Fox Factory Holding Corp. (FOXF) Q4 2020 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to Fox Factory Holding Corporation’s Fourth Quarter and Full Year 2020 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I would now like to turn the conference over to your host, Vivek Bhakuni, Director of Investor Relations and Business Development. Thank you. Sir, you may begin.

Thank you. Good afternoon and welcome to Fox Factory’s fourth quarter and full year fiscal 2020 earnings conference call. I am joined today by Mike Dennison, our Chief Executive Officer and Scott Humphrey, our Chief Financial Officer and Treasurer. First, 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 will then open the call up for your questions. By now, everyone should have access to the earnings release which went out today at approximately 4:05 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.ridefox.com. Please note that throughout this call, we will refer to Fox Factory as FOX or the company. Before we begin, I would like to remind everyone that the prepared remarks contain forward-looking statements, and the management may make additional forward-looking statements in response to your questions. Such statements involve a number of known and unknown uncertainties, many of which are outside the company’s control and can cause future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements. Important factors and risks that could cause or contribute to such differences are detailed in the company’s latest Form 10-Q and in annual report on Form 10-K filed with Securities and Exchange Commission. Except as required by law, the company undertakes no obligation to update any forward-looking or other statements herein, whether as a result of new information, future events or otherwise. In addition, where appropriate in today’s prepared remarks and within our earnings release, we will refer to non-GAAP financial measures to evaluate our business as we believe these are useful metrics that better reflect the performance of our business on an ongoing basis. Reconciliations of these non-GAAP financial measures with 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, Mike Dennison.

