Fox Factory Holding Corp (FOXF) CEO Larry Enterline on Q1 2019 Results - Earnings Call Transcript

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About: Fox Factory Holding Corp. (FOXF)
by: SA Transcripts
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Earning Call Audio

Fox Factory Holding Corp (NASDAQ:FOXF) Q1 2019 Earnings Conference Call May 1, 2019 4:30 PM ET

Company Participants

David Haugen - General Counsel

Larry Enterline - CEO

Mike Dennison - President, Powered Vehicles Group

Chris Tutton - President, Specialty Sports Group

Zvi Glasman - CFO and Treasurer

Conference Call Participants

Scott Stember - CL King

Larry Solow - CJS Securities

Mike Swartz - SunTrust Robinson Humphrey

Craig Kennison - Robert W. Baird and Co.

Rafe Jadrosich - Bank of America Merrill Lynch

Brennan Matthews - Berenberg

Ryan Sundby - William Blair

Operator

Greetings and welcome to the Fox Factory First Quarter 2019 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, David Haugen, General Counsel. Please go ahead.

David Haugen

Thank you. Good afternoon and welcome to Fox Factory's first quarter fiscal 2019 earnings conference call. On the call today are Larry Enterline, Chief Executive Officer; Mike Dennison, President, Powered Vehicles Group; Chris Tutton, President, Specialty Sports Group; 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 Web site at www.ridefox.com. Please note that throughout this call, we will refer to Fox Factory as Fox, or the company.

Before we begin, I'd like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. Such statements involve a number of known and unknown uncertainties, many of which are outside the company's control and can cause future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements.

Important factors and risks that could cause or contribute to such differences are detailed in the company's earnings release issued this afternoon and in the annual report on Form 10-K filed with the Securities and Exchange Commission. Except as required by law, the company undertakes no obligation to update any forward-looking or other statements herein, whether as a result of new information, future events or otherwise.

In addition, within our earnings release and in today's prepared remarks, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP income tax, 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 that we believe are useful metrics that better reflect the performance of our business on an ongoing basis.

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 Web site.

And with that, it is my pleasure to turn the call over to our CEO, Mr. Larry Enterline.

Larry Enterline

Thank you, David. Good afternoon, everyone. We appreciate you joining us on today's call. To start, I will discuss our first quarter business and financial highlights. Mike and Chris will then provide a more detailed update on their respective businesses and brand development. Zvi will then review the first quarter financials and discuss our 2019 guidance. After that, we will open the call for your questions.

We had a great start to the year with record first quarter financial results. Our business benefited from continued strong demand and solid execution in our Powered Vehicles Group and in our Specialty Sports Group. Fox's diversified product offerings continued to resonate with our customers, demonstrating our commitment to product innovation and growth of Fox brand in both existing and new categories. 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.

Our broad-based growth generated first quarter sales and profitability above our expectations. Our first quarter sales of $161.7 million increased 25% compared to the prior year period. From a profitability perspective, we reported non-GAAP adjusted earnings per diluted share of $0.55 and adjusted EBITDA of $30.1 million, which were up 53% and 31%, respectively. As a result of our strong first quarter results and our current view of the markets we serve, we are raising our outlook for the year, which Zvi will outline for you in his portion of the call.

Today we are also excited to announce our definitive agreement to acquire substantially all of the assets of Ridetech, a leading manufacturer of suspension systems that enhance the handling and ride quality of muscle cars, trucks, sports cars, and hotrods. We believe this strategic transaction will help us further expand our Powered Vehicles business. The transaction is expected to close in May 2019.

In summary, we are very pleased with our strong start to 2019 and our outlook for the balance of the year. We continue to believe Fox's differentiated market position will fuel our expansion in the diverse end markets we serve.

And with that, I'll turn the call over to Mike.

Mike Dennison

Thank you, Larry, and good afternoon, everyone. In the first quarter of 2019, sales of powered vehicle products were up 34.1% compared to the first quarter of 2018. These strong sale results are due to the continued high growth across our product line-up, particularly with our off-road capable on-road suspension products, and our power sports products, which exceeded our forecast. While we are pleased with this increased demand from our large OEM customers, it has shifted our expected mix, causing our current California facilities to be near capacity and is stretching our supply chain. Consequently, this has led to some frictional cost. We've identified areas where we can improve our processes and procedures and our teams are working hard to implement short-term solutions. However, ultimately solutions will be the most effective as we establish our new manufacturing footprint and supply chain in Georgia.

