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Fox Factory Holding Corp (NASDAQ:FOXF)
Q4 2019 Earnings Call
Mar 3, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to the Fox Factory Holding Corp. Fourth Quarter 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, David Haugen, General Counsel. Please go ahead.

David Haugen -- Vice President, General Counsel And Secretary

Thank you. Good afternoon and welcome to Fox Factory's fourth quarter and fiscal 2019 earnings conference call. On the call today are Mike Dennison, Chief Executive Officer and John Blocher, Interim Chief Financial Officer.

By now, everyone should have access to the earnings release, which went out today at approximately 4:05 PM Eastern Time. If you've not had a chance to review the release, it's available on the Investor Relations portion of our website at www.ridefox.com. Please note that throughout this call, we will refer to Fox Factory as Fox or the company.

Before we begin, I'd like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. Such statements involve a number of known and unknown 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 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 website.

And with that, it is my pleasure to turn the call over to our CEO, Mike Dennison.

Mike Dennison -- Director And Chief Executive Officer

Thanks, David. Good afternoon, everyone. We appreciate you joining us on today's call. To start, I will discuss our key business highlights and recap our strong finish to 2019. John will then review our financial results in more detail and discuss our 2020 outlook. After that, we will open the call for your questions.

Turning to our results. We are very pleased with our record fiscal year finish both revenue and profitability exceeded our expectations. Our team executed well and we benefited from continued growth in both our Powered Vehicles and Specialty Sports Groups. We remain confident in our ability to consistently generate strong growth across our diversified business model and achieve our long-term target.

Overall, our fourth quarter sales $186 million, increased nearly 19% compared to the fourth quarter last year. Our strong results were driven by the continued success of our Powered Vehicles product line up, particularly in the OEM channel, and then in Specialty Sports Groups where products were well received within strong sell-through across multiple OEMs. From a profitability perspective, we reported non-GAAP adjusted earnings per diluted share of $0.65, representing an increase of 4% and adjusted EBITDA of $34 million or an increase of 15%.

Focusing on our Powered Vehicles Group. Product sales were up 24.2% compared with the fourth quarter of 2018 and Powered Vehicles products sales were up 33.8% in fiscal 2019 compared to the prior fiscal year. We continue to remain focused on -- on the off-road capable on-road vehicle market and are excited about the prospects, with our automotive OEM customers, Ford, Toyota and SCA. As I mentioned on our last call, one of our newest platforms is the all new 2020 Gladiator Mojave, which designed to take on extreme desert at high speed. It was unveiled by Jeep at the Chicago Auto Show last month. This vehicle features six Fox suspension components, the most Fox products ever on a production vehicle and is designed with and incorporates [Indecipherable] bypass shocks. It also includes two of our bump stops, which future an internal floating system that increases dampening performance and bottom out control will last [Indecipherable] into the travel. We are extremely pleased that work with SCA to include our performance defining products on this latest vehicle in a deep product lineup.

In the automotive aftermarket, Tuscany launched the first ever Harley-Davidson edition GMC pickup truck at Barrett-Jackson Auction on January 11. Tuscany worked closely with Harley-Davidson to create a vehicle that is distinctly [Indecipherable]. The team drew inspiration from the Harley-Davidson Fat Boy model and included over 55 additional specific components in the model 2020 truck.

A launch of note on the power sports OEM side, Honda recently announced two new sport side-by-side models for 2021 that feature FOX Live Valve technology. The Talon 1000X and Talon 1000R. This was in response to customer requests for few seat models featuring electronic suspension after the launch of the four seat version of Live Valve last year, the Talon 1000X-4.

Finally within PVG, we continue to make excellent progress on our efforts to expand our Powered Vehicles manufacturing footprint in Georgia. The development of our new facility in Hall County is on track. The first phase of this expansion project is still set to be up and running late in the second quarter of this year.

Now moving on to our Specialty Sports Group. Sales in the fourth quarter of 2019 were up 11.3% compared to the same period in fiscal year 2018. Annual Specialty Sports Group product sales increased 6.3% in fiscal 2019 compared with the prior year, which is in line with mid to high single-digit growth target. In 2019, Fox, Marzocchi, Race Face, and Easton Cycling products were acknowledged by [Indecipherable]. Here are just a few of the highlights. Our Live Valve technologies interim products took home Eurobike Gold award, won the Design and Innovation award remained gear of the year by Bicycle Magazine. Fox is named the Number 1 fork and shock by the readers of Vital MTB. Marzocchi Bomber Z2 suspension fork was named value product of the year by Pinsight and rated as must buy product by Mountain Bike Magazine in Germany. In the Bike Magazine' Readers Award, Race Face was voted the number one brand in bars and [Indecipherable] for both traditional and E-mountain bikes.

