Earnings Call Transcript - FOXF Q2 2021

Operator, Operator

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the Fox Factory Holding Corporation's Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I'd now like to turn the conference over to your host, Vivek Bhakuni, Director of Investor Relations and Business Development. Thank you, sir. You may begin.

Vivek Bhakuni, Director of Investor Relations and Business Development

Thank you. Good afternoon, and welcome to Fox Factory's second quarter 2021 earnings conference call. I'm joined today by Mike Dennison, our Chief Executive Officer; and Scott Humphrey, our Chief Financial Officer and Treasurer. First, Mike will provide business updates, then Scott will review the financial results for the quarter, and then the outlook followed by the closing remarks from Mike. We will then open the call up for your questions. By now everyone should have access to the earnings release, which went out today at approximately 4:05 Eastern Time. If you have not had a chance to review the release, it's available on the Investor Relations portion of our website at investor.ridefox.com. Please note that throughout this call, we will refer to Fox Factory as FOX or the company. Before we begin, I would like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. Such statements involve a number of known and unknown uncertainties, many of which are outside the company's control and can cause future results performance, or achievements to differ significantly from the results performance, or achievements expressed or implied by such forward-looking statements. Important factors and risks that could cause or contribute to such differences are detailed in the company's latest Form 10-Q and in the Annual Report on the Form 10-K filed with the Securities and Exchange Commission. Except as required by law, the company undertakes no obligation to update any forward-looking or other statements herein, whether as a result of new information, future events or otherwise. In addition, where appropriate in today's prepared remarks and within our earnings release, we will refer to non-GAAP financial measures to evaluate our business as we believe these are useful metrics that better reflect the performance of our business on an ongoing basis. Reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures are included in today's press release, which has also been posted on our website. And with that, it is my pleasure to turn the call over to our CEO, Mike Dennison.

