Fox Factory Holding Corp (FOXF) 2017 Q4 法說會逐字稿

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

It is now my pleasure to introduce your host, Mr. David Haugen, General Counsel. Thank you. You may begin.

Thank you. Good afternoon, and welcome to Fox Factory's Fourth Quarter and 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 today 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 fiscal 2017 business and financial highlights. Mario will then provide a more detailed update on our business and brand development. Zvi will review the fourth quarter financials as well as discuss our guidance. After that, we will open the call for your questions.

Our finish to 2017 reflects the consistent strength of our bike and powered vehicle businesses throughout the year. Sales of powered vehicle products were up 31%, and bike products were up 8%, demonstrating the benefits of our diversified product offerings. As a result, we generated sales of $475.6 million, an increase of 18% compared to last year, and non-GAAP adjusted earnings per diluted share of $1.59, an increase of 29%, or $0.36, compared to $1.23 last year.

Our better-than-expected growth helped us exceed our sales and earnings expectations for fiscal 2017. In addition, our adjusted EBITDA grew 32%, or $23 million, compared to the prior year to $93.8 million, representing an adjusted EBITDA margin of 19.7%. In the face of a dynamic and competitive environment, both in the U.S. and internationally, we are pleased with our business results, which demonstrate our commitment to product innovation and growth of the FOX brands in both existing and new categories.

In bike, OEM and aftermarket sales channels performed well, and we are comfortable at present with the overall inventory level of our products.

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 OEM programs. This has been an exciting growth area of our business. We're also pleased with our results in the aftermarket, where we believe we continue to gain share with our lift products and on-road replacement shocks.

Product innovation remains a key cornerstone to the FOX brand and our success with both bike and powered vehicle products. We appreciate the strong efforts of our team as we continue to deliver differentiated products to our passionate customer base, reinforcing the value of our brand. We are very pleased with our latest off-road capable on-road vehicle spec wins with the recent announcements by Ford and Toyota earlier this month. We believe this further validates market demand in this category. These represent key platform wins and will help us sustain our stated target growth rates into the future. Mario will go further into detail in his portion of the call.

We also look forward to further expanding FOX's performance-defining solutions in the aftermarket via our acquisition of Tuscany, which we completed in the fourth quarter of 2017. We are now able to combine Tuscany's expertise with our FOX and Sport Truck suspension and lift kit solutions to develop next-generation aftermarket offerings. We believe this acquisition also helps us to further develop the off-road capable on-road vehicle market segment to accelerate our overall efforts in this important vehicle category. Looking ahead, our team remains committed to further building the FOX brand presence in our existing vehicle categories and consistently pursuing potential new markets.

In summary, we're very pleased with our 2017 operational execution and financial results. We believe FOX's differentiated market position will continue to fuel our expansion in the diverse end markets we serve.

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. Our Factory Series 36 FLOAT continues to win accolades, and the latest comes from the largest German online mountain bike magazine, mtb-news.de. It was voted as the fork of the year by their readership, with over 12,000 participating in the survey. They also had this to say, "The FOX 36 has been on the market as an absolute high-end fork for so long that you do not really have to say much anymore. So 2018 model has been thoroughly redesigned to delight our testers with their EVOL air chamber and buttery responsiveness."

The readers of MTB News also selected our Factory Series DPX2 rear shock as the best shock of the year and second place went to our Factory Series FLOAT X2. As mentioned on previous calls and demonstrated by these latest MTB News awards, our brand affinity continues to build with consistent performance from our current model year product offerings as well as with early ride experiences on our model year 2019 products. Our brand strength is built on successful key product launches, strengthened dealer relationships, race wins, favorable media reviews and awards, and our ability to release quality, innovative products. We believe this momentum will continue as we prepare to launch our model year 2019 products to the public and as the 2018 race season ramps up in the spring.

So far in 2018, we won a New Zealand downhill series race, The Farm Jam New Zealand, which is one of the biggest action sports events in the country and the Nevada State downhill championships. Also, Jesse Melamed won the Andes Pacifico 5-day race.

