Q4 2021 Fox Factory Holding Corp Earnings Call
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Yeah.
Good afternoon, ladies and gentlemen, and thank you for standing by and welcome to Fox factory holding corporations fourth quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode. A 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 your host Vivek Cooney Senior 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 2021 earnings Conference call I'm joined today by Mike Dennison, Our Chief Executive Officer, and Scott Humphrey, Chief Financial Officer and Treasurer.
Mike will provide business update then Scott will review the quarter and full year financial results and then the outlook followed by closing remarks from Mike.
We'll then open the call up for your questions.
By now everyone should have access to the earnings release, which went out today at approximately 405 Eastern time, if you have not had a chance to review the release, it's available on the Investor Relations portion of our website at Investor Doug 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 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 to.
<unk> 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 companys latest Form 10-Q and in the annual report or Form 10-K filed.
Filed with the Securities and Exchange Commission.
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 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.
In today's press release.
<unk> has also been posted on our website and with that it is my pleasure to turn the call over to our CEO Mike Dennison.
Thank you <unk> and good afternoon, we appreciate everyone, taking the time to join us for today's call.
We offer 2020 was a remarkable year for 2021 was equally challenging if not more.
In Q4 presented one of the most intense operating environments of the year.
We experienced pronounced supply chain challenges and lost production hours, along with being required to shut down one factory in North America due to Covid cases.
Challenges kept us from achieving our sixth consecutive record revenue quarter, and consequently carried an increased level of backlog into Q1.
That said I'm pleased to report fourth quarter sales of $342 3 million.
An increase of 35% compared to the fourth quarter sales of last year.
The Fox team worked tirelessly and creatively to deliver for level revenue growth for the fourth quarter, We reported earnings per diluted share of <unk> 89 versus.
Versus 75 in the same period last year, an increase of 18, 7% quarter on quarter.
Yeah.
We also reported non-GAAP adjusted earnings per diluted share of $1 <unk> versus <unk> 90.
An increase of 17, 8% over the fourth quarter in 2020.
We continue to prove that our collective resiliency and strength curious through during these unique times.
I'm really proud of how the Fox team has demonstrated perseverance dedication and adaptability and this dynamic operating environment, delivering near near 46% annual year on year revenue growth rate.
The highest ever since we went public in 2013.
We finished the year with annual revenue just shy of $1 3 billion.
At our first calendar year, where we eclipsed $1 billion in annual revenue.
As these macro obstacles worsened in the fourth quarter. Our team continued to out innovate outpace and I think our peers to deliver performance defining results just like our products.
I am happy to report that we also completed the acquisition of shock therapy at the tail end of the fourth quarter.
Shock therapy as a provider of high performance suspension tuning services to the off road industry.
Their services are unique due to the extensive research and testing which results in the best possible system for each application, whether it's been racing or off road recreation.
In addition, we anticipate shock therapy will extend fox as competitive edge by bringing a strong direct to consumer channel for parts and right improving systems.
We expect this acquisition will help us increase our services business by creating a meaningful and personalized ecosystem around our enthusiasm and the consumer.
So let's take a closer look at the business starting with specialty Sports group. This is our seventh consecutive record revenue quarter as it delivered a 46, 7% revenue growth on a quarter over quarter basis. The.
The primary reason, we have been able to deliver such staggering numbers quarter over quarter is due to the team's ability to not only anticipate industry demand fluctuations, but also to scale and accelerate production, while managing supply chain inflation and labor challenges.
We continue to optimize our capacity and labor expansion plans in Taiwan as we keep a finger on the pulse of demand, which continues to stay very robust.
As I've mentioned in prior calls we have a good view of demand through 2022 for both OEM and aftermarket channels, which provides a reasonable confidence our current outlook. We are starting to see a slight improvement in the inventory levels and increased replenishment in certain geographies.
And at certain price points.
And our current view, we believe it will take five to eight months to meet the existing customer demand level and another nine to 12 months to fully replenish depleted inventory levels.
We continue to invest in our development process to improve upon our innovation and speed to market capabilities as Fox Marzouki at our res based products continued to lead the industry.
A couple of highlights of innovation.
<unk> launched Fox 34, one the suspension product of the year by outside magazine.
<unk> was also the number one brand for purchase intent for both front suspension and rear shocks as rated with two largest north American media sites as well as two of Europe's Premier media outlets MTBE and enduro MTBE.