We continue to focus on the off-road capable vehicle market and customers can now order the 2020 Jeep Gladiator Rubicon, Jeep's top Gladiator that features Fox shocks. The media is praising the Gladiator. The editors at drive.com wrote, "The 2020 Jeep Gladiator Rubicon is the real star here, putting everything that's made the JL Wrangler Rubicon such a hit to create the hands-down off-road king of pickups. Its Rock Trak 4WD system, 2-inch lift, Fox monotube shocks, rock rails are a witch's brew of dirty fun."

At Fox we strategically explore diverse markets where we believe we can successfully acquire technology and expertise and in March we created a new Street Performance division to support these efforts. This new team focuses on developing performance-defining products that can successfully compete in race, aftermarket, and OEM street vehicle applications. Today's announcement that we have entered into a definitive agreement to acquire Ridetech is an example of this strategy in motion.

Ridetech manufactures premium suspension systems that are designed to improve the handling and ride quality of muscle cars, trucks, sports cars and hotrods. This acquisition aligns with our mission of improving vehicle performance and entering strategic adjacent markets and is modestly accretive for 2019 on a non-GAAP basis. We continue to believe the expanded power vehicles market, now including street performance, represents an attractive long-term growth opportunity.

Now let's move on to some racing highlights. To strengthen our powered vehicles racing presence, we recently established Fox Factory Motorsports, a new group devoted to continuing and expanding our race effort. On the off-road racing front, Fox drivers finished first and second at the 2019 Mint 400, also known as the Great American Off-road Race. Fox driver Justin Lofton placed first overall and became the event's first 3-time winner.

At the 33rd Annual SCORE San Felipe 250, the first round of the 2019 SCORE World Championship, Fox drivers Andy and Dan McMillan finished first and third overall. This race also marked the first off-road race wins for Fox new live valve technology. Wayne and Christian Matlock won the Pro UTV Forced Induction and Pro UTV Naturally Aspirated classes on live valve.

At the UTV World Championship in Laughlin, Nevada, Fox Driver Phil Burton made history by becoming only the second 3-time winner of events premiered at Desert Race. Racing has and will remain a central part of our culture and our success. And I believe the new Fox Factory Motorsports team is the start of great things to come.

And finally, we are continuing to work on identifying my replacement as President of the Powered Vehicles Group. Our search both internally and externally has identified a short list of great candidates and we expect to conclude this process in the near future.

With that, I'd like to turn the call over to Chris.

Chris Tutton

Thank you, Mike. Good afternoon, everyone. During my remarks today I'll talk about a few of the recent Specialty Sports Group business highlights. In the first quarter of 2019, sales of bike products were up 12.7% compared with the same period in fiscal 2018 when we were building on the strong performance we delivered last year. While we continued to meet or exceed our targets, our leadership team closely monitored the bike industry and market conditions. We are comfortable with our current and overall spec positions and inventory levels across our various sales and distribution channels.

Last quarter I talked about the relocation and consolidation of our U.S. aftermarket distribution, sales service operations from California to Sparks, Nevada to better service our customers. I'm pleased to share that the new Fox Factory service and distribution center is open for business and we started shipping products the first week of April.

The new 72,000 square foot facility strengthens our ability to support Fox, Race Face, Easton Cycling and Marzocchi customers by centralizing all four brands' sales, service, order placement, fulfillment and shipping functions under one roof. I'm very proud of our team. Many people worked very hard to bring this facility online quickly and without interrupting our business operations or inconveniencing our customers.

I'd also like to share some product news. We recently introduced our 2020 Factory 32 Step-Cast fork, engineered for the rigors of modern cross-country riding and featuring a redesigned crown. Our engineers increased stiffness by 20%, placing it on the same level as our trail-proven 34 Step-Cast fork, which added a mere 30 grams to its already lightweight chassis.

Also new for 2019 is the Fox Transfer seatpost, now with a 175 millimeter drop option and a Race Face lever choice. In March the Race Face team launched the new next SL crankset, featuring increased crank arm stiffness and a modest reduction of the overall weight, thanks to our improved refined carbon lay-up and manufacturing process.