Now I'll move on to our powered vehicle business. As Larry mentioned, we are very pleased with our latest off-road capable on-road vehicle spec win announcements by Ford and Toyota earlier this month. Ford unveiled their new 2019 Ranger Raptor for the Thai and Pacific markets, featuring our Internal Bypass shocks at the Bangkok Motor Show on February 7. On February 8, at the Chicago Auto Show, Toyota unveiled their 2019 TRD Pro Tacoma, Tundra and 4Runner lineup that all come equipped with our 2.5 Internal Bypass shocks. This is the first model year for the Tundra and 4Runner while we have been on the Tacoma since model year 2017.

I'll conclude with a couple of our recent race results in the powered vehicle segment. For the second year in a row, Andy McMillin took the overall win at the best in the Desert Parker 425 desert racing season opener. FOX drivers also dominated at the infamous King of the Hammers ULTRA4 race, winning all 3 Every Man Challenge classes and taking top 4 overall in the premier ULTRA4 class, with Jason Scherer claiming his second career King of the Hammers title.

I would now like to turn the call over to our CFO, Zvi Glasman, to review our financial results. Zvi?

Thank you, Mario. Good afternoon, everyone. I'll focus on our fourth quarter results, then review our guidance. Sales in the fourth quarter of 2017 were $121.1 million, an increase of 8.6% versus sales of $111.6 million in the fourth quarter of 2016. Gross margin was 32.3% for the fourth quarter of 2017, a 180 basis point increase from 30.5% in the prior year period. The improvement in gross margin was primarily due to improved manufacturing efficiencies as well as favorable product and customer mix. Excluding acquisition-related costs, non-GAAP gross margin for the fourth quarter of 2017 improved 190 basis points as compared to the fourth quarter of last year.

Total operating expenses were $23.1 million, or 19.1% of sales, in the fourth quarter of 2017 compared to $20.6 million, or 18.4% of sales, in the fourth quarter of last year. The increase in operating expenses is primarily a result of Tuscany costs, including cost to complete the acquisition and operating expenses after close of the transaction, increased patent litigation expenses, strategic investments to support future business growth partially offset by the conclusion of the company's acquisition-related compensation arrangements.

Non-GAAP operating expenses stated as a percentage of sales were 16.4% versus 15.8% in Q4 of last year.

Focusing on expenses in more detail. Our sales and marketing and R&D expenses increased to support growth. Sales and marketing was up $1 million and R&D was up approximately $400,000. The increases were primarily due to higher employee-related expenses on increased headcount and, of course, the expenses included the operating expenses from Tuscany, which closed in December of last year. As we have 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 fourth quarter of 2017 were $9.7 million compared to $7.5 million in the prior year period. The change was primarily due to $1 million related to our acquisition of Tuscany, $0.7 million increase associated with the ongoing patent litigation activities, $0.6 million of higher stock-based compensation and other employee incentive expenses, while the remaining balance due to normal -- was due to normal growth to support the business, offset by a reduction in the company's acquisition-related compensation arrangements, which have now concluded. In the fourth quarter of 2017, our income tax expense increased by $9.3 million, or $0.24 per diluted share, while our tax rate increased to approximately 81.3% compared to 24% in the same period last year. The charge reflects the onetime impact of the recent tax law change. Details of the charge are as follows: a valuation allowance of approximately $6 million on the company's foreign tax credits, $3.7 million in transition tax on unremitted foreign earnings, $2 million of expected withholdings on future foreign dividends. The above charges were partially offset by a benefit of $2.4 million related to the impact of the income tax rate reduction on net deferred tax liabilities. With the exception of the $2 million of withholdings on future foreign dividends, we do not expect the $9.3 million to result in a cash outlay in 2018. Were it not for the impact of tax reform, our tax rate would have been approximately 20.4% for the fourth quarter of 2017.

Adjusted EBITDA was $23.6 million for the fourth quarter of 2017 compared to $19.8 million in the same quarter last year. Adjusted EBITDA margin was 19.5% compared to 17.7% in the prior year quarter. On a GAAP basis, net income in the fourth quarter of 2017 was $2.9 million, or $0.07 per diluted share, compared to net income of $9.8 million, or earnings of $0.26 per diluted share, in the prior year period.

