Fox Factory Holding Corp. (FOXF) Q3 2017 Earnings Report, Transcript and Summary

Greetings and welcome to the Fox Factory Holding Corp Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. And interactive 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. Thank you, you may begin.

Thank you. Good afternoon and welcome to Fox Factory's third quarter fiscal 2017 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 4:05 PM Eastern Time. If you've not had a chance to review the release, it's available on the Investor Relations portion of our website at www.ridefox.com. Please note that throughout this call, we will refer to Fox Factory as Fox or the Company. Before we begin, I'd like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. Such statements involve a number of known and unknown risks and uncertainties, many of which are outside the Company's control and can cause future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements. Important factors and risks that could cause or contribute to such differences are detailed in the Company's earnings release issued this afternoon and in the Annual Report on Form 10-K filed with the Securities and Exchange Commission. Except as required by law, the Company undertakes no obligation to update any forward-looking or other statements herein, whether as a result of new information, future events or otherwise. In addition, within our earnings release and in today's prepared remarks, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP adjusted net income, non-GAAP adjusted earnings per diluted share, adjusted EBITDA, and adjusted EBITDA margin are referenced. It is important to note that these are non-GAAP financial measures. A reconciliation 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 with that, it is my pleasure to turn the call over to our CEO, Mr. Larry Enterline.

Thank you, David. Good afternoon, everyone, and thank you for joining us today. On today's call, I will discuss our third quarter 2017 business and financial highlights. Mario will then provide a more detailed update on our business and brand development. Zvi will review the third quarter financials in greater detail, as well as discuss our guidance. After that, we will open the call for your questions. We are pleased to report another quarter of record sales and profitability. Our strong financial performance reflects continued broad success across both our powered vehicle, and bike business. Sales of powered vehicle products were up 27% and bike products were up 9%. As a result we generated sales of $127.4 million and increase of approximately 17% compared to Q3 last year and non-GAAP adjusted earnings per diluted share of $0.46 for Q3, an increase of $0.02 compared to Q3 of last year. Or better than expected growth helped us exceed our net sales and earnings expectations for the third quarter of fiscal 2017. Based on our outperformance and our current view of the business today we are increasing our fiscal year 2017 guidance which we will discuss in more detail. Overall we are pleased with the performance of the business. In bike we continue to make progress with the success of our new products and we remain comfortable with the overall channel inventory in our segment and both the OEM and aftermarket channels. On the powered vehicle side, we remain very pleased with results from our 2017 Ford Raptor and 2017 Toyota Tacoma TRD Pro as well as other power sports OEM program. We are also pleased with our results in the aftermarket where we believe that we continue to gain share with our lift product and on-road replacement shocks. In a competitive global industry product innovation remains a key cornerstone of the Fox brand and our success in both bike and powered vehicle products. We appreciate the strong efforts of our team as we continue to deliver differentiated products to our passionate customer base, reinforcing the value of our brand. Looking ahead our team remains committed to further building the Fox brand presence in our existing vehicle categories and consistently pursuing potential new markets. To support our continued growth we have recently initiated a facility expansion project in Asheville, North Carolina to better serve our bike segment in the eastern U.S. market. We are renovating an approximately 20,000 square foot facility to expand regional functions and sales, service, engineering, research and development, and product distribution and we expected to be fully operational over the next few months. In summary, we are very pleased with our operational execution and financial results this year through the third quarter. At Fox we have a differentiated market position and continue to expand the diverse end markets we serve. We believe these aspects of our business will help us generate future growth and further enhanced value for our shareholders. And with that, I'll turn the call over to Mario.