We recently introduced the Marzocchi Bomber CR coil shock, a high-performance yet simple rear shock designed for bikes with travel and ranges of 130 to 200 millimeters. As Mike said, racing is central in our organization and when Fox, Race Face, Easton and Marzocchi athletes win, it helps our innovative engineering technologies and products. We believe there is no better testing than the rigors of professional mountain bike racing. Simply put, racing drives innovation, keeps our followers engaged with the SSG brand and helps expand our customer base.

Here are a few highlights from the start of the 2019 race season. Fox's SSG supported athlete won the 2019 FMBA Slopestyle World Champion Pro Male opener in New Zealand. We earned four podiums in the first two rounds of the 2019 Enduro World Series and we scored eight podiums at the Crankworx Rotorua Festival.

Enduro World Series teams that we sponsor currently rank first, second and third after just the first two rounds. Fox, Race Face, Easton Cycling and Marzocchi athletes are off to a great start and we look forward to building our race program's 2019 success.

At this point, I'd now like to turn the call over to Zvi to review our financial results.

Zvi Glasman

Thanks, Chris. Good afternoon, everyone. I'll focus on our first quarter results and then review our guidance.

Sales in the first quarter of 2019 were $161.7 million, an increase of 24.6% versus sales of $129.8 million in the first quarter of 2018.

Gross margin was 31.6% in the first quarter of 2019, a 50 basis point decrease from 32.1% in the prior year period, while our non-GAAP gross margin decreased 40 basis points to 31.7%. The decrease in gross margin was due to several factors, including a change in customer and product mix as our larger North American based OEMs represented a higher proportion of sales, and supply chain and manufacturing inefficiencies associated with a higher than anticipated increase in customer demand. We expect these factors to continue which could similarly affect margins in the next few quarters.

As Mike mentioned, our team is executing improvement programs in our existing California facilities to mitigate the supply chain and factory inefficiencies, while we are developing our new platform in Georgia.

Total operating expenses were $29.2 million or 18% of sales in the first quarter of 2019, compared with $25.7 million or 19.8% in the first quarter last year. The increase in operating expenses on a dollar basis is primarily a result of investments in research and development to support future growth, higher patent litigation-related expenses and increases in various other administrative expenses. We saw some improvement in our operating leverage on the increased sales line. Non-GAAP operating expenses stated as a percentage of sales were 15.7% in Q1 this year, versus 17.3% in Q1 last year.

Focusing on expenses in more detail, sales and marketing was up $600,000 as we continued to invest in the brand, while R&D was up $1.1 million primarily due to increased personnel investments to support new product innovation. As we've consistently 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 first quarter of 2019 were $11.1 million compared to $9.2 million in the prior year period. The change was primarily due to $1 million in personnel-related investments we made to enhance our infrastructure to support the top line growth and changes in our business and $700,000 increase in ongoing litigation-related expenses.

For the first quarter of 2019, our effective tax rate was 12.4% compared to a tax benefit of 44.2% in the first quarter of fiscal 2018. The first quarter of fiscal 2018 included a one-time benefit of $9.8 million or $0.25 per diluted share due to a favorable resolution of the company's 2015 IRS audit. Excluding the benefit, the first quarter of fiscal 2018 effective rate was 20.9%.

Adjusted EBITDA was $30.1 million for the first quarter of 2019, compared with $23 million in the same quarter last year. Adjusted EBITDA margin was 18.6% compared to 17.7% in the prior year quarter. The increase in adjusted EBITDA margin is due to improved operating leverage, primarily related to lower SG&A percentage.

On a GAAP basis, net income attributable to Fox in the first quarter of 2019 was $18.1 million or $0.46 per diluted share, compared to net income of $21.2 million or earnings of $0.55 per diluted share in the prior year period.

Non-GAAP adjusted net income was $21.6 million, an increase of $7.5 million compared to $14.1 million in the first quarter of the prior year period. Non-GAAP adjusted earnings per diluted share for the first quarter of 2019 was $0.55 compared to $0.36 in the first quarter of 2018.

