Fox Factory Holding Corp.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Fox Factory Holding Corporation's first quarter 2023 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 Bakuni, Senior Director of Investor Relations and Business Development. Thank you, sir. You may begin.

Thank you. Good afternoon and welcome to Fox Factories' first quarter 2023 earnings conference call. I'm joined today by Mike Dennison, our Chief Executive Officer, and Maggie Torres, our Interim Chief Financial Officer and Interim Treasurer. First, Mike will provide business updates. Then Maggie will review the quarterly financial results and then the outlook, followed by closing remarks from Mike. We will then open the call up for your questions. By now, everyone should have access to the earnings release, which went out today at approximately 4 or 5 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 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 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. Reconciliations of these non-GAAP financial measures through their most directly comparable GAAP financial measures are included in today's press release, which has also been posted on our website. And with that, it is my pleasure to turn the call over to our CEO, Mike Dennison.

Thank you, V, and good afternoon. We appreciate everyone taking the time to join us for today's call. I am proud to report that we have started 2023 with strong first quarter results. Thanks to the power of our diversified product offerings and the differentiated market position, along with our committed and capable team, we executed incredibly well during the first quarter against a volatile economic and changing product mix environment. As we manage through all of these economic and market changes, our top priority is to ensure the long-term sustainable growth of our business. To achieve this, it was important to recognize the shifting requirements for workforce utilization and alignment. On this front, we instituted cost reductions, which primarily resulted in a reduction of workforce within our specialty sports group. We are also in the process of rolling out an enhancement to our organizational structure, which is designed to be more aligned with our end customers and drive additional focus on product development. Our plan includes bifurcating our existing powered vehicles group into two new product groups that better align with our go-to-market strategies and product synergies. These two product groups would consist of, firstly, our PVG legacy suspension business, and secondly, our portfolio of non-suspension aftermarket applications and upfitting. We will provide quarterly updates regarding our internal organization changes, which we expect to be completed by the end of this year. Turning to the numbers, our first quarter sales were approximately $400 million, an increase of 5.8% compared to the same period last year. We reported earnings per diluted share for the quarter of 98 cents versus $1.13 in the same period in 2022, a decrease of 13.3% quarter over quarter. We also reported non-GAAP adjusted earnings per diluted share of $1.20 versus $1.32, a decrease of 9.1% over the same period last year. This quarter-over-quarter decrease is primarily driven by a significantly lower effective tax rate in the same period last year. Let's break down the numbers further, beginning with our powered vehicles group. Q1 marked another remarkable revenue quarter led by a 35% growth in sales versus the same quarter last year, driven by strong performance in our OE channel and upfitting product lines. We delivered a quarterly revenue of $281 million, a fifth consecutive record revenue quarter for our powered vehicles group. We are pleased with the Q1 momentum, thanks to the foundation provided by our Gainesville facility improvements and the continued growth of our upfitted vehicles. In our upfitting business, the end consumer and the premium truck portion of the automotive market is showing continued signs of resilience. Consequently, we will remain focused on new vehicle development as well as expanding dealer relationships while monitoring the sensitive balance between consumer financial health and our financial targets. In addition, we closed our custom wheelhouse acquisition on March 3rd of 2023. As a result, custom wheelhouse contributed $6.9 million to our top line. For the full year, we expect a revenue contribution of approximately $60 to $70 million, with the margin profile being accretive to Fox's overall margin profile. Lastly, as I had mentioned in our prior earnings call, the significant change in the revenue mix will continue to negatively impact margins. However, I feel very confident we will offset some of that headwind through the integration of custom wheelhouses. In addition, I've spoken before about the potential for margin improvement in PVG of 250 to 350 basis points based on the ramp of Gainesville. I am thrilled to report that we saw much of that improvement achieved in the first quarter. I'm more thrilled to report that we are not done. As our volume continues to grow in PVG, we believe we have another 200 to 300 basis points of improvement ahead of us. While this will not be linear margin expansion and will be tied to volume increases, we clearly have a line of sight over the next 12 to 18 months to keep improving. Turning to our specialty sports group, we delivered a quarterly revenue of $118.9 million, a decline of 30% as compared to the same quarter last year. This is primarily due to the stronger than anticipated seasonality impact in Q1 of 2023. As you may recall, Q4 of 2022 didn't reflect the expected seasonality impact, which consequently made Q1 of 2023 even more dramatic. In addition, we are continuing to hear about the larger-than-anticipated inventory glut foreshadowing a longer period of decline before we return to a more normal environment. Hence, we now expect our specialty sports group to be down over 20% for the full year, with the worst of the impact occurring in Q2. Our team is keeping a finger on the pulse of the market, and we will continue to update you every quarter as we work our way through the channel inventory challenges. Once accomplished, we feel confident equilibrium in the bike industry will return to normal as we continue to see positive signs with end customer demand. To conclude, we are happy with the strong foundation Q1 has provided. We are also pleased to see the power of our diversified portfolio, which we have painstakingly built over the last several years. As we look for signs of stabilization in a specialty sports group, our custom wheelhouse growth will provide us with a reasonable offset in both revenue and margin headwinds. And finally, I want to introduce you to Maggie Torres, who has stepped in to pinch hit as our interim CFO. Maggie has been a key leader in our organization for many years, and while she had planned to retire, her commitment to the company and this team overrode that decision temporarily. And I want to take this opportunity to personally thank Maggie for her partnership and leadership. And with that, I'll turn the call over to Maggie.

