Fox Factory Holding Corp.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Fox Factory Holdings Corporation's second quarter 2020 earnings release conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Should you require operator assistance during the conference, please press star zero to signal an operator. Please note, this conference is being recorded. I will now turn the conference over to your host, David Haugen, General Counsel. Thank you. You may begin.

Thank you. Good afternoon and welcome to Fox Factories' second quarter fiscal 2020 earnings conference call. On the call today are Mike Dennison, Chief Executive Officer, and Scott Humphrey, Chief Financial Officer. John Blocher, Senior Vice President of Finance, will also be available for Q&A. By now, Everyone should have access to the earnings release which went out today at approximately 4.05 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 investor.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 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 margins, 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 The 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.

Thank you, David, and good afternoon. We appreciate everyone taking the time to join us for today's call. Scott Humphrey, Chief Financial Officer along with his long list of accomplishments during his eight years at Fox have helped propel our organization forward. I look forward to his future contributions and both Scott and John will be available for any questions after our prepared remarks. Turning now to the quarter, our committed and capable team executed incredibly well during the second quarter in an unprecedented dynamic operating environment The strength of our diversified business and our performance to finding product portfolio fueled our results. Achieving revenue and profitability ahead of our expectations against a very difficult backdrop in the U.S. At the onset of the pandemic, we responded quickly with measures, policies, and actions to ensure the health and safety of our employees and their families and minimize any potential impacts for our business near term. Our teams are continuing to meet regularly to evaluate the health, financial, and social impact the current environment is having on our employees, our communities, our valued supply chain, and our customers. During the quarter, we faced varying degrees and durations of stay-at-home orders across the US that impacted our PVG manufacturing operations, OEM partners, and end consumers. While the situation continues to remain fluid, all of our U.S. manufacturing facilities are operational. Our employees are hard at work, and we remain in contact with government authorities at all levels to ensure proper safety measures and procedures at our facilities. In Taiwan, our main facility for SSG products continues to run very effectively, and the team is working tirelessly to meet the increased demand from our end markets. In terms of our results, in the second quarter we generated sales of 183.1 million. This was better than we anticipated with Specialty Sports Group product sales up 10% compared to the second quarter of 2019. This growth also helped fuel second quarter profitability ahead of our expectations. We benefited from the increased demand for our Specialty Sports products in both the OEM and aftermarket channels. which illustrates the strength of our product lineup this year with nine new product platforms in suspension for model year 2021. As well as the general robust trend in outdoor recreational activities where social distancing is a core element of the sports we serve. We were also pleased to see a lift in aftermarket sales and the momentum across this category has continued if not increased into our third quarter. Overall, our specialty sports group success and the depth of our current order book provides us with solid optimism about our SSG business heading into the second half of 2020. As expected, our powered vehicles group product shipments were down in the second quarter. As we have previously communicated, this reduction of shipments was directly tied to our requirements to shutter factories in the U.S., as well as requirements to do the same for our large OEM automotive and power sports customers. We are thankful that all of our facilities are back to production and have performed well even while the pandemic continues to be a significant headwind throughout the U.S. In addition, our customers' factories are back to work and shipments to those facilities have recovered. These factories are improving daily, however not without temporary challenges associated with COVID-19 in their factories and supply chains. Our relationships with our automotive OEM customers, Ford, Toyota, and FCA, are stronger than ever as we are a trusted development partner and a key manufacturer of high-performance products that drive consumer demand. We are thrilled about our spec wins, which will debut in 2021, and eager to share these new platform wins over the coming year. Our FCA and Tuscany demand also remains strong, and I am happy to share we have recently signed a new Jeep bailment agreement with FCA, the first of its kind for Jeep. The deal provides us with hundreds of Jeep Rubicon Gladiators that will be updated and sold through our dealer relationships in North America. We believe consumer demand for the premium truck and Jeep platforms remains strong and our upcoming introductions provide compelling and sought-after product offerings continuing to accelerate opportunities through our SDA and Tuscany divisions. We also have some exciting launches in off-road power sports products. In July, Can-Am launched their 2021 two-seat Maverick X3 XRS Turbo RR and four-seat Maverick X3 Max XRS Turbo R with SmartShox. These two vehicles are the hero vehicles within their 2021 Maverick X3 product lineup and are performance tuned for the desert and dunes. The SmartShox system integrates our electronically controlled semi-active compression and rebound suspension that dynamically adjusts based on sensor inputs. providing virtually real-time adjustments that maximize the vehicle's performance. In terms of our new manufacturing footprint in Georgia, our first phase of expansion is up and running and we remain on track for further rollout. As a reminder, our Georgia facility is a significant boost to our PVG operations. It optimizes our manufacturing supply chain footprint and further delivers on our commitment to operational excellence. I would now like to spend a few minutes providing some color on what we see for the second half of this year. We firmly believe that our growing customer base is staying closer to home and traveling less, turning to our specialty sports and powered vehicle products as they are inherently outdoor activities enjoyed by friends and families while keeping physically distanced. Consequently, we expect end customer demand to continue to strengthen and accelerate this quarter and into the fourth quarter. We are reasonably optimistic that factory shutdowns, either our own or our customers, are fundamentally behind us. However, keep in mind, Fox, like everyone else in the industry, will be required to adjust our operations should states and federal governments need us to take different actions. As we move forward, we believe Fox is well positioned for future growth. Assuming the external environment progresses as it has for the last month or two, and that there are no additional significant disruptions to the supply chain, our customers or consumers, including any issues from adverse macroeconomic environment and increased social unrest. In summary, across our organization, we are taking necessary safety support and other measures to best manage our business in a current operating environment as we continue to deliver performance-defining products. We are working to build upon our existing accomplishments and remain confident in our long-term financial objectives as we generate sustainable growth and value for our shareholders. And with that, I'll turn the call over to Scott.