Now focusing on our balance sheet, as of March 29, 2019, we had cash on hand of $38.3 million.

Total debt outstanding was $69.6 million, compared to $59.4 million as of December 28, 2018. Inventory was $124.1 million compared to $107.1 million at the end of 2018. Accounts receivable was $83.6 million compared to $78.9 million as of December 28, 2018. And accounts payable was $75.6 million compared to $55.1 million at the end of 2018. The changes in accounts receivable, inventory and accounts payable are primarily attributable to the growth in our business and normal seasonality.

Additionally, our net property, plant and equipment increased to $85 million as of March 29, 2019, compared to $64.8 million at the end of 2018, which includes $15.4 million due to the impact of the new lease accounting standard in the first quarter of 2019.

Now turning to our outlook for the second quarter of 2019, we expect sales in the range of $182 million to $190 million and non-GAAP adjusted earnings per diluted share in the range of $0.62 to $0.67. For fiscal year 2019, we are raising our outlook and now expect sales in the range of $717 million to $733 million. We expect Ridetech sales contribution to be in the range of $6 million to $8 million in 2019 after the elimination of inter-company sales and anticipate the acquisition to close in May 2019.

We expect non-GAAP adjusted earnings per diluted share in the range of $2.52 to $2.62 for fiscal 2019. We continued to expect adjusted EBITDA margin percentage to be fairly consistent with 2018 EBITDA margin percentage. However, we now expect gross margin percentage to be down slightly for 2019 as compared to 2018, due to the change in mix resulting from increased revenue contribution from the large North American OEMs and inefficiencies in the supply chain and manufacturing associated with higher than anticipated increase in customer demand. As a reminder, larger OEMs can have lower gross margins than aftermarket customers and smaller OEMs.

We expect non-GAAP operating expenses to run 15.5% to 16% for 2019, down from our previous outlook, as we are getting better than anticipated leverage in SG&A on our increased sales outlook. I would also like to point out that our guidance continues to include the effect of tariffs and higher input costs based on current conditions. We expect our normal seasonality to continue with our Q3 sales being slightly higher than our Q4 sales. We expect CapEx for 2019 to be in the range of 5.5% to 6.5% of sales, which reflects the impact of our previously announced operations expansion. Our long-term capital expenditure model remains at 3% to 4% of sales.

Our guidance assumes an annual non-GAAP tax rate of 15% to 19%. We continue to expect some quarterly fluctuation in tax rates to occur during the year due to the timing of certain variables such as stock option exercises and stock prices that are difficult to predict. I'd also like to note that we are not providing guidance on GAAP EPS, as it cannot be provided without unreasonable efforts due to the difficulty of accurately predicting the elements necessary to provide the guidance and reconciliation.

With that, I'd like to turn the call back over to Larry.

Larry Enterline

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

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your first question will come from Scott Stember, CL King. Go ahead please.

Scott Stember

Hi, it's Scott Stember. Thanks guys. Thanks for taking my questions.

Mike Dennison

Hey, Scott.

Scott Stember

Can you talk about Ridetech? Zvi, I heard you say that there was some intercompany eliminations. It sounds like obviously you were already doing some business with Ridetech. Maybe just explain the prior relationship and how -- maybe just a little bit of a broader view, how synergistic this could be going down the road.

Mike Dennison

Scott, this is Mike. Yes, thanks for the question. Let me take a stab at that. So we had a relationship. They were a customer of ours prior to the acquisition. It wasn't a large customer of ours, but we do provide shocks that go in some of their suspension systems. And so we've taken that into consideration in our go-forward guidance. For us, this is really about opening the door in the whole adjacent market that we're not in today and really being able to go get us a market size and scale that we'd like to get to. So for us, this is really a platform, if you will, into that new space, into a new market. And I think looking forward it can be a great business for us. It will take us some to digest it and to get it up and running the way we want it to, but we're very positive.

Scott Stember

And are there any cross-pollination opportunities or any opportunities to put through more of the core power product?

Mike Dennison

I absolutely believe so. Yes, Scott. I think that's a great question. I mean I believe so. I think there's a lot we can do with this platform which looks very similar and works very similar to our Sport Truck operation and some of our other businesses. So I think this has synergies on the front end across several of those.

