Fox Factory Holding Corp.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Fox Factory Holding Corp's first quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question-answer session will follow the formal presentation. Please note this conference is being recorded. I'd now like to turn the conference over to Toby Merchant, Chief Legal Officer at Fox Factory Holding Corp. Thank you, sir. You may begin.

Thank you. Good afternoon and welcome to Fox Factories first quarter 2025 earnings conference call. I'm joined today by Mike Dennison, Chief Executive Officer and Dennis Shem, Chief Financial Officer and President of the Aftermarket Applications Group. First, Mike will provide business updates and then Dennis will review the quarterly results and outlook. Mike will then provide some closing remarks before we open up the call for your questions. By now, Everyone should have access to the earnings release, which went out earlier this afternoon. 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 risks and 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 quarterly reports on Form 10-Q and in the company's latest annual report on Form 10-K, each filed with the Securities and Exchange Commission. Investors should not place undue reliance on the company's forward-looking statements, and 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 per 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 earnings release, which has also been posted to our website. And with that, it is my pleasure to turn the call over to our CEO, Mike Dennison. Thank you.

Thanks, Toby, and thanks to everyone for joining today's call. I'm pleased to report that we delivered a solid start to 2025, with first quarter sales coming in above expectations at $355 million, representing growth of 6.5% over the prior year, and adjusted earnings per share of 23 cents, which was in line with our expectations. Importantly, our plan called for meaningful sequential improvements across our businesses, particularly in gross margins. And to that end, I'm pleased that we delivered a 200 basis point sequential increase in gross margin to 30.9 percent. The operational improvements and strategic cost management initiatives we outlined during the fourth quarter are well underway, with many of the actions completed and starting to deliver results across all three businesses, which was illustrated by continued strong sequential adjusted EBITDA margin improvements in both our PBG and AAG segments. This progress, combined with revenue growth on a year-over-year basis across the segments, underscores the balance between cost management and our relentless focus on new product development. While external market conditions remain uneven across many of our product lines, we're meeting our financial commitments through disciplined execution on the factors within our control. This has become all the more important in the current environment overshadowed by tariffs. Our cost optimization strategy, which began last fall, is helping us be more nimble in addressing near-term challenges and positioning us for sustained margin improvement and enhanced free cash flow generation as we progress through the year. And while our near-term focus is on financial performance improvement, we remain committed to investing in innovation, which underpins everything we do here at Fox and is the basis by which we are creating meaningful customer engagements with our performance-defining, race-winning products. Building on the momentum from last quarter, we're making significant strides in the four key initiatives we have discussed in prior calls, which are driving tangible sequential improvements across our businesses. First, simplifying and consolidating our footprint. We've now completed the closure of one of our three Taiwan facilities, with cost benefits expected to materialize beginning in Q2. This strategic move temporarily impacted overhead absorption in SSG in the first quarter, but sets the stage for improved margins going forward without materially compromising our capacity for growth as the cycle advances. Our teams continue to make progress optimizing our global manufacturing presence with additional footprint consolidation efforts underway. Second, portfolio optimization. We're making targeted improvements to our product mix, focusing resources on our highest performing items and strategic growth categories. This disciplined approach contributed to our overall gross margin improvement and is helping us allocate capital more efficiently while maintaining our innovation edge. We continue to launch new products at record levels across our businesses, which is not only supporting near-term revenue stabilization, but also setting us up for long-term growth and expansion. Third, working capital management. We've continued to work on improving our supply chain practices, both in terms of ensuring proper inventory of high-demand products as well as our broader sourcing strategies in light of the current tariff dynamics at play. And fourth, our cost reduction program. While the full impact of these actions will progressively build throughout 2025 toward our goal of realizing $25 million of cost savings across G&A and cost of goods, within 2025, the actions taken to date give us confidence that more substantial benefits will materialize beginning in the second quarter and carry through the balance of the year. Importantly, these actions represent more than just cost cutting. They're about strategically repositioning our business to operate more efficiently and offset temporary pressures from market conditions and tariffs. Combined with our strategic approach to diversify our business across segments, products, channels, and geographies, We're creating a resilient organization that can win even while extraneous market dynamics remain challenging. And now turning to our segment performance. In our powered vehicles group, first quarter net sales were 122.1 million, representing an increase of 3.4% over the prior year quarter. This growth was primarily due to the expansion of our motorcycle business, which offset lower industry demand in our traditional power sports product lines. We were pleased to see our segment adjusted EBITDA margin improve sequentially by 50 basis points to 11.8%, giving strong cost controls and cost improvement actions. In the automotive sector, we're seeing signs of stabilization as premium truck OEMs work through model year changeovers. Our premium truck category continues to demonstrate resilience, even as the broader market remains cautious. Tariff impacts on future demand are yet to be known. However, we believe the premium vehicle category is more insulated than the broader market. Our return to motorcycles