Shifting to our powered vehicles group Q4 marked another remarkable revenue quarter led by an 18, 6% quarter over quarter growth in sales.
Driven by our operating business and the aftermarket channels.
Our order book continues to grow however, the ongoing supply chain challenges continue to affect our ability to meet the increased demand for our products by our end users, we are optimizing and unlocking new ways to mitigate the macroeconomic pressures, we face while leveraging the power of our brand to expand our relationships in both the aftermarket and the OEM side of the business.
We remain confident in our ability to continue this growth trajectory and expect to leverage the efficiencies created by our Gainesville facility as previously discussed.
I'm also pleased to report that the facility transition from California, Georgia is complete.
And the final closure actions of our Watsonville, California operations are underway now.
Turning to OEM partnerships in the last couple of months, we have released several innovative solutions for our OEM partners, which reinforced the exclusivity of our brand in the world.
The power sports Polaris launched <unk> and turbo, our ultimate which feature of our live valve X two shocks.
These are the most capable dampers and the off road industry.
In addition, we have some exciting news new launches in automotive starting with the much anticipated broke broker Raptor, we are thrilled to expand our relationship with Ford.
Cocoa Raptor features our live valve shocks derived from Fox Fox is desert racing winning heritage and.
In addition, Florida also introduced our live valve inventory internal bypass for the new Ranger Raptor, which.
Which is slated to launch around the world in 2022 and make its USD view in 2023.
In addition, we expanded our relationship with Toyota, where our Fox two five inch internal bypass features in all of the new <unk> pro tundra and Sequoia platforms.
And lastly in the motorcycle space, we recently expanded our relationship with Indian motorcycles in the upcoming 2022 Indian Challenger and Indian pursuit, we are introducing Fox electronic preload shock technology, which delivers dynamic control overshot adjustments delivering both comfort and performance to the writer.
Moving onto our accomplishments in the world of Motorsports, our live valve technology earned another overall win with Justin Lofton at the best in the Desert race in October at the Baja 1000 cameras steel put live valve on the podium with a third place finish overall and Rob Mackay Creon and Lupron <unk> teamed up to claim the overall when making a clean sweep of all four.
Major bar races in 2021 for Fox and the second consecutive bond 1001 from Ireland.
We do always win was also enough to clinch the score trophy truck points Championship.
In addition, Phil Blurton claimed the pro UTV Turbo had overall series points championship and extra special congratulations to our very own director of Motorsports, Bobby Smith, and his navigator Motorsports Mechatronics engineer ASIC chip chat look on winning the pro UTV naturally aspirated class with team Honda.
To be successful in our vision, we arent just making investments to meet the historic level of demand. We have always said product innovation is the cornerstone of our growth strategy.
Even in this inflationary environment, we have not taken our foot off the pedal increasing R&D spending by nearly $4 million in the fourth quarter versus the prior year.
Once again the story on the continued challenges from labor input costs freight and supply chain have increased in strength from prior quarter.
<unk> cost continued to increase through the throughout the fourth quarter and we did our best to keep up with inflation through pricing changes and we'll continue to evaluate our pricing strategy to minimize margin compression.
Looking forward, we hope to see easing in the supply chain during the second half of the year, but inflationary challenges could.
Persist longer finally, we are constantly looking for ways to improve the fact that we delivered 46% year on year revenue growth in such a volatile operating environment deserves to be celebrated.
I, thank each and every single member of our Fox family to help us challenge the impossible everyday 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 then review our guidance.
In the fourth quarter of 2021, or $342 3 million, an increase of 35% versus sales of $262 4 million in the fourth quarter of 2020.
Our powered vehicles group delivered an 18, 6% increase in sales compared to the fourth quarter of 2020, primarily due to increased demand in our aftermarket channels, including strong performance in our up fitting product lines.
<unk> to the specialty sports group SSG delivered a 46, 7% increase in sales in the fourth quarter compared to the same quarter last year due primarily to increased demand across all channels as well as capacity expansion.
On a full year basis sales were 1 billion $299 1 million versus $890 6 million in the same period last year, an increase of 45, 9%.
This jump in full year sales is driven by increased demand across all of our product lines.
<unk> growth is primarily driven by strong performance from our outfitting product lines. The inclusion of a full year of revenue from our SBA subsidiary and increased demand in our aftermarket channels.