Scott Stember

And you guys talked about the strong OEM business, the big mix towards that, like in Power Sports, but can you talk about the aftermarket and how that performed in both Specialty and Powered Vehicles?

Zvi Glasman

Yes, we don't break out the aftermarket OEM in the two respective businesses in terms of the actual percentage. With that, I'll let Mike and Chris give a little color about what they think about performance. But we're not going to provide actual numbers.

Mike Dennison

Yes, Scott, on the Powered Vehicles side, you know, we talked about Power Sports absolutely being a very productive part of Q1 and so was our off-road business, which tends to look like OEMs and the healthy mix of aftermarket. In both of those cases, off-road on the OEM side and aftermarket, it was a great quarter for us. And so, both were extremely healthy, but the mix did shift based on some increased volume from the OEMs specifically.

Chris Tutton

Thanks, Scott. It's Chris here. On the bike side, certainly we feel very confident in our spec positions and the customers on the bikes that we compete on are doing well. So we're happy with our OEM numbers. We're happy with our aftermarket numbers. We're seeing growth throughout all of our international distributors. So it's a wide mix. But I think it's fairly steady.

Scott Stember

All right, just one quick last question on the commercial vehicle side, can you just give an update on how some of those pilot programs are doing?

Mike Dennison

Yes, they're doing well. You know, we're still early days, as I said, in the last earnings call and we'll continue to kind of work through this over the course of this year, but we're seeing traction and significant opportunity in that space. So we continue to be very excited and very positive on that on a long-term basis.

Scott Stember

Got it, thanks again.

Mike Dennison

Thanks, Scott.

Operator

Thank you. Your next question comes from Larry Solow, CJS Securities. Go ahead please.

Larry Solow

Oh great. Thanks very much. And Larry, this might be your last public call as CEO, so I commend you and wish you congratulations again.

Larry Enterline

Thanks, Larry.

Larry Solow

Absolutely. On the Ridetech, just I found it encouraging that I see there's some -- they're getting some shares and some skin in the game. Was that something that they asked for? And I guess the management team is staying on board?

Mike Dennison

Yes, the management team is absolutely staying on board, Larry. This is Mike. And it is something that they also were very excited about in terms of as you said, have skin in the game. We like that kind of a setup, because that means we're all one team working towards the same ultimate objective and it seems to be a really good recipe.

Zvi Glasman

Yes, I would tell you that we've done a few deals and we've used different mechanisms in each deal to ensure that management was aligned with Fox. In the case of Sports Truck and Race Face, we did earn-out. In the case of Tuscany, we bought 80%, not 100% of the company. In the case of Ridetech, they took a fair bit of the purchase price in stock. We use different mechanisms for different situations. We think they all depend on the particulars of the situation and we think this aligns the interest of management with us.

Larry Solow

Okay, great. And then on the specialty bikes, particularly grew I think you said 13% in the quarter, a little bit above sort of I think the full-year guidance or the normal sort of mid-to-high single digit growth rate. Is that mostly sort of the follow through on model year '19 and then sort of we not reset, but as we go into Q2 that will be more predominantly model year '20 sales going forward?

Chris Tutton

I think we had good momentum coming out of 2018 into 2019, which certainly helped carry us through. Again we're watching the industry very closely. We think that we're on track for the season. So I think everything is in line at this point.

Zvi Glasman

Yes, and I will say at the beginning of the year we gave guidance. We indicated that the SSG business would be in line with its mid-to-high single digit target. We did better than that in Q1. We're not calling that up for the balance of the year. And we also said that the Powered Vehicle business would be ahead of the low double-digit target. So we're keeping an eye on it. I think Chris and the team are very pleased, but no change for the full-year. We would still call it in line with our longer-term target, mid-to-high single digit range.

Larry Solow

Right, no, fair enough. And just on the OpEx, you're getting a little bit more leverage obviously this year as growth is sort of above historical averages. Is there something that -- I know one quarter does not make a trend -- but something that as you look out over the next few years, do you think you can get maybe a little more leverage in the business?

