Fox Factory Holding Corp.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Fox Factory Holding Corp.'s second quarter 2026 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 would 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' second quarter 2026 earnings conference call. I'm joined today by Mike Dennison, Chief Executive Officer, and Dennis Schemm, Chief Financial Officer. 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 10Q and the company's latest annual report on Form 10K, 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. and many more. 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 on our website. And with that, it is my pleasure to turn the call over to our CEO, Mike Dennison.

Thanks, Toby, and thanks to everyone joining the call today. We delivered second quarter revenue of $358.1 million at the high end of our guided range and adjusted EBITDA of $45.5 million, approximately $5 million above the high end of our range. While revenue was at the high end of our expectations, it stepped down sequentially, which was expected and consistent with our guidance, reflecting portfolio optimization associated with the Phoenix operations divestiture. as well as the discrete timing of shipments we flagged last quarter and lower F-150 volume tied to the aluminum supply disruption. But the takeaway is significant. Revenue growth is returning and our outlook for the balance of the year is a continued step up from original expectations. Our revised view of revenue for the back half will be detailed later by Dennis. Revenue growth is critical, not just for the diversification of partnerships and the addition of new markets, but what it brings to our factories and operations with productivity. Our investment in R&D and product roadmap for the last couple of years has negatively impacted results short-term, but has set us up for a more constructive forecast in the back half of 26, as well as meaningful growth in 27 and beyond. In addition, our profit optimization program is on schedule. We captured more than $25 million of gross savings in the first half, and we remain confident in our expectations to deliver approximately $50 million of gross savings this year. roughly 10 million of phase one carryover and approximately 40 million from phase two, consistent with their framework we laid out in February. Profit optimization is necessary in the current macro environment because while we do everything we can do internally, the macro issues continue to work against us. On our last call, I flagged that steel and aluminum costs were moving higher with pressure building in the second quarter. That pressure came in ahead of what we planned. Escalating geopolitical conflict has pushed commodity prices including fuel, ocean, and inland freight rates higher. And carrier surcharges as well as added expedite freight and rerouting costs drive friction in our channels. We remain focused on what we control and are pleased with the progress we've made on margin expansion through early realization of these initiatives. From a market served, we are encouraged by the stabilization emerging in power sports and bike, two important businesses for Fox. On the portfolio, we continue to evaluate every business we own against the same three criteria that led to our decision to divest our Phoenix operations. Alignment with our brands, synergy with our core competencies, and an ability to deliver accretive margins and durable cash flows. Where a business or program does not meet those thresholds, we are taking action. Any cash proceeds from these activities will go directly to debt reduction. With that, let me walk through our segments. PDG delivered net sales of $124.2 million in the second quarter, a slight increase year-over-year. Sequentially, revenue stepped down from the first quarter that, as we flagged in May, benefited from shipment timing in that quarter. As expected, segment margins were down from the first quarter given our forecasted product mix in the quarter. In power sports, which grew 22.5% in the second quarter, and 28% in the first half year-over-year are OEM customers that worked through much of the channel inventory imbalance that weighed on the industry. We believe we remain well positioned across all of the major OEMs in the category. Although we continue to monitor the underlying retail environment in close collaboration with our customers, we have greater confidence that PowerSports can continue to be a stabilizing force for us through the balance of the year. On the automotive side, our premium truck OE business performance reflects the timing of shipments against continued aluminum supply chain and production issues that our automotive OEMs are facing. While we anticipated seeing some relief during Q2, aluminum supply remains a constraint for the production of F-150 trucks. In addition, supply chain issues at Toyota also reduced our forecast for high demand vehicles in the quarter. The most compelling commentary for PVG is not about the puts and takes of Q2, It is about the awards we have won so far this year, which begin to hit our P&L in late Q4 of 2026 and had meaningful upside in 2027. As you know, we have been extremely focused in R&D within PVG. These efforts include applications ranging from our traditional light truck market to vehicles that cover rough terrain and space, and plenty of applications in between. I want to take a few seconds to talk about what we have achieved. So far this year, we have launched 12 new vehicle fitments, including expansion of our aftermarket live valve offerings. Our industrial business unit in PVG is also building a robust pipeline of products and services, which we expect to make public by early 2027. In the UTV sector, Kawasaki announced this week their newest vehicle, the Terex H2, with our advanced chassis control system, which is a fully integrated, electronically controlled linkage solution. The end links working together as one integrated unit in combination with our live valve shock package, providing, we believe, the best driving experience from both a performance and safety perspective. The adoption of our proprietary ECU continues to grow as well, with three distinct OEs now incorporating it into their Halo models. This milestone clearly demonstrates our ability to deliver enhanced value beyond what has traditionally been a mechanical passive solution. Earlier this week, Polaris also