Thank you, Vi and good afternoon. We appreciate everyone taking the time to join us for today’s call. As we all know, 2020 was a year we couldn’t have anticipated and will not soon forget. Almost a year into the pandemic, serious challenges continue to present themselves every day, and we remain focused on the health and well-being of our people and our communities. The pandemic has not only highlighted but also amplified our team’s dedication and our ability to execute a well-defined management strategy. Through our relentless focus, we continued to demonstrate Fox’s diverse competitive advantages, and our results reflect that in both our fourth quarter and full year performance. Our wide-ranging set of performance-defining product offerings, combined with our team’s agility and perseverance, has made Q4 of 2020 the highest-revenue quarter in our company’s history. I am pleased to report fourth quarter sales of $262.4 million, an increase of 41.2% compared to the fourth quarter of last year. From a profitability perspective, we reported non-GAAP adjusted earnings per diluted share of $0.90 versus $0.65, an increase of 39.3% year-over-year. The strength in our performance was driven by our innovative products, expanded portfolio offerings and our team’s ability to meet the significant demand fulfillment challenges. We believe, in today’s times, that product availability and supply chain responsiveness have become a key differentiator, and we are growing market share based on our ability to meet these unforeseen challenges. Let us take a closer look at our business. Starting with Specialty Sports Group, product sales were up 44.6% compared to the fourth quarter of 2019, making this SSG’s best quarter ever for revenue. For the full year, SSG grew 22.4% over 2019. Given our strong line of innovative products and ability to flex our production capacity, we were able to capitalize on the expanded rider base an unprecedented restocking cycle. Through deeper penetration across sales channels, we had yet another record quarter for shock and fork unit volumes. These past few months represent not only tangible growth at our SSG business, but also an expansion of our intangible relationships with OEMs. I am very proud to say our team members demonstrated strong execution by successfully controlling costs and managing operations to meet our OEMs expectations, thus helping customers manage evolving backlog and order trends. To better serve our European customers, we opened a new facility in Germany, which operates as our EU distribution and service center. In addition, the 9 spec wins we had mentioned in Q2 of 2020 were well received by our customers and end customers alike. That success established a strong foundation as we moved into 2021. As you have always heard me say, innovation is at the core of what we do. Building on our success, I am happy to announce that our recently introduced 38-inch fork received multiple awards for design and innovation. Based on the survey conducted by Vital MTB and Pinkbike, FOX continues to be the number one brand and Marzocchi at number three with respect to intent to purchase for both forks and shocks. Going back to our roots of racing, I am happy to share that in the fourth quarter, our products enabled our athletes to dominate at various racing events, capturing 49 podiums, 15 wins and 3 world championships. Moving on to our Powered Vehicles Group, we posted another strong quarter as PVG grew 38.7% compared to the fourth quarter of 2019. For the full year, PVG grew 16.1% versus the prior year. What is truly impressive is that we were able to achieve these results with the typical interruptions from the ongoing factory transition and the fact that our key manufacturing sites are located in areas of the U.S. that suffered from very high rates of COVID-19 spread in the fall of 2020. This caused high levels of absenteeism and created several supply chain challenges. I also want to highlight that the full year growth in PVG was accomplished despite over 60 days of our own factory shutdowns or partial shutdowns caused by the pandemic during the first and second quarters. Speaking of our Georgia facility, in the fourth quarter, we successfully commenced the transfer of our large automotive OEM production lines, which we expect to finish before the end of second quarter 2021. Georgia remains on schedule and we remain confident in our ability to drive improvements in efficiency and productivity. However, we are closely monitoring the increased demand for our Power Sports customers and may need to adjust the timing of some product line transfers in order to meet customer commitments. As we have previously stated, we will continue to experience duplicative cost until the transition is fully complete. However, we expect to see margin improvements in the second half of this year. Turning to our OEM partnerships, Q4 saw the launch of the all-new Wrangler 392, the eagerly anticipated V8 powered Jeep showcasing FOX’s aluminum-bodied, 2-inch-diameter shocks. This launch further solidifies our relationship with Jeep, which began in Q4 of 2018 with the launch of the Jeep Gladiator Rubicon. Another example is the all-new third-generation Ford Raptor, which was recently introduced. As you all know, the Raptor is the genesis of the performance truck market. One of the key elements that gives Raptor the prestige and legacy it commands is the fact that, while it’s a Baja race-ready truck, it can also be used as your daily driver, thanks to our innovative performance-defining suspensions. For this model year, we developed an all-new revolutionary 3.1-inch Live Valve suspension exclusively for the Ford Raptor, which automatically measures the speed in train 500 times a second. Moving on to our accomplishments in the racing world, where our products are developed. In the Baja 1000, FOX once again showcased why our suspension achieves the pinnacle of performance, with 15 class wins, sweeping the top 4 overall with Luke McMillin and Larry Roeseler taking first place. In UTVs, we swept all 4 UTV classes, taking the top 5 spots in the forced induction class, the top 4 in the naturally aspirated class and the top 10 positions of all UTV classes combined. Needless to say, I am very pleased with our 2020 accomplishments and proud of every single FOX team member. Our team has shown we can not only navigate but also thrive in any environment. And with that, I will 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 we will then review our guidance. Sales in the fourth quarter of 2020 were $262.4 million, an increase of 41.2% versus sales of $185.9 million in the fourth quarter of 2019. For the full year, sales increased by 18.6% to $890.6 million versus $751 million in the prior year. The Specialty Sports Group delivered a 44.6% increase in sales in the quarter compared to the same period last year, driven by high demand in both the OEM and aftermarket channels. For the full year, SSG’s sales grew 22.4%. Our Powered Vehicles Group delivered a 38.7% increase in sales compared to the fourth quarter of 2019, primarily due to higher growth in the Power Sports business as well as sales from SCA. For the full year, PVG grew 16.1%, primarily due to the addition of SCA. Excluding the impact of the SCA acquisition, revenue in PVG declined approximately 1% year-over-year. Putting that result into perspective, PVG’s OEM customers were shut down for approximately 60 days during 2020 near the onset of the COVID-19 pandemic. Fox Factory’s gross margin was 31.8% in the fourth quarter of 2020, a 30 basis point decrease from 32.1% in the prior year period. Non-GAAP gross margin decreased by 10 basis points to 32.0% versus Q4 of 2019. The decrease in margin during Q4 was driven by a shift in channel mix as well as duplicative costs due to the Georgia facility transition. For the full year, gross margin was 32.5%, an increase of 20 basis points compared to the prior year. Non-GAAP gross margin was 32.7% for the year, also 20 basis points higher than in 2019. The increase in year-over-year gross margin was driven by our SCA acquisition as well as better product and channel mix, offset by higher transition costs and incremental costs related to COVID-19. Total operating expenses were $45.8 million or 17.5% of sales in the fourth quarter of 2020 compared to $33.5 million or 18% of sales in the fourth quarter of last year. The increase in operating expenses on a dollar basis was primarily due to the inclusion of SCA operating costs of $4.5 million, amortization expense of $3 million and the acquisition-related compensation costs of $1.2 million. However, looking at non-GAAP operating expenses as a percentage of sales, our non-GAAP operating expenses decreased by 130 basis points to 15.0% compared to 16.3% in the prior year period. For the full year, total operating expenses were $175.4 million or 19.7% of sales compared to $129.9 million or 17.3% of sales. The increase in operating expenses was primarily due to the inclusion of SCA operating costs of $16.2 million, amortization expense of $11.7 million and acquisition-related compensation costs of $3.7 million. In addition, G&A and R&D expenses were up approximately $22 million and $2.5 million, respectively, driven by increased personnel investments to support our new product innovation and to lay the infrastructure foundation to support future growth. Non-GAAP operating expenses in 2020 were $139.4 million or 15.7% of sales versus $116.3 million or 15.5% of sales in the prior year. For the fourth quarter and full year 2020, our effective tax rate was 9.2% and 12.2%, respectively. This rate is slightly lower than our previous long-range guidance of 15% to 19%, primarily due to excess benefits related to stock-based compensation and the optimization of a U.S. deduction for certain foreign activities. Adjusted EBITDA increased by 48.8% to $51.2 million for the fourth quarter of 2020 compared to $34.4 million in the same quarter last year. Furthermore, adjusted EBITDA margin expanded 100 basis points to 19.5% compared to 18.5% in the fourth quarter of 2019. The increase in EBITDA margin is primarily due to the impact from higher sales, lower OpEx as a percent of sales and the positive impact of SCA on our results. On a full year basis, FOX delivered adjusted EBITDA of $176.3 million, a 20.6% increase from $146.2 million in the prior year. Adjusted EBITDA margin expanded 30 basis points to 19.8% in 2020 versus the prior year. The increase in EBITDA margin is primarily due to the leverage from higher sales and the positive impact of SCA on our results, offset by incremental costs related to the COVID-19 pandemic and higher general and administrative costs as we bolster our requisite infrastructure to set up Fox Factory for future growth. On a GAAP basis, net income attributable to FOX in the fourth quarter of 2020 was $31.8 million or $0.75 per diluted share compared to $22.5 million or $0.58 per diluted share in the prior year period. On a full year basis, earnings per diluted share was $2.22 compared to $2.38 for the full year of 2019. Non-GAAP adjusted net income was $38.2 million, an increase of approximately $12.8 million or 50% compared to $25.4 million in the fourth quarter of last year. We delivered $0.90 of non-GAAP adjusted earnings per diluted share in the fourth quarter of 2020 compared to $0.65 in the fourth quarter of 2019. For the fiscal year 2020, non-GAAP adjusted net income was $123.8 million versus $106.3 million, an increase of 16.4% year-over-year. We delivered $3.03 of non-GAAP adjusted earnings per diluted share in the fiscal year 2020 compared to $2.72 in 2019. Now focusing on our balance sheet, as of year end 2020 on January 1, 2021 compared to our 2019 year end on January 3, 2020, we ended with cash on hand of $245.8 million. Accounts receivable increased to $121.2 million compared to $91.6 million. Inventory was $127.1 million compared to $128.5 million. Prepaids and other current assets increased to $87.9 million compared to $17.9 million. Accounts payable was $92.4 million compared to $55.1 million. And total debt outstanding was $389.6 million compared to $68 million. And our fourth quarter net leverage ratio on a pro forma basis was approximately 1.04x. The changes in inventory, accounts receivable and accounts payable reflects seasonality as well as timing of vendor payments. The increase in prepaids and other current assets was primarily due to SCA-related items, including chassis deposits and contingent retention incentives held in escrow. Our net property, plant and equipment increased to $163.3 million as of January 1, 2021, compared to $108.4 million at the end of 2019. The increase reflects the SCA acquisition as well as investments in our new manufacturing facility in Gainesville, Georgia. Between the cash we now have on hand and the borrowing capacity under our credit facility of $250 million, we believe we have the liquidity and financial strength to manage through any ongoing economic uncertainty while continuing to proactively execute on our long-term strategic objectives. Now turning to guidance, for the first quarter 2021, we expect sales in the range of $255 million to $275 million, adjusted EBITDA margin in the range of 19.5% to 20.5%, and non-GAAP adjusted earnings per diluted share in the range of $0.75 to $0.85 per share. For the fiscal year 2021, the company expects sales in the range of $1.035 billion to $1.085 billion, adjusted EBITDA margin in the range of 19.5% to 21.5%, and non-GAAP adjusted earnings per diluted share in the range of $3.30 to $3.60. The company’s full year 2021 guidance assumes a tax rate range of 15% to 19%. We continue to expect some quarterly fluctuations in tax rate to occur during the year due to certain variables, like stock option exercises. We will also keep a close eye on the new administration’s policies to adapt to any changes in federal tax law. We expect CapEx for 2021 to be in the range of 4% to 6% of sales, primarily due to completion of the Georgia facility, which remains on schedule. For the long term, we expect a CapEx rate of approximately 5% of sales. I would 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 actually predicting the elements necessary to provide such guidance and reconciliations. Finally, as we all know, the business world is adapting to the new normal. We continue to work closely with our suppliers and our customers to overcome the evolving challenges presented by the global pandemic. However, we remain conscious of the risks created by COVID-19, especially the impacts on both our supply chain and those of our customers. As positive as we may feel about our prospects in 2021, we remain cautious about presenting optimistic guidance without also highlighting the obstacles we may face this year, which Mike will touch upon shortly. As our understanding of the global business environment evolves, we plan to provide incremental updates each quarter regarding our expectations for 2021. With that, I would like to turn the call back over to Mike.