Additionally, our prior year results were negatively impacted by production shutdowns at a majority of our pvt OEM partners due to the COVID-19 pandemic.
Fox Factory's gross margin was 31, 3% in the fourth quarter of 2021, a 50 basis point decrease from 31, 8% in the same period in the prior year for.
For the fourth quarter of 2021, non-GAAP adjusted gross margin decreased by 40 basis points to 31, 6% versus Q4 of 2022.
The decrease in gross margin was primarily driven by higher inflationary pressures on all fronts, including labor material and freight costs.
This was marginally offset by favorable product and channel mix compared to Q4 2020 led by higher volume sales in our specialty sports group and strong performance in our power sports and up fitting product lines.
On an annual basis, both our gross margin and our non-GAAP adjusted gross margin increased 80 basis points to 33, 3% and 33, 5% respectively.
The increase in full year 2021, gross margin was primarily due to higher volume sales in our specialty sports group strong performance from our upsetting product lines. The inclusion of a full year of <unk> results in our powered vehicles group as well as favorable product and channel mix.
Total operating expenses were $64 2 million or 18, 8% of sales in the fourth quarter of 2021 compared to $45 8 million or 17, 5% of sales in the fourth quarter of last year.
The increase in operating expenses in Q4, 2021 was primarily due to higher employee related costs increased commission costs.
Investments to right size, our back office infrastructure.
Looking at non-GAAP operating expenses as a percentage of sales our non-GAAP operating expenses increased by 170 basis points to 16, 7% in the fourth quarter of 2021 compared to 15% in the same period in the prior year.
Focusing on operating expenses in more detail sales and marketing expenses increased approximately $4 8 million in the fourth quarter of 2021 compared to the fourth quarter of 2020, primarily due to higher commissions of $3 million.
Research and development costs increased approximately $3 6 million in the fourth quarter of 2021 compared to the fourth quarter of 2020, primarily due to personnel investments to support future growth and product innovation.
General and administrative expenses increased by approximately $9 2 million in the fourth quarter of 2021.
Due to higher employee related costs of $2 5 million as well as increases in various other costs as we continue to right size our administrative support functions.
On a full year basis operating expenses were $235 4 million or 18, 1% of sales compared to $175 4 million or 19, 7% of sales in the same period in the prior year, a decrease of 160 basis points.
Our non-GAAP operating expenses as a percent of sales increased by 30 basis points going from $139 4 million and 15, 7% of sales in 2020 to $207 8 million and 16% of sales in 2021.
On a full year basis sales and marketing spend increased by approximately $18 7 million compared to the same period in the prior year, primarily due to commissions of $11 8 million.
But as a percentage of revenue of the spend decreased by 40 basis points in the full year of 2021 versus the prior year.
Research and development dollars spend increased by approximately $12 3 million for the full year 2021 as compared to the same period in the prior year due to personnel investments to support future growth and product innovation.
As a percentage of revenue, however, research and development spend decreased by 30 basis points in 2021 versus the prior year.
Lastly, general and administrative dollar spend increased by $25 9 million and full year 2021, as compared to the prior year, but was lower as a percentage of revenue by 50 basis points.
The increase in dollar spend in fiscal year 2021 is due to higher employee related costs of $18 million as well as various other investments of $5 1 million.
These increases were partially offset by lower acquisition related costs of $9 3 million and lower litigation expenses of $1 1 million.
For the fourth quarter of 2021, our effective tax rate was nine 6%. This rate was lower than our estimated full year 2021 range and guidance of 15% to 19% the.
The decrease in the rate versus our earlier expectation was primarily due to the benefit from a lower tax rate on our U S foreign derived earnings.
On a GAAP basis net income attributable to Fox in the fourth quarter of 2021 was $37 7 million or <unk> 89 per diluted share compared to $31 8 million or <unk> 75 per diluted share in the same period in the prior year.
For the full year 2021, net income attributable to Fox was $163 8 million or $3 87 per diluted share compared to $90 7 million or $2 22 per diluted share in the prior year period.
non-GAAP adjusted net income was $44 8 million in the fourth quarter of 2021, an increase of approximately $6 6 million or 17, 2% compared to $38 2 million in the fourth quarter of last year.
We delivered $1 <unk> of non-GAAP adjusted earnings per diluted share in the fourth quarter of 2021 compared to <unk> 90 in the fourth quarter of 2020.
