Fox Factory Holding Corp.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Fox Factory Holding Corporation's second quarter 2023 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. And now, let's 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 second quarter 2023 earnings conference call. I'm joined today by Mike Dennison, our Chief Executive Officer, and Dennis Shem, our Chief Financial Officer and Treasurer. First, Mike will provide business updates. Then Dennis will review the quarterly 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 4.05 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.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 within the meaning of federal securities laws, 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 materially 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 company's latest annual report on Form 10-K, each 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 certain non-GAAP financial measures to evaluate our business, including adjusted gross profit, adjusted gross margin, adjusted operating expenses, adjusted net income, adjusted earnings for diluted share, adjusted EBITDA, and adjusted EBITDA margin, as we believe these are useful metrics that allow investors to better understand and evaluate the company's core operating performance and trends. 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, Vee. Good afternoon, everyone, and thank you for joining us for our second quarter 2023 earnings call. Today I will discuss our strategy, operating highlights, and business activity. Dennis will then discuss additional details in our financial results, balance sheet, and outlook. After our prepared remarks, we will open up the call for questions. Before I discuss our strategy and key operating highlights, I'd like to take this opportunity to introduce Dennis Shem as our new Chief Financial Officer. Dennis has a strong track record and a wealth of experience in financial planning, M&A, and in driving strategic organizational transformation through financial discipline and operational excellence. Perhaps more importantly, Dennis' leadership traits align well with Fox's core values and will help us accelerate our growth journey. Having spent time with Dennis over the last two months, including visiting many of our operating facilities, I can already see how his leadership and communication has energized the organization. His competitive yet warm spirit fits the culture at Fox, and we are excited to have him on our winning team. The strength of our diversification and organic and inorganic growth strategy is on full display in our second quarter results. Strong sales growth in Powered Vehicles Group, or PBG, and the Aftermarket Applications Group, AAG, coupled with continued efficiency gains in our North American facilities, enabled us to deliver on net sales and to exceed our expectations on adjusted EBITDA and adjusted EBITDA margin, despite the ongoing softness in the specialty sports group. Sales for PVG and AEG were up 33% and 26% respectively, effectively offsetting the 41% decline in SSG. SSG continues to be soft as dealers and distributors work through their inventory. The increase in PVG is due to strong demand for our products in the OEM channel as we continue to introduce next-generation solutions. In addition, AAG grew from strong performance in our uplifting product lines as innovation and vehicle development continue to drive strong customer demand and also from our custom wheelhouse acquisition. To further capitalize on the strength of our diversification strategy, we recently realigned our PVG business into Powered Vehicles Group and Aftermarket Applications Group to align with the companies and customers and drive additional focus on product development. This realignment will accelerate go-to-market strategies, better address customer needs, accelerate the pace of innovation, and optimize product development. For example, as a market leader in off-road and power sports, this realignment enhances PVG's focus on innovation and speed to market to deliver superior suspension solutions to our customers. While AAG innovates around performance packages and customer engagement capabilities. In this quarter alone, we launched 13 new products, surpassing last year's annual total, and out in the field achieved overall podium wins in three of the toughest off-road races, including the Baja 500, the San Felipe 250, and the Tats Bank in Australia. Turning to our earnings, we notched strong company-wide adjusted gross margins exceeding 34% while absorbing a decrease in the SSG sales. Our success is primarily driven by the optimization of our North American manufacturing footprint across AAG and PVG. In particular, our Gainesville facility continues to drive significant operating leverage through our continuous improvement initiatives. We are also seeing strong supply chain improvements across both PVG and AAG as material constraints are eradicated. We achieved strong double-digit EBITDA margins of 20% while absorbing the decline in SSG, which demonstrates the earnings potential of the business. Overall, our customers in AAG and PVG remain positive on the trends in the second half of the year. In SSG, we continue to see softness as the channel works through inventory. As we have said in prior calls, we expect that softness to eventually abate and to the strength of our product expansion, as well as e-bike growth trends, return to a more normal growth rate in the near future. Based on our latest customer orders, we expect SSG to be down slightly from the second quarter before recovering in the fourth quarter as the OEMs begin seeding the market with new year models. Given the strength in our AEG and PVG groups, we are reaffirming our full-year guide of $1.67 billion to $1.7 billion in revenue, but we expect to be at the lower end of the range given the elongation of the SSG recovery. We will continue to advance our organic growth strategy by developing new products and leveraging our brands to expand into new end markets. In addition, we will remain steadfast in our commitment to our continuous improvement initiatives by advancing operations and supply chain efficiencies. Just as importantly, we will leverage our strong cash flows and the strength of our balance sheet to evaluate various acquisition targets that will further our diversification and growth strategy. To conclude, we acknowledge the temporary challenges in front of us, but at the same time are very pleased with the top and bottom line performance. thanks to the power of our brands, our product diversification, and our customer loyalty. As our history has proven, no matter the challenges, the amazing team at Fox has always found a way to grow, be it through new products, new markets, or manufacturing optimization. And with that, I'll turn the call over to Dennis.