Zvi Glasman

Yes, we're not prepared to make a call on the longer-term, any change to the longer SG&A. We are willing to say that this year it's going to run at 15.5% to 16% versus our initial guidance which was 16% to 16.5%. Sometimes as you get larger OEM business, you're able to get more SG&A leverage. We've been fortunate over the last few years. We've grown the top line well above our long-term targets and we aim to get more efficient when that happens, but we would reserve the right to give future guidance next year when we get…

Larry Solow

Yes, absolutely. I appreciate it, thanks guys.

Zvi Glasman

Thank you.

Operator

Your next question comes from Mike Swartz, SunTrust Robinson Humphrey. Go ahead please.

Mike Swartz

Hey, good evening guys.

Mike Dennison

Good evening, Mike.

Mike Swartz

Hey, just on the Ridetech business, maybe you can give us a sense, if you can, maybe how large that adjacent market is relative to some of your core markets. And as we look at that acquisition, should we be thinking really the strategic rationale, is it more of a distribution or a product basis?

Mike Dennison

This is Mike. Let me take your second question first. This is actually product and distribution. So if you think about their model, it's heavily e-commerce oriented and has a good section of direct-to-consumer, which I like. They also though develop products and they have developed some innovative technologies in the on-road category, especially around race and some of those types of categories that we really like. So I would say it's both their go-to-market strategy and the product innovation. In terms of the TAM, the first part of your question, in terms of TAM I actually think on-road is as big, or bigger than off-road, depending on the cycle in the market and what we're doing. And what we want to focus on, keeping in mind our objective is to stay in performance-enhancing products that are really premium-oriented. So sizing the market is one function. What part of that market we want to actually go after is the most important function. So we think it's a significant market for sure and we're going to make sure that we stay where we want to be in that space.

Mike Swartz

Okay, great. And then second question, just maybe for Zvi. During the quarter you said you had some inefficiencies and some I guess frictional cost related to demand coming in stronger than expected in Powered Vehicle. Any sense of how much that impacted gross margin and then how long should we expect some of those inefficiencies to last? Is this really predicated upon the new capacity in Georgia coming online?

Zvi Glasman

Yes, we would tell that the impact on margin was comprised of two elements. The larger element of the two factors was mix. We had a greater proportion of sales to our larger North American based powered vehicle OEMs. And then in satisfying that demand that you mentioned, we had frictional cost in the supply chain and with some of the kind of the usual suspects: overtime, logistic, freight, logistical things of that nature. We're evolving the platform to Georgia and so where ordinarily you might put more longer term improvements in place in California, it doesn't make a hell of a lot of sense to make longer-term investments in California while your real plan for improvement is in Georgia. We would tell you that we think we're going to continue to see the impacts for the next few quarters. And whereas we previously said there would be some improvement in gross margin this year, now we would tell you that the margins will be in the same neighborhood as what they were last year on a full-year basis.

Mike Swartz

Okay, great, that's it from me. Thanks, guys.

Zvi Glasman

Thank you, Mike.

Operator

Your next question--

Zvi Glasman

Just a quick correction, you know, slightly down, the gross margins. But the EBITDA margins would be more or less equivalent, same neighborhood.

Operator

Thank you. Your next question comes from Craig Kennison, Robert W. Baird and Co. Go ahead please.

Craig Kennison

Thanks for taking my question as well, kind of wanted to follow-up on the Ridetech questions. In the press release, it's described as a leading manufacturer of suspension systems. But again, just looking at the website, they sell a lot of different components. To what extent is the revenue it derives based on product at manufacturers versus product it sources from others?

Mike Dennison

Yes, I mean quite a bit of their sales come from the products they manufacture. Their manufacturing is in Tennessee -- excuse me, Kentucky?

Larry Enterline

Indiana.

Mike Dennison

You're right, Indiana. So a lot of it comes from manufacturing in Indiana. At the same time, as I said before, this is also about kind of their e-commerce or direct-to-consumer model that we like. And in some of those product categories, it's products that they're selling on behalf of others. So I'd say it's a good mix. But a large part of what they sell is manufactured and has in some cases Fox shocks in that package.

Craig Kennison

Are there any OEM relationships tied to Ridetech or is this truly and aftermarket play at this point?

Mike Dennison

Aftermarket.

Craig Kennison

Great. Yes, I'll get back in the queue. Thank you.

Mike Dennison

Thank you, Craig.

