Fox Factory Holding Corp.
Q4 2016 Earnings Call Transcript

Published: 2 Mar 2017

[Operator:]

Greetings and welcome to the Fox Factory Holding Corporation’s Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Mr. David Haugen, General Counsel. Thank you, sir. You may begin.

[David Haugen:]

Thank you. Good afternoon and welcome to Fox Factory’s fourth quarter and fiscal 2016 earnings conference call. On the call today are Larry Enterline, Chief Executive Officer; Mario Galasso, Executive Vice President and Chief Technology Officer; and Zvi Glasman, Chief Financial Officer and Treasurer. By now, everyone should have access to the earnings release, which went out today at approximately 4

[Larry Enterline:]

Thank you, David. Good afternoon, everyone, and thank you for joining us today. On today’s call, I will discuss key highlights of our fiscal year 2016 business and financial performance. Mario will then provide an update on our business segment results. Zvi will review the fourth quarter and fiscal 2016 financials in greater detail as well as discuss our guidance. After that, we will open the call for your questions. We were pleased to end the year with continued business momentum. During 2016, our global team executed at a high-level and our product innovation has helped fuel the consistent success of product lineups across bike and powered vehicles. We believe the diversification of our product offerings and end-markets continue to set us apart in the industry and position us well for future growth. Our top line increased approximately 10% to $403 million for the year which was above our guidance of $395.5 million to $401.5 million. Our business momentum continued throughout the year and enabled us to raise our original sales expectations as the year progressed. We had continued success with our brand building efforts for bike products around key product launches and we further strengthened dealer relationships. Mario will provide more detail on this in his part of the call. On the powered vehicle side, we experienced solid demand for on and off-road suspension products with sales up approximately 14% driven particularly by after-market on-road replacement shocks and automotive OEM growth. Bike products were up approximately 7% driven by improved spec position and new product introductions. Gross margin increased 90 basis points compared to the prior year to 31.4% for fiscal 2016. On a non-GAAP adjusted basis, gross margin increased 40 basis points. Overall, we remain pleased with our efforts to improve manufacturing efficiencies. In addition, our team worked hard to manage the controllable aspects of our business. And as a result we generated non-GAAP adjusted earnings per diluted share of $1.23 for fiscal 2016 at the high-end of our guidance expectations and $0.10 higher than the high-end of our original guidance for the fiscal year. Additionally, we generated adjusted EBITDA of $70.8 million for 2016. The continued strength of our diversified product portfolio across both bike and powered vehicles, along with our team’s consistent execution of our strategic initiatives, helped us to drive these positive results. Both our powered vehicle and bike products continue to perform well particularly in the face of certain industry and geographical headwinds. Our differentiated market position and diverse end-markets help drive momentum throughout 2016. And we believe these attributes will give us the ability to continue to deliver our long-term growth target. Innovation has always been important to Fox and a key component of our positive OEM and customer relationships. As our product applications have diversified, our product line-ups in both bike and powered vehicles have been successful and we expect the positive growth from 2016 to carry on through 2017. We are committed to increasing our penetration in our existing vehicle categories as well as continuing to explore potential new markets. And we believe that our continued commitment to product innovation will keep Fox in an industry-leadership position. We ended the fourth quarter of 2016 in full production for the 2017 Ford Raptor and the 2017 Toyota Tacoma TRD Pro and the programs are off to a great start which Mario will further detail in his comments. Our team has done a great job of ramping production in El Cajon by proficiently increasing capacity and efficiency for our on-road replacement shock business. In summary, we are pleased with our financial and business performance. 2017 has gotten off to a solid start and we believe we are well positioned to generate future growth and enhance shareholder value. And with that, I’ll turn the call over to Mario.

