Fox Factory Holding Corp (FOXF) 2016 Q4 法說會逐字稿

Greetings and welcome to the Fox Factory Holding Corporation 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.

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 4:05 PM Eastern time.

If you've not had a chance to review the release, it's available on the Investor Relations portion of our web site 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 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 that 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 in the automotive OEM growth. Bike products were up approximately 7%, driven by improved speck 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 targets. 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 lineups 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 fiscal 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.

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 a Fox product with their mountain bike suspension product of the year in 2016 with our Factory Series 36 FLOAT.

Pinkbike had this to say about it: The current factory 36 FLOAT is the perfect example of a product that has been honed to near perfection. And it doesn't require any gimmicks or tricks, because of that fact. It's reliable, easily tuneable, 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, strength in 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 break a mountain bike downhill speed record. Marcus went 167.6 kilometers per hour down a mountain. Topping his previous speed record of 164.95 kilometers per 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 after-market accessories catalog for the Street Twin, Street Cup, Bonneville T100, Bonneville T120 and Street Scrambler, as well as a mono shock 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 driver swept the podium with Andy McMillin taking the overall win and Rob MacCachren and Steve [Olegaz] taking second and third respectively. Fox drivers also had a clean sweep of all four-wheel classes in races at the 2017 King of the Hammers. Shannon Campbell became the first driver to win the King of the Hammers three times, taking the overall win this year.

Shannon's son Whalen 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?

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 product sales respectively. The increase in sales of powered vehicle products was primarily due to continued high demand for on-road and off-road suspension products, and increased OEM sales.

The increase in sales of bike products, primarily reflects favorable model year speck replacements with OEMs and new products [and selection]. Gross margin was 30.5% for the fourth quarter of fiscal 2016, a 60 basis point increase from 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 basis, which excludes the 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 costs 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 the growth in the business and approximately $800,000 of expense associated with our previously disclosed ongoing patent litigation activities, involving the bike industry competitor, partially offset by a reduction in amortization, certain purchased intangibles. We remain confident in our position on these legal 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 for the 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, but as a 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. Our 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 ERP 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 rates. 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, as 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. Non-GAAP adjusted net income, non-GAAP adjusted gross margin, non-GAAP effective tax rate, and adjusted EBITDA are useful metrics to better reflect the performance of our business on an ongoing basis. You can find a 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 regard to the AR increase the majority of our sales growth came from OEMs, which typically have longer terms in our after-market 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 expectation for EBITDA margin improvement of 40 basis to 50 basis points. Additionally, we are 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 FIN 48 provision and the effect of stocks option exercises. For Q1 we anticipate a tax rate of approximately 5%, and for Q3 we expect a 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 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 the difficulty of accurately predicting the elements necessary to provide such a reconciliation.

As a reminder, non-GAAP adjusted earnings per diluted share, exclude the following items net of equitable tax. Amortization of purchased intangibles, contingent consideration of valuation adjustments, and acquisition related compensation expenses including foreign, related foreign currency transactions, gains and losses, litigation expenses, certain acquisition-related adjustments and expenses in offering expenses. These adjustments are more fully described in the tables included in our press release, which has been posted on our website.

And now I'd like to turn the call back over to Larry.

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

(Operator Instructions). One moment please while we poll for questions. Our first question comes from Craig Kennison of Baird. Please proceed with your question.

Hey, thanks. And congratulations, everybody. First question.

Thanks.

Zvi, is for you. Sorry about that. First question, Zvi, is on El Cajon and the start-up costs. Can you quantify what those costs were in Q4 and to what extent you expect any costs to linger throughout the early part of 2017?

Yes. We prefer not to quantify the exact costs, but the kinds of things you're talking about are training of the labor forces as they ramp up the lines. Some of the tooling costs. Things in that kind of a nature. In terms of whether they'll linger, through the course of the year we do expect some EBITDA margin improvements as I outlined in my guidance, so we incorporated the effects of any start-up costs in our guidance.

Got it. That's helpful. Mario, for you could you give us your best outlook for 2017, the mountain bike market from a retail stand point. 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?

Yes. So on the second part there, Craig, the inventory, we think we've seen some of the news that's been public and other suppliers in the industry. The bright spot in that news is that it would appear that inventory is in pretty good position going into 2017 here. For the start of model year 2018. 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 speck 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.

That's helpful. And then finally for 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 extent do you have any exposure to that new parent company which has assets in other product categories beyond power sports?

Yes. You know 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. Now philosophically we tend to look at everything as an opportunity. We'll clearly be working on that. But I don't think there's any sea change event there for us.

Okay. Okay. Thanks and congratulations.

Thank you.

Thanks, Craig.

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

Good evening and nice quarter, guys.

Thank you.

Can we talk about the bike position. Earlier you were talking about some of the initial specks 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 2017 comparing it to where you stood versus the prior-year. Could you give us any color on how things are going on that front?

Well, I don't know, Scott, that we've given specific cases of speck 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 speck cycle has gone so far. I think we probably echoed that last year around this time. And we're excited about the product line and others seem to be, too.