Operator

Thank you. Your next question comes from Rafe Jadrosich, Bank of America Merrill Lynch. Go ahead please.

RafeJadrosich

Hi, good afternoon. It's Rafe, thanks for taking my question. I just wanted to follow-up on your comments earlier about the gross margin impacts when the mix shifts to the larger OEMs. Can you talk about the operating margins for some those larger OEMs versus the gross margin?

Zvi Glasman

Yes, we don't talk -- yes, I mean it varies from OEM to OEM. I would point out that our EBITDA margins we still expect to be roughly in line for the full-year. So we're pleased that despite the mix being unfavorable from a gross margin point of view, we expect to be more or less equivalent on a full-year basis in that 20% plus or minus for our full-year EBITDA margin. So I think we're pleased with those margins. We strive to improve the EBITDA margins over time. But part of the formula to get there is to get to Georgia. The company's been a pretty fast-growing enterprise for a long time. And there's often a lag between creating volume and growing efficiently versus meeting customer demand. With the increase in customer demand, we did see some inefficiencies that are going to affect our margin.

Rafe Jadrosich

Okay, that's really helpful. And then--

Larry Enterline

Yes, Rafe, I would point out that this really nothing new for us. We've gone through this in growth periods before. We've talked about it. And I think this is something we're not uncomfortable managing through. And our teams here have a good plan to deal with it.

Rafe Jadrosich

And then in terms of you called out momentum in the off-road capable on-road vehicles, can you just remind us how many vehicles you're on right now and then the timing of some of the newer launches like Gladiator and Ranger, like when you started to sell-in and make for those vehicles?

Mike Dennison

Yes, let me give you an overview of that, Rafe. So on the Ford platform, we're on Ranger Raptor, which isn't sold in the U.S. yet. It's overseas. And of course we're on the model year '19 Raptor with live valve. So you know those two, I'm sure. In Toyota, we're on the entire lineup of TRD vehicles, so Sequoia, Tacoma, Tundra and I'm missing one, but all of those on the TRD-- Forerunner-- on the TRD front. And then with Jeep we're on the new JT Rubicon pickup truck. So those are the big ones and they come out at different times. So it's hard for us to always predict exactly when they hit the dealerships. I know you can order the JT Rubicon now. But I'm not sure across Toyota. I think with one or two they're still in the process of launching.

Rafe Jadrosich

Okay, and then the last question for Chris is, can you just talk about the trends you're seeing in e-bikes? What's the growth rate and then how significant is that for your business?

Chris Tutton

Yes, the growth rate is significant. It has been strong high double-digits in Europe and it's been strong single to early double-digits in North America. We are well-positioned with our e-optimized products to be on those bikes. So we have good spec positions through on e-bikes. We're continuing to see it grow and we think that's going to be a real bright spot moving forward. So moving into the next two model years, we should make big growth in e-bike.

Rafe Jadrosich

Can you talk about -- is it meaningful yet to the overall size or is it still very small? I'm just trying to get a sense of the base.

Chris Tutton

It's meaningful, yes. I would say as far as the market position is concerned, it's probably 35% of the European business and probably 15% to 25% of American mountain bike business.

Zvi Glasman

I would like to point out that some of those e-bike sales, there is some shifting from the bikes that were previously not electric. So it's not all incremental, obviously.

Chris Tutton

No.

Rafe Jadrosich

Okay. Thank you for the color, I appreciate it.

Operator

Thank you. Your next question comes from Brennan Matthews, Berenberg. Go ahead please.

Brennan Matthews

Hi, thank you very much for taking my question.

Larry Enterline

You bet…

Brennan Matthews

I wanted to ask about the new Street Performance division. Obviously you entered it with the Ridetech acquisition. But is that the thing you're thinking you're going to kind of grow kind of more organically going forward too, maybe with some tuck-ins? And then kind of from the R&D side, I mean should we expect kind of some more investment to kind of develop some of these kind of street or on-road products?

Mike Dennison

Yes, Brennan. That's a good question. This is Mike. So you know, I think when you look forward into Street Performance, it's going to be a combination of organic growth and using some of the leverage and development innovation we've done like live valves in off-road, employing that into Street Performance. I think electrification happens across markets pretty efficiently. But I do think there will be additional acquisitions as we go forward and expand that market presence. So we'll continue to do that. I think in addition to that we will invest in innovation in that area. But we can leverage pretty heavily what we've done, as I said before. You will see us invest in areas like struts and things that that are a little bit unique to the on-road market that are not in the off-road market. But then that will happen over time and it won't be a significant change to any of our guidance in terms of how we think about investment.