Thanks, Mike. Good afternoon, everyone. I'll begin by going over our first quarter financial results and then review our guidance. Sales in the first quarter of 2023 were $399.9 million, an increase of 5.8% versus sales of $378 million, delivered a 35% increase in sales in the first quarter compared to the same quarter last year, primarily due to strong performance in our upsetting product lines and increased demand in our OEM channels. Moving on to our specialty sports group, sales in SSG decreased by 30% compared to the first quarter of 2022, primarily due to a return to seasonality in the bike business and the impacts of higher levels of inventory across various channels. Box factory's gross margin was 33.3% in the first quarter of 2023, a 150 basis point increase from 31.8% in the same period in the prior year. For the first quarter of 2023, non-GAAP adjusted gross margin also increased by 180 basis points to 34.1% versus Q1 of 2022. The increase in gross margin and non-GAAP-adjusted gross margin in Q1 2023 was primarily driven by lower materials and other related costs, increased efficiencies at our North American facilities, and strong performance in our upfitting product lines. In addition, non-GAAP-adjusted gross margin was favorably impacted by the step-up in inventory value as part of the purchase price accounting for Custom Wheelhouse. Total operating expenses were 78.6 million, or 19.7% of sales in the first quarter of 2023, compared to 66.1 million, or 17.5% of sales in the first quarter of last year. The increase in operating expenses in Q1 2023 was primarily due to higher employee-related costs, legal and professional fees, and higher insurance and facility-related costs, partially offset by lower acquisition-related compensation and various others. Looking at non-GAAP operating expenses as a percentage of sales, our non-GAAP operating expenses increased by 180 basis points to 17.6% in the first quarter of 2023, compared to 15.8% in the same period in the prior year. Focusing on operating expenses in more detail, sales and marketing expenses increased approximately $1.1 million in the first quarter of 2023 compared to the first quarter of 2022, primarily due to higher commissions. Research and development costs increased approximately $2.7 million in the first quarter of 2023 compared to the first quarter of 2022, primarily due to personnel investments to support future growth and product innovation. General and administrative expenses increased by approximately $8.1 million in the first quarter of 2023 compared to the first quarter of 2022 due to higher employee headcount and benefit-related costs of $6.2 million, legal and professional fees of $2.5 million, insurance and facilities-related expenses of $2 million, partially offset by lower acquisition-related compensation and other costs of $2.6 million. The company's effective tax rate was 18.3% in the first quarter of fiscal 2023 compared to 4.8% in the first quarter of fiscal 2022. The change in the effective tax rate was primarily due to the release of our valuation allowance against foreign tax credit carry-forwards in the first quarter of fiscal 2022 upon enactment of U.S. tax regulations. partially offset by a decrease in foreign withholding taxes, net of foreign tax credits, in the first quarter of fiscal 2023. On a gap basis, net income in the first quarter of 2023 was $41.8 million, or $0.98 per diluted share, compared to $48.1 million, or $1.13 per diluted share, in the same prior year period. Non-GAAP adjusted net income was 51 million in the first quarter of 2023, a decrease of approximately 4.8 million, or 8.5%, compared to 55.8 million in the first quarter of last year. We delivered $1.20 of non-GAAP adjusted earnings per diluted share in the first quarter of 2023, compared to $1.32 in the first quarter of 2022. Adjusted EBITDA increased by 10.3% to $79.2 million for the first quarter of 2023 compared to $71.8 million in the same quarter last year. Adjusted EBITDA margin increased by 80 basis points to 19.8% in the first quarter of 2023 compared to 19% in the first quarter of 2022. The increase in adjusted EBITDA margin in the first quarter of 2023 is primarily due to the improvement of non-GAAP adjusted gross margin. Now focusing on our balance sheet. For the first quarter, which ended on March 31, 2023, compared to our 2022 year end on December 30, 2022, we held cash on hand of $91.9 million compared to $145.3 million Accounts receivable was $195.3 million compared to $200.4 million. Inventory was $379.9 million compared to $350.6 million. Prepaid and other current assets was $214.6 million compared to $101.4 million. Accounts payable was $135.3 million compared to $131.2 million. Goodwill and intangibles were $380.9 million and $226.1 million, compared to $324 million and $179 million, respectively. The decrease in cash on hand and related increase in prepaids and other current assets reflects higher chassis deposits as we return to a seasonal build pattern and ramp up to meet the current year production needs in our upfitting product lines. The increase in inventory is primarily due to inventory that we obtained in our recent acquisition of Custom Wheelhouse. The changes in accounts receivable and accounts payable reflect the timing of customer collections and vendor payments. Our net property, plant, and equipment increased to $210.3 million as of March 31, 2023, compared to $202.2 million at the end of fiscal 2022, reflecting capital expenditures of $11.1 million during the quarter. The increase in goodwill and intangibles reflect our recent acquisition of Creston Wheelhouse. Now, turning to our guidance. For the second quarter of 2023, we expect sales in the range of $390 million to $410 million in non-GAAP adjusted earnings per diluted share in the range of $1 to $1.20. For the fiscal year 2023, the company expects sales in the range of $1.67 billion to $1.7 billion in and non-GAAP adjusted earnings per diluted share in the range of $5 to $5.30. Our full-year guidance assumes an income tax rate in the range of 15% to 18%. 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 accurately predicting the elements necessary to provide such guidance and reconciliations. As Mike discussed earlier in this call, we remain cautious in our outlook for our specialty sports group in the second quarter. Additionally, we anticipate continued revenue mix normalization in our powered vehicles group throughout the year, driven by a higher percentage mix of OEM sales. As our understanding of the global business environment evolves, we plan to provide incremental updates each quarter regarding our expectations for 2023. Lastly, I am pleased to announce that we have hired Brendan Enoch as our first chief accounting officer. We are confident that Brendan's addition to the team will elevate our global finance and accounting team and align our overall efforts to gain efficiencies, strengthen oversight and controls, and support future growth. With that, I'll turn the call back over to Mike.