[Mario Galasso:]

Thank you, Larry and good afternoon everyone. During my remarks, I’ll talk about some industry trends and touch on a few of our recent business highlights. I’ll begin with our bike business. Once again, Pinkbike has awarded Fox product with their Mountain Bike Suspension Product of the Year in 2016 with our Factory Series 36 FLOAT. Pinkbike has this to say about it. The current Factory 36 FLOAT is the perfect example of a product that has been owned to near perfection. And it doesn’t require any gimmicks or tricks. Because of that fact it’s reliable, easily tunable and extremely capable. As mentioned on previous calls and demonstrated by the Pinkbike Award, our brand momentum continues to build and grow steadily with consistent performance from our current product offerings as well as with early ride experiences on our model year 2018 products. Our brand strength is built on successful key product launches, strengthened dealer relationships, race wins, favorable media reviews and awards and our ability to release quality innovative products. We believe this momentum will continue as we prepare to launch our model year 2018 products and as the 2017 race season ramps up in the spring. So far in 2017, we’ve won two of the New Zealand downhill series races, the New Zealand Open and the Nevada State Downhill Championships. Fox Suspension was also used by Marcus Stokel, to bring a mountain bike, to break a mountain bike downhill speed record. Marcus went 167.6 kilometers/hour down a mountain topping his previous speed record of 164.95 kilometers/hour. Now we’ll move on to our powered vehicle business. As Larry mentioned, in our El Cajon California plant, we ended the fourth quarter of 2016 in full production of the new Ford Raptor 3.0 internal bypass shocks and continued production for the 2.5 internal bypass shocks for the 2017 Toyota Tacoma TRD Pro, and are excited by the positive reactions these vehicles have received for their capability. At the EICMA Show in Italy in late November, Triumph announced the availability of our twin shocks in their aftermarket accessories catalog for the Street twin, Street Cup, Bonneville T100, Bonneville T120 and Street Scrambler as well as a monoshock for the new Bonneville Bobber which is offered as a dealer installed option. I’ll conclude with a few of our recent race results in the powered vehicle segment. At the 2017 Best in the Desert Parker 425, Fox drivers swept the podium with Andy McMillin taking the overall win and Rob MacCachren and Steve Olegaz taking the second and third respectively. Fox drivers also had a clean-sweep of all four-wheel classes and races at the 2017 King of the Hammers. Shannon Campbell became the first driver to win the King of the Hammers three times, taking overall win this year. Shannon’s son Wayland finished in second. Additionally, father and son also placed first and second in the UTV class respectively. I would now like to turn the call over to our CFO Zvi Glasman, to review our financial results. Zvi?

[Zvi Glasman:]