Non-GAAP adjusted net income was $14.9 million, an increase of $2.9 million compared to $12 million in the fourth quarter of the prior year period. Non-GAAP adjusted earnings per diluted share for the fourth quarter of 2017 were $0.38 compared to $0.32 in the fourth 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 the balance sheet. As of December 29, 2017, we had cash on hand of $35.9 million. Total debt outstanding was $98.6 million compared to $66.7 million of debt outstanding as of December 31, 2016. Inventory was $84.8 million as of December 29, 2017, compared to $71.2 million as of December 31, 2016 (sic) [December 30, 2016]. Accounts receivable were $61.1 million as of December 29, 2017, as compared to $61.6 million as of December 31, 2016 (sic) December 30, 2016 . Accounts payable was $40.8 million as of December 29, 2017, as compared to $36.2 million as of December 31, 2016 (sic) December 30, 2016 . The changes in accounts receivable, inventory and accounts payable are primarily attributable to business growth, including our recent acquisition of Tuscany and our normal business seasonality. Accrued expenses decreased to $32.6 million as of December 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 the growth in our business.

Now turning to our outlook. For the fourth -- first quarter of 2018, we expect sales in the range of $121 million to $127 million and non-GAAP adjusted earnings per diluted share in the range of $0.30 to $0.35. When thinking about our Q1 2018 guidance and comparisons versus Q1 2017 results, please note that Q1 2017 earnings benefited from an extremely low tax rate of approximately 7%, whereas Q1 2018 tax rate is expected to be 18% to 20%. Additionally, we expect Q1 2018 non-GAAP OpEx as a percentage of sales to be approximately 75 to 100 basis points higher than Q1 [2009] non-GAAP OpEx of 16.9% stated as a percentage of sales.

In addition to our Q1 guidance, we wanted to review our 2018 quarterly cadence. We expect our revenue seasonality to be similar in 2018 versus 2017. Accordingly, growth will be a few percentage points higher in Q1 and Q2 versus the back half of the year. Seasonality can vary from year-to-year based on timing of new product introductions and other factors. For fiscal year 2018, we expect sales in the range of $542 million to $570 million and non-GAAP adjusted earnings per diluted share in the range of $1.66 to $1.84. While we expect a slight improvement in gross margin in 2018, we currently expect a slight decline in our adjusted EBITDA margin, as our non-GAAP operating expenses are expected to increase in both dollars and stated as a percentage of sales and return to our longer-term operating model of 16.5% to 17%, which is consistent with the target we previously discussed.

Finally, from a tax rate perspective, following corporate tax reform, we believe our 2018 and long-term tax rate will be approximately 19% to 21%. Additionally, we expect the tax rate to be fairly consistent between quarters aside from benefits from stock option exercises, which cannot be predicted and can vary between periods. Our tax rate can vary between quarters due to a variety of factors, including stock option exercises and due to the impact of our uncertain tax position related to the acquisition of the company by Compass Diversified in 2008. We have concluded an audit by the IRS for 2015 and expect a similarly favorable outcome for all years.

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 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; tax reform legislation impacts; and offering expenses.

These adjustments are more fully described in the tables included in our press release, which has been posted on our website.

I would 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) Our first question comes from the line of Scott Stember from CL King.

Could you maybe talk about, within the guidance, what the expectations are, from a broad perspective, by division, bikes versus powered sports or powered vehicles?

Sure, Scott. We're not going to break out the exact numbers for bike versus powered vehicle. We would point out that our growth is within the range of our previously communicated long-term target growth rates. And by that, I mean, the bike could be mid- to high-single digits, powered vehicles would be low double digits, but we would achieve those growth rates organically. And of course, Tuscany will increase the growth rate above those long-term target rates for 2018.

Got it. And maybe just with these new wins that you have. I know that, typically, I guess, late third quarter, fourth quarter is when the ramp-up process would start taking place. Now with this business for the Ranger Raptor over in the Far East, in Thailand, how does that ramp-up work versus what we're seeing here for U.S.-based product?