Thanks, Scott. In closing, 2020 was challenging, but we exited the year stronger and more resilient, both as a team and a company. Our organization is more agile and nimble, capitalizing on all of the learnings from the past year. We feel confident that through continual innovation in new and existing product categories, we will maintain our momentum and extend our market leadership. In 2021, we expect to surpass $1 billion in revenue for the first time, generating long-term sustainable growth and value for our shareholders. We are also excited that vaccinations are progressing, and we are confident that in the future, the world will be much safer and will return to normal once again. However, near term, we remain very cognizant of potential macroeconomic headwinds and pandemic-related uncertainties that could arise and materially impact our performance. We are especially focused on significant price fluctuations in raw materials and commodities like steel and aluminum as well as possible OEM shutdowns or issues related to automotive chassis supplies. Thus, we will continue to monitor the situation and adapt accordingly while continuing to integrate the highest safety measures to keep our employees healthy and safe. As always, we will continue delivering against our goals while making the lives of our growing customer base active, exciting and enjoyable. And lastly, our Executive Chair of the Board, Larry Enterline, has announced his retirement from the Board effective April 2, 2021. Larry has been instrumental in creating what FOX is today and has been my mentor since before I became the CEO at FOX. He has been an integral part of the company for almost a decade, first as the CEO, then as the Executive Chair, and has maneuvered the company through global expansion, private-to-public company transition and several successful acquisitions, generating a total shareholder return of over 400% during his tenure. To continue our success, Dudley Mendenhall will return to his prior role as independent Chair of the Board of Directors; and Jean Hlay will become Chair of the Audit Committee. We wish Larry all the best in his much-deserved retirement. I would now like to open the call for questions. Operator?