Thanks Mario. Good afternoon everyone. Today I will focus primarily on our fourth quarter results and review our fiscal 2017 guidance. Sales for the fiscal fourth quarter of 2016 were $111.6 million, an increase of 16.6% versus sales of $95.7 million in the fourth quarter of last year. This increase reflects a 27.5% and 7.8% increase in sales of powered vehicle products and bike products, respectively. The increase in sales of powered vehicle products was primarily due to continued high demand for on and off-road suspension products and increased OEM sales. The increase in sales of bike products primarily reflects favorable model year spec placements with OEMs and new product interventions. Gross margin was 30.5% for the fourth quarter of fiscal 2016, a 60-basis point increase from of 29.9% in the prior year period. The increase in gross margin was primarily due to lower acquisition related inventory costs as compared to the prior fiscal year period. On a non-GAAP adjusted basis, which excluding acquisition related costs, gross margin decreased 10 basis points to 30.6% as compared to the fourth quarter of last year. The decrease in non-GAAP gross margin is primarily related to unfavorable mix as we had higher OEM sales and related ramp-up cost in our El Cajon operation. Total operating expenses were $20.6 million or 18.4% of sales in the fiscal 2016 fourth quarter compared to $19.2 million or 20% of sales in the fourth quarter of last year. The increase in operating expenses is primarily a result of additional investments to support growth in the business and approximately $800,000 of expense associated with our previously disclosed ongoing patent litigation activities involving a bike industry competitor, partially offset by a reduction in amortization, certain purchased intangibles. We remain confident in our position on these litigation matters. Non-GAAP operating expense was $17.6 million or 15.8% of sales in the fourth quarter of fiscal 2016 compared to $15.8 million or 16.5% in the fourth quarter of the prior fiscal year. For the year, our non-GAAP operating expense was 16.8% slightly better than the 17% of sales guided to for the year. Within operating expenses, our sales and marketing expenses increased to $6.3 million, in fiscal fourth quarter of 2016 or 5.7% of sales as compared to $5.8 million or 6% of sales in Q4 of 2015. The increase was largely due to a $300,000 increase in our employee and related expenses including Marzocchi. Research and development expenses of $4.8 million in the fiscal fourth quarter were unchanged from the same period last year, as the percentage of sales declined to 4.3% of sales this fiscal fourth quarter from 5% of sales in Q4 of 2015. The decrease as a percentage of sales was due to timing of expenses as full-year expenses stated as a percentage of sales were 4.6% for both fiscal year 2016 and 2015 respectively. General and administrative expenses in the fiscal fourth quarter of 2016 were $7.5 million compared to $5.6 million in the prior year period. The increase was primarily due to the additional legal expenses I mentioned earlier, $200,000 of stock based compensation with most of the balance coming from additional expenses for our strategic initiatives such as ERT and global tax. In the fiscal fourth quarter of 2016, our tax rate was approximately 24% compared to 26.7% in last year’s fourth quarter. The improvement in the effective tax rate was primarily due to the reorganization of the foreign entities and permanent reinvestment of foreign earnings in jurisdictions with lower tax rate. On a GAAP basis, our net income for the fiscal 2016 fourth quarter was $9.8 million compared to $6.8 million in the prior year period. Earnings per diluted share were $0.26 compared to $0.18 in Q4 of fiscal 2015. Non-GAAP adjusted net income was $12 million, an increase of 25% compared to $9.6 million in the fourth quarter of the prior year period. Non-GAAP adjusted earnings per diluted share for the fiscal fourth quarter of 2016 was $0.32 compared to $0.25 in the fourth quarter of fiscal 2015. Fourth quarter fiscal 2016 adjusted EBITDA was $19.8 million, compared to $16.1 million in the same quarter last year. Adjusted EBITDA margin increased 80 basis points to 17.7%, as compared to 16.9% in the prior year period. We believe non-GAAP adjusted net income, non-GAAP adjusted gross margin, non-GAAP effective tax rate and adjusted EBITDA are useful metrics that better reflect the performance of our business on an ongoing basis. You can find reconciliation to all GAAP to non-GAAP financial measures in our earnings release issued today. Since Larry reviewed our key financial metrics for the year, I’ll now focus on our balance sheet. As of December 31, 2016, we had cash on hand of $35.3 million. Total debt outstanding was $66.7 million, compared to $47.9 million debt outstanding as of December 31, 2015. Inventory was $71.2 million as of December 31, 2016, compared to $68.2 million as of December 31, 2015. Accounts receivable was $61.6 million as of December 31, 2016 as compared to $43.7 million as of December 31, 2015. Accounts payable was $42.1 million as of December 31, 2016 as compared to $32.1 million as of December 31, 2015. The changes in accounts receivable inventory and accounts payable are primarily attributable to business growth and with the regard to the AR increase, the majority of our sales growth came from OEMs, which typically have longer terms in our aftermarket business. Turning now to our outlook. For the first quarter of 2017, we expect sales in the range of $96 million to $100 million and non-GAAP adjusted earnings per diluted share in the range of $0.24 to $0.28. In addition to our Q1 guidance, we also want to review our fiscal 2017 quarterly cadence. The growth of our powered vehicle business and the transition of our bike manufacturing to Taiwan have changed our expected 2017 business seasonality. As a result, we expect sales to be fairly evenly spread across Q2, Q3 and Q4 with both Q2 and Q3 sales slightly higher than Q4. For fiscal 2017, we expect sales in the range of $430 million to $450 million and non-GAAP adjusted earnings per diluted share in the range of $1.31 to $1.41 on approximately 38.2 million shares outstanding. Included in fiscal 2017 guidance is, our expectations for EBITDA margin improvement of 40 to 50 basis points. Additionally, we’re expecting non-GAAP operating expenses to remain at levels relatively consistent with 2016, stated as a percentage of sales. We also expect to continue to invest in our strategic initiatives. We expect our fiscal 2017 effective tax rate, annual tax rate to increase to approximately 18% to 20% as opposed to the 17.2% we reported for 2016. On a quarterly basis, we expect significant variations in our tax rate as a result of the expected reversal of the Fin48 provision and the effect of stock option exercises. For Q1, we anticipate a tax rate of approximately 5% and for Q3 we expect the tax rate in the mid-teens with Q2 and Q4 tax rate in the low 20s. As many of you know, tax rates are affected by various factors where timing cannot be predicted and so actual results may vary from these projections. Finally, I would like to take note that we are not providing guidance on GAAP EPS as it cannot be provided without unreasonable efforts due to this difficulty of accurately predicting the elements necessary to provide such reconciliation. As a reminder non-GAAP adjusted earnings per diluted share excludes the following items net of applicable tax