Thank you, Larry, and good afternoon, everyone. During my remarks today, I'll touch on a few of our recent business highlights. I'll begin with our bike business. As I mentioned on previous calls our brand building efforts continue to yield results with favorable media reviews and awards, successful key product launches, strength and dealer relationships, and Raceline We recently racked up these product accolades. Our Dropper Seatpost, the Transfer took and Enduro Mountain bike magazine, best in test award. In vital MTBs audience survey our products ranked as the number one suspension fork, rear shock, dropper seatpost, crank and chain ring to buy. And in the bike magazine Germany reader survey we are the suspension fork of choice. We continue to believe that consumer demand in the aftermarket helps drive future demand with OEMs. We are pleased with our products spec positions in model year 2019, and our planned model year 2018, and our planned model year 2019 product line is being met favorably thus far by our OEM customers. Our sales teams were out in full force at Eurobike in Germany in August, and most recently at Taichung Bike Week in early October, while there they were busy meeting with our OEM customers and offering our full bicycle products portfolio across our brands. The teams are continuing to integrate our go-to-market approach by leveraging the synergies we have worked on over the last few years as exemplified by the Gravel Grinder product launch Fox and Easton collaborated on earlier this spring. Racing continues to be one of our primary product development proving ground and the 2017 bike race season was a successful one for us with our athletes consistently reaching the podium. Aaron Gwin is the men's World Cup Downhill Series overall champion for the fifth time. Greg Minnaar has achieved 21 Downhill World Cup victories and 75 Downhill World Cup podiums in his career. Fox sponsored Ibis Enduro team won the EWS Team Championship. Brett Rheeder took the top box in the Crankworx Slopestyle FMB Diamond event. Overall in the major global race circuits of 2017, Fox supported athlete have won 16 Cross-Country events, seven Enduro events, five Free-Ride events, and 39 Downhill events. Now, I will move on to our powered vehicle business. On our last call, I discussed Polaris launching their 2018 RZR XP Turbo Dynamix Edition featuring our Live Valve Active Suspension. Live Valve is part of an electronic suspension system developed in conjunction with Polaris that processes data from multiple vehicle sensors to adjust the suspension virtually instantaneously to meet the demands of the terrain. The initial reactions were positive and that momentum has continued. The Fast Lane Trucks had this to say about the system. There are a variety of other benefits baked into the fully adjustable suspension, namely its ability to absorb a jump by automatically stiffening the suspension when the system recognizes the vehicle is in the air. No one else is doing this and they should. Polaris is definitely flexing their technical know-how muscle with this one. Currently, our Fox and Sport Truck sales and marketing teams are at the SEMA Show in Las Vegas with a fully integrated look and feel, showing off our joint aftermarket product offerings. The show started on October 31 and runs through November 3. Our sales teams are working together on brand activation activities and busy meeting with current and potential new customers. And with that, I'll conclude with our recent race highlights in the powered vehicle segments. Our circle track program continues to accumulate strong results with over 800 wins and 45 championships to date with Brett Hearn has 900 career win, and Doug Coby claiming his fourth consecutive NASCAR Whelen Modified championship. In the TORC Off-road Short Course series, Bryce Menzies swept the Crandon World Championship. In the Pro-2/Pro-4 and AMSOIL Cup races, while C.J. Greaves claimed his third consecutive Pro-4 championship as well as the Pro Stock UTV Championship. In UTV Racing, Phil Blurton took the UTV Pro Turbo Class, while Kristen Matlock won the Naturally Aspirated Class at the best in the desert Vegas to Reno race. I would now like to turn the call over to Zvi to review our financial results. Zvi?