Our success is fundamentally due to our innovative product offering, strong demand for our end customers, and our ability to lead markets in both North America and Europe. In Specialty Sports, we continue to perform well against the modest industry demand backdrop. Our model year 2021 products are being well received by our OEMs and athletes and we are optimistic with our overall spec position is shaping up. Product innovation continues to drive demand by OEMs in the aftermarket. We look forward to executing on our opportunities for growth in 2020 and believe Fox's diversified product offerings will continue to resonate with our customers demonstrating our commitment to product innovation and growth of Fox brands in both existing and new categories.

While our core business remains strong, we are mindful of certain external factors that include the coronavirus that may have an impact on our business. COVID-19 is first and foremost a tragic illness and our thoughts are with those impacted around the world. We are actively monitoring the potential impact of the virus on our employees, our supply chain and end customer demand. And while we have included the likely impact of the virus in our first quarter guidance as well the minimal impact on the guidance for the balance of the year, we caution that this virus is a fluid situation where implications of long-term demand or supply chain disruptions cannot be fully quantified today.

As previously announced on February 12, 2020 we signed a definitive agreement to acquire 100% of the issued long-standing capital stock SCA from Southern Rocky Holdings. We believe this acquisition is complementary to our test business, expanding our North American footprint for manufacturing, which can provide incremental efficiencies and capacity utilization and allows us to be in closer proximity to our customers. This acquisition broadens and diversifies our product offerings across incremental trust [Indecipherable] brands, in a growing segment of the automotive industry. The combination of these benefits creates a leading platform with solid runway, but continued growth in our Powered Vehicle business. In addition, we'll significantly expand our automotive dealer network. We look forward to working with their strong team. We remain on track to close the transaction by the end of the first quarter of fiscal 2020, subject to customary closing conditions. And as we discussed on our call to review the acquisition, we expect SCA to be accretive to Fox's fiscal 2020 financial results.

In summary, we had a great end of 2019 and begin 2020 with excitement about our opportunities to win at Fox. We appreciate the strong efforts of our team as we continue to deliver differentiated products for passionate customer base which reinforces the value of our brands. We plan to build upon our existing accomplishments to generate long-term sustainable growth and value for our shareholders.

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

John Blocher -- Interim Chief Financial Officer

Thanks, Mike. Good afternoon, everyone. I'll go over our fourth quarter results, then speak to our 2020 guidance.

Sales in the fourth quarter of 2019 were $185.9 million, an increase of 18.5% versus sales of $156.8 million in the fourth quarter of 2018. Gross margin was 32.1% in the fourth quarter of 2019, a 40 basis point decrease from 32.5% in Q4 '18. The decrease in margin was primarily due to the continued shift in customer and product mix as our larger North American OEM's represented a higher proportion of sales. In addition, we continue to experience manufacturing and supply chain inefficiencies which negatively impacted gross margin.

Total operating expenses were $33.5 million or 18% of sales in the fourth quarter of 2019, compared to $28.1 million or 17.9% of sales in the fourth quarter of last year. The increase in operating expenses on a dollar basis was primarily due to higher personnel costs as we invest in product innovation, operating cost related to Ridetech and increases in facilities and various other administrative expenses to support the growth of the business. Non-GAAP operating expenses as a percentage of sales were 16.3% compared to 16% in Q4 '18. Focusing on expenses in more detail. Sales and marketing increased $1.5 million, due to our Ridetech subsidiary personnel costs and various other event and promotional related activities. R&D was up $1.5 million, primarily due to increased personnel investments to support new product innovation and cost associated with Ridetech. As we've consistently stated, the timing of both R&D and promotional expenses often changes between quarters and years depending on a number of factors, including product launch cycles.

Our general and administrative expenses in the fourth quarter of 2019 were $12.9 million compared to $10.6 million in Q4 '18. The change was primarily due to facility and various other administrative expenses, personnel costs and costs associated with Ridetech. For the fourth quarter of 2019, our effective tax rate was 10%. This tax rate is lower than our mid to long-term expected tax rate, primarily due to certain non-recurring benefits in 2019.

Adjusted EBITDA was $34.4 million for the fourth quarter of 2019 compared to $29.8 million in the same quarter last year. Adjusted EBITDA margin was 18.5% compared to 19% in Q4 '18. The lower EBITDA margin is primarily due to the change in gross margin highlighted in my earlier comments and the increase in non-GAAP operating expenses due to timing.

On a GAAP basis, net income attributable to Fox in the fourth quarter of 2019 was $22.5 million or $0.58 per diluted share compared to $20.1 million or $0.52 per diluted share in the prior year period. Non-GAAP adjusted net income was $25.4 million, an increase of $2.9 million compared to $22.5 million in the fourth quarter of the prior year period. Non-GAAP adjusted earnings per diluted share in the fourth quarter of 2019 was $0.65 compared to $0.58 in the fourth quarter of 2018.