On a full year basis non-GAAP adjusted net income was $190 8 million, an increase of approximately $67 million or 54, 1% compared to $123 8 million in the same period in the prior year.
On a full year basis, we delivered $4 50, non-GAAP adjusted earnings per diluted share compared to $3 <unk> in the same period last year.
Adjusted EBITDA increased by 19, 1% to $61 1 million for the fourth quarter of 2021 compared to $51 2 million in the same quarter last year.
However, adjusted EBITDA margin decreased by 170 basis points to 17, 8% in the fourth quarter of 2021 compared to 19, 5% in the fourth quarter of 2020.
The decrease in EBITDA margin in the fourth quarter of 2021 is primarily due to higher inflationary pressures as discussed earlier, partially offset by the impact of higher sales.
On a full year basis, adjusted EBITDA increased by 49, 7% to $263 9 million as compared to the same period in the prior year and the adjusted EBITDA margin expanded by 50 basis points to 23% versus last year.
Now focusing on our balance sheet.
For the fourth quarter, which ended on December 31, 2021, compared to our 2020 year end on January one 2021, we ended with cash on hand of $179 7 million compared to $245 8 million okay.
Accounts receivable was $142 million compared to $121 2 million.
Inventory was $279 8 million compared to $127 1 million.
Prepaid and other current assets was $123 1 million compared to $87 9 million and.
And accounts payable was $100 million compared to $92 4 million.
The increase in inventory as of year end is primarily due to additional raw material purchases to mitigate risks associated with supply chain uncertainty and higher input crop input costs.
As we see the supply chain pressures beginning to ease we will work on reversing this trend to facilitate better free cash flow generation.
The increase in prepaid and other.
Current assets as of year end is primarily driven by deposits for securing chassis for our up fitting business, which has been experiencing significant growth there.
The changes in accounts receivable and accounts payable reflect business growth as well as the timing of vendor payments.
Our net property plant and equipment increased to $192 million as of December 31, 2021, compared to $163 3 million at the end of fiscal year 2020, reflecting capital expenditures of $54 8 million for the year.
The increase primarily reflects investments in our manufacturing facility in Gainesville, Georgia.
Goodwill increased to $323 3 million as of December 31, 2021, compared to $289 3 million as of January one 2021, primarily due to our acquisition of outside van in the second quarter and shock therapy in the fourth quarter.
Now turning to guidance.
For the first quarter of 2022, we expect sales in the range of 325 million to $340 million and non-GAAP adjusted earnings per diluted share in the range of $1 to $1 20 per share.
For the fiscal year 2022, the company expects sales in the range of $1 billion and $435 million to $1 billion and $465 million.
Adjusted EBITDA margin in the range of 20% to 22% and non-GAAP adjusted earnings per diluted share in the range of $4 90 to $5 20.
For our 2022 full year tax guidance, we expect our tax rate to be in the range of 11% to 15%.
The low end of the tax guidance is due to changes in international tax law, which went into effect in the month of January .
We are currently evaluating this potential benefit which would result in a lower tax rate in Q1 related to our foreign tax credits. In addition, we continue to expect some quarterly fluctuations in tax rate to occur during the year.
We expect Capex for 2020 to be in line with our long term range of 4% to 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 inflationary macroeconomic environment.
As positive as we may feel about our prospects in 2022, we remain cautious in our outlook as we see lingering signs of some cost pressures in the first half of the year along with revenue mix normalization.
As our understanding of the global business environment evolves, we plan to provide incremental updates each quarter regarding our expectations for 2022.
With that I would like to turn the call back over to Mike.
Thank you Scott we are incredibly proud of the way our team has delivered stellar results in 2021 through their sheer perseverance commitment and impeccable execution.
As we celebrate our success, we completely acknowledge the multi dimensional challenges ahead of us.
Be it from pandemic or macro economic factors.
We will continue to make significant investments in products people and technology.
All while maintaining a fortress balance sheet.
We believe our world class team financial discipline.
Our relentless focus on delivering best in class products to our ever growing base of performance driven enthusiasts.
Enable us to continue delivering against our consumers and shareholders expectations.
I would now like to open the call for questions operator.
And at this time, if you would like to ask a question. Please press star and one on your Touchtone phone again that is star one if you would like to ask a question you can remove yourself from the queue at any time by pressing the pound Kim we'll take our first question from Larry Solow with CJS Securities. Please go ahead.
Yeah.
Yes, Hi, it's Pete Lukas for Larry.