Thank you, Maggie. To wrap up, I am pleased with the solid starts of 2023, but at the same time, being very cognizant of the possible macroeconomic tremors. As the narration regarding a potential recession has increased, the recent tightening of the credit standards has only fueled those fires. However, history has shown no matter what the operating or macroeconomic may be, if you have a strong brand, you always come out on top. And besides many other assets, a powerful brand is what we have. Despite the near-term uncertainty, we remain agile and continue to lead, moving ever forward toward our mission. I believe we are well positioned for future and long-term growth by making strategic investments to expand manufacturing capacity, exploring potential new markets, and by continuing our relentless pursuit of product innovation. Lastly, we are close to finishing our search for our next CFO. Given the remarkable brand and growth story that we have, we attracted a number of high-potential candidates, and I feel very confident that Maggie will eventually be able to retire later in Q2. I would now like to open the call for questions. Operator?

Thank you, sir. At this time, if you would like to ask a question, please press the star and one keys on your touchtone phone. You may remove yourself from the queue at any time by pressing star two. Once again, that is star one to ask a question. And our first question will come from Larry Solo with CJS Securities. Your line is open.

Great. Thanks, and good afternoon. Just a quick clarification. So your revenue is for the full year the same, lower DPS by 15 cents, but obviously you're rolling in the custom wheelhouse. Is that $70 million on an annualized basis, or is that $70 million in this year fiscal 23rd?

