Fox Factory Holding Corp.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Fox Factory Holdings Corporation's fourth quarter and full year 2022 earnings conference calls. 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 Vivek Bakuni, Senior Director of Investor Relations and Business Development. Thank you, sir. You may begin.

Vivek Bakuni Thank you. Good afternoon and welcome to Fox Factories' fourth quarter and full year 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's available on the investor relations portion of our website at investor.rightbox.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.

Mike Dennison Thank you, V, and good afternoon. We appreciate everyone taking the time to join us for today's call. I am pleased to announce that we delivered another record year for both revenue and earnings. we're creating more separation between us and our competition, thanks to the meaningful relationships we have with OEMs and enthusiasts, as well as the continued execution of our strategy. This differentiation is propelled by our team's dedication and tenacity as they capitalize on opportunities while navigating the significant challenges throughout 2022. Our consistent, strong performance is achieved primarily due to two factors, the power of our brand and the sustainability of our diversified portfolio. As we entered Q4, the macroeconomic and inflationary challenges persisted, but we delivered the best fourth quarter for both the top and bottom line in our company's history. Besides our team's ability to be agile, nimble, and execute at the highest level, what made this quarterly performance even more gratifying was the continued improvement in our Gainesville, Georgia facility. We delivered the highest number of shocks in a quarter since the facility's inception in late 2020 and the highest number of shocks for PBG ever. These results, as well as less than expected seasonality in our specialty sports group, supported the impressive results in Q4. Consequently, I am pleased to report fourth quarter sales of $408.6 million, an increase of 19.4% compared to the same period last year. For the fourth quarter, we reported earnings per diluted share of $1.25 versus $0.89 in the same period in 2021, an increase of 40.4 percent quarter over quarter. We also reported non-GAAP adjusted earnings per diluted share of $1.43 versus $1.06, an increase of 34.9 percent over the prior year. We continue to prove that our collective resilience and strength are able to carry us through these turbulent economic times. I am proud of the team for delivering over 23% annual year-on-year revenue growth as we finish the year with revenue of more than $1.6 billion. These results continue to give us confidence in our long-term vision of $2 billion in revenue by 2025, and therefore, we are now beginning to set our sights on even more ambitious goals. As announced earlier this week, we signed a definitive agreement to acquire Custom Wheelhouse LLC. Custom Wheelhouse is known for designing, marketing, and distributing high-performance wheels, performance off-road tires, and accessories, including the premier performance brand of Method Race Wheels. This acquisition broadens and diversifies our product offerings across the truck, SUV, and power sports space, and provides significant vertical integration and synergistic opportunities, especially for our lift kit, our upfitted truck, and our outside band businesses. This acquisition will enable us to continue to create an ecosystem of high-performance integrated products for our enthusiast customer base. Our ability to weave together these iconic brands to build a robust platform of products is unique amongst our competition. I am excited to welcome the Custom Wheelhouse team to Fox and to take the next step in building the best aftermarket applications product group in the business. Let us take a closer look at the product lines. Starting with Specialty Sports Group, we delivered a quarterly revenue of $159.5 million, a decline of 1.9% as compared to the same quarter last year. The last time we had a quarter-over-quarter revenue decline was Q1 of 2020. We've had an incredible run in our bike business for over two years, and I am proud to say we did substantially better than most of our industry peers. As I had mentioned in our previous call, we were expecting the return of seasonality in the business. However, the Q4 performance was stronger than we had anticipated, which means we expect the seasonality impact in Q1 to be more significant. I know one of the questions on top of everyone's mind is how will the bike business hold up in 2023? Let me start by saying the volatility in sentiment and confidence within the industry is likely even greater than the volatility of demand. I believe end customer demand, even though seasonality has finally returned, continues to be generally positive and the largest challenges are a function of supply chain bloat and the corresponding cash flow challenges within our OEM and aftermarket partners. Clearly, the strength of our balance sheet and the performance of our team has protected us from similar challenges. In our opinion, these next couple of quarters will provide the time necessary to get back to equilibrium between supply and demand and the persistent issues of semi-finished bikes and excess inventory, paving a path for a strong second half. Having said that, there is a lot of unpredictability in the bike world currently, and how the next few quarters shake out will be crucial. Our team is keeping a finger on the pulse of the market, and as we sit today, we believe the full-year specialty sports group could be down anywhere between high single digits to high teens before it returns to our long-term growth expectations. And lastly, I finally had a chance to return to Taiwan since COVID. It is just incredible what the team in Taiwan has done in the last two plus years, and it is no surprise the Taiwan government presented the team with the Best Place to Work title and Golden Merchant Award. Shifting to our powered vehicles group, Q4 marked another remarkable revenue quarter, led by 38.5% growth in sales versus the same quarter last year, driven by strong performance in our OE channel and outfitted product lines. We delivered a quarterly revenue of $249.2 million, a fourth consecutive record revenue quarter for our powered vehicles group. We are heading into 2023 with great momentum, thanks to the foundation provided by our Gainesville facility and the continued resilience of our outfitting product lines. As automotive OE production plans stabilize, it will enable a more predictable production plan, as well as alleviate pressure on cash flows with less stockpiling of chassis in updating, which primarily drive our prepaid balance. In addition, with some positive signs of easing in our supply chain, we expect to see a reduction in inventory as lead times return to a more normal environment. I am pleased to see how our powered vehicle group has performed in 2022. and given the above-mentioned expansionary drivers and industry tailwinds, I feel confident that 2023 will be another strong year of performance with an expectation to deliver 20% revenue growth or more. Considering the macroeconomic and supply chain challenges, we believe our 2022 results reflect the strength of our brand, highlight the power of our well-diversified portfolio, and the strong execution by our teams. As we head into 2023, the macroeconomic challenges we experienced in 2022 will likely persist and could intensify. Thus, we are choosing to remain conservative in spending and hiring, but we're steadfastly committed to a stronger customer-focused business that generates sustainable, profitable growth with returns well above the cost of capital. Therefore, our plan is to focus on ongoing top and bottom line growth while investing in critical long-term opportunities that we believe will position Fox well for the eventual return of economic stability. We will continue to invest in the people, technology, and innovation that drive customer loyalty and retention. And all this cannot be done without our incredible team. So I thank each and every single member of our Fox family that help us challenge the impossible every day. And with that, I'll turn the call over to Scott.