was long overdue and particularly exciting for our team, given this is where it all started 50 years ago with Bob Fox and his garage. We already have a great roster of marquee customers with expansion to new customers planned for the future. These new motorcycle relationships are helping offset softness in other areas of power sports and demonstrate the enduring value of the Fox brand as the standard across any performance category. In our aftermarket applications group, we delivered both top-line growth and significant margin expansion, with net sales increasing 9.9% to $111.9 million from $101.9 million in the prior year period. the growth was driven by higher upfitting sales and increased demand for aftermarket products. Like PVG, AAG has also improved adjusted EBITDA margin, delivering 15.2%, which represents a sequential step-up of 330 basis points and a cumulative improvement of 590 basis points since Q3 of 2024. The progress on margin improvement reflects the hard work of the entire AAG team, to stay focused on executing the strategy while delivering improved profitability on our journey to return to best-in-class profitability. The improvements we are seeing in AEG reflect a more targeted approach with our dealers, an improved vehicle mix which is better aligned to customer demand. While high interest rates and elevated inventory levels continue to pose challenges to the broader market, our ability to drive revenue and margin expansion in this environment speaks to our strategic focus and improved execution. Our aftermarket components business continues to show strong performance with sustained growth in wheels and lift kits, reflecting the strength of our product pipeline and the ongoing work in our sales and marketing programs. Importantly, the 1 plus 1 equals 3 strategy continues to enable AAG to deliver best-in-class product solutions to our enthusiast customers across all types of power vehicle platforms, creating sustainable value that builds on the intrinsic strength of our brand portfolio. In our specialty sports group, we delivered a top-line growth with net sales increasing 6.6% to $121 million from $113.5 million in the prior year period. Growth was strong across our bike business especially, as we were seeing early signs of normalizing inventory levels across the categories that we lead. Our Marucci business was stronger than forecasted as well, lifted by early success with new product launches and increased demand for our torpedo bats. FSG segment adjusted EBITDA margins decreased to 19.3%, which represents a temporary sequential decline from the fourth quarter of 320 basis points. This EBITDA margin compression was anticipated in our outlook and primarily reflects seasonality, lower overhead absorption, and investments in product engineering. During the quarter, we completed the consolidation of one of our three facilities in Taiwan to improve our utilization and drive lower overhead costs going forward. We expect to begin realizing the financial benefits of this consolidation in Q2. The year-over-year growth in SSG illustrates the success of our innovation strategy in both bike and baseball, where new products and category expansion are increasing our addressable market by bringing our performance-defining technology to more enthusiasts, both seasoned veterans and new entrants. In Maroochee, we're making excellent progress as MLB's official BAT partner. we're seeing tremendous market interest in products, including the recent fervor over the Torpedo Bat. All of this in large part because of our relationship with the MLB, who has expanded our outreach capabilities to spread the word on Ruchi Invictus and our ability to innovate in diamond sports. The Torpedo Bat serves as an example of a halo product that creates enhanced consumer awareness for baseball and our brands collectively. People who didn't follow baseball are now talking about baseball, and players at all levels want to use what their heroes use, creating a powerful connection between our brand and our customers. While the first quarter didn't enjoy the benefit of a bat launch such as CatX last year, we continued to build momentum for strategic investments in both baseball and our rapidly emerging softball business. Recently, we launched Azure, a new fast-pitch softball bat, which is taking the market by storm and causing us to be sold out temporarily across numerous models. The softball market offers a large new opportunity, and we're in the very early innings of creating meaningful market share. By leveraging our combined Fox and Marucci engineering expertise, we're accelerating product innovations across premium performance brands, creating a stronger, more resilient group of businesses that can capture additional growth over the long term. Finally, I'll share some high-level comments on our outlook, which Dennis will review in more detail. Based on our first quarter performance, second quarter to date trending results, our latest forecast from our partners across all segments, and the current view of care implications on our supply chains, we are reaffirming our full year 2025 guidance. While we anticipate continued challenges in the broader market environment, Our expectations still provides top and bottom line improvement year on year as we progress through the balance of 2025, with the benefits of our cost optimization initiatives becoming more tangible in the second quarter and building strength in the second half. On tariffs, our teams are continuously analyzing the latest developments closely, and we're implementing mitigation strategies across including cost reductions, commodity index based adjustments, and price increases where appropriate. While our manufacturing footprint is well-positioned relative to these policy shifts, we recognize the potential for broader industry impacts and are working hard to be able to adapt accordingly. It is worth mentioning what may be obvious to many already. We cannot control or predict consumer confidence in general, and our guidance doesn't contemplate any potential significant recessionary impacts associated with a longer-term tariff headwind nor potential long-term disruption of other companies' supply chains as they attempt to adjust their strategies to mitigate these issues. As we look ahead, we remain focused on what we can control, operational efficiency, innovation, and strategic growth initiatives that will drive long-term value for our shareholders. Our team continues to demonstrate resilience and adaptability, and I'm confident in our ability to build on sequential improvements we've delivered this quarter. positioning us to restore our best-in-class adjusted EBITDA margin profile. And with that, I'll turn the call over to Dennis.