Thank you, Mario. Good afternoon, everyone. I'll focus on our third quarter results and then review our guidance. As Larry stated earlier, sales in the third quarter of 2017 were a record $127.4 million, an increase of 16.9% versus sales of $109 million in the third quarter of 2016. Gross margin was 33.4% for the third quarter of 2017, a 140 basis point increase from 32% in the prior year period. The improvement in gross margin was primarily due to favorable product and customer mix and improved manufacturing efficiencies. Excluding acquisition-related costs, non-GAAP gross margin for the third quarter of 2017 expanded by 130 basis points, as compared to the third quarter last year. Total operating expenses were $22.2 million, or 17.4% of sales in the third quarter of 2017, compared to $19.8 million or 18.2% of sales in the third quarter of last year. The increase in operating expenses is primarily a result of strategic investments to support future business growth, increased incentive and stock-based compensation expense and increased cost associated with ongoing pattern litigation activities, partially offset by the conclusion of the company's acquisition related compensation arrangement. Non-GAAP operating expenses stated as a percentage of sales were 15.5% compared to 15.7% in Q3 of last year. Focusing on expenses in more detail. Our sales and marketing in R&D expenses increased to support our growth. Sales and marketing expenses were up approximately $500,000 and R&D was up approximately $800,000. The increases were primarily due to higher employee related costs on increased headcount. As we previously stated the timing of R&B and promotional expenses often changes between quarters and years depending on a number of factors including product launch cycles. Our general and administrative expenses in the third quarter of 2017 were $9.1million compared to $7.1 million in the prior year period. The change was primarily due to increased stock and incentive-based compensation costs and $0.5 million increased associated with ongoing pattern litigation activity. In the third quarter of 2017, our tax rate was approximately 19.5%, compared to 9% in the same period last year. The increase in the effective tax rate was primarily due to the impact of the increase in pretax income and resulting tax expense with no corresponding increase in tax credits and deductions, a shift in earnings towards higher rate jurisdictions and an increase in non-creditable foreign withholding tax. Adjusted EBITDA was a record $27 million for the third quarter of 2017, compared to $20.9 million in the same quarter last year. Adjusted EBITDA margin was 21.2% compared to 19.2% in the prior year quarter. On a GAAP basis, our net income in the third quarter of 2017 was $16.1 million, compared to $13.7 million in the prior year period. Earnings per diluted share for the third quarter of 2017 were $0.41 compared to $0.36 in Q3 of 2016. Non-GAAP adjusted net income was a record $18 million, an increase of $1.4 million compared to $16.6 million in the third quarter of the prior year period. Non-GAAP adjusted earnings per diluted share for the third quarter of 2017 were $0.46 compared to $0.44 in the third quarter of 2016. We believe non-GAAP adjusted net income and adjusted EBITDA are useful metrics that better reflect the performance of our business on an ongoing basis. You will find a reconciliation of all GAAP to non-GAAP financial measures in our earnings press release issued today. Now, focusing on our balance sheet. As of September 29, 2017, we had cash-on-hand of $36.8 million. Total debt outstanding was $64 million, compared to $66.7 million of debt outstanding as of December 31, 2016. Inventory was $92 million as of September 29, 2017, compared to $71.2 million as of December 31, 2016. Accounts receivable was $69.3 million as of September 29, 2017, as compared to $61.6 million as of December 31, 2016. Accounts payable was $47.3 million as of September 29, 2017 as compared to $36.2 million as of December 31, 2016. The changes in accounts receivable, inventory and accounts payable are primarily attributable to business growth and our normal business seasonality. Accrued expenses decreased to $27.3 million as of September 29, 2017, was $34.4 million as of December 30, 2016, primarily due to the final scheduled earnout payment related to one of the our 2014 acquisitions, partially offset by our normal business seasonality. Now turning now to our outlook. For the fourth quarter 2017, we expect sales in the range of $114 million to $119 million and non-GAAP adjusted earnings per diluted share in the range of $0.30 to $0.34. For fiscal year 2017, we are raising our previous guidance and now expect sales in the range of $468.5 million to $473.5 million and non-GAAP adjusted earnings per diluted share in the range of $0.50 to $0.54. As we stated last quarter for 2017, we expect non-GAAP operating expenses to be lower than our expected long-term target of approximately 17%. For 2018, we expect to return to our longer term target operating expense as stated as a percentage of sales as we support strategic initiatives such as ERP, spending to support continued business growth and higher compliance costs resulting from the process of exiting our emerging growth status. We believe that the 2017 tax rate will trend towards to the upper end of our previous guidance of 18% to 20%. We continue to expect the Q4 tax rate to be in the upper 20%. Based on our current visibility into future, the new powered vehicle product introductions, our growth rate in 2018 will be lower than the 2017 and more consistent with our annual long-term target ranges in 2018. We remain confident in our ability to achieve our growth targets of mid to high single-digits at bike and low double-digits in powered vehicle over the long-term. Additionally, as we previously mentioned, powered vehicle growth is subject to new vehicle introduction timing and will not necessarily be linear between quarters or years. I'd also like to note that we are not providing guidance on GAAP EPS as it cannot be provided without unreasonable efforts due to the difficulty of accurately predicting the elements necessary to provide such guidance and reconciliations. Finally, as a reminder, non-GAAP adjusted earnings per diluted share exclude the following items, net of applicable tax, amortization of purchased intangibles, contingent consideration valuation adjustment, acquisition related compensation expense, including related foreign currency transaction gains or losses, certain acquisition related adjustments and expenses, litigation-related expenses and offering expenses. These adjustments are more fully described in the tables included in our press release, which has been posted on our website. I'd now like to turn the call back over to Larry.

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

Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions] And our first question is from Craig Kennison from Robert W. Baird. Please go ahead.

Hey, thanks for taking my questions. I wanted to spare with the move in North Carolina. What motivated the need for that facility and why…?

