Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the Fox Factory Holding Corporation’s Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded.

I'd now like to turn the conference over to your host, Vivek Bhakuni, Director of Investor Relations and Business Development. Thank you, sir. You may begin. .

Thank you. Good afternoon, and welcome to Fox Factory's second quarter 2021 earnings conference call. I'm joined today by Mike Dennison, our Chief Executive Officer; and Scott Humphrey, our Chief Financial Officer and Treasurer.

First, Mike will provide business updates, then Scott will review the financial results for the quarter, and then the outlook followed by the closing remarks from Mike. We will then open the call up for your questions. By now everyone should have access to the earnings release, which went out today at approximately 4:05 Eastern Time.

If you have not had a chance to review the release, it's available on the Investor Relations portion of our website at investor.ridefox.com. Please note that throughout this call, we will refer to Fox Factory as FOX or the company.

Before we begin, I would like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions.

Such statements involve a number of known and unknown or uncertainties, many of which are outside the company's control and can cause future results performance, or achievements to differ significantly from the results performance, or achievements expressed or implied by such forward-looking statements.

Important factors and risks that could cause or contribute to such differences are detailed in the company's latest Form 10-Q and in the Annual Report on the 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, where appropriate in today's prepared remarks and within our earnings release, we will refer to non-GAAP financial measures to evaluate our business as we believe these are useful metrics that better reflect the performance of our business on an ongoing basis.

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, Mike Dennison..

Thanks, Vivek and good afternoon. We appreciate everyone the taking the time to join us for today's call. On behalf of the FOX team, I'm extremely proud to say that this quarter is one for the record books.

Thanks for the dedication, perseverance and execution by our team, we have not only delivered a fourth consecutive record revenue quarter, but also crossed $1 billion in revenue on a trailing 12-month basis.

This feat clearly demonstrates the market performance and fundamentals that highlight our portfolio of innovative products within a well-diversified business.

This achievement is particularly noteworthy as our team delivered these impressive results, while maneuvering through the newer supply chain and inflationary challenges play in the global economy. I am happy to report that we completed two acquisitions this quarter SOLA Sport and Outside Van.

SOLA Sport, which is in our Specialty Sports Group is a distributor for FOX and Marzocchi brands in Australia paired with Race face and Easton components, SOLA Sport is a full offering in mountain bike and road parts and accessories.

More importantly the acquisition give us a foothold in Australia which we believe is an important market for FOX in both SSG and PVG going forward. Outside Van, which is in our Power Vehicles Group is a premium adventure Van upfitter that sells direct to an ever-growing base of overland and enthusiasts.

Outside Van like SCA continues to enable growth of FOX products as we vertically integrate into these vehicles. Both of these acquisitions represent core tenet of our M&A strategy with a geographic expansion and new market developments. Although these deals were relatively small financially, we see them as valuable additions to the FOX brand.

Moving on to the numbers. We had a successful second quarter with over $328 million in sales, which is 79% growth versus the second quarter of last year.

Given the fact we had skewed year-on-year comparison as most of the PVG OEMs were shut down for the majority of Q2 last year, it is worth highlighting that we also achieved almost 17% growth in Q2 revenue on a sequential basis versus Q1 of 2021.

This outstanding growth is driven by both our SSG and PVG businesses, which grew 64% and 92%, respectively versus the prior year period. The demand across our product categories continues to be strong with no signs of abating given our uncompromising brand and customer loyalty.

Our non-GAAP adjusted earnings per share increased from $0.50 in the second quarter of 2020 to $1.20 in the second quarter of 2021, which is also a new record. The pandemic has brought a fundamental shift in consumer behavior towards health-conscious and outdoor lifestyle products. We believe this change is more secular in nature.

Consequently, we are benefiting from the nature of the FOX enthusiasts in both recreational and professional categories. Starting with the Specialty Sports Group. This is our fifth consecutive record revenue quarter.