Mike Dennison, CEO

Thanks, Vivek and good afternoon. We appreciate everyone taking the time to join us for today's call. On behalf of the FOX team, I'm extremely proud to say that this quarter is one for the record books. Thanks to the dedication, perseverance, and execution by our team, we have not only delivered a fourth consecutive record revenue quarter, but also crossed $1 billion in revenue on a trailing 12-month basis. This feat clearly demonstrates the market performance and fundamentals that highlight our portfolio of innovative products within a well-diversified business. This achievement is particularly noteworthy as our team delivered these impressive results while maneuvering through the newer supply chain and inflationary challenges present in the global economy. I am happy to report that we completed two acquisitions this quarter: SOLA Sport and Outside Van. SOLA Sport, which is in our Specialty Sports Group, is a distributor for FOX and Marzocchi brands in Australia paired with Race Face and Easton components. SOLA Sport offers a full range of mountain bike and road parts and accessories. More importantly, the acquisition gives us a foothold in Australia, which we believe is an important market for FOX in both SSG and PVG going forward. Outside Van, which is in our Powered Vehicles Group, is a premium adventure van upfitter that sells directly to an ever-growing base of overland enthusiasts. Outside Van, like SCA, continues to enable growth of FOX products as we vertically integrate into these vehicles. Both of these acquisitions represent a core tenet of our M&A strategy focused on geographic expansion and new market developments. Although these deals were relatively small financially, we see them as valuable additions to the FOX brand. Moving on to the numbers. We had a successful second quarter with over $328 million in sales, which is a 79% growth versus the second quarter of last year. Given that we had a skewed year-on-year comparison as most of the PVG OEMs were shut down for the majority of Q2 last year, it is worth highlighting that we also achieved almost 17% growth in Q2 revenue on a sequential basis versus Q1 of 2021. This outstanding growth is driven by both our SSG and PVG businesses, which grew 64% and 92%, respectively, compared to the prior year period. The demand across our product categories continues to be strong with no signs of abating given our uncompromising brand and customer loyalty. Our non-GAAP adjusted earnings per share increased from $0.50 in the second quarter of 2020 to $1.20 in the second quarter of 2021, which is also a new record. The pandemic has brought a fundamental shift in consumer behavior towards health-conscious and outdoor lifestyle products. We believe this change is more secular in nature. Consequently, we are benefiting from the nature of FOX enthusiasts in both the recreational and professional categories. Starting with the Specialty Sports Group, this is our fifth consecutive record revenue quarter. Thanks to our extremely capable team, we were able to scale and accelerate production while managing our supply chain to deliver for our customers in this robust demand environment. Despite a slight improvement in the bike inventory channels, the inventory levels continue to remain close to historic lows. With the current pace of industry demand, we believe it will still take 8 to 10 months to meet current customer demand levels and another 12 to 18 months to replenish depleted inventory channels. As I mentioned in the last earnings call, we continue to capitalize on the expanded rider base during this unprecedented restocking cycle by leveraging strong OEM and supplier relationships. As part of our 2022 bike line, FOX launched two new forks, two new shocks, and a new ultralight transfer SL dropper post. Along with the two updated versions of the 34 Fork, this is one of our most popular models. These innovative products feature improved ride dynamics, more tunability, and substantial weight reductions compared to previous models. Our new dropper post and updated 34 Fork were featured in the Tokyo Olympics. In addition, between Downhill World Cups and Enduro World Series races, FOX athletes have claimed 19 podium spots this quarter, and we are leading the standings for both World Cup Downhill and Enduro World Series. Shifting to our Powered Vehicles Group, this was our second consecutive record revenue quarter led by strong sales in powersport and the outstanding product lines. I am also pleased to report that automotive OEM model year changeovers are back online, which should support our long-term OEM growth rate expectation and help us leverage the efficiency we are creating in our new Gainesville facility. Speaking of the Gainesville facility, the transition is on track and should finish by the end of this year. Moving on to our accomplishments in the racing world, FOX continues its domination in the desert with overall wins by Bryce Menzies in San Felipe, Larry Roeseler at the Baja 500, and Toby Price at the race in Australia. Our Live Valve technology continues to shine in the pro UTV class. We have earned multiple wins and podiums in both San Felipe and Baja. Furthermore, in Baja, FOX-equipped vehicles claimed eight out of the top 10 overall finishes, 10 of the top 12 pro UTV spots, and claimed 13 class wins in total. At the Ultra4 in Illinois, the Ford Performance Stock Bronco piloted by the Lovell brothers took the class win in the vehicle's debut race. In addition, Vaughn Gittin Jr. and Loren Healy unveiled their all-new FOX-equipped Ford Performance Unlimited Class Broncos. With that, we are proud to announce that all six Ford Performance Bronco race programs run FOX suspension. As much as we are celebrating our success, it has clearly come as a result of a lot of hard work. While we are pleased with our performance, the headwinds to our business continue to persist and potentially grow as the magnitude of our sales increase; supply chain issues have not eased, and we continue to search for alternative sources to minimize interruptions as well as work closely with our suppliers to expand their production. We believe that supply chain disruptions will remain a risk in the second half of this year. Additionally, component shortages across multiple industry segments are prevalent, leading to material price increases, which continue to put pressure on gross margins. Shipping and container shortages have also exacerbated freight costs and lead times around the world. These issues are consistent with what we are hearing from other management teams and will persist into next year. All this to say, we recognize the structural headwinds ahead of us, but we are refining our operational playbook to not only mitigate these challenges, but also strengthen our core competencies, thereby extending our competitive differentiation. And with that, I'll turn the call over to Scott.