That's $70 million in this fiscal year. So as you correctly pointed out, Larry, we think for at least getting through Q2, we're going to hold on the guide on the revenue side and kind of reinforce some of the softening of the FSG and the reduction of the EPS guide to give us kind of a conservative view of the balance of the year, and we'll see how Q2 goes, and we'll go from there. Gotcha.

So I suppose that custom wheel is a three-quarters deal. will be a little bit accretive for you guys, right?

Absolutely. It's accretive, obviously, on the revenue side, clearly, and also on gross margin. And EPS, too, or not as much?

A little bit, right? I suppose a little bit. yeah yeah okay all right okay so just just chip in here a couple questions just uh one on uh ssg one on power vehicle um just you know you mentioned obviously the inventory glut nothing new there maybe just a little deeper but uh just curious you know you mentioned positive some positive signs and then market demand i'm sure it's somewhat anecdotal at this point but can you anything you can share with us you know to give us a little uh light at the end of the tunnel if you will

Yeah, yeah, for sure. You know, we are seeing customer demand in certain markets picking back up, and that happened kind of late in the quarter in Q1. So that does give us confidence that the demand is not necessarily gone. As a matter of fact, it isn't gone in SSG. It's just this massive amount of inventory that is bigger than expected pushing through. And we knew that, right, because we talked about that at the last earnings call. And we were hoping that Q2 would show more positive signs. And in fact, it's not really showing any improvement and probably some further weakening from Q1. So now we're really looking to the back of the year to really understand what's going to happen in Q3 and Q4. The good news is, Larry, as you know, it's all about SPAC and making sure that we maintain our market share and grow. And that's, in fact, happening. So we feel great about our position. We just really have to wait and let this thing process through so we can get back on the gas or pedal. Gotcha.

Gotcha. And then just one quickly on power vehicle. So obviously, you know, that's carrying the torch, if you will, and really strong growth. We expected it from, obviously, the auto OEM side and sort of your legacy suspension. But I think there were some concerns, you know, in, you know, updating market and other sort of non-suspension areas for you guys that sort of catered to a high clientele there. It might start to slow down a little bit, but Doesn't sound like it's really slowing, I guess, question one. And part two of that, could you just remind us sort of where you stand with Tuscany and SCA in terms of, you know, deal relationships and the opportunity to expand the new dealers and also just just vehicles per dealer, because I think that was still pretty low, if I'm not mistaken.

That's right. Yeah, and we saw a little bit of softening in the first month and a half of the quarter relative to aftermarket businesses, businesses like sport truck and even upfitting. But it picked up towards the back half of the quarter and obviously ended very strong. So we're not seeing any weakness from an end consumer standpoint right now across all what we call applications business, non-conspension business. So that's a real healthy sign for us. And as you can see on our prepaids, we've got a healthy balance of inventory and chassis to support the ongoing growth of not only revenue or volume growth, but dealer growth to your question and unit growth per dealer. So we're staying on the gas. We actually believe that this is the first year we're able to actually go grow those dealer accounts. And we have to start by pulling dealers back in that we couldn't supply the last two years. So we're doing that work now, and we're creating a lot of synergies through our sales force in that regard. So I do think you're going to see a nice, healthy pickup the rest of this year in both Deer Account and Vehicles for Deer.

Great. Thanks, Mike. I appreciate it.

Thank you. Our next question will come from Jim Duffy with Stiefel. Your line is open.