Thanks to our extremely capable team, we were able to scale and accelerate production, while managing our supply chain to deliver for our customers in this robust demand environment. Despite a slight improvement in the bike inventory channels, the inventory levels continue to remain close to historic lows.

With the current pace of industry demand, we believe it will still take 8 months to 10 months to make a current customer demand level and another 12 months to 18 months to refurnish depleted inventory channels.

As I mentioned in the last earnings call, we continue to capitalize on the expanded rider base during this unprecedented restocking cycle by leveraging strong OEM and supplier relationships. As part of our 2022 bike line, FOX launched two new forks, two new shoxs and a new ultralight transfer SL dropper post.

Along with the two updated versions of the 34 Fork this is one of our most popular models. These innovative products feature improved ride dynamics, more tunability and substantial weight reductions compared to last models. Our new dropper post an updated 34 Fork were featured in the Tokyo Olympics.

In addition between Downhill World Cups and Enduro World Series races FOX athletes have taken 19 points in spots this quarter and we are leading in the standing for both World Cup Downhill and Enduro World Series. Shifting to our Powered Vehicles Group.

This was our second consecutive record revenue quarter led by strong sales in powersport and the outstanding product lines.

I am also pleased to report that automotive OEM model year changeovers are back online, which should support our long-term OEM growth rate expectation and help us leverage the efficiency we are creating in our new Gainesville facility. Talking about the Gainesville facility, the transition is on track and should finish by the end of this year.

Moving on to our accomplishments in the racing world. FOX continued its domination in the desert with overall wins by Bryce Menzies in San Felipe, Larry Roeseler at the Baja 500 and Toby Price at the race in Australia. Our Live Valve technology continues to shine in the pro UTV class.

We're incurring multiple wins and podiums in both San Felipe and Baja. Furthermore, in Baja FOX-equipped vehicles claimed eight out of the top 10 overall finishes 10 of the top 12 pro UTV spots and claimed 13 Class wins in total.

At the Ultra4 in Illinois the Ford Performance Stock Bronco piloted by the Lovell brothers, took the class win in the vehicle's debut race. In addition Vaughn Gittin Jr. and Loren Healy unveiled their all new FOX-equipped Ford Performance Unlimited Class Broncos.

With that we're proud to announce that all six Ford Performance Bronco Race programs run FOX suspension. As much as we are celebrating our success it has clearly come as a result of a lot of hard work.

While we are pleased with our performance and the headwinds to our business continue to persist and potentially grow as the magnitude of our sales increase, supply chain issues have not eased and we continue to search for alternative sources to minimize interruptions as well as work closely with our suppliers to expand their production.

We believe that supply chain disruptions will remain at risk in the second half of this year. Additionally, component shortages across multiple industry segments are prevalent, leading to material price increases which continue to put pressure on gross margins.

Shipping and container shortages have also exacerbated freight costs and lead times around the world. These issues are consistent with what we are hearing from other management teams and will persist into next year.

All this to say, we recognize the structural headwinds ahead of us, but we are refining our operational playbook to not only mitigate these challenges, but also strengthen our core competencies thereby extending our competitive differentiation. And with that I'll turn the call over to Scott. .

Thanks Mike. Good afternoon everyone. I'll begin by going over our second quarter financial results and then review our guidance. Sales in the second quarter of 2021 were $328.2 million an increase of 79.2% versus sales of $183.1 million in the second quarter of 2020.

Our Powered Vehicles Group delivered a 92.4% increase in sales compared to the second quarter of 2020, primarily due to increased demand in both the OEM and aftermarket channels including strong performance in our powersports and Up-Fitting product lines.

Looking back at 2020 our results in the prior year quarter were impacted by production shutdowns at a majority of our OEM customers. Moving to SSG. The specialty Sports Group delivered a 63.9% increase in sales in the quarter compared to last year, driven by continued high demand in their OEM channels.

FOX Factory's gross margin was 33.9% in the second quarter of 2021, a 110 basis point increase from 32.8% in the prior year period. Non-GAAP gross margin also increased by 100 basis points to 34.1% versus Q2 of 2020.