[Operator Instructions] We will take our first question from Larry Solow with CJS Securities. Your line is open.

Great. Good afternoon and congratulations on a really good year in a very challenging environment. Can you maybe just – I know you don’t guide by category or by segment, but with the sort of 20%ish targeted growth and coming off of a really remarkable year on SSG, can you maybe just give us a little bit of color on how you see growth shaking out this year between the two segments?

Yes, sure, Larry. This is Mike. We see both segments having some significant growth opportunity. They are both challenged with some different risks associated with that growth. SSG, as I’ve said to you in the past and continue to say, has seen remarkable bookings that go throughout 2021. And so we have a pretty good view of that, with the only caution that maybe in the back half of the year, supply chain challenges. We are components on a bike we’re not the full bike, as you know very well. And so if other components cause for push-ins or push-outs of bike manufacturing, that could affect us. So we want to be conscientious of that and thoughtful about what that means in the back half of the year. But for right now, we look at SSG in 2021 and consider it to continue to be kind of oversized growth rate compared to the long-term expectations in PVG, also a great year for growth in our guidance. With that growth, we have a couple of challenges relative to the chip issue for automotive, as you’ve heard about in the press, chassis volumes coming from the big automotive guys and some other things that we have to kind of work through as well with that transition to Georgia. But we actually believe both businesses will perform – have the opportunity to perform quite well relative to our guidance in 2021 and be at the numbers that we have talked about in the past, if not better.