Now focusing on our balance sheet, as of January 3, 2020, we had cash on hand of $43.7 million. Total debt outstanding was $68 million compared to $59.4 million at the end of 2018. Inventory was $128.5 million compared to $107.1 million at the end of 2018. Accounts receivable was $91.6 million compared to $78.9 million at the end of '18 and accounts payable was $55.1 million. Flat compared to the end of 2018. The changes in working capital accounts are primarily attributable to the growth of our business and the impact from our Ridetech acquisition. Additionally our net property, plant, and equipment increased to $108.4 million as of January 3, 2020 compared to $64.8 million at the end of 2018. The -- the increase was primarily driven by investments in our new PVG manufacturing facility in Georgia, which is expected to begin production in mid 2020.

Now turning to our outlook. For the first quarter of 2020, we expect sales in the range of $182 million to $190 million and non-GAAP adjusted earnings per diluted share in the range of $0.55 to $0.60. For fiscal year 2020, we expect sales in the range of $881 million to $906 million and non-GAAP adjusted earnings per diluted share in the range of $3.00 to $3.10.

As previously announced on February 12, Fox signed a definitive agreement to acquire SCA Performance Holdings. Our fiscal 2020 guidance includes approximately nine months of SCA's expected results. We expect full-year 2020 adjusted EBITDA margin to be between 19.7% and 20.5%. We expect non-GAAP operating expenses to be consistent with our stated long-term range of 16% to 16.5% of sales on a full year basis and expect some fluctuations between quarters. We continue to expect production in the new Georgia facility to begin in the second quarter and ramp throughout the balance of the year. We expect some inefficiencies to continue as well as additional duplicative cost during this ramp in 2020. We expect capex for 2020 to be in the range of 6% to 7% of sales, above our long-term capex rate of 3% to 4%, primarily due to the Georgia facility, which we anticipate to be largely complete in fiscal 2020.

Our full year guidance assumes an annual tax rate of 15% to 19%, which is consistent with our mid to long-term expected tax rate. Due to timing of various tax items, we expect Q1 to be at or slightly below the low end of this range. We continue to expect some quarterly fluctuation in tax rate to occur during the year during the -- due to the timing of certain variable such as stock option exercises and stock prices that are difficult to predict.

Finally, I'd also point out that our guidance for the first quarter reflects our current view of known impact from the coronavirus on our supply chain as they stand today and we're actively monitoring the situation. However, given the dynamic and evolving nature of the situation, we cannot accurately predict, potential future impact on our supply chain or that of our customers or end users. I would also like to note that we are not providing guidance on GAAP EPS as it cannot be provided without unreasonable efforts, due to the difficulty of accurately predicting these elements necessary to provide such guidance and reconciliation.

I would like to now turn the call back over to Mike.

Mike Dennison -- Director And Chief Executive Officer

Thanks, John. We would now like to open the call for questions. Operator?

Questions and Answers:

Operator

Certainly. At this time we will be conducting a question-and-answer session. [Operator Instructions] The first question is from Mike Swartz of SunTrust Robinson Humphrey. Please go ahead.

Michael A. Swartz -- Suntrust Robinson Humphrey, Inc. -- Analyst

Good evening guys.

Mike Dennison -- Director And Chief Executive Officer

Hi Mike.

Michael A. Swartz -- Suntrust Robinson Humphrey, Inc. -- Analyst

Just starting on maybe some of the commentary around the new Georgia facility and just the timing of that, it doesn't sound like anything's changed since the last time you've talked publicly. I guess just what everyone is trying to understand better is just the cadence of some of the inefficiencies and cost throughout the year associated with that project. So can you give us a little sense of how that would impact gross margin as we work through the year?

John Blocher -- Interim Chief Financial Officer

Sure. So here in Q1 we've already started a little bit of that activity. So there will be some of that activity in Q1, it tends to ramp a little bit in Q2 and Q3 and that gives you, we start to you bring on people and inventory, the training, duplicate training cost and things of that nature. I think you kind of leveled off there in Q3, if you kind of look at it that way as we start to get efficiency. And Mike, one thing I would comment for you also as we talked about in the past is that as we, as we get into the bit kind of back half of the year and production start-up in Georgia. We are expecting to get some -- partially offsetting operational efficiencies in our West Coast operations as a result of that transition. So there'll be a little bit of balancing on it, you will get some partial offset about that. But did I help you get the color on how that might play out in the year?

Michael A. Swartz -- Suntrust Robinson Humphrey, Inc. -- Analyst

Yeah, no, that's exactly what I was looking for. And another question, just in terms of guidance, the numbers you gave us from couple of weeks back with the SCA acquisition I presume wouldn't have changed in terms of the nine month impact?

John Blocher -- Interim Chief Financial Officer

No, no, it's consistent.