The increase in gross margin was primarily driven by favorable product and channel mix, led by higher volume sales in our Specialty Sports Group and the strong performance in our powersport and Up-Fitting product lines.

Additionally, our prior fiscal year period results were negatively impacted by higher factory related costs including incremental expenses related to the COVID-19 pandemic. Total operating expenses were $58.4 million or 17.8% of sales in the second quarter of 2021 compared to $40.6 million or 22.2% of sales in the second quarter of last year.

The increase in operating expenses on a dollar basis was primarily due to higher employee-related costs, higher commission costs and investments to right size our back office infrastructure.

Looking at non-GAAP operating expenses as a percentage of sales our non-GAAP OpEx decreased by 220 basis points to 15.7% compared to 17.9% in the prior year period. Looking at OpEx in more detail, sales and marketing expenses increased approximately $5.2 million primarily due to higher commissions of $3.6 million.

Research and development costs increased approximately $3 million, primarily due to personnel investments to support future growth and product innovation.

General and administrative expenses increased by approximately $9.8 million due to higher employee-related costs of $6.8 million, as well as increases in various other costs as we continue to right size our administrative support functions. For the second quarter our effective tax rate was 13.3%.

This rate is lower than our previous long-range guidance of 15% to 19% primarily due to a windfall from stock-based compensation. Adjusted EBITDA increased by 106.8% to $69.7 million for the second quarter of 2021 compared to $33.7 million in the same quarter last year. I want to congratulate our team on back-to-back record quarters in EBITDA.

Furthermore, adjusted EBITDA margin expanded 280 basis points to 21.2% compared to 18.4% in the second quarter of 2020. The increase in EBITDA margin is primarily due to the impact of higher sales and favorable product mix.

On a GAAP basis net income attributable to FOX in the second quarter of 2021 was $44.3 million or $1.05 per diluted share compared to $12.6 million or $0.32 per diluted share in the prior year period.

Non-GAAP adjusted net income was $51 million, an increase of approximately $31.3 million or 159% compared to $19.7 million in the second quarter of last year. We delivered $1.20 of non-GAAP adjusted earnings per diluted share in the second quarter of 2021 compared to $0.50 in the second quarter of 2020. Now focusing on our balance sheet.

For the second quarter which ended on July 2 2021 compared to our 2020 year-end on January 1, 2021 we ended with cash on hand at $275 million. Accounts receivable was $149.7 million compared to $121.2 million. Inventory was $208.6 million compared to $127.1 million and accounts payable was $154.1 million compared to $92.4 million.

The increase in inventory is primarily due to additional raw material purchases to mitigate risks associated with supply chain uncertainty. The changes in accounts receivable and accounts payable reflect business growth as well as the timing of vendor payments.

Our net property plant and equipment increased to $177.6 million as of July 2, 2021 compared to $163.3 million at the end of 2020, reflecting capital expenditures of $27.6 million in the first half of 2021. The increase reflects investments in our manufacturing facility in Gainesville, Georgia.

Goodwill increased to $299.8 million as of July 2, 2021 compared to $289.3 million as of January 1, 2021 due to our acquisition of Outside Van during the second quarter. Now turning to guidance. We are raising our guidance for both our third quarter and full year 2021.

For the third quarter, we expect sales in the range of $300 million to $320 million and non-GAAP adjusted earnings per diluted share in the range of $0.95 to $1.15 per share. For the full year, we expect sales in the range of $1.20 billion to $1.24 billion, and non-GAAP adjusted earnings per diluted share in the range of $4.25 to $4.45 per share.

I'd also like to note that, we're not providing guidance on GAAP EPS as it cannot be provided without unreasonable efforts due to the difficulty of actually predicting the elements necessary to provide such guidance and reconciliation.

For our full year tax guidance, we still expect our tax rate to be closer to the lower end of our previously provided range of 15% to 19%.