So, it sounds like the concern maybe, if there would be one or the challenge it might be more on the supply side than demand and what your order book looks like today, is that fair to say?

That’s fair to say, Larry. I think this really isn’t a demand problem so far, this is really about supply chains and all those pieces that have to make it all come together.

Right. And you mentioned the Georgia facility briefly. And in your prepared comments, I know you talked about that you actually expect some margin improvement in the back half of the year and from that – and it does look like, I guess your Q1 guidance versus your full year guidance, your full year numbers are a little bit higher. So I am just trying to get an idea of how you feel that’s going to shake out. Obviously, you are hopefully getting some increasing benefit from that. But perhaps it gets a little bit lost in the shuffle with the COVID inefficiencies and whatnot. And then excess demand, which is probably a high-class problem, but still hurts your margins in the short run. So, maybe a little more color on the short run? And more importantly, where you see like long-term, if we look out 3 to 5 years sort of opportunities from this move to Georgia?

Yes, it’s a good question and I’ll let Scott comment as well in terms of what we see in improvements in margin. But I’m still committed to – we are still committed to getting that margin improvement in the back half of the year. And things happen to shift a little here and there relative to – as an example in my prepared remarks, Power Sports. We’re seeing some record level of bookings in that business, as you know, from some of our customers who have reported and that does impact kind of the fluid the year – or the nature by which we want to move that business. So we are working through those right now, but it doesn’t change with the macro level, where we expect our margin improvement to be and when we start to expect it to come into the year. COVID, by then, hopefully, is not a significant factor, although it was a very significant factor in Q4 for us relative to absenteeism. But we expect that to abate, and we can get back to a more normal manufacturing business here in the U.S. So Scott, do you want to comment on the margin piece?

Sure. I think as we move through the transition, and I know all of the analysts have been asking for a while what we expect. And I think once we get through the full transition, you are looking at, let’s say, between 250, 350 basis points improvement on the gross margin for that shock business, kind of the traditional legacy business in PVG, but obviously we are still moving lines over from and El Cajon and we still have to worry about the moving the Power Sports business as well. So we still have a ways to go in that transition, which is incredibly hard to do and meet your customer demand at the same time. That demand is obviously very robust.

Okay, great. I appreciate that. Thanks guys.

And we will move next to Jim Duffy with Stifel. Your line is open.

Hi, guys. Hope you all doing well? My best wishes to Larry and congratulations to Dudley. I imagine they are listening. I want to start on specialty sports, guys. Can you speak about the backlog and the runway of visibility that, that provides you? Do you currently have visibility well into the second half of the year in that bike business? And then I’m curious, you flagged OEM challenges related to perhaps other suppliers. Are there specific issues that you are seeing right now that are impeding that backlog in the bike business or is that more just a call out of something that could happen?

Jim, this is Mike. So thanks for the comments on Larry and Dudley. They are listening, so I’m sure they appreciate that. In terms of SSG, we’re seeing backlog or order book, if you will, probably the other side of that equation, into 2022. So we’re seeing a much further view of what the demands are based on the current lead times, especially. We’ve been talking a lot about lead times, and lead times in the bike business, if you’re reading the reports, are going up north of 400, 450, even 500 days in some components. We’ve been able to, with our extra capacity, to bring that back down. So we’re not where we’re supposed to be at, let’s say 45 days, but we’re a lot closer to 300 days. So we’ve got a pretty good view of what’s going on in that space. And so we – assuming all macroeconomic stuff stays intact, I think we look at this year and in the next year as really strong. In terms of calling out the component issues, we are not seeing anything specifically today, other than the push and pull on a daily basis of working through supply chain challenges, dealing with suppliers, reinforcing their capacity and making sure that they understand what they need to do to support us, so nothing to call out specifically as of now. I just want to call it out on a forward-looking basis as a concern that we need to be very vigilant on to ensure that we get all the right components for our business and our OEM partners get all the right components to complete those bikes. I think people have made a lot of progress in the last couple of quarters. Things have at least improved from a visibility perspective, so I think that’s a net positive. But we’ve got a long way to go to get back to a more normal environment in SSG. So we’ll watch it close.