You discussed price increases in the latter portion of 2021 to keep up with inflation, how thats been received by customers and do you think it was enough considering the acceleration that you have seen in inflation.
Yes. Good question this is Mike.
My perspective is throughout kind of the Q3 period Q2, and Q3 period, we started to implement price increases that took effect in Q3 and Q4 across the board basically in every product line.
We have.
At the time, we felt those would be would offset the inflation we were seeing in costs in.
And all functions of our business I think we did a pretty good job, it's always a spectrum of how much how much our customers will accept price increases.
In the end, we got all the price increases accomplish that we were looking for at the time. So the answer is yes, we were successful in doing it.
Yeah.
I would say it covered the inflation that we saw at the time, but inflation continues and so whether or not we have to do more price increases in Q1 is really the question and that answer is yet to be determined parts of our business have more price elasticity than others and so we'll have to be very thoughtful about where we deploy those price increases in the <unk>.
First part of this year, but clearly and I've said this in prior earnings calls.
The dynamics of our world today mean that instead of doing annual price increases you might have to do quarterly price increases and we are well equipped to go do that if that's necessary. So theres always a little bit of a lag between inflation cost.
That occur in our factories and getting the pricing to our customers to cover those costs I think thats going to continue to persist as we as we understand inflation.
And how it goes forward.
Great helpful. Thanks, and next can you speak on the ongoing capacity expansion in Taiwan for specialty sports.
And are you able can you update us on the transition to manufacturing power vehicles as most of that heavy lifting complete and do you think that this becomes a tailwind for you going into 'twenty two.
I think in both cases, Taiwan, adding Gainesville, that's a tailwind going into 'twenty two in Taiwan, specifically a lot of that capacity expansion was done in the back half of last year and is coming online now so there's still productivity.
<unk> the team is out working but as you can see in the growth rates of SSG that capacity has been not only delivered on time and where necessary and is therefore allowed us to grow probably faster than most of the people in that industry. Most of the companies in the industry, but I think we're well positioned for 'twenty two based on the capacity that we've added so we're in really good shape.
In Taiwan for 2022 in Gainesville, as I mentioned in our prepared remarks, we did.
Get the rest of the Watsonville transfer to Georgia complete in the quarter, which obviously causes lots of challenges in the quarter because it's just not easy to do when you have so much robust demand and and created some of the incremental backlog that we saw in the in the end of the quarter going into Q1.
<unk>.
The transfer of that the last lines have then moved we're just doing clean up in Watsonville, now, which really sets the table for 2022 and what we have to go do in Gainesville, which as Scott and I have talked about in the past, we will deliver 250 to 350 basis points of margin expansion in our legacy business. So.
Yes, we're really excited to get that done it wasn't fund that was pretty painful, but we've got we've got that.
Achieved accomplished and we're kind of ready to go.
Great and last one for me given the rapid growth in sales and employees you've seen over the last 18 months in a challenging labor market can you update us on where we are today is the bulk of the hiring done.
And how have you seen.
What have you seen in terms of increase in attrition and turnover if any.
Both of those answers are a bit geographical so in Taiwan, we have had significant increases in workforce.
The results that we've delivered.
It's pretty.
Sustainable it's pretty predictable in Taiwan that team has done a great job in a very low unemployment.
Country by the way their unemployment rates are near zero. So some of our capacity expansion means diversifying our footprint in Taiwan, So we could get to fresh labor pools, if you will.
And I think the team has done a great job of doing that so I think what I.
About labor in Taiwan, I'm pretty comfortable with where we're at I do think the risk in Taiwan as a function of <unk> or COVID-19 and some variant.
<unk> has been spurred a lot of that pain in the.
The rest of the world has undergone and and we always have to be aware of that could be a significant headwind if something materializes in Taiwan don't know that it will but we should just keep that in mind.
In terms of Gainesville employing.
Employing people in North America has been more challenging throughout the last year. It hasnt gotten worse. It's just been an ongoing challenge of people returning to work wondering wanting to return to work and of course as you know at the very end of Q4 and early Q1.
The omicron variant made it very difficult to run large population factory, so more so than kind of the turnover employment from just normal turnover or your normal labor turnover.
I would say Covid has had an oversized impact on trying to keep a workforce.
Predictable in North America.
Very helpful. Thank you.
The next question comes from Anna <unk> with Jefferies. Your line is open.