[Larry Enterline:]

Thank you, Zvi. With that we’d like to open the call for questions. Operator.

[Operator:]

[Operator Instructions] Our first question comes from Craig Kennison of Baird. Please proceed with your question.

[Craig Kennison:]

Hi, thanks and congratulations everybody.

[Larry Enterline:]

Thanks.

[Craig Kennison:]

First question Zvi is for you, sorry about that. Yes, first question, Zvi is on El Cajon and the startup cost. Can you quantify what those costs were in Q4 and until what extent you would expect any cost to linger throughout the early part of 2017?

[Zvi Glasman:]

Yes, we prefer not to quantify the exact cost. But the kinds of things you’re talking about, the trading of the labor force as they ramp up lines, some of the tooling costs, things of that kind of a nature. In terms of whether they linger, due the course of the year we do expect some EBITDA margins improvements as I outlined in my guidance. And so we incorporated the effects of any start-up costs in our guidance.

[Craig Kennison:]

Okay, that’s helpful. And Mario, for you, could you give us your best outlook for 2017, the mountain bike market from a retail standpoint? Whatever you need to support the guidance you’ve offered? And then just update us on the status of inventory in the channel is it as clean as it was maybe exiting last quarter?

[Mario Galasso:]

Yes. So, on the second part there Craig, the inventory, we think we’ve seen some in the news that’s been public and other suppliers in the industry. The bright spot in that news is that it would appear that inventories are in pretty good position going into 2017 here for the start of model year ‘18. And in terms of the retail outlook I think we would tell you we believe it’s flattish sort of like it’s been we’re encouraged with the spec positions that we think we’ve picked up at this point. But we’ll have to see how those bikes sell through that we’ve been awarded.

[Craig Kennison:]

That’s helpful. And then finally from me, just one of your power sport customers was recently acquired or will be acquired. Does that create an opportunity for you with the new parent company? And to what extend do you have any exposure to that new parent company which asset in other categories beyond power sport?

[Mario Galasso:]

Again, I think it’s still early in that. We’re obviously familiar with both companies. I don’t see a huge change one way or another in our business from that. Philosophically we tend to look at everything as an opportunity. So we’ll clearly be working on that. But I don’t think there is any sea-change event there for us.

[Craig Kennison:]

Okay. Thanks and congratulations.

[Mario Galasso:]

Thank you.

[Larry Enterline:]

Thanks Craig.

[Operator:]

Our next question comes from Scott Stember of CL King & Associates. Please proceed with your questions.

[Scott Stember:]

Good evening and nice quarter guys.

[Larry Enterline:]

Thank you.

[Mario Galasso:]

Thanks Scott.

[Scott Stember:]

If you maybe talk about the bike business Mario, you were talking about some of the initial specs for 2018, it sounds as if things are going well. Last year at this time I think you might have given us a little bit of a flavor for some of the wins that you had for ‘17 comparing it to where you stood versus the prior year. Could you give us any color on how things are going on that front?