Okay. And another question on just inventories and supply, Mike, your inventories look super tight. What’s the path to delivering on that strong first quarter guidance given how lean inventories are? And then I’m curious if you could speak to the outlook for SCA, and what you’re seeing in terms of availability of chassis to support that?

Yes. Two really good questions, Jim. So our inventory is tight. We’re shipping pretty much wherever we can make as a general theme. So we’re working really hard. We’ve had some improvements. In Q4, let me give you a couple of numbers just to kind of give you a reflection of what the challenge is. In Q3, we had, as a company, give or take, 10, a round number, 10 COVID cases that caused us issues in our factories. In Q4 alone, we had 175. And if you think about 175 that might not sound like a lot, sounds like a lot me. But what that means is 14 days per case of quarantine, minimum. And if you do the math on that, Jim, that means you have 2,450 days or 2400 days plus of unproductivity in your factory as you’re trying to hit these revenue numbers, right? So that creates a massive headwind that we had to deal with in Q4. And I think some of that has abated in Q1, and that’s going to help us get that production to deliver the results we need. So we do keep a very close eye on COVID. We think it’s still a challenge for us in the first half of this year, but it seems to be doing a little bit better, and that’s going to help us in Q1 and Q2.

Thanks. Then on SCA, Mike?

And then on SCA, yes, good question. So on SCA, we are working very closely with our biggest partners. You know those chassis that require the chips that you hear about in the news that are short. So we’re getting creative and working with the different automotive suppliers to provide what we need. We think the first half of the year looks good. We’re still working through the back half of the year, so maybe too early to comment on that yet. But the first half of the year looks pretty good. So I think we’ve solved the majority of the issues as it would relate to us. So we feel good now. We want to keep a close eye on it. Things can change quickly there, but from where we sit right now, we feel good at least about the first half.

Thank you.

You bet, Jim.

And we will take our next question from Mike Swartz with Truist Securities. Your line is open.

Hey guys. Good afternoon and good evening. I guess, Scott, just wanted to follow-up on the comments you made earlier. Just – I think you said 250 to 350 basis points improvement once the Georgia facility is fully transitioned. Were you talking about that level of improvement on the consolidated margin? Or was that just a singular piece of the business?

Yes, really just talking, at this point, Mike, about the actual business that Gainesville is contributing to. It could be better than that once we get over there and see it in action. I think at this point, we’re running numbers and spreadsheets and not seeing it in person because we still have to make those transitions without the duplicative costs and see it actually happen. And so I wanted to give you guys some visibility into where we were headed, but certainly don’t have that dialed in perfectly at this point.

Okay, that’s helpful. And I think in your prepared remarks, you also made reference to increased some corporate overhead and corporate support costs. I guess, how should we think about that playing out through ‘21 and maybe longer term? I mean, what are some of the capabilities that you need and how impactful from a margin standpoint do you think they are?

So, good question on the impactful, on the margin standpoint, I am not prepared to talk about OpEx as a percent of sales in terms of guidance, I think we’ll be in the same range of percent of sales on OpEx that we’ve been in, in the past, and so growing with the business. But I think it’s going to be lumpy at times. We might have a quarter that’s low or a quarter that’s a little higher, and then it will kind of average out in the end.

And Mike, this is Mike. I would just add that the investment we make in corporate infrastructure and support functions really helps us grow and scale this company even faster. There are some necessary things we need to do to make sure that we can be sustainable in that growth. And so I think it’s a net-net positive for us on a long-term basis. It’s not just fluff.

Okay, great. Thanks for the color.

And we will take our next question from Scott Stember with CL King. Your line is open.

Good evening guys. Thanks for taking my questions.

Hi, Scott.

Hey. The last couple of quarters, you guys have talked about how the bike business, at least your rarefied air has been benefiting from shortages of less expensive bikes. So are you guys still seeing that trend in the fourth quarter? And is that – it is continuing, are you expecting that to continue for at least the first half of this year?

Scott, this is Mike. The answer is yes and yes. So we’re seeing a move for people to upgrade bikes, is a developing trend. So, people want a better bike than the bike that they may have ridden a year or 2, 3 years ago. So a lot of the current demand going into the dealers, going into the OEMs is on those higher-end bikes, things like e-bikes as well. And clearly, that benefits us. So we really like what we’re seeing relative to the premium category. And obviously, we fit in really well in that space. And that’s helped us. So I think it’s also the relationships that we’ve built and strengthened with our OEM partners. I mean, I just – I can’t speak highly enough of the quality of those partnerships that we have. And I think that’s going to bode well for us as well.