Yes, it is contained in our guidance. What you stated is correct. They would tend to ramp up in the back half of the year towards the end of Q3 and into Q4. The impact in those programs in the quarter, again, is contained in our guidance.

Okay. And maybe on the bike side, if you could just talk about a little bit more granularity on some of the products. I know you gave some great detail, Mario, earlier. But just maybe talk about some of the lower-price products, the Rhythm series that you have out there, how that's resonating in the market. And maybe just talk about the Marzocchi, maybe how that's faring along.

Sure. Yes, sure. So the Rhythm products have been doing well for us. We first introduced as our 34 platform in model year 2018. We brought it out in a 32 platform and then we're going to continue to round out that family in model year '19. So as we started to talk about a couple years ago, we'd first enter and then round it out over time, and that's all progressing nicely. We also, in a combination of our FOX and Race Face branded products, are expanding our ride height-adjustable seatpost offerings. And Marzocchi now has been -- we've got it positioned where we like it in terms of how it sits price point wise relative to the FOX products. And also, as we go forward in what we'll introduce here throughout the year with Marzocchi is product that's been designed in FOX and will be produced in-house. So we're happy with how that's playing out, too.

Our next question comes from the line of Larry Solow from CJS Securities.

Just one quick confirmation question. On the Tuscany, I think when you closed the acquisition, it was like a low-40s trailing sales, and you had said it will be about the same this year because of the -- you'll lose about 10% from in company sales. Is that about where we stand now? So that would be about 10% organic growth on a top line basis excluding that?

What we said when we purchased Tuscany is, they did $41 million sales on a trailing 12-month basis, I think, through June, I don't remember what quarter it was through. We said we expected a similar level in 2018, and we did indicate that part of the reason for that was, they are customers of Sport Truck USA, one of our subsidiaries or divisions, and they're also customers of our aftermarket shock business. And so yes, you are correct that we would lose those intercompany sales. We never did say what percentage of intercompany sales there was. We also indicated that in the long term, we believe that Tuscany would grow double digits. To the other part of your question, again, our organic growth in the powered vehicle business in 2018 implicit in our guidance a double digit -- low double digits organically in addition to the Tuscany contribution.

Got it. Fair enough. Just a couple questions on margin. I know you guys have, on the operating line, had a good year this year. Obviously, sales were above the normal growth rate and you have telegraphed the fact that you probably have a little more leverage than you normally get. On the growth side, also, another great year there. It'll clearly slow this year. But do you guys still long term expect further improvement in gross margin? And with that said, do you still -- I think your goal of 20% EBITDA margin by, I guess, '19, '20, sounds like it's pretty well intact. Fair to say?

I don't think, Larry, you meant 1920. I think 2020?

Yes, yes, yes, 2019 or '20, I meant. Somewhere around that time period.

Just checking there, Larry.

Larry, what we said in terms of the margin goal, the EBITDA target margin goal is to have a 2 in front of it, 20-plus. I don't think we ever put an exact date on it and so we're not prepared to do that here today. We do think we will continue to make progress over the coming years. This year, the pace of our margin improvement will be significantly lower than it was in 2017. We did see a fair bit of benefits coming from the continued migration to Taiwan. We do have similar kind of programs on our North American manufacturing platform centered around powered vehicles, and we're pretty optimistic long term of improving the profitability profile of that platform as well. But again, this will be over a several year period of time. Kind of have the -- we have the playbook, so we're going to keep running it.

And does the opening of the new facility in North Carolina -- I realize that's pretty small. I think it's just for bikes. Will that have maybe a slight negative impact at first before you get a little more positive as time goes on?

No, the impact of that facility is meaningless in the big scheme of things. It's important from a customer service point of view in terms of why we want to be in Asheville. But in terms of the impact on margin, it doesn't have an impact.

Yes, that facility is -- houses R&D, customer service, a call center and service, right. It'll do some distribution in the future but will not be part of our manufacturing platform.

So it's not a drag on margins, Larry.

Our next question comes from the line of Mike Swartz from SunTrust Robinson Humphrey.