launched their new RZR Pro R-Boost, which utilizes our 3.0 Live Valve X2 Series shocks. In automotive, we were awarded a new vehicle with an existing OEM that will drive meaningful volume in 2028, continuing to expand that customer portfolio with Fox in a meaningful way. We also recently received a new award in the electric vehicle market. This was an entirely new automotive OEM for Fox and incorporates our advanced technology on an autonomous vehicle. This represents a significant step in our journey. This product should begin shipping at the tail end of 26 and drive incremental volume in 2027. All of the above supports our belief that we can continue to grow our brand in traditional markets as well as develop novel applications using our software-defined technology, delivering significant incremental revenue over the next several years in PBG. AAG delivered net sales of $109.6 million, a decrease of 4% year-over-year, reflecting an impact of approximately $5.5 million from the divestiture of our Phoenix operations, partially offset by strength in our aftermarket products businesses. Excluding the divestiture impact, the segment grew modestly year-over-year, even with the reduction in Ford F-150 volumes and TBD. AAG adjusted EBITDA dollars were up with the segment margin improving approximately 70 basis points year-over-year and roughly 500 basis points sequentially. Our aftermarket components business grew year-on-year with categories like custom wheelhouse, ride tech, and sport truck, continuing to benefit from product launches and consistent demand. At the current interest rate levels, we are seeing aspirational customers who can't afford to buy new trucks pivot to investing in the trucks they already have, and that plays directly to our diversified aftermarket portfolio. There is still significant work ahead to optimize our legacy outfit business in operations, supply chain, marketing, and sales. However, our new OEM-driven customization programs continue to build through the second quarter. As a reminder, this is a new market strategy in collaboration with our OEMs which utilizes our size and scale to support their aligned objectives in premium semi-custom upfitting. We're able to leverage the OEM's marketing, sales channels, and booking systems to support our dealers. This process relieves meaningful complexity and cost for Fox relative to marketing and sales, and the kits are menu driven and well defined so they flow through our production quickly and absorb overhead expenses. It also aligns Fox tightly to the innovation cycle of these large OEMs as they expand their premium vehicle roadmaps. Further, that program also feeds our ability to target new dealers, which remains a long-term growth opportunity as we work to rebuild this business. Finally, on industry-wide aluminum supply disruption affecting Ford's F-150 platforms, which is an important chassis across several of our product lines, that disruption continued to land volume in the second quarter. Based on the latest OEM production schedules, we now have planned production which should hit our factories in early to mid-September. That revised timing is reflected in the outlook Dennis will walk through. SSG delivered net sales of $124.3 million, a decrease of 9.4% year-over-year and an increase of 12.5% sequentially. For bike, we knew this would be a tough year-over-year comp given the order pull forward the industry experienced last year. and the sequential step-up reflects a normal seasonal improvement in bike that we expected. Segment margin held essentially flat year-over-year, even with revenue down 9.4%, which speaks to the cost discipline efforts. While we are pleased with the gradual improvement in channel inventory, near-term demand signals are mixed as consumers remain cautious overall but aggressively pursue new technologies and brands. We continue to make progress on those new customer relationships and product expansion, particularly in categories like e-bike. We're benefiting from our relationships with new players and the disruptive technologies they're bringing to market, which is a stabilizing force in an otherwise volatile market. Fox continues to maintain a leadership position in the premium bicycle suspension market as industry demand stabilizes following several years of elevated inventory and market disruptions. Looking ahead, we remain focused on investing in the technologies that we believe will drive the next phase of growth. These include the emerging 32-inch cross-country platform where Fox has been working closely with industry partners to develop next-generation suspension solutions, as well as the rapidly evolving e-mountain bike market. Continued advances in motor, battery, and integrated drivetrain technologies are creating new opportunities to improve the riding experience. and we believe Fox is well positioned to capitalize through our premium suspension portfolio and our motor agnostic integration strategy. While these initiatives are having a major business impact in the immediate term, they reinforce our technology leadership and position the business to benefit as these categories continue to develop. On Marucci, softball continues to be a bright spot. We believe our new products are resonating and softball is becoming an increasingly important contributor to the broader Marucci business, which we believe is directly correlated to the innovation investments we've made over the past couple of years. To the obvious question, while we review the strategic path for this business long term, we are running this business hard right now. Our team is fully engaged in our product roadmap and we're excited about what's coming in the back half of new product launches. In summary, revenue landed at the high end of our guide. Adjusted EBITDA came in above the high end, and our cost programs are tracking. Our militant focus on product development and new markets and core businesses is setting up blocks for meaningful growth and increased profitability as these projects reach production. This performance, as well as the operating discipline that is central to our plans, gives us the conviction to increase our revenue guidance in the back half and tighten our adjusted EBITDA outlook today. even as commodity, freight, and fuel costs stay elevated and step up further in the second half. With that, I'll turn the call over to Dennis to walk through the financial details.