Scott Humphrey, CFO

Thanks, Mike. Good afternoon everyone. I'll begin by going over our second quarter financial results and then review our guidance. Sales in the second quarter of 2021 were $328.2 million, an increase of 79.2% versus sales of $183.1 million in the second quarter of 2020. Our Powered Vehicles Group delivered a 92.4% increase in sales compared to the second quarter of 2020, primarily due to increased demand in both the OEM and aftermarket channels, including strong performance in our powersports and Up-Fitting product lines. Looking back at 2020, our results in the prior year quarter were impacted by production shutdowns at a majority of our OEM customers. Moving to SSG, the Specialty Sports Group delivered a 63.9% increase in sales in the quarter compared to last year, driven by continued high demand in their OEM channels. FOX Factory's gross margin was 33.9% in the second quarter of 2021, a 110 basis point increase from 32.8% in the prior year period. Non-GAAP gross margin also increased by 100 basis points to 34.1% versus Q2 of 2020. The increase in gross margin was primarily driven by favorable product and channel mix, led by higher volume sales in our Specialty Sports Group and the strong performance in our powersport and Up-Fitting product lines. Additionally, our prior fiscal year period results were negatively impacted by higher factory-related costs, including incremental expenses related to the COVID-19 pandemic. Total operating expenses were $58.4 million, or 17.8% of sales in the second quarter of 2021, compared to $40.6 million or 22.2% of sales in the second quarter of last year. The increase in operating expenses on a dollar basis was primarily due to higher employee-related costs, higher commission costs, and investments to right-size our back-office infrastructure. Looking at non-GAAP operating expenses as a percentage of sales, our non-GAAP OpEx decreased by 220 basis points to 15.7% compared to 17.9% in the prior year period. Looking at OpEx in more detail, sales and marketing expenses increased approximately $5.2 million, primarily due to higher commissions of $3.6 million. Research and development costs increased approximately $3 million, primarily due to personnel investments to support future growth and product innovation. General and administrative expenses increased by approximately $9.8 million due to higher employee-related costs of $6.8 million, as well as increases in various other costs as we continue to right-size our administrative support functions. For the second quarter, our effective tax rate was 13.3%. This rate is lower than our previous long-range guidance of 15% to 19% primarily due to a windfall from stock-based compensation. Adjusted EBITDA increased by 106.8% to $69.7 million for the second quarter of 2021 compared to $33.7 million in the same quarter last year. I want to congratulate our team on back-to-back record quarters in EBITDA. Furthermore, adjusted EBITDA margin expanded 280 basis points to 21.2% compared to 18.4% in the second quarter of 2020. The increase in EBITDA margin is primarily due to the impact of higher sales and favorable product mix. On a GAAP basis, net income attributable to FOX in the second quarter of 2021 was $44.3 million or $1.05 per diluted share compared to $12.6 million or $0.32 per diluted share in the prior year period. Non-GAAP adjusted net income was $51 million, an increase of approximately $31.3 million, or 159% compared to $19.7 million in the second quarter of last year. We delivered $1.20 of non-GAAP adjusted earnings per diluted share in the second quarter of 2021 compared to $0.50 in the second quarter of 2020. Now focusing on our balance sheet. For the second quarter which ended on July 2, 2021 compared to our 2020 year-end on January 1, 2021 we ended with cash on hand at $275 million. Accounts receivable was $149.7 million compared to $121.2 million. Inventory was $208.6 million compared to $127.1 million, and accounts payable was $154.1 million compared to $92.4 million. The increase in inventory is primarily due to additional raw material purchases to mitigate risks associated with supply chain uncertainty. The changes in accounts receivable and accounts payable reflect business growth as well as the timing of vendor payments. Our net property plant and equipment increased to $177.6 million as of July 2, 2021 compared to $163.3 million at the end of 2020, reflecting capital expenditures of $27.6 million in the first half of 2021. The increase reflects investments in our manufacturing facility in Gainesville, Georgia. Goodwill increased to $299.8 million as of July 2, 2021 compared to $289.3 million as of January 1, 2021 due to our acquisition of Outside Van during the second quarter. Now turning to guidance. We are raising our guidance for both our third quarter and full year 2021. For the third quarter, we expect sales in the range of $300 million to $320 million and non-GAAP adjusted earnings per diluted share in the range of $0.95 to $1.15 per share. For the full year, we expect sales in the range of $1.20 billion to $1.24 billion and non-GAAP adjusted earnings per diluted share in the range of $4.25 to $4.45 per share. I'd also like to note that we are not providing guidance on GAAP EPS as it cannot be provided without unreasonable efforts due to the difficulty of actually predicting the elements necessary to provide such guidance and reconciliation. For our full year tax guidance, we still expect our tax rate to be closer to the lower end of our previously provided range of 15% to 19%. The excellence of FOX's operations, brand, and strategy were on full display in the first half of the year, given the well-known macro headwinds ranging from supply chain to labor and material inflation, FOX has been successful so far in mitigating these challenges with only a modest impact on the financial results. As we enter the second half of the year, we are cognizant of the challenges ahead and their possible top and bottom line impact. We expect to return to a more typical product mix as some of the PVG automotive OEM model year changeovers come back online. Historically, we have been able to offset inflationary cost pressures through price adjustments. However, the combination of expanding inflationary pressures on material, labor, and logistics costs could be a drag on margins in the second half of 2021. With that, I would like to turn the call back over to Mike.