Michael A. Swartz -- Suntrust Robinson Humphrey, Inc. -- Analyst

Okay. I think that's it.

John Blocher -- Interim Chief Financial Officer

I would say Michael, be mindful that we're expecting to close late this quarter as we talked about. It could change a week or two due to that net debt, who knows how that will go, it's still a little bit TBD that -- no it is still consistent.

Michael A. Swartz -- Suntrust Robinson Humphrey, Inc. -- Analyst

Thank you.

Operator

The next question is from Craig Kennison of Robert W. Baird & Company. Please go ahead.

Craig R. Kennison -- Robert W. Baird & Company, Inc. -- Analyst

Hey, thanks for taking my questions as well. I wanted to touch on the coronavirus, hard to get away from that. To what extent does your supply chain get affected at all. Maybe just add a little more color, I'm curious if you have component suppliers that have shut down or had any temporary shutdown? And then whether any of your OEM customers have struggled to stay open because of other of their suppliers are not operational even if you may be?

Mike Dennison -- Director And Chief Executive Officer

Yeah, let me try and tackle that, Craig. So what we did as we saw this kind of become a real global issue -- we put together a team of folks from both business and supply chain to understand -- all were done in the component level where we thought our supply chain might be affected. We do those reviews weekly and from where we sit today with the inflation we have, I'd say that impact on our supply chain is very minimal. Few things moved out slightly, it was in the quarter, but nothing that would be of material change from a supply chain perspective. That is -- that's what we know today and that's going to play that out as things change globally of course with this virus.

On the end customer demand. So far we've got strong finish from our customers that things continue, if not as normal, as close to normal you can be in these circumstances. So we feel pretty good about it. Again, I think as this virus spreads globally there could be some implications of that. But as of where we sit today, we think it's pretty minimal in our guidance for both the quarter and the year. And I think it's imperative for us is to stay very focused on it and very conscious of the potential implication.

Craig R. Kennison -- Robert W. Baird & Company, Inc. -- Analyst

Thanks. And then a few quarters back you acquired Ridetech. I'm wondering if you'd provide an update on how that integration is going and what opportunities have been developed since you've acquired the company?

Mike Dennison -- Director And Chief Executive Officer

Yeah, Ridetech done very well. That was our launch into street performance of the category. We fully integrated that business toward the back half of last year. It's functioning extremely well. When I say we fully integrated, there's still a few things that we need to do like Oracle implementation, etc. but from a business operations perspective we are fully integrated. So we think that's a long growth curve as we get into street performance we think Ridetech is a key piece of it. And that's performed at/or above our expectations since the acquisition. So we feel good about it.

Craig R. Kennison -- Robert W. Baird & Company, Inc. -- Analyst

Thanks. And finally shifting to cash flow, you mentioned the capex being elevated this year, what would that figure return to in 2021? And also with respect to working capital, what kind of working capital draw, should we expect in 2020?

Mike Dennison -- Director And Chief Executive Officer

I'll take the first one and John have the second one. So we believe capex as a function of 2021 goes back to its more normal range of 3% to 4%. We think once we get through Georgia again, envision Georgia gives us enough expansion that we are in great shape for a number of years and our capex should come back to the 3% to 4% range.

John Blocher -- Interim Chief Financial Officer

Yeah. Craig, on the working capital. I say in the near term, we're going to be putting inventory in additional -- in front of the Georgia factory. So I think they're going to be additional need for working capital. Also, with the acquisition of SCA, got those finance vehicle on it. I think it kind of grows up a little bit then levels off and I think longer term what we're expecting out of that Georgia facility, as I don't want use the word significantly, we're definitely expecting some improvement on the inventory -- the working capital at that factory because that's a much more elegantly designed and efficiently designed factory than our current supply chain.

Craig R. Kennison -- Robert W. Baird & Company, Inc. -- Analyst

Great, thank you.

Operator

The next question is from Scott Stember of CL King. Please go ahead.

Scott Stember -- CL King & Associates -- Analyst

Good evening, and thanks for taking my questions.

Mike Dennison -- Director And Chief Executive Officer

Hi Scott.

Scott Stember -- CL King & Associates -- Analyst

Just looking out, I appreciate the fact, and thanks for the, the information about what you're seeing right now from the coronavirus, but maybe just give us an indication of how reliant you are on parts from China, whether it's sub-components or fully design component, just trying to get a sense of what we should be looking for in the event that things do get worse as the year progresses? Thanks.

Mike Dennison -- Director And Chief Executive Officer

Yeah, you know China is a bigger supply chain around aluminum components, aluminum parts things like bearings, it's not a enormous list of different components. And most of those factories, as I said earlier are functioning and we're getting the inventory we need so no significant issue. We do also get wheels from China for our [Indecipherable] business. So we're tracking that and we're OK there too, but on the Powered Vehicles side, it's really kind of wheels supply chain, on the bike side it's more aluminum components, bearings stuff like that.

