Fox Factory Holding Corp (FOXF) 2017 Q3 法說會逐字稿

Greetings, and welcome to the Fox Factory Holding Corp. Third Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I 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 p.m. 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 businesses. Sales of Powered Vehicle products were up 27% and Bike products were up 9%. As a result, we generated sales of $127.4 million, an 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 the Q3 of last year.

Our better-than-expected growth helped us exceed our net sales and earnings expectations for the third quarter of fiscal 2017. Based on our out-performance and our current view of the business today, we are increasing our fiscal year 2017 guidance, which Zvi 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 segments, in 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 programs. We're also pleased with our results in the aftermarket, where we believe that we continue to gain share with our lift products 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 continued 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 in sales, service, engineering, research and development and product distribution, and we expect it 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 enhance 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'd mentioned on previous calls, our brand building efforts continue to yield results with favorable media reviews and awards, successful key product launches, strengthened dealer relationships and race wins. We recently racked up these product accolades. Our Dropper Seatpost, the Transfer, took Enduro Mountain Bike Magazine's best in test award. In Vital MTB's audience survey, our products ranked as the #1 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 product 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 Taiwan 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 grounds, 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 Les Gets slopestyle FMB diamond event.

Overall, in the major global race circuits in 2017, FOX-supported athletes have won 16 cross-country events, 7 Enduro events, 5 Freeride events and 39 Downhill events.

Now I'll 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 demand of the terrain. The initial reactions were positive and that momentum has continued.

The Fast Lane Truck 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 was in the air. No one else is doing this and they should. Polaris definitely -- 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. This 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 Powered Vehicle -- 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 earning his 900th 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 CJ 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?

Thanks, Mario. Good afternoon, everybody. I'll focus on our third quarter results, 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 costs associated with ongoing patent litigation activities, partially offset by the conclusion of the company's acquisition-related compensation arrangements. 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 and 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've previously stated, the timing of R&D 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 $9.1 million 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 increase associated with ongoing patent litigation activities.

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 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 bond 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'll 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 from $34.4 million as of December 30, 2016, primarily due to the final scheduled earn-out payment related to one of our 2014 acquisitions, partially offset by our normal business seasonality.

Now turning 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're 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 $1.50 to $1.54.

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 the upper end of our previous guidance of 18% to 20%. We continue to expect the Q4 tax rate to be in the upper 20s. Based on our current visibility into future new Powered Vehicle product introductions, our growth rate in 2018 will be lower than 2017 and more consistent with our annual long-term target ranges in 2018. We remain confident on our ability to achieve our growth targets of mid- to high-single digits in Bike and low-double digits in Powered Vehicle over the long term.

Additionally, as we've 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 reconciliation.

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 transactions, 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 have 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?

(Operator Instructions) And our first question is from Craig Kennison from Robert W. Baird.

I wanted to start with the move in North Carolina. What motivated the need for that facility and why East Coast?

Well, I think it's a couple of different things, Craig. Certainly, as we've expanded, I think having some geographical diversity in our operation is important; it 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 the fact that we've 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 it 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. Did that help?

That helps. And then a question on mountain bikes. You've 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 if that's a driver.

Yes, Craig, it is a driver. We would -- we're pleased with how Rhythm has done in model year '18 as well as in our Transfer dropper post. As we've said in previous calls, this is kind of our first foray into this Rhythm category in model year '18. And we plan to round out the family of Rhythm products as we go forward.

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

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

Our next question is from Larry Solow from CJS Securities.

Just sticking with the capacity question and then a couple other additional questions there. It seems like you're adding -- the additional capacity, it looks like it's a more regional optimization and geographic optimization. You're adding, it 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 runway for additional capacity? Will you need to, at some point, make a more substantial upgrade there?

Well, yes, Larry, let me be clear. The space in Asheville is not manufacturing-related.

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. We obviously, our operations folks have plans beyond that to accommodate growth into the future and hopefully more elegantly.

Yes, and I think, as we see it in Bike now, we also have some Bike manufacturing in Vancouver for our race base in the Easton 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, too.

Sticking with the margin theme, obviously a very nice pop in the gross margin this quarter and I realized probably a little above your expectations and certainly ours. As we look out in the future -- and I know you've spoken, Zvi, to a continued higher margin -- clearly, this is -- a lot of this was driven by mix. Any reason to think outside of quarterly variations, that mix won't continue to sort of improve as we look out with newer products over the next few years?

I don't think we'd forecast continued mix improvement. We think there is some more room for margins to expand -- gross margins. We've said that our long-term EBITDA target margin is going to have a 2 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 I think we'll 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 had the benefit of above normal, above your targeted revenue growth, one-time target. As you look out over -- not next year, clearly, you have to have [already done] spending. But 3 to 5 years, do you eventually see some operating leverage in the model or do you have to continue OpEx running at a sort of mid- to high-single digit rate of 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 that would -- we believe that would jeopardize the growth that you've been seeing from the business. And so we believe that the best way to grow this business is to continue to reinvest in product development and sales and marketing. And sure, we could run this with a much better EBITDA margin today, but it'll be jeopardizing future growth.