Mike Dennison, CEO

Thank you, Scott. In closing, we have expanded our competitive position while delivering against our customer commitments and are looking forward to continued strong momentum into the second half of the year. We believe we have laid out credible growth plans without taking our eyes off the risks we face. The spread of the COVID Delta variant remains a concern, which threatens to derail the rapidly opening global economy. But throughout the pandemic, we have proven that FOX has only become more versatile, and we will continue to invest and evolve to maximize value for our employees, shareholders, and the communities where we operate. I would now like to open the call for questions. Operator?

Operator, Operator

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

Mike Swartz, Analyst

Hi. Good afternoon, guys. Just wanted to touch on these acquisitions understand they're fairly small, but maybe just give us a high-level strategic rationale for each of the transactions. And then maybe for Scott, did you embed any benefit from those two acquisitions in your guidance for 2021?

Mike Dennison, CEO

Hey, Mike, this is Mike. I'll start and I'll let Scott handle the second question. So for us this is obviously more strategic than financial in nature. We think Australia with the SOLA Sport acquisition is an important stepping stone in terms of getting a foothold in Australia for both powered vehicles and for our bike business within SSG. This ability to pick up a deal, acquire a facility, and gain entry into that continent is important. We believe it could drive long-term value in both sides of the business and we're pretty excited about it. Regarding Outside Van, Up-Fitting has been a great part of our business. We've added two in the last year with FCA. We think Outside Van is a very similar model to that. We're looking vertically at those vehicles and we think that the premium performance nature user of that vehicle aligns with our demographic. As we see that market expanding significantly and with a high premium company like Outside Van, we need scalability leading with the ability to grow manufacturing and drive more volume, and increase productivity. We think we're a great fit for that. So it allows us to utilize our own components and shocks and products while also tapping into a space that is very similar to our Up-Fitting business. So both acquisitions are strategic in significance even though they are small financially. Scott, you want to take the second question?

Scott Humphrey, CFO

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

Mike Swartz, Analyst

Okay. Thanks. That's helpful. And then just a follow-up question. Just give us a sense of a lot of capacity constraints and availability issues throughout the supply chain. Maybe touch on your Up-Fitting business and your ability to source chassis. Is that a risk? Is that something that you've dealt with in the second quarter?

Mike Dennison, CEO

Well, we think it's fundamentally a downturn. There's always a risk when we don't have the vehicles in hand. We know that the vehicles are allocated just not readily available, Mike. So we think we're in pretty good shape. As risks go, there are probably bigger risks for us in the second half of the year. We don't want to continue to limit that from a concern level just as a way for the business to show up. But the team has done wonderfully in finding creative ways to get vehicles in the first half of the year to ensure we had more than we expected in the first half. That's going to continue in the second half as well. And I think we're in pretty good shape.

Mike Swartz, Analyst

Thanks a lot.

Jim Duffy, Analyst

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

Mike Dennison, CEO

Hey, Jim. Thanks.

Jim Duffy, Analyst

Yes, a couple of questions for me. Looking at the guidance, if I use 2019 as a baseline, the guided growth rate looks stronger in the fourth quarter than the third quarter. Just thinking about your pattern historically, you've been more conservative further into the future. Looking to the fourth quarter, is there some sort of timing issues or something in your sights that bolsters your confidence on the fourth quarter?

Mike Dennison, CEO

The significant point to consider in the fourth quarter is the absence of seasonality in our business right now, influenced by supply chains and demand. This year, the typical seasonal fluctuations associated with transitioning into winter are not present due to the substantial pent-up demand expected in both the bike and powered vehicle segments. Therefore, I don't anticipate seeing the usual seasonality in the fourth quarter or the first quarter of next year as one might expect.

Jim Duffy, Analyst

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

Mike Dennison, CEO

Yes. Jim, we've talked before about this too. I think the important thing here is that the closer proximity you have to sell-through with our OEM relationships gives us a better understanding of what their business looks like and what they're doing in terms of current inventory levels. Given the pretty healthy idea of what could be happening in double orders of people who are pre-ordering bikes. We just have found it has not been a significant issue. Now at some point in time, as we look 18 months from now let's say, you might start to really see that net itself out. But right now, the demand is still far more significant than what can be supplied so double booking is not a factor. Again, I think that might be more of an issue 18 months out. Right now, not a big concern and not what we're discussing with our distributors or OEMs in terms of the risk or a major concern.