The excellence of FOX's operations brand and strategy were on full display in the first half of the year, given the well-known macro headwinds ranging from supply chain to labor and material inflation, FOX has been successful so far in mitigating these challenges with only a modest impact to the financial results.

As we enter the second half of the year, we are cognizant of the challenges ahead and their possible top and bottom line impact. We expect to return to a more typical product mix, as some of the PVG automotive OEM model year changeovers come back online. Historically, we have been able to offset inflationary cost pressures through price adjustments.

However, the combination of expanding inflationary pressures on material labor and logistics costs could be a drag on margins in the second half of 2021. With that, I would like to turn the call back over to Mike..

Thank you Scott. In closing, we have expanded our competitive position, while delivering against our customer commitments, and are looking forward to a continued strong momentum into the second half of the year. We believe we have laid out credible growth plans without taking our eyes out the risks we face.

The spread of the COVID Delta variant remains a concern, which threatens the derail the rapidly opening in the global economy. But throughout the pandemic we have proven that FOX has only become more versatile, and we will continue to invest and evolve to maximize value for our employees, shareholders and the communities where we operate.

I would now like to open the call for questions.

Operator?.

[Operator Instructions] And we will take our first question today from Mike Swartz with Truist Securities. Your line is open..

Hi. Good afternoon guys. Just wanted to touch on these acquisitions understand they're fairly small, but maybe just give us a high-level strategic rationale for each of the transactions.

And then maybe for Scott, did you embed any benefit from those two acquisitions in your guidance for 2021?.

Hey, Mike, this is Mike. I'll start and I'll let Scott handle the second question. So for us this is obviously more strategic than financial in nature. We think Australia with the SOLA Sport acquisition the internal point from a standpoint of getting engaged, getting a footprint in Australia for both powered vehicles and for our bike business and SSG.

So this ability to pick up a deal, pick up a facility and pick up an entrance into that continent is important. So we think it could drive long-term value in both sides of businesses and we're pretty excited about it. On our Outside Van, as you know Up-Fitting has been a great part of our business. We've added two in the last year with FCA in that.

We think Outside Van is a very similar model to that. We're looking vertically Outside and into those vehicles, and we think that premium performance nature user of that vehicle is our customers our demographic.

So as we see that market expanding significantly and a high premium company like Outside Van, we need scalability leading with the ability to grow manufacturing, drive more volume, increase productivity. We think we're a great fit for that.

So it allows us to play not only with our own components and shocks and products, but also play into a space that we think is very similar in nature to our Up-Fitting business.

So both very synergistic in acquisitions, both very close to kind of target if you will, and we talk about being on point with the acquisitions we do to our strategy, to our culture, to where we go. So we don't know. Again, small in financial status, but big and strategic significance.

Scott, you want to take the second question?.

Yes, sure. Mike, yes, I mean, we considered it as part of our guidance certainly. But as Mike said, the impact is very minimal in the second half of this year, but we have big plans moving forward..

Okay. Thanks. That's helpful. And then just a follow-up question. Just give us a sense of a lot of capacity constraints and availability issues throughout the supply chain. Maybe touch on your Up-Fitting business and your ability to source chassis.

Is that a risk? Is that something that you've dealt with in the second quarter?.

Well, we think it's fundamentally down tick. There's always a risk when we don't have the vehicles in hand. We know that the vehicles are allocated just not kind of on debt fuel run Mike. So we think we're in pretty good shape.

It is -- as risks go probably there are bigger risks for us in the second half of the year, don't want to continue to limit that from the concern level yet as a way for the business to show up.

But the team has done so good in finding creative ways to get vehicles in the first half of the year to make sure we had more than we expected in the first half of the year. That's going to continue in the second half as well. And I think we're in pretty good shape. .

Thanks a lot..

Thanks, Mike..

Thank you. And we will go next to Jim Duffy with Stifel. Your line is open..

Thanks. Good afternoon guys. Great job during the quarter..

Hey, Jim. Thanks..

Yes, a couple of questions for me. Looking at the guidance, if I use 2019 as a baseline, the guided growth rate looks stronger in the fourth quarter than the third quarter. Just thinking about your pattern historically you've been more conservative to further into the future.