Well, I think it's a couple different things Craig. Certainly as we've expanded, I think having some geographical diversity in our operation is important that makes things like recruiting easier. I think also a key thing here was to try to provide better customer service to our customers that are more east than west. I think that was a big factor and you have the fact we got a pretty considerable service operation, actually doing product service as well as a customer service, operation out there helps us do that. Also that particular area, I'm not sure how familiar you might be with it, but is big biking territory, and we feel it's great to have a Fox presence out there and hopefully in the future, you see us doing more of that, not less. Is that helps?

That helps and then the question on mountain bikes, you outperformed our expectations in that business and I'm curious in particular how Rhythm is performing in that lower price point in your channel. I wonder that's the driver?

Yes, Craig, it is a driver. We're pleased with our Rhythm has done in model year 2018 as well as our Transfer of dropper posts. As we said in previous calls, this is kind of our first foray into this Rhythm category in model year 2018 and we plan to around out the family of Rhythm products as we go forward.

And then finally Mario, do you have feel for how retail in mountain bike will finish this year in your categories and is there any discussion at all about industry expectation to retail in next year?

No and no, I guess is the short answer. We try to keep as best we can our thumb on unit sell through right, and kind of what models we're no and not on, how that's translating into retail dollars and outlet for next year. That's more of an OE level question.

Got it. Thanks a lot.

Thank you.

Our next question is from Larry Solow from CJS Securities. Please go ahead.

Great. Thanks a lot. Just sticking with the capacity question and then couple other additional questions. It looks like you are adding - the additional capacity looks like some more regional optimization and geographic optimization you are adding looks like 20,000 on a base of over 400,000. So my question is over the long run, if you continue growth in bikes is there still a long run way for additional capacity you need at some point make them more substantial upgrade there?

Well, Larry let me be clear, the space in Asheville is not manufacturing relate, right. All of our bike capacity is now in Taichung, where we've recently moved into an expanded facility. We think that's good for a time. Obviously, our operations folks had plans beyond that to accommodate growth into the future and hopefully more elegantly. And I think as we see it right now, we also - we have some bike manufacturing in Vancouver or a race space in Eastern Lines as well as our operation in Taichung. And I feel we - we feel pretty good about that for the future being able to expand that platform to adequately serve our markets. I think what you're seeing in Asheville in particular is both an engineering satellite as well as a customer service and product service operation.

Okay. So it sounds like a nice incremental add-on and hopefully probably in the long run beneficial to margins and efficiencies. Sticking with the margin theme, obviously a very nice path in the gross margin this quarter and I realize probably whether above your expectations and certainly ours. As we look out in the future, I know you've spoken Zvi to continued higher margin. Clearly a lot of this is driven by mix. Any reason to think about quarterly variations that mix won't continue to sort of improve as we look out with newer products over the next two years?

I don't think we forecast continued next improvement. We think there is some more room for margins to expand gross margins. We've said that are long-term EBITDA target margin is going to have a two in front of it. I will point out to remind you that this year we're running below our OpEx target percentage as a percentage of sales, so even now have a little bit of that being a headwind on EBITDA margins for next year, but we should balance some of that out with expanded gross margins next year.

And on the OpEx side, I realize this year you obviously you have the benefit of above normal, but your targeted revenue growth long-term targets. As you look at not next year, clearly you have to have order [indiscernible] in spending, but three to five years, do you eventually see some operating leverage in the model? Do you have to continue the OpEx running out sort of mid to high single-digit rate for revenue growth?

We think that in several years we'll start to see some G&A operating leverage, in the areas of sales and marketing and R&D, we could absolutely run this business at lower OpEx, but we believe that would jeopardize the growth that you've been seeing from the business. And so we believe that's the best way to grow this business to continue to reinvest in product development in sales and marketing. And sure we could run this with a much better EBITDA margin today, but we are jeopardizing future growth.

Fair enough. Thanks very much.

Thank you.

Our next question is from Rafe Jadrosich from Bank of America Merrill Lynch. Please go ahead.

Good afternoon. Thanks for taking my question. Your full-year outlook fell a little bit more than 3Q upside, have you seen the momentum from 3Q [indiscernible] into the fourth quarter?