Hi, good afternoon. Thanks for taking our question I believe in the prepared comments is that alright.
Alright.
Okay.
Headwind.
You put a finer point on what's embedded in the 2020 guidance around that on my own but meaningful improvement or maybe more moderate.
Perspective would be helpful.
Yes.
We're embedding pretty moderate improvement I don't think we're going to assume that the improvement happens until we actually see it I think Scott and I. Both believe in the team believes that we will see that easing in Q2, but thats not really forecasted into our numbers at this point. So if we saw more easing. If we saw an increased pace of easing I think that just help us but.
We tend to run fairly conservative in our estimates.
Our estimates are a reflection of kind of what we see today versus what we hope to see.
Sometime in Q2.
Great. Thanks, and then turning to the inventory growth.
In the quarter could you maybe unpack that growth maybe how much is related to cost inflation.
Higher unit.
Yes.
Yes sure.
Scott.
I think it's a combination of things and I don't have percentages for you, but if you look in our K, our backlog was up almost $100 million compared to the end of last year. So the demand is there and we have been.
Bringing in more inventory obviously.
Over some of the supply chain challenges that we've had over the last six months or so just getting product in the door.
And so.
So yes, we are experiencing some material inflation, that's part of that big increase.
Part of it is still to do with.
Moving.
Basically meeting the power sports inventory that was out in watsonville over so getting lines up and running and ready to go with material and Gainesville.
Almost having inventory in two places to service that customer.
So.
There's a number of factors playing into that big increase in inventory, but you are correct that we have seen.
Cereal cost increases.
And I would only add to that.
The port congestion that everybody experienced in late Q3, and very very much. So in Q4 doesn't make it easier to.
To try to drive continuity of supply. So it means it causes you to be more protective and you're in your supply chain and probably take on more inventory just as a function of.
Trying to push it through a gate that is not very wide, meaning lots of boats from the ocean not a lot of spots in the ports.
I think that nuance is one that had to play out in Q3, and Q4 and I think thats starting to abate already so I think you'll see that start to improve kind of back half of this quarter and into Q2.
Okay.
Great. Thanks.
The next question comes from Brady Yang with Baron Burke Your line is open.
Hey, guys. Thanks for taking my questions.
I think in your prepared remarks, you mentioned it will not take about five to eight months to fully meet demand, whereas in previous quarters. I think that number was eight to 10 months its benefactor of the NAND strength decelerate at all or is it just kind of due to higher capacity on your end or just kind of being able to move more of your backlog.
That's also.
Really it's a good question Thats really a function of an industry dynamic as well so keep in mind, that's not just us because we're one part of an industry that other people have to deliver on their components as well.
Fulfill that demand.
And when I say five to eight months, it's a function of a quarter ago. It would have been eight.
12 months, but we've got a quarter further down the road and so we are seeing that improvement I think you should continue to see improvement in the reduction of that number throughout the course of 2022 that would mean.
Tracking to a healthy recovery in the industry.
And again I think that's a function of them not just us but other people clearly we've been able to do really well in SSG because of the capacity. We've added at our ability to manage that continuity of supply to produce to produce goods. So.
I think we're doing better than most.
And as a function of that we're able to make sure that we are not the long pole the loan pool in the shed relative to our customers to be able to get there their bikes put together so that.
That's what I think is going on there.
Got it that's really helpful and then.
I have kind of an unfortunate and kind of.
A recent situation but could.
Could you maybe just talk to your thoughts on how the whole Ukraine situation could possibly impact your business.
I think from my understanding Ukraine, as a large exporter of oil and gas, while Russia sources of a large amount of palladium, which are both using the accretion of chips. So just curious of any thoughts you could share in discussions around the potential of that.
I think the implications of that and I agree with you, it's pretty pretty dire and sad situation I think the.
<unk> or more indirect for us, we really don't have relationships in either of those.
Countries at this point and the indirect impact into commodities is yet to be determined but I don't think its going to be that significant relative to aluminum and steel, which is really the basis of our business.
So I think what we're cautious of is as potentially cyber attacks and other things that could happen that would have some sort of implications are and our world, but from a standpoint of demand or our ability to fulfill that demand I don't really foresee any major issues.
Okay.
Thanks Rudy.
Okay.
We will go now to Ryan Sundby with William Blair. Your line is open.
Yeah, Hi, Thanks for taking my question.
Mike It sounds like with the plant changeover.