Scott Stember -- CL King & Associates -- Analyst

And on the demand side in China, can you maybe just touch on that?

Mike Dennison -- Director And Chief Executive Officer

We don't sell much into China. I think China, John correct me if I'm wrong, China is about 1% of our revenue, so it's not -- we don't have a demand issue there.

Scott Stember -- CL King & Associates -- Analyst

Got it. And just look at the SCA acquisition and just try to -- for modeling purposes, from an interest expense standpoint and balance sheet standpoint, just remind us of where you expect the leverage to be when the deal closes? Where you expect it to be. I don't know, with the 12 months to 18 months and maybe just give us an indication of where, what kind of expense, interest expense, we should be looking at on a quarterly basis at least initially?

John Blocher -- Interim Chief Financial Officer

Sure. Let me take that one. So the entire -- the deal was financed along with the additional working capital. Also this quarter as we talked about around capex, we've got a high capex first half this year relative to Georgia expansion going on. And then some additional working capital increases. So I'm expecting somewhere around 2.5 times EBITDA trailing coming out of the quarter here. And then I think over the next 12 months to 18 months we get that down, I don't want to give a number, but certainly our comfort zone is more in the one to two range. So I think we'll kind of get that down over the coming six, 12, 18 months of thing.

Scott Stember -- CL King & Associates -- Analyst

Got it. And then on the interest expense line.

John Blocher -- Interim Chief Financial Officer

Yes, I would just assume market. I've given you the -- we've given you the value of the transaction. You've got into modeling capex that sort of thing and run it. So you just assume market rates, I think is the best way to kind of estimate that interest expense.

Scott Stember -- CL King & Associates -- Analyst

Perfect. All right, that's all I have. Thank you.

John Blocher -- Interim Chief Financial Officer

Thank you, Scott.

Operator

The next question is from Larry Solow of CJS Securities. Please go ahead.

Lawrence Solow -- CJS Securities, Inc. -- Analyst

Great, thank you and good afternoon. Just a couple of follow-ups, on the specialty -- Specialty Sports, excuse me, pretty nice growth in Q4 and you sort of rebounded to the lower end of your long-term range. I know you don't necessarily guide by each segment, but if I'm not mistaken, a bunch of new product platforms coming out in 2020, good -- decent amount more than they were in '19. Any thoughts on that and sort of the outlook generally speaking terms. Is that sort of in the normal range or --?

Mike Dennison -- Director And Chief Executive Officer

Yeah, I would say the outlook is in the normal range, but we're still going to guide that business in 2020 on the -- mid to high single digits, but we feel great about the product launches that we're doing this year for -- they are actually for model 2021 bikes, but those bikes come out in 2020. We feel great about that. So we're really looking forward to a good year with the SSG business.

Lawrence Solow -- CJS Securities, Inc. -- Analyst

Can you give us any color on some of the -- some of those new platforms, again from a high level maybe?

Mike Dennison -- Director And Chief Executive Officer

Yeah, the ones that we've talked about in the past are all fork and suspension systems. We haven't given a lot of color on the components of our business. We see some good things happening there too. We won't actually announce which bikes we are on because that going to front runs our customers. So we let those come out and get introduced by the -- by the OEMs, but a lot of new platforms like I said are on suspension in core products.

Lawrence Solow -- CJS Securities, Inc. -- Analyst

Okay. And then on the margin outlook, it sounds like gross margin, there will still be some inefficiencies, at least through the first half of the year and maybe I guess full year gross margin may be down a little bit, but you're actually guiding to a little bit higher on the EBITDA side, so do you pick up a little bit on operating leverage, operating efficiencies, or how should we look at that in '20? And then could you sort of help us -- yeah go ahead. And then I got a follow-up to that, thanks.

Mike Dennison -- Director And Chief Executive Officer

Yeah, we get a little bit -- just don't forget we get a little bit of extra lift on the SCA. I think their EBITDA margin growth [Indecipherable] about the legacy Fox.

Lawrence Solow -- CJS Securities, Inc. -- Analyst

Okay. I will keep that in mind. [Speech Overlap] OK, that's the primary driver, you think or--.

Mike Dennison -- Director And Chief Executive Officer

Yes.

Lawrence Solow -- CJS Securities, Inc. -- Analyst

Okay. And then how but as we look out to '21 and beyond. So certainly '20 seems like still another transition year, but clearly we would expect some benefit bounce back to where you were then hopefully you get some, some pretty good benefit as you consolidate or move a lot of your stuff into newer capacity and outside of a higher labor area on the West Coast there. Some of that comes out, I don't know -- if you can quantify the impact, but when you move to Taiwan on the bike side few years ago, it was a multi-hundred several hundred bps over a several year period, but how should we look at it on the power sports bike?