Thank you. Hi, Mike. Hi, Maggie. I wanted to start with a few questions on the bike business. Mike, can you comment on the marketplace inventory posture and the differences you're seeing between Europe and North America? I was also curious where e-mountain bikes stand as a percent of your order book. And then finally, what are the factors you're watching for sightlines to the stabilization in the market? you know, how are the OEs planning model year 24 production? Is it possible that's down from model year 23, or is it too early to make that judgment? He's writing that down. There was a few questions. So let's start with kind of one by one, if you like, Mike. Yeah, that's okay. I'll start with the geographic question. You know, it's It's pretty balanced, frankly. You know, depending on the month and the timeframe, North America versus Europe can be a little bit different. And we've seen kind of puts and takes on that. But both of them are really, really from kind of, again, not a demand issue as much as, you know, just a bulk up of supply in the system. So, you know, we believe that that's going to continue throughout Q2 in both regions. And It's hard to pick which region will actually come out ahead, and I think that might be tied somewhat to macroeconomic environments in those two regions as well. So kind of hard to call the ball on that. They're all fed from the same supply chain, so it's kind of a function of getting the supply chain itself back into equilibrium. But I would expect to see, you know, U.S. and Europe kind of trend in similar paths. In terms of e-bike, you know, e-bike is a strong part of our business. And as you know, we've been growing that part of our business quite substantially. Unfortunately, it was one of the biggest parts of the supply chain glut because the things that we couldn't get to complete or our early importers couldn't get to complete bikes was motors. So that was a large part of what was stuck in the channel. And so we're seeing that as kind of a secondary effect of this issue. I think as we come out of this, e-bike will be on fire. That demand is continuing to grow faster than pedal bike demand across every region, especially in Europe. So I think e-bike will recover very quickly. Again, it just has to get through kind of an oversupply situation, which we've talked about in the past. Your last question is on stabilization, Jim, reminding what it was. Yeah, just the factors you're watching for for sightlines and stabilization. And I'm curious how the OEs are planning model year 24 production, when they make determinations on that. Is it possible model year 24 is down from 23? I presume that they're watching sell through in the key North American selling season as an indicator of to plan that model year production. Let me know your thoughts there, please. Yeah, yeah, it's a great question. So what we're seeing in terms of, you know, kind of how they're thinking about model years is different by OEM. And what we're finding is smaller, more nimble OEMs have responded better and had less inventory in the system, so pivoted left foot to right foot to get on to model year 24 faster than some of the bigger OEM partners. Now, there's good news and bad news. The good news is we have really good relationships with those smaller, big, cheap OEMs. that are helping us get to model year 24 more quickly. Bad news is there's a lot of volume tied up in the bigger guys, in the bigger OEMs. And they are struggling. So you will see them need to churn through that model year 23 before they really launch inventory of model year 24. As you can imagine, if they're pushing model year 23 bikes still into dealers, kind of hard to convince dealers to take model year 24 bikes. Or vice versa, if they take the model year 24, you have to discount model year 23 even greater. So it's a bit of a quagmire for them, frankly, Jim, and they're looking for it. What we're really seeing is it took them a while in Q1 to figure out the level of the issue, and now Q2 they're getting very aggressive about how to resolve it. So the good news is they've gotten serious, and I think they certainly know exactly what they need to go do. I think Q2 is going to really play out finding out what that looks like, which is, again, why we're being a bit conservative in the back half of the year so we can see what that looks like. Thank you for that. I'll let someone else jump in.

Thank you. Our next question will come from Michael Swartz with Truist Securities. Your line is open.

Hey, guys. Good evening. Not to beat the dead horse, but just wanted to stick on SSG for a second and maybe a point of clarification. I think the last time we talked, on your fourth quarter call, you know, the bike challenges were really framed as, you know, too much inventory, maybe incomplete inventory and supply chain with the OEMs. It sounds like now there's more, at least this is the way I'm reading it, there's more of an inventory issue in the retail channel. Is that the right way to think about it? And is that kind of the reason behind your lowering the four-year outlook for SSG?

No, I think it's still more the former than the latter, Mike. I think it's still the inventory that's half built in the supply chain. Now, eventually that has to roll through, obviously, dealers and distributors to get to the end market. So at some point, that pig goes all the way through the snake, so to speak. And so you're going to see it end up in dealers, but that's going to be a bit of a process. So the faster they can get that done, by the way, the better off we're all going to be. We'd really like to see that inventory move into dealers' hands in Q2. and whatever discounting they do, which doesn't really affect us, but needs to get done to get those bikes moved, the more aggressive line they take on that course, the better off we're going to be. So I'd really like to see these bikes get moved through. And they're starting to. But again, I think what we're going to see is do end customers wait for a model year 24, or do they take a deal on a model year 23? Two things to tell on that one.

Gotcha. Perfect. Thank you. Second question, just on first quarter, gross margin came in better than I think any of us were anticipating. And it looks like for your 10Q that your mix was actually towards OEM. So maybe help bridge the gap of what maybe came in better than expected during the quarter. And then is your guidance implying that there's some give back as we work through the year?