Thanks, Mike. I will begin by discussing our second quarter financial results, followed by our balance sheet, cash flow, and capital allocation strategy, before concluding with a review of our outlook. Total consolidated net sales in the second quarter of fiscal 2026 were $358.1 million, a decrease of 2.9% sequentially and a decrease of 4.5% versus the prior year period. Gross margin was 30.6% compared to 31.2% in the second quarter last year. The decline reflects three drivers, shifts in our product line mix, higher external input costs, including tariffs, commodities, freight, and fuel, partially offset by cost savings realization. Non-tariff inflation is the piece that has moved since we set our framework in February. As Mike stated, we are absorbing significant distribution-related expenses to protect customer delivery schedules as well as higher steel and aluminum costs due to the Middle East conflict. In total, incremental input cost inflation is running nearly $20 million above the assumptions in our full-year plan. This is not a change in our cost program. It is a change in the environment that program is operating in. Adjusted operating expenses were 78.5 million, or 21.9% of net sales, down from 83.5 million, or 22.3% of net sales in the year-ago period. Compared to the first quarter of this year, we drove a sequential reduction of $7 million or a 130 basis point improvement as a percentage of sales. That includes a sequential reduction in unallocated corporate expense of approximately $1.5 million. We realized significant Phase II savings in the quarter, which has us at more than $25 million of gross savings against our approximately $50 million goal halfway through the year. Net realization has been compressed by costs outside of our control. We expect that compression to ease in the second half as we anniversary last year's tariffs and the second half weighting of Phase 2 savings comes through, not because we are assuming commodity, freight, or fuel costs come down. Our effective tax rate was 36% in the quarter compared to the 21% federal statutory rate primarily attributable to the impact of discrete items in proportion to lower levels of pre-tax income. For the full year, we continue to expect an effective tax rate in the range of 15% to 18% as those discrete impacts normalize against a higher second half pre-tax income base. adjusted net income was $15.5 million, or $0.37 per diluted share, compared to $16.6 million, or $0.40 per diluted share, in the second quarter last year. Adjusted EBITDA was $45.5 million and included approximately $2 million of IEPA tariff refunds. Even when excluding these proceeds, which weren't factored into our plan, I'm pleased that we exceeded our guidance range. adjusted EBITDA margin was 12.7% or approximately 12.2% excluding the tariff refund, which compares to 9.7% in the first quarter, an improvement of approximately 250 basis points sequentially on an apples-to-apples basis ex-tariff refund. Moving to the balance sheet and cash flows. Cash and cash equivalents grew $7 million to $61.3 million compared to quarter one end. Total debt was $667.7 million at quarter end, down $20.5 million sequentially from the first quarter and down $5.8 million from year end. Net debt declined by approximately $9 million year to date. As of July 3rd, our net leverage ratio as calculated under our credit agreement was 3.7 times against the five times covenant established within the amendment we completed in May. I would note that year-to-date net debt reduction is below where we expect to finish the year. The first half reflects seasonal working capital build and the cash impacts of first half tariffs. We improved our cash conversion cycle by approximately 12 days year-over-year, and days' inventory on hand improved to approximately 136 days from approximately 150 days a year ago. Both metrics demonstrate our efforts to improve working capital efficiency. We also maintained our disciplined approach to capital spending with second quarter capital expenditures of approximately $4.1 million or roughly 1.1% of revenues and the first half capital expenditures of $9.5 million or 1.3% of revenues. Combined with the EBITDA contribution expected from our cost-out programs and our continued focus on working capital, We