Mike Dennison -- Director And Chief Executive Officer

I think there are absolutely opportunities for efficiencies in manufacturing and supply chain. I would say it's even greater than just the people impact. Clearly access to labor, access to talent is going to be easier for us in Georgia than it is where we're at in California, but more importantly the supply chain that is vertically integrated, most of it housed in the building, so within one building versus within suppliers and hubs and nodes all over the western part of United States. So this is a much more efficient supply chain where you can get machining, anodizing and manufacturing in the same building. So that is where we're going to stand to gain significant opportunity.

Lawrence Solow -- CJS Securities, Inc. -- Analyst

I mean would you start expect -- should we start expecting those obviously not all once, but in '21 moving upward in the right direction. On the margin side.

Mike Dennison -- Director And Chief Executive Officer

Yeah, I think so. I think 2020 is a year where we're in transition where we are going to get -- as John mentioned before some efficiencies in California while we bring up Georgia. But you're really going to see the weight of the value of Georgia starting to hit us in 2021.

John Blocher -- Interim Chief Financial Officer

That we've been moved from California to Taiwan. That was a significantly different cost structure than a move to California [Speech Overlap] I don't want to think --.

Lawrence Solow -- CJS Securities, Inc. -- Analyst

Not quite to that magnitude, but I'm hopeful that some, obviously, you'll get some of the, some kind of benefits, not quantified, now I realize that not as great. Last question just on the commercial, truck to trailer any updates on that. And are you including any sales in your guidance for '20 -- for 2020?

Mike Dennison -- Director And Chief Executive Officer

We've kept the guidance very small on commercial for 2020 just because it's going to come into the Georgia solution later in the back half of the year or at the very end of the year. It won't be the first thing that we moved so, and Georgia is really required to get to the scale and volume that we need to support our customer base. So yeah, we have consciously kept that as a very small component of our 2020 guidance.

Lawrence Solow -- CJS Securities, Inc. -- Analyst

Okay. Hopefully by 21 and beyond. Hopefully that will start seeing a little bit more material effect. Absolutely, great. Thanks so much. I appreciate it guys.

Operator

The next question is from Jim Duffy of Stifel. Please go ahead.

Jim Duffy -- Stifel Nicolaus & Company, Inc. -- Analyst

Thank you. Hello, guys.

Mike Dennison -- Director And Chief Executive Officer

Hi Jim.

Jim Duffy -- Stifel Nicolaus & Company, Inc. -- Analyst

Hey just to start. It is given in the K. It looks like Ford was an 11% customer in '19 in the past you guys have disclosed automotive percent of the mix, maybe it's in there and I haven't seen it yet, but can you speak to where auto stands as a percent of the mix for 2019 and maybe -- go ahead, John.

John Blocher -- Interim Chief Financial Officer

Jim, let me -- yeah, let me take this and maybe Mike can -- when we did that, we've done that once so far and we kind of guided that we were not going to be doing that on a regular basis, that it's a periodic basis we're going to be doing that. So I don't think we disclose that, but you're right Ford was an 11% in the year for us.

Jim Duffy -- Stifel Nicolaus & Company, Inc. -- Analyst

Okay.

Mike Dennison -- Director And Chief Executive Officer

Ford was great for us in 2019 with the Ranger Raptor and the Raptor products, it was just pretty significant volume, which was fantastic to see and of course as we've talked about in the past that a little bit of why that frictional costs in California occurred, we just exceeded our greatest forecast expectations with that business.

Jim Duffy -- Stifel Nicolaus & Company, Inc. -- Analyst

Great. Then shifting gears, especially sports. Can you talk about the mix of business, you're seeing between eBikes and traditional bikes? I'm curious is eBikes driving all the growth or you are actually seeing growth in the traditional bike business as well?

Mike Dennison -- Director And Chief Executive Officer

We're seeing it in the traditional bike business as well. In the premium end of that space we've seen really nice uplift. eBikes are still emerging in that category, because as you know initially eBikes really weren't much for the mountain bike category. They are more city bikes and things like that. As that transitions to more of a mountain bike and a premium mountain bike at that, we think that's a phenomenal opportunity for us. So we're really focused on that in 2020 and beyond, but historically, a lot of our growth has come from the traditional space.

Jim Duffy -- Stifel Nicolaus & Company, Inc. -- Analyst

Okay. Some of your key platform providers are coming out with high profile eBikes this year, is that a meaningful driver to the category?

Mike Dennison -- Director And Chief Executive Officer

I think eBikes extend their demographic that you can sell a mountain bike into and a premium mountain bike into. I believe that it allows people to do more biking and mountain biking than they would have otherwise. And I think on a long-term basis, that they are real significant number for us.