So you have some backlog that carried over into Q1.
Any way to help us kind of understand how big that was and.
Does that all just get worked out in Q1.
Yes, I mean, we've carried over 200 and over $220 million of backlog from Q4 into Q1.
We have record backlog for us.
Which means it kind of reinforces the statement the demand is incredibly strong I think your question is do you do you relieve that backlog in Q1 I don't think there is any way we can relieve all of that backlog in Q1.
So we're going to do our best to try to mitigate that over the next couple of quarters.
And very solid strong communications with our customers.
But.
That's a big number so.
One hand.
It's great to have backlog because it's it's it's.
Its hard purchase orders that we see relative to our customers, it's hard because it puts more pressure on that Gainesville.
Productivity.
Activity implementation that were driving for this year.
That's helpful.
And then just on shock therapy any any color there.
In terms of size and growth.
Our business and how it may be too soon.
With Fox.
And then just maybe a bigger picture question on acquisition. This is.
A couple of smaller ones the whole lot in our outdoor outside ban.
Whats the whats the strategy there in terms of kind of targets you're looking at size are these smaller deals the one quick.
Our sense right now.
Yes, I'll take the last question first.
Ryan I think.
When we target when we go out to look for acquisitions, we're looking for larger acquisitions typically what happens, though at our business is a lot of inbound happens occurs and some of these smaller companies approach us via various means to say hey, we think would be a good part of the Fox family.
And we think we can be accretive to your business and in shock therapies case, both their innovation and tuning in and products on power sports as well as the way that they've gone after service in that business.
They actually drive a bigger aftermarket business in that product line than we did in that space. So we're learning a lot from them.
It's been a fantastic acquisition, albeit very early early days in terms of sizing. It isn't a large acquisition you know think about it as kind of a $20 million of your business today growing at or probably above the current <unk> growth rates. So it's going to grow nicely with us it's not large it's really the technology and some of the thinking that we're getting.
From shock therapy that we can use in the rest of our business that is so meaningful.
From a margin perspective, it's not dilutive. So it's a good it's not it doesn't harm us from a margin perspective. So we think it's all good but in general as we go look for potential acquisitions, we're looking at larger ones. You've heard me say before I'd, rather do a big acquisition and then a small one it's just that sometimes present themselves.
And they are really really.
Conducive to where we're going as a business.
Alright, great.
Okay last one for me.
Follow up on Pete's question, Mike I think in the script.
You are open to.
Maybe evaluating our pricing strategy just wanted to make sure I fully understood that was that just just in terms of being more nimble and.
Pricing more often or is there something bigger picture.
During two it's really around being more dynamic so that we can actually.
Adjusted our pricing to reflect market events macroeconomic events things that occur that require us to be to be as fast and responsive in that areas. We can historically this business hasnt had to be that nimble or that dynamic and I. Just think we're kind of in a new world. So building the skills processes and systems to be able to.
That is part of the stuff the team is working on.
Three day so.
That was what I was getting at with Pete.
Yes.
Yes.
And as a reminder, if you would like to ask a question. Please press star and one on your Touchtone phone will go now to Scott <unk> with C. L. King Your line is open.
Good evening and thanks for taking my questions Hey.
Hey, Scott.
It sounds as if and power vehicle side.
I guess the up fitting in the aftermarket business has been really really well.
It sounds like the OEM side, whether it was with the on road Slash off road stuff.
That was probably a little bit less than you wanted to supply chain can you just maybe talk about how that performed.
And how that dynamic or narrative change as we get into 'twenty, two and we move throughout the year.
Yes. Good question Scott So when we think about the issues around our automotive OEM business don't think about it relative to necessarily our continuity supply or our ability to produce it's really around the rest of the components they need to they need to put on a truck.
Get a truck sold so as you probably heard from other press reports.
Insights.
Those companies are still struggling to get to get their supply chains to effectively respond to the demand.
We felt that in Q4, so it really wasn't a function of us. It was just a function of kind of continuing ongoing.
Chronic challenges they were facing which caused their demand signals to us to change I think.
The upside is as I mentioned in my prepared remarks, we were launching new vehicles new platforms.
Folks partners of ours are expanding their product portfolios to a more global.
Sales channels, which is great for us so that expands volumes.
Eventually these guys will figure out how to get their supply chains, working more effectively and that'll that'll help that will help us so.