expect meaningful progress on debt reduction as we move through the balance of the year. Now, moving on to our outlook. Based on our first half performance and the continued execution of our cost out programs, we are raising our full year net sales guidance and narrowing our adjusted EBITDA guidance. We now expect net sales in the range of $1.42 billion to $1.47 billion, and adjusted EBITDA in the range of $176 million to $196 million. The mechanics of the net sales raise are straightforward. Our first half net sales of approximately $727 million came in ahead of the plan underlining the guidance we issued during our fourth quarter call. are carrying that outperformance through and holding the second half roughly in line with last year's second half, excluding divested operations. On what this does to our margin framework, we are narrowing our adjusted EBITDA dollar range to better reflect the mix in inflation dynamics we've discussed. When taken with our higher sales expectation, the implied full-year margin moves to a range of approximately 12.4% to 13.3% compared with the roughly 13.1% to 14.3% implied in February. Our commitment to adjusted EBITDA dollars is essentially unchanged with our $176 million to $196 million range representing growth of approximately 5 to 16% over fiscal 2025 on roughly flat revenue. Capital expenditures are expected to be approximately 2% of revenues and our tax rate is expected to be in the range of 15 to 18% for the full year. Looking ahead to the second half of the year, we expect to deliver incremental margin improvement driven by the second half weighting of our Phase 2 cost optimization initiatives, the anniversary of last year's tariff implementation, and the pricing and surcharge recovery actions now in motion with our OEM and channel partners. We are reaffirming our cost savings commitment for 2026 of approximately $50 million. On external costs, persistence at current levels is our baseline rather than our downside case. We are not underwriting relief in commodities, freight, or fuel any more than we are underwriting in end market recovery. If those costs cease, that is upside to the plan rather than a requirement of it. Both our third quarter and full year ranges assume commodity, freight, and fuel costs remain at or near elevated levels for the balance of the year. On top of that, those ranges absorb nearly $20 million of incremental inflation beyond our original plan, approximately 15 of which we anticipate in the second half. This is the quantification of the pressure we flagged in the first quarter. One related note on tariffs. We may become eligible to recover as much as $8 million of additional tariff costs previously incurred under the IEPA framework. The timing and amount of any recovery are uncertain. A portion of any amounts recovered may be shared with our commercial counterparties, and we have not included any recovery in our outlook. For the third quarter of fiscal 2026, We expect net sales in the range of $355 million to $380 million and adjusted EBITDA in the range of $46 million to $54 million. That range implies an adjusted EBITDA margin of approximately 13% to 14% up from the 12.2% we delivered in the second quarter, excluding tariff refunds. Our third quarter outlook reflects the sequential timing benefit of the Marucci product launches that shifted out of the second quarter and a normalization of bike volume tied to the supplier disruption, partially offset by the continued impact of chassis supply constraints in our autos-related businesses. I would note that the Marucci launches also fell in the third quarter last year, so this is a sequential benefit rather than a year-over-year one. On the fourth quarter, which is implied by the full year and third quarter ranges we have given, our outlook reflects the full run rate of our Phase II actions, a full quarter of favorable tariff comparisons, and the seasonal mix of our portfolio. That build through the back half is deliberate, and it is what our cost program was designed to deliver. To summarize, our cost programs are executing on plan, and our balance sheet health is improving. We remain confident in our full year outlook with margin expansion weighted to the second half. With that, Mike, back to you for closing remarks.