Just wanted to touch on Tuscany now that you've had it, I guess, under your belt for a couple of months here. Can you maybe talk about maybe the near- and longer-term opportunities of owning that business?

Well, we would tell you that we're pretty excited about the business when we acquired it. We think there's an opportunity. But this is a further kind of ability to develop the on-road capable off-road capable vehicular market, so we think that, that is part of that strategy. And it also has a pretty nice financial profile as well. Its EBITDA margins, as we disclosed on a trailing basis, were slightly lower than ours, but still healthy at 18%. We think that it can have a double-digit kind of a growth profile as well as an improving EBITDA margin. So it's attractive from both a financial and a strategic point of view.

Yes. The other thing I would point out, Mike, is that it does extend our product range of performance-defining products that we can put on a vehicle beyond lift and suspension. And we're pretty excited about that in the future also. And again, I think the other thing that I would point out is it's -- while it's a business that involves modifying new vehicles, it is very much an aftermarket business for us. And again, we think that's another opportunity that we can get those off-road capable on-road vehicles out into the marketplace.

Okay. Great. I think, Zvi, I heard you say that you had some costs, some operating costs related to Tuscany in the quarter. Were there any, I guess, material revenue from Tuscany in the fourth quarter?

Couple million dollars.

Okay. And then just turning to, I guess, currency. Obviously, we've had a softening in the U.S. dollar over the last few months here. Can you remind us how the softening U.S. dollar and/or strengthening Taiwanese dollar impacts you?

Yes. It does not have a material impact on us. It's a -- I mean, there's a combination of factors about how it hits our P&L to the degree that the dollar has gotten weaker, theoretically, our customers could ask us to make a concession in pricing. That would be a -- I'm not saying that happens, but that's a possibility. Conversely, if we sold it -- if we -- maybe I'll just step back a little bit. Typically, when -- out of our bike business from Taiwan, we sell in both NT and in USD. To the degree we sell in USD, obviously, that has no impact. To the degree we sell in NT, if we simply held our NT price constant, that would have a favorable impact on the P&L. But having said all that, we don't think it has a material impact in 2018.

Our next question comes from the line of Andrew Burns from D.A. Davidson & Co.

Just curious looking at the range of guidance, the low and high end for 2018, if you look at the low end of the range on EPS and back out the $0.07 from Tuscany, the underlying business would be flat year-over-year. Just curious about that. It sounds like both segments are performing extremely well right now. Wondering if there's any potential variables you're looking at into next year that would cause some conservatism on the low end.

Yes. I think the variability that we're allowing for in the low end is a change in the macro environment or a change in our end markets. It's not a scenario that we expect to happen. But that is what our guidance encompasses. I'll also point out that there is a little bit of an impact from a tax rate. Our tax rate ran 20% -- or 18% last year, I should say, 18.3%. And there is a slight tick up in tax rate in our guidance for the year, so that had a small impact. But yes, that's kind of -- I don't know if that answers the question, Andrew.

Okay. That's helpful. And then just a longer-term question on the powered vehicle side. You've got a lot of whitespace opportunities, whether the commercial trucks, utility side-by-sides, on-road motorcycle, ORV, lot of markets to potentially build businesses in. Any updates or areas of investment on those sort of longer-tailed growth opportunities?

Yes, Andrew. We're making progress, I would say. The one of those that we've started working on and I think that we're focused on is commercial trucks. We've -- and again, we've had a pretty good aftermarket program in motorcycle. We're, obviously, on some of the Polaris Indian bikes from an OEM standpoint. But yes, commercial trucks, we've been in test. We've actually expanded the test now. I think we've got 15 vehicles running, and those are on-road real guys taking data. So yes, we continue to be excited. We think the testing so far validates that we have technology that, again, is performance defining in those applications, which is a little different than maybe our standard offerings. So yes, I mean, I think, hopefully, you'll hear us in the future talking more and more about those things. But making good progress.

And our next question comes from the line of Jim Duffy from Stifel.

Couple questions from me. Can -- you made some comments about the per-vehicle revenue contribution from the off-road capable on-road vehicles. Has the Tacoma deal remained the same? Or is there a difference in the offering year-to-year? Are the Tundra and 4Runner revenue contributions similar to that of Tacoma? And then how does it vary from what you're doing looking forward?