[Mario Galasso:]

Well, I don’t know Scott that we’ve given specific cases of spec wins and losses at this stage of the game. We generally have a feel for how we’re doing. And we would tell you that we’re pleased with how the specs like has gone so far. I think we’d probably echoed that last year around this time. And we’re excited about the product line and others seem to be too.

[Scott Stember:]

Okay. And maybe talk about within the specs I know that you had talked about coming out with another iteration of the Rhythm series of forks on the bike side. Can you, maybe talk about how that’s progressing with your customers?

[Mario Galasso:]

So, as we’ve discussed we had our first entry into a new price-point for us in model year 2017 by way of the 34 Rhythm which did well for us. And as we’ve hinted and what will be happening in model year ‘18 is we’ll be expanding that Rhythm family. And that’s, it’s impact is contemplated in the guidance that Zvi has provided. And we’re pleased with its interest.

[Scott Stember:]

All right, and then maybe just talk about Marzocchi where we stand, we have little bit waves before that starts to contribute the move you just talked about, some of the moves from an internal standpoint how things are shaping out? And then Zvi, maybe just talk about the tax rate cadence one more time particularly for the first quarter with that 5%?

[Larry Enterline:]

Yes, so we’re still, sorry didn’t catch the second part of your question there. But on Marzocchi, we continued to look at and refine what the product offerings are going to be. I think we’ve got a good plan going forward. And generally that product line will live slightly below the Rhythm family. And the second part of your question Scott was?

[Scott Stember:]

On the tax rate, maybe Zvi if you could just go into a little bit more detail about the cadence of notably with the first quarter being 5%?

[Zvi Glasman:]

Yes, I mean, one of the largest contributors to the first quarter being 5% is as we had some stock option exercises with the new FAS B to the degree that the stock price is higher than the stock exercise price. The benefit close to the P&L. And that was a FAS B we adopted last year. So, that’s probably the largest contributor to the Q1 lower tax rate. And then of course, as in every year, we always have this FIN48 effect in Q3 which is for those of you like Scott who are familiar with Fox, we book up a FIN48 reserve on our tax each quarter. And then assuming that we invest, have an unfavorable outcome with the IRS, the statute of efficient lasts for a year. So, reversal is out in Q3. So that’s what the cadence that I provided in my earlier comments reflects.

[Scott Stember:]

Got it. That’s all I had for now. Thanks a lot guys for taking my questions.

[Larry Enterline:]

Thank you.

[Operator:]

Our next question comes from Mike Swartz of SunTrust Robinson Humphrey. Please proceed with your question.

[Mike Swartz:]

Yes, hi, good afternoon guys.

[Larry Enterline:]

Hi Mike.

[Mike Swartz:]

I just wanted to touch on the bike business and there is some news out there that some of the major OEMs or major OEM partners have pushed back the timing of their dealer events. I guess that’s a plan going forward. How does that play into the cadence of the year maybe what you talked about in terms of how to think about revenue throughout the year? Should we see more of a backend weighted year or just any color you can provide?

[Zvi Glasman:]

Well, let me just start with talking about how it affects our cadence. It doesn’t. The cadence that I provided is more a function of the fact as I identified earlier. Now, as to what we should take from, what you cited, I don’t know if we have a particular opinion about it.

[Larry Enterline:]

We don’t want to talk about specific customers. There is some movement within the trade show folks trying to shuffle dates around. And it could be a function of folks who are willing and hold bigger dealer cap their shows, reacting to that. We can’t really I don’t have an opinion on it. But as Zvi said, it doesn’t change how we think about the year.

[Mike Swartz:]

Okay, that’s helpful. And then just in terms of the guidance you provided for ‘17, I guess splitting that and looking at it from the bike standpoint and the powered vehicle standpoint. Should we think of bike as growing at a similar rate for the year ahead, kind of the mid-to-high single-digits maybe? Obviously we can back the powered vehicle with that?