Thanks, Dennis. In closing, I want to leave you with three messages. First, the plan is working where we can control it. Two quarters in, we have taken $7 million of adjusted operating expense out sequentially. expanded adjusted EBITDA margin 300 basis points sequentially, and captured more than $25 million of growth savings against a $50 million commitment. Second, we are committed to offsetting higher input costs, including commodities like aluminum, freight, and fuel, and supply chain issues like the F-150 chassis, which have continued to challenge us year to date. We have sized both, and we have absorbed them in our outlook. Third, we are raising our revenue outlook and tightening our adjusted EBITDA commitment consistent with the view from our customers and our end markets. I want to thank our team for their execution and discipline through a demanding period. We remain focused on developing the best products across our broad portfolio to enable our enthusiasts to do what they love. With that, operator, please open the call for questions.

Thank you. If you'd like to ask a question, press star 1 on your keypad. To leave the queue at any time, press star 2. Once again, that is star 1 to ask a question. Our first question today comes from Peter McGoldrick with Stiefel. Your line is open.

Hey guys, thanks for taking my question and congratulations on the good results. I was hoping you could give some more air time to the upfitting business as we think about the change towards the new model. Can you help us think about the mix of business between the legacy upfitting and the new business? And how should we think about the volumes moving through the system and your expectations as we look into the back half?

Yeah, Peter, it's Mike. Good question. So when you think about the mix, our primary business model is still the core outfitting business that we've ran for a number of years. So that is still our primary go-to-market strategy. The benefit of these relationships with OEMs in a different format is what they bring to us from dealer engagement. because the marketing and sales effort is actually driven by the OEM, not by Fox. It's also the absorption of our factories. So while that volume has less content typically on it versus what we would normally do in our custom-upfit business, it drives a lot of absorption, a lot of productivity through the factory, and allows us to unburden some of the costs associated with go-to-market that we would normally have in our custom business. So the mix is still going to be heavily weighted towards custom and what we've always done, our traditional business, if you will. The new business provides a lot of dealer growth, a lot of dealer engagement that we would otherwise do on our own, and allows us to absorb in our factories. So it's an important part of the business, even though it's a smaller part of the mix.

Okay, and then Dennis, I've got one for you. At the midpoint of guidance, we're still looking at a steep ramp in the EBITDA margin into the fourth quarter as implied by your guidance. You pointed to some visibility to the easing costs, the phase two cost out, surcharge recovery. Can you help bucket the items that matter as we bridge to get to the fourth quarter EBITDA margin guidance? That's a really good question, Peter, and thanks for that. Yeah, as we start to step up, we're going from that 12.2 to 13.6 in Q3, and then from Q3 to Q4, it's around a 15.6% EBITDA margin where we end the year. Relative to that, I mean, clearly one of the bigger drivers is the net release of the cost savings programs. And so as we anniversary those tariffs in the first half of the year, we get more of a fall through. This was exactly how this was designed. And so that fall through is a big part of that in Q3. And then including revenue contributions and margin contributions from Merucci's BAT launch, which was delayed from Q2 to Q3. So we're really excited about that, as well as we had bike timing delays on the supply chain issues that we suffered in Q2. And so then when you move from Q3 into Q4, you're really dealing now with – Thank you. Thank you.