Jim Duffy, Analyst

And Mike, just in your prepared remarks, I think you spoke to eight to 10 months just to meet customer demand. What was the figure on the additional months to restock the channel?

Mike Dennison, CEO

12 to 18 months. And we really think this is 8 to 10 for current preorders, and then 12 to 18 to get the inventory levels back up in distribution across all channels, whether it's distribution hubs or dealers. If you walk into a bike shop today, you're still not going to find much inventory. If you walk into a regional hub for the major bike company, you're going to find basically zero inventory. So, 8 to 10 with preorders, 12 to 18 with the channel replenishment.

Jim Duffy, Analyst

Very helpful. Thank you.

Craig Kennison, Analyst

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

Scott Humphrey, CFO

Yes. I think we have a few concerns as we look forward to the second half of the year with regard to margin and a big one that I also touched on is mix. Just the expansion of the automotive OE business in the second half of the year versus the first half of the year could cause a little bit of margin degradation for us. But then, at the same time, we're trying to overcome material price increases, supply chain disruption with logistics, and a little bit of labor inflation. Obviously, we're trying to request price increases at the same time, but it is a risk that I wanted to highlight to put everyone on note that we're fighting on many fronts regarding gross margin in the second half of the year.

Craig Kennison, Analyst

That's great. And Mike, I'm looking forward to seeing you in September at your Analyst Day. Wondering if you could just set the table maybe for that agenda and maybe comment on whether you'll provide specific five-year kind of revenue and profit and other financial metric targets?

Mike Dennison, CEO

Yes. Craig, we are already working through our five-year vision for the company and we are going into some detail on product lines and where we think that expansion occurs and what we think are materialized. We're not going to give detailed yearly guidance at that time, but we're going to talk about where we think we will be five years out from now. We're well on track with that journey already, so we'll be discussing some early success in all those areas. I'm looking forward to it as well. I think it's going to be a good opportunity for us to give you guys a good level of detail that you probably haven't seen in the past and provide a longer-term view of where this company is headed.

Anna Glaessgen, Analyst

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

Mike Dennison, CEO

Anna, this is Mike. I'll start to answer and Scott can jump in. From my perspective, we usually look at our guidance with a bit of conservatism just from a standpoint that there are many variables at play. We're very diverse markets. We're operating in locations that still have at least some risk of COVID impact including Taiwan. So we're going to be reasonably conservative in our assessment regarding both positive and negative scenarios in the forward-looking quarters.

Anna Glaessgen, Analyst

Got it. Thanks. And then you spoke to using pricing to some extent to offset cost inflation. Could you maybe put into context how the model year 2022 pricing increase year-over-year compares to the historical trend that we've seen?

Mike Dennison, CEO

Pricing is an interesting matter. We've been working on pricing issues, inflationary issues for a while, and we've made pricing adjustments and updates across most of our platform, as I've talked about in prior calls. The challenge we face is the frictional cost and inflation that is hard to capture and push through in real time. It actually creates a natural lag as we move further into an inflationary period, causing delays in how quickly we can analyze and present price adjustments to customers. So where we are today, we're implementing price increases more frequently, addressing both materials and labor costs, as well as shipping container cost increases. We anticipate that price increases will be a more frequent discussion for the foreseeable future until we have a clearer understanding of whether the inflationary issues are short term or long term. For now, this is a conversation we have much more frequently than we used to.

Anna Glaessgen, Analyst

Great. Thanks.

Larry Solow, Analyst

Hey, good afternoon, guys. And thanks for taking the questions. A couple of follow-ups. Mike, can you give us a – has there been – as you look out over the last few quarters as you kind of look at the growth, we look at the growth in specialty sports. Is there any categories that have had outsized growth? I realize everything is just going to the moon, but anything within your portfolio that had outsized growth? And has anything even changed or evolved over the last few quarters since COVID sort of broke out?