Zvi Glasman

Yes, I mean the only thing I would add to it is we bought this company. We're extremely excited about the opportunity to help us get into an area of the market more heavily than we are today. One of the attractions of buying some of these smaller companies, they've tended to under-invest in their platform. And we will plan to reinvest a lot of the sales growth in sales and marketing R&D and even to some degree in the infrastructure required to be a public company. So this is an acquisition that we're very excited about. But in terms of financial contribution to Fox this year and even next year, we don't expect a lot of financial bottom line impact, because it will run higher SG&A expenses than is typical, because it's in kind of an earlier stage growth mode relative to Fox.

Brennan Matthews

Okay, thank you so much. That's all from me.

Operator

Thank you. [Operator Instructions] Your next question comes from Ryan Sundby, William Blair. Go ahead please.

Ryan Sundby

Yes, hi, thanks everyone. Thanks for taking my question.

Larry Enterline

Hey, Ryan, how are you?

Ryan Sundby

Good, good. Larry, you always talked about acquiring companies that didn't know they were for sale. Can you maybe just talk a little bit about how the transaction came up? Was it an auction? Was this off market? I'm just curious about that.

Larry Enterline

Well, let me just describe it. I think very similar to some of the other transactions we've had, they were a customer. We've known them for a long time. They weren't for sale. We did not participate in an auction. We sat down with them and I think were able to have a meeting of the minds on value, but more importantly on strategic direction of that business and what we can do together versus what they could do on their own and we could do on our own. And I think that's a pretty good formula for us. As Zvi mentioned, we've structured all of these things a little bit different, depending on the facts and circumstances surrounding the particular deal. But I think in all cases we've ended up with an alignment between management and ourselves that we're very comfortable with. So yes, I think this is all about expanding TAM, getting another market segment we can go after. Albeit pretty small, we're excited about what it could mean in the future.

Ryan Sundby

Great, thanks. And then I guess two more, maybe one for Mike. As I look at the website, I see 20 different product categories across six different kind of end markets. Are there a couple products or markets that stand out in terms of size or profitability, or kind of focus areas for Fox's broader ambition? And then for Zvi, is there seasonality to this business and any kind of thoughts on what historical purchase looked like?

Mike Dennison

Ryan, let me start. From my perspective, this is really about driving innovation from race and aftermarket first. So we're really focused on markets that can create product technologies that can then go into a broader aftermarket segment. So there's a lot of interesting parts of Ridetech that we're very interested in. But those are the ones that we're going to focus on, helping create innovation. And prior to this call, I talked to you about the fact that we can cross-pollinate some of these technologies between our different divisions. So we'll be very active in that space doing that. So to me, again, we're going to focus like we always do in race and aftermarket first and the high end of the aftermarket, and then see where that takes us and do a broader more mainstream category.

Zvi Glasman

Yes, this Zvi. In terms of seasonality, there is some seasonality in the business. The seasonality is close to Fox's seasonality. And given the small relative size of this and its contribution to Fox, it doesn't really move the needle.

Ryan Sundby

Got it, and then Zvi, just to follow-up there, the $14 million purchase price, just so we can model the shares right, what percentage of that was from equity?

Zvi Glasman

50% of it was in equity and that's -- yes.

Ryan Sundby

Perfect, thank you.

Larry Enterline

Thank you.

Operator

Thank you. We currently do not have any further questions in the queue. So I'll take the opportunity to hand the call back to you, Larry.

Larry Enterline

Thank you. And thank you, all, for your questions and your interest in Fox. As this is my last earnings call as CEO before I hand the baton off to Mike at the end of June, I'd like to take a moment to express my appreciation for the support of our customers, suppliers and shareholders during my tenure here at Fox. I would also like to personally thank our great group of employees who have made my time as CEO such a smooth ride. Going forward, Mike and the rest of the management team will continue to update you on our progress with these quarterly earnings calls. Thank you and have a good evening.