I think if you recall this year when we initially set out guidance early this year we indicated that the kind of the quarterly seasonality this would be a little bit different due to the timing of vehicle and reductions which varies between years. We tell you we have a lot of momentum in the business, but in terms of Q4, we feel really good about the performance for the business across our category. But in terms of Q4 particularly we are starting to year with some seasonality that was expected to be different than last year and that's why you have an implied or an actual [indiscernible] forecasting that is lower than we've had in the year-to-date saving.

So still about the Live Valve, can you talk about the long-term opportunity with that and still remind us what agreement as plus now and where that could do longer terms?

Yes, Rafe, this is Mario. So we've got Live Valve in bike and we've got Live Valve in powered vehicles. Powered Vehicles kind of won the race to productization with players as you mentioned and we feel like these long travel, high horsepower and offer capable vehicle can really benefit in performance and stability from a technology like this. We're happy to be first offer and are encouraged that that there's other places to go with the technology. It probably has a larger impact long-term in powered vehicles and it doesn't bike there were excited about it in bike especially with the kind of the uptake e-bikes going forward.

The other thing I would probably point out Rafe, Live Valve is one in body of an electronic shock that happens to be our technology we are actually working on others too for other types of applications.

And then my last question is, called outs here again and auto aftermarket. Can we talk about what's driving that and then maybe a little bit more color on maybe channels that's working and where are you seeing the most momentum there?

Well, I think there is a couple of things that play, clearly our lift business is done pretty well, we still see some continued recovery in Canada, Western Canada particularly I think that business has been robust for us and clearly that's lift products as well as pulling through shocks. I think our just on-road replacement shock business has continued also to do well again that's going primarily through distribution.

Okay. Thanks for the color.

Our next question from Scott Stember from C.L. King & Associates. Please go ahead.

Good evening.

Scott, how are you?

Very good. Maybe just going back to the question on the aftermarket. Maybe just talk about framing that how the growth has been this year, it sounds like it's been better than has been in the past it sound like there's cross pollination opportunities with lift kits and shocks. But maybe just talk about how you envision that business growing next year, particularly since the only OEM side you have some very difficult comparisons. How that would just to be talk about how that would frame out for next year?

Okay. Well, let me make sure I got the question I mean I think as we look at that how we've developed the aftermarket the interplay between what our sport truck lift brands do and shocks. I mean we like that we see it continuing we think that business can continue to grow consistent with kind of how it's done here the last couple of years and I don't see any reason why that won't continue next year. I mean clearly OEM programs start and that makes that business or a little bit lumpy or and I think as we indicated early word lap in a couple of programs here this is the quarter that we're in now. But I think as we look down the road we're going to run the balance between our OEM business and our aftermarket business. I think that's something we're very conscious of I would not want to be all OEM nor would I want to be all aftermarket. I think we have a balance there that we're comfortable with and I think you'll look to see us maintain that.

Got it and without going too far down the road, is it fair to assume on both let's say the off-road vehicles side and the on the road truck side, whether it's another iteration of a raptor with a Ford or some other product. This is more of a back ended kind of deal for the end of 2018 given when usually when models are awarded and when ramp up usually takes place?

If we were awarded another OEM vehicle and we have not announced that we are awarded anything then typically what would happens is they would typically be announced at auto shows and they would typically not show up in our revenue stream till very late in Q3 or early Q4. So that would assume that this was keep - if we were awarded a vehicle and it had the same kind of typical seasonality we've seen that's what we've seen on the vehicle programs for Toyota and Ford that we've gotten thus far as of the Company.

Got it and just one last question, Larry you mentioned that you were working some other technology related to Live Valve with some other application. Can you maybe elaborate on that?

Well, it's actually again Live Valve is a type of semi-active technology that's going into our shocks. There are other ways to accomplish that same application. With an electronic shock something that's semi-active and adapts to conditions and similar applications, different problems, sometimes have different solutions, different customers, preferred different technologies, what we want to do - I think let you know is we are working on other things, other types of valve technologies or electronic shocks.

Got it, that's all I have. Thanks for taking my questions.

Our next question is from Michael Kawamoto from D.A. Davidson & Co. Please go ahead.

Hi, guys. I'm on for Andrew today. Thanks for taking my question. On the side by side market, can you give us some comments it seems like some customer commentary that the market has improved over the last couple quarters?

