Fox Factory Holding Corp.

Greetings and welcome to the Fox Factory Holding Corporation third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Haugen. Thank you, David. You may begin.

Thank you. Good afternoon and welcome to Fox Factory's third quarter fiscal 2020 earnings conference call. I am joined today by Mike Dennison, our chief executive officer, and Scott Humphrey, our chief financial officer and treasurer. First, Mike will provide business updates. Scott will then review the quarter financial results and the outlook, followed by closing remarks from Mike. We will then open the call up for your questions. By now, everyone should have access to the earnings release, which went out today at approximately 4.05 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 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 10Q and in the annual report on Form 10K 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 that better reflect the performance of our business on an ongoing basis. Reconciliations 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's 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. Before we jump into our business and financial highlights, I hope everyone is staying safe and healthy in these trying times. And I want to thank every single member of our Fox family who has demonstrated incredible commitment and resilience to help us not only persevere, but to achieve a record quarterly performance in our third quarter of 2020. I am pleased to report third quarter sales of $260.7 million, which supports our conviction on the value and innovation that Fox Brand is bringing to our customers and our growing end user base. The strength in our performance was the result of our best-in-class and diversified product portfolio within the specialty sports group, which grew over 32% compared to the third quarter of 2019. Our PVG segment further contributed to the strong performance, growing nearly 18%, as OEMs came back from significant shutdowns, as well as continued strong demand in the aftermarket, where we have extended our leading market share through the SCA acquisition. This strong top-line growth coupled with gross margin expansion and operating expense leverage fueled our third quarter profitability, exceeding our expectations, finishing the quarter with an adjusted EPS of $1.07, a growth of 29% over Q3 2019. Within our specialty sports group, our business continues to benefit from the ongoing robust trend in outdoor recreational activities. Importantly, the environment is attracting new and diverse participants to the bicycling category, which is propelling demand for our product offerings in both OEM and aftermarket channels to record levels. In the third quarter, we achieved the highest volume of shocks and forks ever shipped. This is a significant achievement in an environment where production floor practices and supply chains have to be constantly monitored to minimize the impact of COVID-19 and social distancing. We have seen our customers and our suppliers adapt to the extended reality we find ourselves in, and we continue to successfully optimize our production to replenish pipelines and meet exceptionally strong customer demand. In the Powered Vehicles Group, we are pleased that all of our OEM automotive and power support partners are back in their full operation, and the aftermarket channel of demand has never been stronger. What is worth mentioning is that we have managed to meet this heightened demand and shipment volume without significant disruptions while transitioning to the new Georgia facility amid the global pandemic, as well as California wildfires. In our third quarter, we successfully completed the transfer of all of our aftermarket shock manufacturing to the Georgia facility and have already experienced significant productivity gains. Furthermore, We are currently working with our large OEMs to transfer automotive production lines. Georgia remains on schedule to complete the transition in 2021, and we remain confident in our ability to drive improvements in supply chain and manufacturing processes. Our relationships with our PVG automotive and power support customers are stronger than ever, and we are optimizing our R&D resources to handle the growth in new product and technology developments. I am pleased to share some exciting news related to the ongoing validation of our unique technologies. You have heard me speak regularly about our smart and connected shock technology called LiveValve. This advanced technology has now become a race winning solution in desert trucks, taking the first ever LiveValve victory in the premier class of the Blue Water Desert Challenge, further authenticating semi-active electronic suspension at the pinnacle of off-road racing. In addition, LiveValve technology also delivered a complete sweep of the Desert Pro Turbo Race podium by Fox athletes running Polaris RZRs at the 2020 UTB World Championship. LiveValve allows for more control, which maximizes off-road vehicle stability and minimizes harshness. It is fully tunable and rebuildable, and as we have proven, race-ready. What makes us especially proud is that this same technology platform is available on the Ford Raptor, Polaris RZR, and Honda Town UTVs, as well as on mountain bikes from Pivot, Giant Scott, and others. Another big accomplishment for our PDG business was on the OEM side. Ford recently introduced the Ranger Tremor off-road package and calls it the most off-road capable factory-built Ranger ever, featuring our off-road-tuned Fox 2.0 monotube dampers. We remain excited and confident in our ongoing product development collaboration across Ford brands. In regards to the current operating environment, we are cautiously optimistic that factory shutdowns, either our own or our customers, are fundamentally behind us. We have integrated the highest safety measures to keep our employees healthy and safe. However, Fox, like all other businesses today, will be required to adjust our operations should states and federal governments require us to take different actions. Looking ahead, we believe we are well positioned for future growth. In the near to midterm, we are hoping the pandemic will be in our rearview mirror and the world will get back to normal. Until then, and as our results have demonstrated, we will continue to work diligently to be flexible and agile, leveraging strong leadership and nimble operations to navigate and succeed in all potential environments. In summary, we are working to build upon our existing accomplishments and keep our employees safe. And we remain confident in our long-term financial objectives as we generate sustainable growth and drive shareholder value. Finally, and although we continue to operate in an uncertain environment, the view of our growth trajectory hasn't changed. In the long term, we expect our specialty sports group segment to grow in the mid to high single digits, and our powered vehicle group segment to grow into low double digits. In addition, our visibility into the current order book and overall outlook for our business enables us to reinitiate guidance for the remainder of 2020. Scott will elaborate more on this when he discusses our financials. And as I'm sure you understand, our guidance assumes there are no additional government restrictions or other unforeseen COVID-related impacts. And with that, I'll turn the call over to Scott.