Okay. And maybe talk about within the specks, 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?

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 2018 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.

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

Yes. Sorry, I didn't catch the second part of your question there. But on Marzocchi we continue 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?

On the tax rate. Maybe, Zvi, you could go into a little bit more detail about the cadence. Notably with the first quarter being at 5%.

Yes, I mean, one of the largest contributors to the first quarter being 5% is we had some stock option exercises with the new FASB to the degree that the stock option -- the stock price is higher than the stock exercised price to benefit first to the P&L. That was a FASB 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 FIN 48 effect in Q3, which is, for those of you like Scott, who are familiar with Fox, we broke out the FIN 48 reserve on a certain tax (inaudible) each quarter and in Q3, assuming that we have an unfavorable outcome with the IRS, the statue of limitations lapses for a year, so it reverses out in Q3. So that's what the cadence that I have provided in my earlier comments reflects.

Got it. That's all I have for now. Thanks a lot, guys, for taking my questions.

Thank you.

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

Yes. Hey, good afternoon, guys.

Hi, Mike.

Hey, just wanted to touch on the bike business and there's some news out there that some of the major OEM partners have pushed back the timing of their dealer events. And 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 back-end weighted year or just any color you can provide?

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 that I identified earlier, now as to what we should take from what you said, I don't know if we have a particular opinion about it.

Yes. We don't want to talk about specific customers. There is some movement within the trade show folks trying to shuffle dates around. It could be a function of folks who own and hold bigger dealer captive shows reacting to that. Can't really -- I don't know an opinion on it. As Zvi said it doesn't change how we think about the year.

Okay. That's helpful. Then just in terms of the guidance you provided for 2017, I guess splitting that and looking at it from a bike standpoint and a 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 into powered vehicle with that.

Well, just to maybe -- for those that are not as familiar with the story. Our long-term bike targets remain in the mid to high single digits. We believe that the headwinds that were 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 bikes for powered vehicles this year, but we think we'll significantly outperform those targets in 2017. And that's what leads you to the guidance that we have provided here.

Okay. That's helpful. That's all for me. Thanks.

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

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

Thanks, Jim.

Thanks, Jim.

I have a couple questions around the shape of the guidance. Very strong outlook for the first quarter and then 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 rates. Is there a specific timing issue behind this or are you simply being conservative as visibility dims as you get further across the year?

No. As I said in my comments, there is a difference in seasonality in 2017 and there's two main factors. The first factor is the transition of our, over the last couple of years we have transitioned some of our bikes to Taiwan. And so that is having an effect. The other factor is the growth of our powered vehicle business and the proportion of our business that it represents versus previous years.

And as always, there's always the timing of certain vehicle introductions, and how previous ones sold through. So it's simply, unfortunately we'd love to model this stuff on an excel spreadsheet and have it all linear 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 up front. So that you guys could take it into account when you were modeling the business for this year.

Okay. A couple of your automotive OEMs have had very strong reception to the 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.

Yes, Jim. You know what I would say, again we're clearly pleased that the receptivity that's been given the vehicles you're talking about. These guys plan long-term and while we would hope, obviously, that these things lead to positive sales, I do think there's an element on vehicles like this that they don't intend them to be mass market, right, and put hundreds of thousands of them out there.

So I do think there is 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.

Absolutely. Building on that, Larry, the news out of the 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?

We obviously can't comment, Jim, on specific customer activity. I think we're always hopeful that 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, boy, predicting timing in the automotive industry is a challenge at best.

Fair enough. Well, congratulations on the success.

Thank you.

Thanks, Jim.

Our next question comes from Jon Andersen of William Blair & Company. Plead proceed with your question.

Good afternoon, guys. Congratulations.

Thanks, Jon.

Just a couple 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, I know that the 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 US business. And then does that -- are you still thinking about kind of a long-term gross margin target the way you've been kind of thinking about it and communicating it before?

Yes. I think we're satisfied with our progress. We think, incorporated into our guidance was that 40 to 50 basis point improvement in the EBITDA margin. We also indicated that non-GAAP OpEx would be relatively flat. 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 a two in front of the EBITDA.

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

I would tell you, Jon, it's obviously you read the papers and in certain parts of the world I think there are some difficulties. Those are headwinds that we clearly have seen. It is a relatively small part of our business, so it hasn't impacted us overall. I think when we look at the rest of the world, we are committing long-term. We are a global business. We are in all parts of the world. It's a commitment we made.

So even if they're a little flat we're going to stay with them, because ultimately 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, nearer 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.

Okay. Last one for 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? Are you -- 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 what has particular interest at this point in time? Thanks.

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 active M&A screen in all parts of our business. We do have businesses we would like on that screen. And it's -- I think it's a combination of timing, 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's 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 didn't. 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.

All right. Thanks for the color, guys. Congrats again.

Thank you.

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

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

Hey, 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 speck. So I don't think there's 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 US.

Okay. Thanks. Good luck.

Thank you.

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.

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.

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