[Larry Enterline:]

Well, just maybe for those that are, not as familiar with the story. Well, our long-term bike targets remain in the mid-to-high single-digit. We believe that the headwinds that we described earlier in the bike industry could cause this year to be slightly below that range. On the other hand, we believe that our long-term targets remain double-digit for bike or powered vehicle this year but we think we’ll significantly outperform those targets in 2017. And that’s what leads to the guidance that we have provided here.

[Mike Swartz:]

Okay. That’s helpful. That’s all from me. Thanks.

[Operator:]

Our next question comes from Jim Duffy of Stifel. Please proceed with your question.

[Jim Duffy:]

Thank you. Hello guys, nice numbers on the quarter.

[Larry Enterline:]

Thanks Jim.

[Mario Galasso:]

Thanks Jim.

[Jim Duffy:]

I have couple of questions around the shape of the guidance. Very strong outlook for the first quarter and the full-year guide seems to imply some sort of deceleration thereafter. Can you speak to the reason for the anticipated moderation in the growth rate? Is there a specific timing issue behind this or are you simply being conservative as visibility dims as you get further across the year?

[Zvi Glasman:]

No, as we said in my comments, there is a difference in seasonality in 2017 and there are two main factors. The first factor is the transition of our, over the last couple of years we’ve transitioned some of our bikes to Taiwan. And so that is having an effect. And then the other factor is the growth of our powered vehicle business and the proportion of our business as it represents versus previous years. And as always, there is always a timing of certain vehicle introductions and how previous ones sold through. So it’s simply unfortunately like we locked the model and stuff on an excel spreadsheet and have it all linear and fit within our targets these things tend to have a different shape each year. And we’re trying to - we wanted to give you guys that insight upfront so that you guys could take it into account when you were modeling the business for this year.

[Jim Duffy:]

Okay. A couple of your automotive OEMs have had very strong reception to vehicles. Can you help us think about how that works. Does that suggest that they could scale manufacturing capacity and you could see upside to your own projections for that? Or do they want to maintain some element of scarcity such to retain the pricing power they’re enjoying with those vehicles? Any help there would be terrific? Thanks.

[Larry Enterline:]

Yes Jim, what I would say, again we’re clearly pleased that the receptivity that’s been given, the vehicles we’re talking about. These guys plan long-term and while we would hope obviously that these things will lead to positive sales, I do think there is an element on vehicles like this that they don’t intend them to be mass market right, put hundreds of thousands of them out there. So, I do think there is, as probably some of that thinking in their plans. These guys plan way in advance. So I wouldn’t expect our guidance. We’ve put into our guidance kind of what we know that they’re going to do. I wouldn’t expect a huge change in 2017 from this. And we’re just pleased that they’re popular. And again, we believe that this is leading the strengthening this whole off-road, capable on-road vehicle category.

[Jim Duffy:]

Absolutely. Building on that Larry, the news out that Detroit Auto Show suggested that it is indeed becoming a category that’s getting a lot more attention. There were some additional vehicles that were announced. Can you speak at all to your pipeline or discussions with other potential OEMs or even existing OEMs in other vehicle classifications?

[Larry Enterline:]

We obviously can’t comment Jim on specific customer activity. I think we’re always hopeful with this category continues to expand that other manufacturers pick it up. People put it on more types of vehicles than we’ve seen. We think that will happen but we’re predicting timing in the automotive industry as a challenge at best.

[Jim Duffy:]

Fair enough. Well, congratulations on the success.

[Larry Enterline:]

Thank you.

[Zvi Glasman:]

Thanks Jim.

[Operator:]

Our next question comes from Jon Andersen of William Blair. Please proceed with your question.

[Jon Andersen:]

God afternoon guys, congratulations.

[Larry Enterline:]

Thanks Jon.

[Jon Andersen:]

Just a couple of quick ones, most of my questions have been answered. Could you just give us an update on the progress of your kind of various supply chain optimization initiatives with majority of the Taiwan transition has largely been completed. But I think that created some opportunities for you to do some optimization here in the U.S. business. And then just that, are you still thinking about kind of the long-term gross margin target? The way you’ve been kind of thinking about and communicating it before?