Looking to the fourth quarter, is there some sort of timing issues or something in your sites that bolsters your confidence on the fourth quarter?.

The big thing Jim -- good question. The big thing in Q4 that we have to think about is the lack of seasonality in our business right now, based on supply chains and demand.

So the normal nature of Q4 where you have seasonality, where you have literally you had a fluctuation and move into a winter season, doesn't occur this year as there is so much pent-up demand that's going to be a push through in both the bike and the powered vehicle business. So you won't see that seasonality.

I don't think in Q4 or Q1 of next year think you might want to see..

That's helpful. I get it. And then, Mike I wanted to ask on the Specialty Sports segment. Just what you guys are doing in the marketplace to try to get a feel for what is an appropriate rate of demand to plan for? I'm certain there's a lot of interest in bikes it's being double counted, maybe even triple counted.

How is it you're thinking about planning for what will be a more normalized rate of demand?.

Yes. Jim, we've talked before about this too. I think the important thing here is that the closer proximity you have to sell-through to our OEM relationships of understanding what's their business looks like and what they're doing in terms of current inventory levels.

Given the pretty healthy idea of what could be happen in double carrier or double booking of people who are pre-owing bikes. And we just have found it could not be a significant issue. Now at some point in time, as 18 months from now let's say, you might start to really see that net itself out.

But right now, the demand is still so much more significant than what can be supplied that double carrier is not a factor. So again, I think that might be more of an issue 18 months out. Right now, not a big concern and not what we're talking about with our distributors or OEMs in terms of the risk or a big concern..

And Mike, just in your prepared remarks, I think you spoke to eight to 10 months just to meet customer demand.

What was the figure on the additional months to restock the channel?.

12% to 18%. And we really think this is 8% to 10%, because of kind of the current preorder growth, if you will and then, 12% to 18% to get the inventory levels back up in distribution in all the channels right, that occur whether it's the distribution, hubs or dealers and things like that.

You walk into a bike shop today you're still not going to find much inventory. If you walk into a hub, like a regional hub for the major bike company, you're going to find basically zero inventory. So, 8% to 10% with preorders, 12% 18% with the channel replenishment..

Very helpful. Thank you..

Thanks, Jim..

We will move next to Craig Kennison with Baird. Your line is open..

Hey. Good afternoon. Thanks for taking my questions as well. Scott, I think you mentioned inflation as a potential risk to the second half. I couldn't tell whether that was something that you just included in the prepared remarks, because it is a risk or whether you're really concerned it could pressure margin.

Maybe just shed a little more light on how concerned you are about the inflationary environment?.

Yes. I think we have a few concerns as we look forward to the second half of the year with regard to margin and a big one that I also touched on is mix. Just the expansion of the automotive OE business in the second half of the year versus the first half of the year caused a little bit of margin degradation for us.

But then, we're at the same time trying to overcome material price increases, supply chain disruption with logistics, a little bit of labor inflation.

Obviously, we're trying to go out and get price increases at the same time, but it is a risk that I wanted sort of to call out to just put everybody on note that we're fighting a lot of -- we're fighting on a lot of fronts on gross margin in the second half of the year..

That's great. And Mike, I'm looking forward to seeing you in September at your Analyst Day.

Wondering if you could just set the table maybe for that agenda and maybe comment on whether you'll provide specific five-year kind of revenue and profit and other financial metric target?.

Yes. Craig, we are already working through over our five-year vision for the company and go into some detail on product lines and where we think that expansion occurs and what we think are materialized. We're not going to give detailed yearly guidance at that time, but we're going to talk about where we think it going to be five years out from now.

And we're well on track with that journey already, so we'll be talking to from a standpoint of some early success in all those times. So, I'm looking forward to it as well.

I think it's going to be a good opportunity for us to give you guys a deal in good product level detail that you probably haven't seen in the past and give you a longer-term view of where this company is headed..