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

So my first question. You guys are raising the full year outlook by a little bit more than 3Q upside. Have you seen the momentum from 3Q kind of continue into the fourth quarter?

I think if you recall this year, when we initially set our guidance earlier this year, we indicated that the kind of the quarterly seasonality of the business would be a little bit different due to the timing of vehicle introductions, 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 of the business across our categories. But in terms of Q4, particularly, we are starting the year with some seasonality that was expected to be different than last year. And that's why you have an implied or an actual growth rate that we're forecasting and then it was lower than what we had on a year-to-date basis.

And then talk a little bit about the Live Valve. Can you talk about the long-term opportunity with that? Just remind us what the agreement is as it plays now and whether that could be longer-term?

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 Polaris, as you mentioned. And we feel like these long travel, high horsepower and off-road capable vehicles can really benefit in performance and stability from a technology like this. We are happy to be first to offer it. And we're encouraged that there is other places to go with the technology. It probably has a larger impact long-term in Powered Vehicles than it does in Bike though we're excited about it in Bike, especially, with the kind of that uptake of E-BIKEs going forward.

The other thing I would probably point out, Rafe. Live Valve is 1 embodiment of an electronic shock; it happens to be our technology. We are actually working on others too -- for other types of applications.

Okay. And then my last question is, you've called out today again on the auto aftermarket. Can you talk about what's driving that? And then give maybe a little bit more color on maybe which channels that's working in and where do you see the most momentum there?

Well, I think there is a couple things at play. Clearly, our lift business has done pretty well. We still see some continued recovery in Canada, Western Canada, particularly. I think that, 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. And again, that's going primarily through distribution.

Our next question is from Scott Stember from CL King & Associates.

Maybe just going back to that question on the aftermarket. Maybe just talk about or frame me, on how the growth has been this year. It sounds like it's been better than it has been in the past and it sounds like there is cross-pollination opportunities with lift kits and shocks. But maybe just talk about how you envision that business growing next year, particularly, since on the OEM side you have some very difficult comparisons? How that would, just maybe 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 how we've developed the aftermarket and 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 over 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 a little bit lumpier. And I think as Zvi indicated, clearly, we're lapping a couple of programs here this -- 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 are 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 vehicle side and the on-the-road truck side, whether it's another iteration of a Raptor with the 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 happen is they would typically be announced at auto shows. And they would typically not show up in our revenue stream until very late in Q3 or early Q4. So that would assume that this was -- 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 a company.

Got it. And just one last question. Larry, you mentioned that you're working some other technology related to Live Valve with some other applications. Can you maybe elaborate on that?

Well, it's actually, again a 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 again, an electronic shock, something that's semi-active and adapts to conditions. And similar applications, different problems sometimes have different solutions, different customers prefer different technologies. What we wanted to, I think, let you know, is we are working on other things, other types of valve technologies for electronic shocks.

Our next question is from Michael Kawamoto from D.A. Davidson.

I'm on for Andrew today. Just on the side-by-side market, can you give us some comments? It seems like some customer commentary that the market has improved there over the last couple of quarters?

We certainly feel good about how we've done. I don't know that I can comment on any particular customer's view of the market. But I think, we said it toward the beginning of the year, we thought it would be flattish or maybe down a little bit, maybe up. I think we feel like it's stabilized. Went through a little bit of 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-sides. We're growing at 15%. But I think it's also a lot better than it was previously. Does that -- did that kind of help? Again, we feel pretty good about where things at. And again, when I say that, I'm qualifying it to the segments we serve.

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

I think 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's 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, as I tell 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 at any cost and participate in some of these crazy auctions that go on. We're looking for kind of like-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. So that's kind of how I would characterize it.

Our next question is from Ryan Sundby from William Blair.

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 at your, I guess, your distribution channel and your service channels, are you kind of happy with the footprint, with the relationships you have? Are there holes you like to fill in? And then kind of as you even step back further 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 FOX sell shocks on your website as well, or just any color that you could see how that plays out over time as well?

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 in some places in some of our product lines. I think particular to e-commerce, clearly, with the Amazon-ing of the world, that is something that -- it's not a fad, it's here to stay, it's something I think you will see 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, we, I think, one of the great strengths 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 are going to play a bigger and bigger role in what we do in the future. No doubt about it.

Okay. Great. And then, I guess, just a follow-up, another one here on the Live Valve. You, in your quarter reviewed that no one else is doing this and 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 of the IP or some of the product know-how behind it that would keep, or I guess, this to you guys?

Yes, so when you led into that question, it kind of broke up a little bit. That was a quote from a third party. That wasn't me saying, "others aren't 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 we are 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 asphalt 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're -- we don't sit around kind of resting on laurels. We're working on other things and other applications.

But the off-road solution, we believe, maybe it's because we're kind of off-road guys at heart, but we believe that's a tougher one to do well. And we're pleased that Polaris was happy enough with it to take it to market on one of their real high-end nice vehicles.

The future, like I said in my comments, long wheel travel, high horsepower vehicles can benefit from the stability that this Live Valve technology and 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 we're germinating.

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 with 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.