We certainly feel good about how we've done. I don't know that I can comment on any particular customers' view of the market. But I think we said it toward the beginning of the year, we thought it would be flattish, maybe down a little bit, maybe up, I think we feel like it stabilized. We went through a little bit over a rough spin there for I think a number of different reasons. I think we feel pretty good about the market. It's not returned I think to the go-go days of recreational side by side. We're growing at 15%. But I think it's also a lot better than it was previously, is that can help. Yes, we feel pretty good about where things at and again when I say that I'm qualifying it to the segments we serve.

Yes, gotcha. And then secondly, do you have any plans for some more acquisitions or are you just focused on down at this point?

Well, I think it has as we've said we run an active screen. We continue to do that. I think as we've also mentioned most people who are on it don't realize that for sale. We're not waiting for bankers to bring us ideas and so with that sort of approach we're looking for things that are generally very strategic to us in our minds, the things that are on that list are pretty particular. So with that as kind of a philosophy, that people don't be surprised if we announce an acquisition, but also don't be surprised if we don't. We're not looking to buy things that any cost and participate in some of these crazy auctions are going on. We're looking for kind of light minded people, certainly with Sport Truck and Race Face/Easton. I think those are good examples of the kind of deals we would like to do in the future, but as you know you got to have a willing seller. But that's kind of how I would characterize it.

Hey, thanks so much guys.

Our next question is from Ryan Sundby from William Blair. Please go ahead.

Yes, thanks guys and congrats on a quarter.

Thank you.

Larry, just a follow-up on that kind of last question there, with the Asheville facility, it sounds like you're picking up some customer and product service components here as you kind of look out your, I guess your distribution channel and your service channels, are you kind of happy with the footprint with the relationship you have or are there holes you like to fill in? And then kind of as even step back from that. Can you talk about I guess how you think e-commerce starts to play in this world too. I mean could we start to see FOXF stock on your website as well. Just any color that you could see how that plays out over time?

Great question, I would say that we're happy with where we're at in distribution, but I think we're far from satisfied. I think there's a lot, we can do and again this is worldwide. I think we're still under distributed some places in some of our product lines. I think particular to e-commerce, clearly with the amazoning of the world that is something that it's not a fad, it's here to stay, it's something I think you will us have a greater and greater presence online. I think that you have to do that. I think in the bike industry, you hear omni channel being bandied about a lot and I think you're seeing more bikes and more people going direct to consumers and I think that's a world that we have to play in. Clearly, I think one of the great strength of Fox, we have a very passionate and consumer customer base and it's not lost on us that we want to have a direct relationship with that customer base and not be insulated in any form or fashion. So I think as you look at social media and online e-commerce, those are things that will play a bigger and bigger role in what we do at the picture, no doubt about it.

Okay, great. And then just a follow-up another one here on the Live Valve, in a quarter to a review that no one else is doing as they should, I mean it seems like pretty sophisticated technology here. Can you talk about how hard this is for someone to replicate and maybe some IP or some of the product know-how behind it that would keep, I guess, this to you guys?

Yes, so when you led into that question it kind of broke up a little bit that that was a quote from a third party that wasn't me saying others are doing it and they should. So that was kind of an independent third party who got a chance to drive that vehicle and came away with certain impressions. As far as we go, we talk about, we believe that that were among the first to have a commercially so far successful and well received off road semi-active system and others have tried, if you look around passenger vehicles running around on Asheville all day. We're late to that game, to be honest with you, it's out there and there are other technologies that haven't translated off road and we've taken a unique approach. And as Larry has indicated, we don't sit around kind of resting on our laurels. We're working on other things and other applications. But the off-road solution, we believe maybe it's because we're kind off-road guys, but we believe that's a tougher one to do well and we're pleased that that Polaris was happy enough with it to take it to market on one of their real high and nice vehicles. The future like I said in my comments, along we'll travel high horsepower vehicles can benefit from the stability that that is Live Valve technology in the future ones that will come out with they can benefit from that and we think because that's the harder solution we can go the other way and potentially look at asphalt passenger vehicles in the future with Live Valve and the other things that were germinating.

Great, thank you. Thanks guys.

Thank you. This concludes the question-and-answer session. I'd like to turn the floor back over to management for any closing comments.

Thank you, operator and thank you all for your questions and your interest in Fox. We look forward to continuing to execute our plans and updating you on our progress as we go forward to these quarterly earnings calls. I'm also thankful for the support of our customers and suppliers and the hard work of our great group of enthusiastic employees, all keys to our continued success. Thank you and have a good day.

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