Fox Factory Holding Corp.

Good afternoon. Welcome to Fox Factory Holdings Corporation third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, please press star 1 on your telephone keypad. Please note this conference call is being recorded. I'd now like to turn the conference over to your host, Vivek Balkuni, Senior Director of Investor Relations and Business Development. Thank you. You may begin.

Thank you. Good afternoon and welcome to Fox Factory's third quarter 2022 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 is 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 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 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, V, and good afternoon. We appreciate everyone taking the time to join us for today's call. I want to take a quick second to give a shout-out to all of the Fox athletes who have dominated the downhill and Enduro World Series season. I want to also send a congrats to Fox driver Bryce Menzies, who scored back-to-back victories at the Baja 400. On behalf of Fox Factory, we get a tremendous surge in pride every time we see athletes push the limits with our products and take the podium. This provides the inspiration that fuels us to continue setting records and challenging the impossible. Speaking of records, let's turn to our business highlights from the quarter. Our teams delivered the highest revenue of any quarter in our company's history, helping us exceed $1.5 billion in revenue on a trading 12-month basis. What's really impressive is the fact that just five quarters ago, we crossed the $1 billion revenue mark on a trading 12-month basis. This exemplifies our team's ability to operate through tough economic terrain while staying focused on our mission. Credit goes to the dedication and resilience of the entire Fox team for sustaining our top-line momentum. These results came from another record performance in our powered vehicles product group and a strong quarter-over-quarter performance in our specialty sports product group. which grew over 25% and 9% respectively versus the same period last year. Overall, our third quarter sales were $409.2 million, an increase of 17.8% compared to the third quarter of last year. We also reported an earnings per diluted share of $1.20, an increase of 16.5%. On a non-GAAP adjusted basis, we reported an earnings per diluted share of $1.35, increasing 13.4% from the same period last year. As you consider these strong results, know this significant momentum is fueled by leaning on our core values, leadership, collaboration, service, trust, agility, and ingenuity to expand our competitive advantage across the market while creating a deep connection with our consumers. Digging a little deeper, Let's start with the Powered Vehicles Group, which delivered a record $235.2 million in revenue. This is led by a strong performance in our upfitting product lines, combined with higher revenue from our increased OEM sales. As I had mentioned in my last earnings call remarks, we anticipate maintaining a similar growth rate for the remainder of the year. Thanks to strong demand in our upfitting business and substantial backlog in our power sport and auto OE products. From an operations perspective, here's a quick update on our Gainesville facility. We are pleased with our efficiency improvements and the resulting higher output. The team's continued passion to streamline our efforts is driving success at this facility, and we are applying lessons learned across the business where it makes sense. Over the next several quarters, we remain committed to delivering the 250 to 350 basis point margin improvement, which we have discussed on prior calls. Shifting gears to the specialty sports group, in Q3 2022, we delivered approximately 174 million in sales. I am also incredibly proud that we just celebrated the 10-year anniversary of our Taiwan operations, all culminating in the team gaining local recognition as being one of the best employers to work for. With regards to channel inventory, high-end mountain bikes are still below the preferred levels. and the rise in popularity of e-bikes is continuing to keep the demand relatively strong as supply chains are improving. However, as previously discussed, we are seeing increased signs of demand normalizing, and consequently, we expect SSG performance to return to typical seasonality in Q4. Recessionary pressures in the European region, significant inflationary pressures, and the impact of a strong dollar impact against the pound and euro are exacerbating the situation. Since our last earnings, the pound and euro currencies have devalued anywhere from 3% to 7%, which automatically makes our product relatively more expensive in those markets. These macroeconomic headwinds, as well as higher energy prices, have a direct impact on consumer confidence and behavior. With no easing of these macro pressures in sight, we believe they will have an impact on our short-term growth expectations. This difficult environment will likely persist well into 2023. We will continue to monitor the impact of these factors and, as always, remain agile and nimble. On a long-term basis, and as these headwinds abate, we remain committed to our expectations of mid- to high-single-digit growth. We will continue to strengthen our core competencies and be relentless in extending our competitive differentiation. We also believe the continued optimization of our Gainesville plant will drive margin improvement, as I discussed earlier. The dynamic operating environment has only become more complex as the year has progressed. And still, the team has delivered another record revenue quarter. This, along with raising our revenue guidance to close out the year, deserves to be celebrated, and I cannot thank each and every single member of our Fox family enough for helping us challenge the impossible every day. And with that, I'll turn the call over to Scott.