Alright. And just regarding some of the individual segments, you talked about Powered Vehicles Group, but I think you called out SSG – I mean, SCA and Powered Sports. But just wanted to see how some of the other segments are doing, whether it was aftermarket-related, whether it was the Lift business that you have or the Ford Raptor and some of those other products. How did they compare in the quarter?

They did really well. Our challenge in Q4 in the aftermarket space, I think sport truck, our lift business and our aftermarket legacy business. Our challenge there was meeting demand, keeping up with demand. We carried backlog in both of those businesses into Q1. We had carried backlog from Q3 into Q4, if you recall, and we carried some into Q1 as well. So we are really working hard to meet the demand that’s in front of us. You heard me mention earlier today about the COVID challenges in Q4, that really did not help us in the U.S., trying to keep our factories running efficiently. Then it causes us to actually add buffer in our workforce because the absenteeism was so high. So – and it kind of gets you coming and going, if you know what I mean, to try to deliver that backlog and to keep your cost down. I think from what we can see in the first half of this year, aftermarket, again, lift and in legacy, is very strong. We’ll have to kind of wait and see what happens in Q3 and Q4, a little early to tell. SCA and Tuscany also did well in the quarter in Q4. So we’ve combined those businesses, fundamentally. So it’s now SCA and Tuscany, i should probably say it that way when I talk about it. But it’s really one business for us. Both did well in the quarter. I think that strength continues. And then on the OEM side, both Power Sports and automotive, some great new product launches. In Power Sports, just – we’re just challenged with the supply chain to keep up with the demand from our OEM partners. It’s pretty incredible. And we’ve pushed some backlog from Q4 to Q1 in Power Sports as well, just because of supply chain and trying to get the materials we needed. So, all that looks really – was strong in Q4, very diverse, solid growth across the business and we think that looks the same in Q1, for sure in Q2 as well.

Alright. That’s all I have. Thank you.

Thanks, Scott.

[Operator Instructions] We will go next to Rudy Yang with Berenberg. Your line is open.

Thank you, guys. Thanks for taking my questions. So can you discuss what you’re seeing in the bike channel overseas right now? And how the manufacturers plan to restock inventory this year?

Well, we’re seeing overseas – are you referring, Rudy, to the manufacturing in our Taiwan facility, or end customer demand overseas?

End customer demand.

Yes. So you know we’re not a big player in Asia. So that’s not a big part of our bike market. We don’t sell a lot of bikes in Asia. In Europe, we’ve seen the demand continue to be incredibly strong, especially in the e-bike category. I mentioned in my prepared remarks that we opened our new German facility which has been phenomenal. It allows us to respond and react to our customer needs quicker and provide service, etcetera. So that’s been a big benefit for us. But that demand seems and continues – it seems to be strong, it continues to be very strong. I would say the same for Australia and some of the markets that we support around the world. So I don’t see anything letting off on a geographic basis. It continues to be strong this year and throughout the – at least from a forecast perspective, the balance of this year.

Got it. And then with respect to higher freight costs that we’re seeing everywhere, do you expect those to have an impact on your bike part margins or on the bike manufacturers’ ability to fulfill demand?

I don’t have – I don’t see it as an issue on fulfilling demand. I know our OEM partners are paying higher rates for both containers and just freight costs in general. Freight has been extended. We started to use, or at least test, the usage of the rail between China and Europe as a way of getting more product to market in Europe. So we’re getting creative to help support it. It doesn’t really have an impact on our margins, though. We’re not – when we have those incremental costs, we most probably pass those along. Our customers willingly will pick up the extra cost. They know that it’s not us it’s just the reality of the world. So I don’t see it has a big impact on margins, but it’s definitely causing our OEM partners to pay more than they expected.

Alright. Appreciate the color. Thank you.

Thanks.

And there are no additional questions at this time. I’d like to turn the program back over to Mike Dennison for any closing remarks.

Thank you. We appreciate your participation and questions on today’s call. Thank you for your interest in FOX and have a nice evening.

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