Do I expect that to happen in Q1 to some extent, but I think thats going to be an ongoing battle the face for the first half of the year and hopefully they say they see the same easing of the supply chain that we expect to see.
Somewhere mid year.
Got it and as far as the timing of the launches of some of its products.
Bronco router can you just give us an idea of when we when you should start shipping product is that.
Nichols third into the fourth quarter of 'twenty two.
Beyond the Toyota products as well.
Yes, the best way to probably couch that is when you when you hear about when they believe theyre going to have vehicles produced in dealers you back that up six months or so and thats. When we start producing product to supply that demand signal, maybe a little bit less than that but.
You can always back those up if it's a 23 bronco raptor that means we're going to be shipping product this year for sure.
And then just last question.
The guidance, we gave a lot of puts and takes but.
How should we think of the gross margin.
Within the context of your guidance.
Trying to effectively model.
The number.
Yes.
Remember now that were fully move from Watsonville.
We should start to see <unk> margins improving.
Legacy side of the business as we get everything.
Sure.
And that will be really helpful. I think.
Again, as Mike alluded to earlier.
Our guidance.
More conservative the earlier in the year that we are.
And.
As he also mentioned we built in.
Jean stationery cost pressures into that.
Those numbers.
So when you're trying to back into it from a guidance perspective.
Probably fairly similar to 2021.
And we also gave you EBITDA guidance.
For the full year of 2008, 2%.
We ended this year.
No.
It's going to be similar probably.
From a guidance perspective to what you saw full year this year.
Got it that's all I have thank you.
Thank you.
Our next question comes from Alex Perry with Bank of America. Your line is open.
Hi, Thanks for taking my question and congrats on a strong quarter I guess, just first can you give us a bit more color on the revenue guidance.
How are you sort of thinking of growth between TPG in SSG. What are you seeing in the end markets and do you think that there will be a divergence between sort of end market growth.
And sort of sell in in 2022.
I'll start the answer to that Alex and then I'll, let Scott jump into when we think about historical growth rates, we always talked about mid to high single digits in SSG as kind of the expectation right now we're kind of living in a world, where it's low double digit growth rate.
And how we look forward that will probably eventually return to mid to high single digits, but for now you should be thinking kind of low double digit and in <unk> case, we used to always say low to mid double digit.
Growth and we're we've been higher than that so they will continue to probably be higher than that for the foreseeable future and at some point, we probably will return to a more normalized growth rate, but based on all the product launches and based on the efficiencies and Gainesville.
And the backlog, which we mentioned earlier at 220 plus million dollars that growth rate is going to be pretty substantial.
Yes, and I think the one other thing that I mentioned in prepared remarks was you saw big increases.
For chassis that we brought into our.
Upsetting businesses and last year at this time, we were scrambling for Chad.
So.
Feeling really good about their potential growth 2022, as they continue to grow really rapidly.
Perfect. That's really helpful. And then just a follow up on sort of the gross margin maybe.
Is there is the assumption there that sort of the freight and raw material and labor inflation that you're seeing in India.
And you sort of saw throughout <unk> 21 continues with you for the rest of the year you sort of using the exit run rate is your assumption on a go forward and then maybe I think in the past you've quantified the benefits from the transition to the new facility in Georgia.
Maybe just give us an update there if that's changed at all thank you.
And Mike mentioned this earlier that that.
It hasn't changed our thinking hasn't changed obviously now.
Q1, we're finally going to get to see.
That factory running at capacity.
And so.
Essentially we will have updates for you in the next couple of quarters as we as we get in and see how the metrics look.
One everything is in place, which it is now so.
But I think.
Remind me the first part of your question was just on gross margin overall throughout the year I think.
Mike mentioned, we were fairly conservative, but I think for sure because we just.
Or in some cost inflation or.
Yes.
We are still dealing with it in Q1, and so I think we we feel like there will be improvement in the back half of the year and maybe even earlier than that.
We would like to see that start to happen for we are committed to that.
Perfect. That's really helpful best of luck going forward.
Thanks.
We have no further questions in queue at this time I would like to turn the program back over to Mike Dennison for any additional or closing remarks.
And thanks, everyone for taking the time and having the interest in Fox factory, we look forward to another quarter and we'll report to you in the next 90 days give or take and with that have a good evening.
This does conclude today's program. Thank you for your participation you may disconnect at any time.
Okay.
Okay.
Yeah.
Yeah.
Yeah.
Yes.
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