Great. Thank you..

[Operator Instructions] We'll go next to Anna Glaessgen from Jefferies. Your line is open..

Hi. Good afternoon. Thank you for taking my question.

First on the annual guide, I guess to what extent are you embedding conservatism around potential disruptions to the supply chain, particularly for that of OEM partners who could be disrupted by component availability and therefore may change kind of sale over pattern?.

Anna, this is Mike. I'll start to answer and Scott can jump in. From my perspective, we usually look at our guidance with a bit of conservatism just from a standpoint that there is a lot of variables. We're very diverse markets. We're operating in locations that still have at least some risk of COVID impact including Taiwan.

So, we're going to be reasonably conservative in our assessment in what we think could happen on both positive and the negative in the forward looking quarters..

Got it. Thanks. And then you spoke to using pricing to some extent offset from cost inflation.

Could you maybe put a context how the model year 2022 pricing increase year-over-year compared to the historical trend that we've seen?.

Pricing is an interesting thing. We've been working pricing issues, inflationary issues for a while and we've made pricing adjustments and updates across most of our platform, as I've talked about in prior calls. The challenge we run into is the frictional cost and inflation that is hard to capture real time and push through in a real time basis.

It actually becomes kind of natural lag as we go longer into inflationary period, a lag in terms of how quickly you can process that through and get it analyzed and get it in front of customers with price increases.

So where we sit today, we're doing price increases more frequently and we do price increases for both material cost increases labor cost increases, and as Scott mentioned in his prepared remarks, or even shipping container cost increases. So we continue to do that.

I think price increases for our businesses like, main businesses will be a more frequent conversation for the foreseeable future, while we don't really understand, whether the inflationary issues are short-term issue or a longer term issue.

But for now, I think it's a conversation that occurs much more frequently than it used to in our business – and those businesses out there..

Great. Thanks..

We will go next to Larry Solow with CJS Securities. Your line is open..

Hey, good afternoon, guys. And thanks for taking the questions. A couple of follow-ups. Mike, can you give us a – has there been – as you look out over the last few quarters as you kind of look at the growth, we look at the growth in specialty sports.

Is there any categories that are sort of had outsized growth? I realize everything is just going to the moon, but anything within your portfolio that had outsized growth? And has anything even changed or evolved over the last few quarters since COVID sort of broke out?.

Yeah. Larry, good to hear from you. Good question. Outside as we go, I think it was expected. We talked about it in prior calls, and I don't think it is a surprise, but we believe e-bike category, what we kind of call the e-SUV category, which is more burning e-bikes that can carry the canteen, groceries and so forth, and everything else.

That category is just still on fire, and it continues to be on fire. And I've said this before to you Larry, I'd say it again, I think there is this occurrence happening in the market, where people are thinking about other ways to be mobile than second third or fourth car.

I think, they're thinking about electric cars for sure, but I think there are also thinking about electric bikes. So I think that e-bike phenomenon continues to grow and continue to expand, and I think we're going to continue to see that. I think that demographic is very secular in nature and I think you need to let that grow four years ahead.

So I think that's true. And then in terms of your second kind of part of that question was, is there anything that we would do differently. Well, I'll tell you that, there's always things that you do differently, no one look back and it's coming that's kind of our function in quarter back, because we're doing something better.

So I don't want to suggest that that's not the case. But I would look at what we did in our innovation and design as well as what we did in the operations and supply chain. That's all my team is going to tell you. I think we just did a lot of things right, and did the right early. Sometimes early is more important than actually right.

So I think the combination of those is allowing us to see the growth that we're seeing today, and the things that we're making – taking action on today is going to help us in 2023 and beyond. So, really positive, I think we're just doing a great job..

Okay. Great. And then just one quick follow-up on the gross margin, maybe for Scott. I think, if we look back on the two-year staff, I think you're up 140, 150 bps. Can you just maybe – I know that, the major drivers there there's some puts and takes, but it sounds like, you're getting volume benefits on specialty sports.

