Fox Factory Holding Corp.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Fox Factory Holding Corporation's fourth 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 Bakuni, Senior Director of Investor Relations and Business Development. Thank you, sir. You may begin.

Thank you. Good afternoon and welcome to Fox Factory's fourth 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 quarter and full year financial results, and then 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 or 5 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.rightfox.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 or 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. Reconciliations of these non-GAAP financial measures with 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, V, and good afternoon. We appreciate everyone taking the time to join us for today's call. We all thought 2020 was a remarkable year, but 2021 was equally challenging, if not more. And Q4 presented one of the most intense operating environments of the year. We experienced pronounced supply chain challenges and lost production hours, along with being required to shut down one factory in North America due to COVID cases. These challenges kept us from achieving our sixth consecutive record revenue quarter and consequently carried an increased level of backlog into Q1. That said, I'm pleased to report fourth quarter sales of $342.3 million, an increase of 30.5% compared to the fourth quarter sales of last year. The Fox team worked tirelessly and creatively to deliver phenomenal revenue growth. In the fourth quarter, we reported earnings per diluted share of $0.89 versus $0.75 in the same period last year, an increase of 18.7% quarter on quarter. We also reported non-gap adjusted earnings per diluted share of $1.06 versus $0.90, an increase of 17.8% over the fourth quarter in 2020. We continue to prove that our collective resiliency and strength carry us through during these unique times. I am really proud of how the Fox team has demonstrated perseverance, dedication, and adaptability in this dynamic operating environment, delivering near 46% annual year-on-year revenue growth rate. the highest ever since we went public in 2013. We finished the year with annual revenue just shy of $1.3 billion, making it our first calendar year where we eclipsed $1 billion in annual revenue. As these macro obstacles worsened in the fourth quarter, our team continued to out-innovate, outpace, and out-think our peers to deliver performance-defining results, just like our products. I am happy to report that we also completed the acquisition of Shock Therapy at the tail end of the fourth quarter. Shock Therapy is a provider of high-performance suspension tuning services to the off-road industry. Their services are unique due to their extensive research and testing, which results in the best possible system for each application, whether it's in racing or off-road recreation. In addition, we anticipate Shock Therapy will extend Fox's competitive edge by bringing a strong direct-to-consumer channel for parts and ride improvement systems. We expect this acquisition will help us increase our services business by creating a meaningful and personalized ecosystem around our enthusiast and consumer. Let us take a closer look at the business, starting with Specialty Sports Group. This was our seventh consecutive record revenue quarter as it delivered 46.7% revenue growth on a quarter-over-quarter basis. The primary reason we have been able to deliver such staggering numbers, quarter over quarter, is due to the team's ability to not only anticipate industry demand fluctuations, but also to scale and accelerate production while managing supply chain inflation and labor challenges. We continue to optimize our capacity and labor expansion plans in Taiwan as we keep a finger on the pulse of demand, which continues to stay very robust. As I've mentioned in the prior calls, we have a good view of demand through 2022, for both OEM and aftermarket channels, which provides a reasonable confidence in our current outlook. We are starting to see a slight improvement in the inventory levels and increased replenishment in certain geographies and at certain price points. In our current view, we believe it will take five to eight months to meet the existing customer demand level and another nine to 12 months to fully replenish depleted inventory levels. We continue to invest in our development process to improve upon our innovation in speed-to-market capabilities as Fox, Marzocchi, and our race-based products continue to lead the industry. A couple of highlights of innovation. The newly launched Fox 34 won the Suspension Product of the Year by Outside Magazine. Fox was also the number one brand for purchase intent for both front suspension and rear shocks, as rated in the two largest North American media sites as well as two of Europe's premier media outlets, EMTB and Enduro MTB. Shifting to our powered vehicles group, Q4 marked another remarkable revenue quarter led by an 18.6% quarter-over-quarter growth in sales, driven by our uplifting business and the aftermarket channels. Our order book continues to grow. However, the ongoing supply chain challenges continue to affect our ability to meet the increased demand for our products by our end users. We are optimizing and unlocking new ways to mitigate the macroeconomic pressures we face while leveraging the power of our brand to expand our relationships in both the aftermarket and the OEM side of the business. We remain confident in our ability to continue this growth trajectory and expect to leverage the efficiencies created by our Gainesville facility as previously discussed. I am also pleased to report that the facility transition from California to Georgia is complete. and the final closure actions of our Watsonville, California operation are underway now. Turning to OEM partnerships in the last couple of months, we have released several innovative solutions for our OEM partners, which reinforce the exclusivity of our brand. In the world of power sports, Polaris launched RZR Pro R and Turbo R Ultimate, which feature our live valve X2 shocks. These are the most capable dampers in the off-road industry. In addition, We had some exciting new launches in automotive. Starting with the much anticipated Bronco Raptor, we are thrilled to expand our relationship with Ford. Bronco Raptor features our live valve shocks derived from Fox's Desert Racing winning heritage. In addition, Ford also introduced our live valve internal bypass for the new Ranger Raptor, which is slated to launch around the world in 2022 and make its U.S. debut in 2023. In addition, We expanded our relationship with Toyota, where our Fox 2.5 inch internal bypass features in all the new TRD Pro Tundra and Sequoia platforms. And lastly, in the motorcycle space, we recently expanded our relationship with Indian motorcycles. In the upcoming 2022 Indian Challenger and Indian Pursuit, we are introducing Fox electronic preload shock technology, which delivers dynamic control over shock adjustments, delivering both comfort and performance to the rider. Moving on to our accomplishments in the world of motorsports. Our live valve technology earned another overall win with Justin Lofton at the Best in the Desert race in October. At the Baja 1000, Cameron Steele put live valve on the podium with a third-place finish overall. And Rob McCackren and Luke McMillan teamed up to claim the overall win, making a clean sweep of all four major Baja races in 2021 for Fox and the second consecutive Baja 1000 win for McMillan. The duo's win was also enough to clinch the SCORE Trophy Truck Points Championship. In addition, Phil Blurton claimed the Pro-UTV Turbo and Overall Series Points Championship. An extra special congratulations to our very own Director of Motorsports, Bobby Smith, and his navigator, Motorsports Mechatronics Engineer, Isaac Chapluck, on winning the Pro-UTV Naturally Aspirated Class with Team Honda. To be successful in our vision, we aren't just making investments to meet the historic level of demand. We have always said product innovation is the cornerstone of our growth strategy. Even in this inflationary environment, we have not taken our foot off the pedal, increasing R&D spending by nearly $4 million in the fourth quarter versus the prior year. Once again, the story on the continued challenges from labor to input costs, freight, and supply chain have increased in strength from prior quarter. Material costs continued to increase throughout the fourth quarter, and we did our best to keep up with inflation through pricing changes, and we'll continue to evaluate our pricing strategy to minimize margin compression. Looking forward, we hope to see easing in the supply chain during the second half of the year, but inflationary challenges could persist longer. Finally, we are constantly looking for ways to improve. The fact that we delivered 46% year-on-year revenue growth in such a volatile operating environment deserves to be celebrated. I thank each and every single member of our Fox family to help us challenge the impossible every day. And with that, I'll turn the call over to Scott.