[Zvi Glasman:]

Yes, I think we’re satisfied with our progress. We think we’re incorporating our guidance was that 40 basis points to 50 basis points improvement in EBITDA margins. We also indicated that non-GAAP OpEx would be relatively flat. So, obviously most of that’s coming from gross margin. And supply chain efforts, is just one of the many things we’re going after to increase the efficiency of the business. We remain committed to our long-term targets of putting it to in front of the EBITDA.

[Jon Andersen:]

Excellent, thanks. Could you talk a little bit, I know this is a smaller part of your but it has been something you’ve talked about in the past has been an area where there could be growth opportunity longer term. And that’s I guess outside the U.S. and outside Europe in Asia and Latin America. Again, I know it’s small today. But any kind of update there or progress to talk about? Thanks.

[Larry Enterline:]

I would tell you Jon it’s - obviously, you read the papers and in certain parts of the world, even I think there are some difficulties. Those are headwinds. But we clearly had seen it is relatively a small part of our business. So it hasn’t impacted us overall. I think when we look at the rest of the world, I mean, we are committing long-term, we’re a global business. We are in all parts of the world. It’s a commitment we’ve made. So even if there are little flat, we’re going to stay, they’re going to help our business. I think South America is an area that we’re hoping to get a little bit more out of, because we think we’ve been under distributed there. And so we would expect to see a little bit of impact I think near-term on that but again it’s not a large part of our business. But I think in the future, it will anchor us there.

[Jon Andersen:]

Okay. Last one from me. You’ve done some acquisitions over the past couple of years. I think by all accounts it seems like they have been integrated well and in most cases contributing to the business. Where do you stand today just in terms of your overall focus on internal versus kind of external opportunities? And kind of to the extent that you are considering M&A, can you talk a little bit about what kind of your preferences would be, what you’d be looking for kind of particular interest at this point in time? Thanks.

[Larry Enterline:]

Yes, good question Jon. Clearly, we think we’ve got plenty of organic growth opportunity in our businesses ahead of us. So, that obviously occupies I think a lot of our management team’s attention. We do run an act of M&A screen in all parts of our business. We do have businesses we would like on that screen. And I think it’s a combination of timing and having a willing seller obviously involved as well as being able to acquire business at a price that makes sense. So, while we continue to run that screen, we continue to look at businesses. Again we’re not in there is nothing that’s a burning need for us that we just have to have. And I think I wouldn’t be surprised if we made an acquisition this year. And I wouldn’t be surprised if we did. So, in terms of size, I suspect while our screen has a wide variety and I, never say never. I tend to think that the most likely targets would be kind of in the size range that you saw with Sport Truck and Race Face/Easton.

[Jon Andersen:]

Great. Thanks for the color guys. Congrats again.

[Larry Enterline:]

Thank you.

[Operator:]

Our next question comes from Andrew Burns of D.A. Davidson. Please proceed with your question.

[Andrew Burns:]

Good afternoon. Congrats on a solid 2016. Just a follow-up, thanks for the color on the mountain bike inventory in retail environment. Are you seeing any major differences between the two key markets there, the U.S. and Europe in terms of product trends or sales trends especially in light of the dollar strength? Thanks.

[Mario Galasso:]

Hi Andrew, this is Mario. No, I think inventory wise, both those major markets are in play, are in good shape. Generally the OEs have a global spec. So, I don’t think there is any real different trends, in one place versus the other, other than power assist eBike had an earlier adoption and stronger uptake in Europe. But I think we’ll probably see that happening in a bigger way here in the U.S.

[Andrew Burns:]

Great, thanks. And good luck.

[Larry Enterline:]

Thank you.

[Operator:]

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back over to Mr. Larry Enterline for closing remarks.

[Larry Enterline:]

Thank you. We appreciate your questions and your interest in Fox. I would like to thank our employees for their hard-work and dedication in helping us achieve our business and financial results. In addition, we sincerely appreciate the continued support of our customers and suppliers. Together we will continue to grow and achieve future success. We look forward to speaking with you again on our first quarter earnings call in May. Have a good day.

[Operator:]

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.