Jim Duffy -- Stifel Nicolaus & Company, Inc. -- Analyst

Okay. Last one from me, just tying up loose ends, 2019 had a 53rd week, John, how should we think about that as modeling for the fourth quarter. Anyway to size that contribution?

John Blocher -- Interim Chief Financial Officer

For the last quarter of '19 you mean?

Jim Duffy -- Stifel Nicolaus & Company, Inc. -- Analyst

Yes.

John Blocher -- Interim Chief Financial Officer

Yeah, it's interesting. We're going into it -- we were thinking the holidays played up, we're going to -- the extra days is going to be around holidays and things like that. I would tell you, we think it helped us a little bit you know with where we came in. I don't want to give you a number, but it did help us a little bit. I wouldn't say it was all it was -- it was the entire thing was routed there. I think the business path was fairly strong. We probably picked up a little bit here because the extra couple of days.

Jim Duffy -- Stifel Nicolaus & Company, Inc. -- Analyst

So not big enough to really think about as we model for fourth quarter of '20?

John Blocher -- Interim Chief Financial Officer

Right, correct.

Jim Duffy -- Stifel Nicolaus & Company, Inc. -- Analyst

Okay. Thank you guys.

Operator

The next question is from Alex Maroccia of Berenberg. Please go ahead.

Alex Maroccia -- Berenberg -- Analyst

Hey good afternoon, thanks for the questions. So it looks like Powered Vehicles are now 60% of your business and they seem to be on track to hit around 65% by the end of this year. Could you just remind us how dilutive some of the contracts are to group margins? And what you think you could do in the long term for adjusted EBITDA margins once the Georgia plants online?

John Blocher -- Interim Chief Financial Officer

Yeah, so a couple of things. I think your numbers are right relative to the percentages of Powered Vehicles versus SSG. We don't talk about the contract specifically. We believe we've got contracts that match our type of business we're not a commodity supplier. We're not a broad line supplier to these companies, we sell a branded product, it's a premium product.

In terms of where we go with margins, Georgia will help us significantly. We have not actually qualified what those numbers are relative to Powered Vehicles, although we've said they are meaningful. And I think for us aftermarket is always a good balance in the equation. So even in Powered Vehicles, we have a significant aftermarket business, which has higher margins typically than OEM business. So we're balancing that for a number of different ways and we will stay focused on that balance because we think it's healthy for the overall margins of business.

Mike Dennison -- Director And Chief Executive Officer

Yeah, John I'd also kind of follow-on to that as the SCA acquisition that we did is aftermarket channel. And so their margins tend to be a little bit higher as well, so that adds to that PVG equation.

Alex Maroccia -- Berenberg -- Analyst

Okay, makes sense. And I know you're not going to give specific contract details, but we are getting close to the end of life cycle for the generation two Ford Raptor, it's an important part of the business that you gave the 11% number. Can you just give us any sense of how pricing at the end of the current life cycle may have affected margins in '19? And what we could expect in '20?

Mike Dennison -- Director And Chief Executive Officer

Couple of things are happening in '20. And I'll tell you in fact actually the Mojave deal that we struck with the SCA, on that vehicle we actually have six products. So when you think about our ability to sell revenue into a per-vehicle basis having an additional 50% components on the vehicle helps us a lot. So we're increasing our value per vehicle on two fronts, really on the premium of product category with live valve and things like that as well as the number of components. So we -- that's how we kind of attack it and we think you know with Raptor, their next generation Raptor and some of the new products coming out from both SCA and Ford and others that I think I think we're looking pretty positive about the long-term growth aspects of it both margin and revenue.

Alex Maroccia -- Berenberg -- Analyst

Okay, that's helpful. Thanks guys.

Operator

[Operator Instructions] The next question is from Rafe Jadrosich of Bank of America Merrill Lynch. Please go ahead.

Rafe Jadrosich -- Bank of America Merrill Lynch -- Analyst

Hi, good afternoon. Thanks for taking my question. I just wanted to follow-up on the [Indecipherable].

Mike Dennison -- Director And Chief Executive Officer

You were breaking up a little bit, I'm not sure I caught that completely. Something around mountain bikes and market shares. Can you just repeat that last?

Rafe Jadrosich -- Bank of America Merrill Lynch -- Analyst

I think you mentioned that when you talked about the overall industry that you've seen there is modest growth, can you talk about your overall market share trend within the industry? And then, yes I think the overall the growth trends?

Mike Dennison -- Director And Chief Executive Officer

Yeah, you know, we think in mountain bike it tends to still remain kind of the modest growth business we talked about, kind of tracking to GDP, of course, our growth is significantly higher than that and that is a function of share and that's a function of new products as well. So we're really comfortable with their spec share in 2019. It was great in 2020, it looks to be as good or better. And it's not -- again, we get down to a market where you're one or two players on the premium end of the business, it's kind of give and take each year to certain extent, but we continue to win awards and win races. So I think that tells you that we're holding our own, and probably doing a little bit better than our own, if you will.