Curious, if you're also getting benefits from mix within specialty sports maybe higher technology products. And then on the powered vehicles, is it simply the other driver there simply better short-term mix away from the North American OEM.

And then, I guess that third factor is how is – with the shift transition to Georgia, is that still a headwind if not all?.

Yeah. So we're still not getting benefit, because as of yet, we've really been unable to move much volume on the powersports business. And so we're still planning to have that all moved by the end of the year, but the majority of it now is going to come to the fourth quarter, just because we're trying to meet customer demand.

And so makes it very hard shutdown. Sorry, Larry go ahead..

No, no, I was just – go ahead..

So I think you're right mix is a big issue, or it's been a big benefit for us in the first half of the year. Also, some positives on the PVG side as well. I think aftermarket has been very strong, powersports has been very strong and Up-Fitting has been very strong.

So I don't know how much benefit we're getting on mix from different segments within SSG, but certainly aftermarket has been strong there as well..

Okay. Thanks a lot. Very helpful..

And we will go now to Scott Stember with CL King. Your line is open..

Good afternoon, guys..

Hey, Scott..

Good afternoon..

Before, I'm going to ask about supply chain and on the Up-Fitting business, it seems like that's one of the areas you have least concerned about, I guess in the back half of the year from the supply side.

Is there one area or two areas that we should look out at that you're most concerned about in the back half of the year?.

Yeah. That's a good question. When we think about our Taiwan business and supply chain and what we've done there, it is continue to have a level of elasticity to grow with us both through our work with those suppliers and their investment capacity. So we're pretty comfortable with, what we think we can get.

And of course, we have told you before sometime, before you may have booked out so far in the future in SSG, but we have a really good view of what we need by component for the balance of this year and next year. So that's a good healthy place to be, doesn't mean it's not about risk, but it's a very healthy place to be.

I think the challenge in North America, so we're not talking more powersports and automotive OEM is – the model year changes have been a bit of a challenge given supply chains to align with those modeling changes and timing.

And getting these suppliers on board that handle some of these oversized growth, we're seeing in North America has been more challenging.

So if I told you, where I think the supply chains are probably the most risk, it would be in more of a legacy business and powersport and automotive OEM, and probably mostly in the powersports business, where the demand has just been so significantly higher than expected that we could exceeded that kind.

We've exceeded the capacities of a number of suppliers and anytime you look for news, which I said in my prepared remarks.

So when we look forward to the next couple of quarters that's the area where the most focus is today to make sure we've got a handle on it less than up putting on chassis although we will track that quickly and we're working hard, but a little less concern more so in powersports and in the legacy products where the North American suppliers are probably the most over there on skis if you will.

.

That was very helpful.

And then in the quarter that just completed on the Powered Vehicle Group, could you talk about how the individual groups performed? I imagine the OE automotive – OE was a little bit slower, but talk about powersports versus Up-Fitting in some other aftermarket?.

Yeah, Scott, we think about that. If you look at OE on a year-over-year comp, it's probably – it's focus is fine. Because remember Q2 of 2020 in Europe or not Europe or close to it as you know. So that's – you know what you're trying do a year-over-year comp and really kind of derive much information from that.

I would say, it was slower in OEM automotive, just because the model you chose kind of moved as we discussed before. So that caused a little bit slowness in OEM automotive. However, with the rest of the business the demand still far outreaches supply.

So whether it's powersports Up-Fitting, aftermarket our sport truck business, all of them saw more demand in the quarter than we expected at the beginning of the quarter, and the quarter was really just a race to try to support as much of as we could. And we carried backlog in almost every one of these categories from Q2 into Q3. .

Got it. That's all I have. Thanks..

Thanks, Scott..

I'm showing that, we have no further questions at this time. I'll turn the call back to Mike Dennison for any additional or closing remarks..

Thanks, Crystal. We appreciate everyone's participation on today's call. Thank you for your continued interest in FOX and have a great evening..

This does conclude today's program. Thank you for your participation. You may disconnect at any time..