need we think the first half of the year looks good.
We're still working through the back half of the year as well too early to comment on that yet, but the first half of the year. That's pretty good I think we've solved the majority of the issues as it would relate to us. So we feel good now want to keep a close eye on and things can change quickly there, but from where we sit right now we feel good at least the about the first half.
Thank you.
The bedroom.
And we will take our next question from Mike Swartz with true Securities. Your line is open.
Hey, guys good afternoon, and good evening I guess.
Scott just wanted to follow up on the comments you made earlier just.
You said 200.
250, the 350 basis points improvement.
Once.
Of the Georgia facility is fully transitioned.
Were you talking about the.
That level of improvement on the consolidated margin or was that just a singular piece of the business.
Yes, really just talking to at this point, Mike about about the actual business. The the Gainesville is contributing to.
You know it could be better than that once we get over there and see it in action I think at this point.
Sure.
Run of numbers and spreadsheets and not seeing it in person because we still have to make those transitions without the duplicative cost and see it actually happened and so wanted to give you got some visibility into where we were headed but are certainly.
Certainly don't have that dialed in perfectly at this point.
Okay.
When I think of in your prepared remarks, you also made reference to increased from corporate overhead and corporate support costs I guess, how should we think about that playing out through 'twenty, one and maybe longer term I mean, what are some of the capabilities that you need and how impactful from a margin standpoint do you think.
They are.
Uh huh.
So good question on the <unk>.
Tactful on the margin standpoint, I'm not prepared to talk about.
Opex as a percentage of sales and in terms of guidance I think we will be in the same range of.
Percentage of sales on Opex that we've been in the past and so growing with the business.
But I think it's going to be lumpy at times.
He might have a quarter thats lower quarter, that's a little higher and then it'll it'll kind of average out in the end.
And Mike This is Mike I would just add that with the investment we make in corporate infrastructure and support functions really helps us grow and scale of this company moving faster.
There are some necessary things, we need to do to make sure. The we can be for.
Sustainable in that growth and so I think it's the net net positive for us in the long term basis.
It's not just fluff.
Okay, great. Thanks for the color.
Okay.
And we will take our next question from Scotts timber with C. L. King Your line is open.
Good evening, guys and thanks for taking my questions.
Hi, Scott.
The last couple of quarters, the guys have talked about how the bike business at least your rarefied air has been benefiting from shortages of less expensive bikes are you guys still seeing that.
Trends in the in the fourth quarter and is that.
If it is continuing or are you expecting that to continue for for at least the first half of this year.
Hey, Scott This is Mike of the answer is yes, and yes.
So we're seeing a move for people to upgrade bikes.
As a developing trend so people want a better bike in the bike the Dave may have written a year or two or three years ago. So a lot of the current demand going into the dealers going into the Oems is on those higher end bikes things like E bikes as well.
The benefit to us so we really like what we're seeing relative to the.
The premium the premium category.
And obviously, we fit in really well in that space.
And Thats and Thats helped us and I think it's also the the relationships that we've built and strengthened with our OEM partners I mean, I just I can't speak highly enough of this.
Of the quality of those partnerships that we have.
And I think that's going to bode well for us as well.
Alright, and just the regarding some of the the individual segments you talked about.
Our powered vehicles group I think you'd called out SSG.
And.
The FCA.
Hum.
And the power sports for just wanted to see.
How some of the other segments of doing whether it was aftermarket related whether it was.
The lift business that you have or.
On the Ford Raptor and some of those other products happy day compare in the corner.
They didn't really well our challenge in Q4 and in the aftermarket space I think sport truck are of Lyft business and our aftermarket laser business you know of challenge there with meeting demand keeping up with demand.
Carried backlog in both of those businesses into Q1.
We had carried backlog from Q3 and the Q4, if you recall and we carried from some into Q1 as well so where we are.
We're really working hard.
To meet the demand that's in front of us.
I mentioned earlier today about the the Covid challenges in Q4 that really did not help us in the U S. Trying to keep our factory is running efficiently then it causes us to actually add buffer.
And our workforce because of the absenteeism is so high so it kind of gets the coming and going if you know what I mean to try to deliver that backlog in the keep your costs down.
I think I think from what we can see in the first half of this year aftermarket again, the lift and in legacy is the strong what's kind of a wait and see what happens in Q3 and Q4 of a little early to tell.
SCA and Tuscany also did well in the quarter in Q4, so we've combined those businesses fundamentally for US now at the AAN.
Ask me I should probably for it that way when I talk about it but that is really one business for us.
Both the dwell in the quarter I think that strength continues.
And then on the OEM side.
The bulk power sports and automotive sort.
Great new product launches.
And the power sports. We're just we're just challenged with the supply chain to keep up with the demand from our OEM partners.
Pretty incredible and we pushed in backlog for Q4, and the Q1 of the power sports as well.
Just because of the supply chain.
I'm trying to get the materials, we needed so.
All of that looks really was strong in Q4 very diverse solid growth across the business and we think that looks the same in the Q.
The one for sure in Q2 as well.
Got it that's all I have thank you.
Scott.
And as a reminder, it is star then one to ask a question today.
We will go next to Rudy Yang with Barrington. Your line is open.
Good evening guys. Thanks for taking my questions.
So can you discuss.
What youre seeing in the bike channel overseas right now and how the manufacturers plan of restocking inventory this year.
While we're seeing overseas are you, referring really to the of manufacturing in our Taiwan facility or or end customer demand overseas.
And customer demand.
Yeah. So you know we're not a big player in Asia. So that's not a big part of our bike market we don't the.
We don't sell a lot of bikes and in Asia in Europe, we've seen the demand continued to be incredibly strong, especially.
Especially in the E bike category I mentioned in my prepared remarks, when we opened our new German facility, which has been phenomenal.
As us to respond and react to our customers' needs quicker.
Provide service et cetera, So that's been a big a big benefit for us.
But that demand seems and continuous seems to be strong and continues to be very strong.
I would say the same for Australia, and some other markets that debt, we support around the world.
So I don't see anything anything letting off on the geographic basis. It continues to continue the strong end of this year and throughout the year.
The at least from a forecast perspective, the balance of this year.
Okay.
Got it and then with respect to higher freight costs that we're seeing everywhere do you expect those the had an impact on your bike part margin or on the bike manufacturer's ability to fulfill demand.
I don't have I don't see it as an issue of fulfilling demand I know our OEM partners are paying higher rates for both containers and just freight costs and general freight freight has been extended yeah, where you started the use or at least test of the usage of <unk>.
The rail between China, and Europe, as a way of getting our product to market in Europe. So we're getting creative to help support it it doesn't really have an impact on our margins though.
When we have the incremental cost for the most part we pass those along.
Our customers will only it will pick up the extra costs. They know that's not us.
The reality of the world. So those are the big impact on margins, but its definitely.
Causing causing our OEM partners to the pay more than they expected.
Got it I appreciate the color. Thank you.
Debt.
And there are no additional questions at this time I'd like to turn the program back over to Mike Dennison for any closing remarks.
Thank you we appreciate your participation and questions on today's call. Thank you for your interest in Fox and have a nice evening.
Thank you for your participation. This does conclude today's program you.
You may disconnect at any time.
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