Rafe Jadrosich -- Bank of America Merrill Lynch -- Analyst

I mean you see additional category opportunity in mountain bike that you're not in the major area?

Mike Dennison -- Director And Chief Executive Officer

We do. You know there is a couple of things that we're, that we think are interesting for us. One is the eBike category opened up a notion of needing a lighter more functional fork and shock setup than the traditional bikes is a little bit different. We think the gravel bike category is interesting for us, not necessarily a huge category but one is growing and whether we think it could be interesting for dampening system, but some time and of course we get a free ride business where Marzocchi wins plays has been great for us. So we've been -- those are good categories to grow. And then on the Race Face Easton side, carbon wheels are growing in both mountain bikes, road bikes and as that expand its interesting spaces that we, that we think will grow road to. So we think there's a lot better. We really love that business and I know it's not the, the market, the business has an industry that didn't grow as fast as others, but where we feel about it's we're number one or two in those spaces and we like that positioning.

Rafe Jadrosich -- Bank of America Merrill Lynch -- Analyst

And then I want to just follow up on the SCA acquisition. Is more of your acquisition strategy going forward? SCA nothing larger than prior acquisition you've made push the leverageable a little bit higher. Kind of going forward, can you talk about after you deliver what the acquisition strategy is, what are the characteristics in terms of size, target multiple, categories that you will be looking for additional M&A?

Mike Dennison -- Director And Chief Executive Officer

Yeah, you know just because we did a large acquisition doesn't mean we won't do a small one. When we find a technology or business that opens the door for us or gives us the capability we didn't previously have, yeah, we are fine to do smaller-sized acquisitions, Ridetech being a good example of that. At the same time, we have a limited bandwidth for management team so buying small companies takes about as much work as buying a big company sometimes by a big company, you get a fantastic management team with the acquisitions, which is the case with SCA and those are much easier to integrate. Those are much easier to bring into the family and run the business. So we like those bigger acquisitions, they have a bigger impact on our business faster. And as we grow, it's kind of the law of big numbers that we need to do bigger deals.

In terms of valuations, it really depends on the deal. We like to get things at a value. So we -- we like to buy assets that are not premium priced at the same time we are depending on the market and the space we're trying to acquire into sometimes you pay more of a market price for that -- for a target, so we are not afraid of it, but it really has to meet the strategic direction of the company, know where we are going. We want to stay completely on track with who we are, how we run our business and our culture so we use those as big filters to make sure that when we acquire somebody we're getting the right team, the right company with the right product that matches what we do. So that's kind of [Indecipherable] hopefully that help.

Rafe Jadrosich -- Bank of America Merrill Lynch -- Analyst

Yeah, that's really helpful. Sorry, just one more I wanted to ask on the guidance quickly. In terms of the guidance for 2020, it looks like the organic growth is very strong in the first quarter and then sort of moderate in quarters two through four. Is there anything specific that's driving that on an organic basis? Was that conservatism or did this [Indecipherable] can you help us understand the cadence throughout the year for top line growth?

John Blocher -- Interim Chief Financial Officer

Yeah, let me -- this is John. Let me take that one. First of all, I'd remind you that we acquired Ridetech in the second quarter of last year. So it's not, it wasn't in the Q1. So that's part of that growth that's a you're calling it organic there. Additionally, I think there's a little bit of seasonality this year within our PVG side specifically, especially vehicles on the platform changes and timing of some of those things. It's kind of a shifting around from probably from Q2 into Q1 is a little bit. So the combination of those two things is why you see a little bit of a little bit more accelerated Q1 kind of going down to kind of a more normalized rate in the back half. So I think that's what is going on.

Rafe Jadrosich -- Bank of America Merrill Lynch -- Analyst

Okay, thank you. It is very helpful.

Operator

This concludes the question-and-answer session. I will now turn the call over to Mike Dennison for closing remarks.

Mike Dennison -- Director And Chief Executive Officer

Thank you. We appreciate your participation and questions on today's call. Thank you for your interest in Fox. We look forward to speaking with you when we report our 2020 first quarter. Have a good evening.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

David Haugen -- Vice President, General Counsel And Secretary

Mike Dennison -- Director And Chief Executive Officer

John Blocher -- Interim Chief Financial Officer

Michael A. Swartz -- Suntrust Robinson Humphrey, Inc. -- Analyst

Craig R. Kennison -- Robert W. Baird & Company, Inc. -- Analyst

Scott Stember -- CL King & Associates -- Analyst

Lawrence Solow -- CJS Securities, Inc. -- Analyst

Jim Duffy -- Stifel Nicolaus & Company, Inc. -- Analyst

Alex Maroccia -- Berenberg -- Analyst

Rafe Jadrosich -- Bank of America Merrill Lynch -- Analyst

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