Yeah, I'll start to the internal and maybe jump in. I don't know if there's give back. The give back would be a functional mix versus anything else. I think really what we saw in Q1 was the engine really starting to crank up in North America with the optimization of the factories. Just had a phenomenal quarter relative to that footprint. and getting those efficiencies and improvements that we were looking for. So as I mentioned in the prepared remarks, we thought that would take longer in 2023 to achieve. We nailed it in Q1, and through that process realized, you know what, we're not even close to done yet. We've got more room to move. So I think you're going to see a non-linear basis. You're going to see further margin expansion across the North America footprint as we continue to improve. And that's across OEM, aftermarket. It doesn't matter. In fact, we might be improving faster on the OEM side than the aftermarket side just relative to those efficiencies. We're really happy with what we're seeing there, and that gives us confidence in having a good year this year, even with the mix shift, which was, as you can imagine, as you know, fairly significant in our overall product categories. Megan, anything to add there?

I would just add that in addition to the factory efficiencies in our North American facilities, we also had a little lift in our upfitting product lines. That's a great mix in upfitting that contributed to that. custom wheelhouse being accretive to the gross margin.

Gotcha. And just a quick question on custom wheelhouse in the quarter. I was looking through the queue, and it looks like it was dilutive earnings, but I'm not sure if that's stripping out all the one-time costs. But just on an adjusted EPS basis in the first quarter, was it dilutive or accretive?

Yeah, that's a good question. On a gap basis, it's dilutive because of the some purchase price valuation adjustments. So that's $3 million in GAAP net income, but from a non-GAAP basis, it's accretive.

Okay, perfect. Thank you.

Thank you. And as a reminder, that is star one to ask a question. And our next question will come from Brett Jordan with Jefferies. Your line is open.

Good afternoon, guys. Could you talk a little bit more about the incremental margin potential from Gainesville? I mean, you sort of talked about how there was pretty substantial upside from here with volume, but could you give us maybe a feeling for the scale of that volume that would be required?

It's a little bit, well, it is volume. And what we found in Q1 was the volume that we ran in Q1 was very beneficial to margin accretion. So, you know, it doesn't take a lot more volume than we had in Q1, but it takes just further utilization of vertical integration against that volume, further optimization of our assembly process and automation, et cetera. So, you know, it's not going to take a lot more in terms of revenue. It's not like we have to add 30% more or anything to get there. So we can see a good, solid line of sight to it. It's just continuing the track that we started in Q1 and not backing up. The reason why I mentioned volume is because volume is a significant portion of the foundation to create that marginal accretion. So if volume is inconsistent, let's say week to week or month to month, that can create some lumpiness in how that marginal accretion occurs or comes into play. So I just always want to caveat everything with volume is a fundamental factor in manufacturing to drive marginal improvement.

Okay, great. And then I guess on the chassis deposits, the prepaid were up. How do we think about those turning? I guess are we at a prepaid level where current chassis will sell in Q2 and then you'll rebuild the inventory, or does that build into Q2 to some midyear peak in that investment?

Yeah, I can take that one. I think a couple things on chassis. We see Q1 as the seasonal peak, so our expectation at this point is that we will work through our Q1 chassis inventory gradually through to the end of the year with Q1 being the peak. And just another thing to underscore on our chassis balances is there's also a significant mix component. So when we're talking about chassis, based on the OE. If we're talking about Jeep and Ram OEs, then those are the ones that we prepay. So the more Jeep and Ram, the higher the prepaid, and as it shifts between GM and Ford's other OEs, then that can affect the chassis balance as well.

Great. Thank you. And then one last question. I guess the bike business is obviously challenged by the inventory bulge. Does that create M&A opportunity, or is it just something that you wait for the balls to pass and don't buy more in that space in the interim?

That's a great question. It does create M&A opportunities because what we found through COVID and a spike in that business was Valuations got significantly higher and kind of really out of the range we were willing to pay. They're coming back in the range now, so we're looking at some very interesting. As a matter of fact, we picked up a small company even in the quarter. That was a good fit for our bike business. So we're going to continue to be acquisitive in the SSG space. And finally, I think we're in a place where we can actually do some good work there without paying crazy multiples.

Great. Thank you.

Thank you. At this time, there are no further questions, so I would like to turn the call back over to Mike Dennison for any additional or closing remarks.

Well, thanks, everyone. Have a good evening, and we will talk to you soon. Bye.

Ladies and gentlemen, this does conclude the Fox Factory Holding Corporation's first quarter 2023 earnings call. You may disconnect your line at any time and have a great day.