Jim, this is Mario. So we don't speak about the per-vehicle content that we have. The Tundra and the 4Runner have been -- coming with FOX, have been added to that TRD Pro family. The Tacoma, which we had been on -- the shocks that were on that vehicle remain the same going forward. And then we're adding the Tundra and the 4Runner.

Okay. Should we think about the Ranger Raptor as being the similar contribution on a per-vehicle basis as what you'd see from the Raptor?

Well, I don't think we're going to break out what the contribution is. We will point out that it is a different shock. It is the smaller shock, but we will not comment on the actual...

Similar technology. Yes.

I mean, as of right now, I will say this. We -- the Raptor -- the Ford Raptor ramped up over several years, right. It started out at certain level, continued to ramp over a period of a number of years. Coming out of the gate, in 2019, we do not expect it to have a revenue contribution as significant as where we are currently, with the existing U.S. Raptor. We're very excited about the vehicle. We're excited about the long-term potentials. But again, it is a new offering in a new market, whereas the Ford Raptor sold in the U.S., the momentum built over many years.

That's helpful. And then -- where do you expect D&A for 2018?

Yes -- did you say D&A?

Yes, depreciation and amortization?

We'd say around the same as 2017.

Okay. And then last question for me. Andrew asked a question about...

Jim, just to clarify, as a percentage of sales.

Okay. Got it. Last question for me. Andrew had asked a question about the guidance range in the low end. If we're thinking about upside potential or capacity as a guidance, what would be some possible factors that could help you to deliver above that high end of the range? Are there potential OEM deals that still could fall for you?

Well, you know, I think if you look at the upper end of the range, it's a couple different things. I think that would be more impactful in '18. One is, certainly, sell-through in bike, right, as we get spec'd and we're making our way through to the tail end of that process now and, obviously, if we're going to wait and see sell-through. So that could be a little stronger than we've forecast. That would certainly be a factor. I think there is another factor that, while the present OEM wins that have been announced, be they automotive or power sports, you could see some volume increases as those guys figure out demand of those vehicles that we could benefit from. It would help us, again, get up. I don't -- again, if you look at automotive OEMs, likely anything that would be material in '18 would be announced. So that probably is not a strong possibility for '18. I also think there's a good possibility as you get more of these OEM off-road capable on-road vehicles out there roaming around, that does help our standard replacement shock business. Once people see those vehicles and they know they can get FOX on their SUV or pickup truck, I think we could see some benefit. Again, it would help us get to the top of the range in that business beyond what we've forecast.

(Operator Instructions) Our next question comes from the line of Alice Wycklendt from Robert W. Baird.

This is Alice on for Craig. There's been pretty solid growth in the mountain bike segment in Q4 and, obviously, reiterated your long-term expectation from mid- to high single-digit revenue growth. Can you just comment high level on your perception of the mountain bike market today? Maybe what your sense of inventory in the channel is? And perhaps any sense for retail growth expectation this year?

This is Mario, Alice. So there were a few questions in there about the bike business. We would tell you that for our segment kind of premium performance mountain bike, we think sentiment is pretty good. We think it's, in general, better than overall bike market. We're excited about the reception of our model year 2019 products. So far they've been received well. As I noted in some of my commentary, we've got some early looks out by media that are responding favorably to it. Obviously, the customers, who are planning on spec'ing it, have already experienced it and are happy with it. So we're cautiously optimistic about that. But back to Larry's point of, while we're happy with how the sell-in from a spec position standpoint is going, we're still waiting around and seeing how that's going to sell-through on the strength of the underlying dynamics. In our category, we can't speak to all of bike or different categories. In our category, I think inventory at retail and for the OEs and the different points in the channel is probably teed up well to accept model year '19 and fill-in orders and such will go on the strength of how sell-through flows.

Thank you. Ladies and gentlemen, we have no further questions in queue at this time. I'd like to turn the floor back over to management for closing.

Thank you, operator. 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.

Thank you. Ladies and gentlemen, this does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.