Mike Dennison, CEO

Yeah. Larry, good to hear from you. Good question. Outside of what we expected, I think I mentioned it in prior calls, but the e-bike category, which we refer to as the e-SUV category, has just continued to explode as they cater to carrying items such as canteens and groceries. This category is still on fire, and I believe it will continue to gain traction. There's a shift happening in the market where consumers are considering alternatives to a second, third, or fourth car. While electric cars are certainly one option, electric bikes are becoming a significant consideration as well. So I think the e-bike phenomenon will continue to grow and expand, and I think we'll see that trend persist for several years. With regard to your question about whether we would do anything differently, the truth is, we always look back and think about how we could improve. But I'd say that our innovation and design, as well as our operations and supply chain, were executed well. I think my team executed many right actions early on, which is allowing us to experience this growth today, and the actions we're taking now will benefit us in 2023 and beyond. So everything points towards positive progress as we pursue excellence.

Larry Solow, Analyst

Okay. Great. And then just one quick follow-up on the gross margin, maybe for Scott. Looking back over the two-year span, you're up approximately 140 to 150 basis points. Can you just maybe touch on the major drivers there? There are some puts and takes, but it sounds like you're getting volume benefits on specialty sports. I'm curious if you're also seeing benefits from mix within specialty sports, maybe higher technology products. Also, with the transition to Georgia, is that still a headwind or not?

Scott Humphrey, CFO

Yes. So we're still not getting the benefits, because as of yet, we've really been unable to move much volume in the powersports business. We're still planning to have that all moved by the end of the year, but the majority of it will become evident in the fourth quarter as we strive to meet customer demand. This makes it very difficult to assess the impact of shutdowns. So, sorry, Larry, go ahead.

Larry Solow, Analyst

No, no, I was just – go ahead.

Scott Humphrey, CFO

So I think you're right that mix has been a significant benefit for us in the first half of the year. Additionally, we have seen positives on the Powered Vehicles Group as well. The aftermarket segment has been very strong, powersports has been solid, and Up-Fitting has performed well. So while it's difficult to define how much benefit we're getting on mix from different segments within SSG, the aftermarket has indeed been a strong contributor.

Scott Stember, Analyst

Good afternoon, guys.

Mike Dennison, CEO

Hey, Scott.

Scott Humphrey, CFO

Good afternoon.

Scott Stember, Analyst

Before, I'm going to ask about supply chain and on the Up-Fitting business, it seems like that's one of the areas you have the least concern about, I guess in the back half of the year from the supply side. Is there one area or two areas that we should look out for that you're most concerned about in the back half of the year?

Mike Dennison, CEO

Yeah. That's a good question. When we think about our Taiwan business and supply chain and what we've done there, we have continued to have a level of elasticity to grow with us, both through our work with those suppliers and their investment capacity. So we're relatively comfortable with what we think we can get. Of course, we've told you before that sometimes, we may have booked out far into the future in SSG, but we have a clear view of what we need by component for the balance of this year and next. So that's a good and healthy place to be; it doesn't mean it comes without risks, but it's a very important position for us to be in. I think the challenge in North America, especially with powersports and automotive OEM, is that the model year changes have been a challenge due to the difficulties in aligning supply chains with those modeling changes and timing. Gearing up suppliers to handle some of this overscaled growth in North America has been more difficult. So if I were to pinpoint the areas of most risk, it would be in the legacy business of powersport and automotive OEM, particularly in the powersports sector where the demand has exceeded expectations, creating capacity issues with several suppliers. So, looking to the next couple of quarters, that is the area we are focusing on closely to ensure we manage it properly.

Scott Stember, Analyst

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

Mike Dennison, CEO

Yeah, Scott, we think about that. If you look at OEM on a year-over-year comparison, it's probably not the best, because remember Q2 of 2020 saw significant shutdowns. When you try to analyze year-over-year growth in that context, it's hard to derive much information. That said, OEM automotive was indeed slower due to model year changes. However, for the remainder of the business, demand still far exceeds supply, meaning that whether it’s powersport, Up-Fitting, or aftermarket, all those segments experienced more demand in the quarter than we expected at the beginning. The quarter was essentially a race to support as many of our channels as we could. We carried backlog in nearly every category from Q2 into Q3.

Scott Stember, Analyst

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

Mike Dennison, CEO

Thanks, Scott.

Operator, Operator

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

Mike Dennison, CEO

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

Operator, Operator

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