Our next question comes from Anna Glaskins with the Riley Securities. Your line is now open.

Hi, good afternoon. Thanks for taking my questions. I'd like to start with bikes and disaggregating that within SSG. You gave a lot of helpful color on the call. But maybe could you unpack what's embedded in guidance through the back half? Should we be expecting bikes? to be growing. And I know on the one hand you talked about stabilization in the business, but also talked about some mixed demand signals as we're still in the recovery phase. I guess if you could characterize what aiming of recovery we're in and how far away you think we are from seeing more reliable growth within the industry.

Thanks. Great question, Anna. Relative to bike, what we are absolutely pleased about is the durability of this business. It continues to perform year after year now, being very stable. And so we're expecting it to be extremely stable with prior year. So not expecting growth, but we're expecting growth there for the entire year, essentially. And so we should see a pickup in Q3. relative to the bike side of things and then just leveling off as normal seasonality would go in Q4.

Yeah, Mike, I think that was good. And I think I would add one of the benefits of our bike business, because we're in the premium space, is it creates more predictability. So as we come through the process of all the last years of volatility and inventory issues that you're well aware of, That predictability driven by the premium nature of our product offering has enabled us to really stabilize the business, as I mentioned in my prepared comments, and gives us a better view of Q3 and Q4, which we're real happy to see. In addition, one of the things that's volatile in the business in a good way is that the new product launches, especially around e-bike and drivetrain technology, battery technology, motor technology, customers and partners that we're engaged with has enabled us to attract new consumers, new entrants into the space and drive demand. So in a lot of these cases, this product is sold out, which is something we haven't seen in bike for quite some time. So the benefit of seeing demand in some of these product offerings gives us a lot of optimism relative to where this business is going and the predictability and stability of the business helps us really understand the forecast.

Got it. Thanks. And then following up on that, you know, you've been breaking out the margins by segment for a couple years now. And we know, obviously, bikes historically have been really high margins, but there's been some noise within the segment as Marucci's been layered on. Could you maybe help us with what the incremental margin could be if we got a little bit more sustainable growth within that segment?

Yeah, it's, you know, as we continue to grow, I mean, clearly, bike and the combination of Marucci both is what we're expecting to see grow during the second half. When we see those two come together, those will start to climb and be a, you know, very strong margin profile for us going through Q3 and Q4, because we are expecting both, you and then Marucci will continue to grow into Q4 as well. So we feel really good about SSG moving forward through the second half of the year.

Great. Thanks, guys.

Thank you. Our next question comes from Craig Kennison with Baird. Your light is now open.

Hey, good afternoon. Thanks for taking my question. You mentioned a new bat hitting in Q3 for Marucci. The delay in Q2 was driven by us to make sure that we could launch the bat with the right level of inventory in the channels.

Thank you. Thank you. and so getting these launches out really gives us a chance to reach a consumer with a product that's inspiring and motivates them to spend money. So that's why we've pushed out the launch from Q2 to Q3. We want to give it the most airtime it can get and we're pretty confident what it can do in Q3 and Q4.

Yeah, thanks, Mike. Maybe just, I guess, help me explain. If there's inventory, it's a problem. I know innovation is the answer, but you still have to let the other stuff clear. Is that not right?

Yeah, we saw a lot of that in Q1 and Q2. We saw it in our margin profiles and discounting and trying to move those bats. So we definitely have to do the hard work of the inventory cleanup while we're doing the work of innovation and driving new bat launches. So you're absolutely right, Craig. It's a blend between the two activities. You've got to kind of use the brake and gas pedal at the same time to do them both. So it's a tricky environment. We've experienced it before in other parts of our business, and it'll take us some time to work through it for sure in the merchant space.

And then maybe just add some color on the softball market, please.

Yeah, I mean, softball is new for us. That was one of the things that we invested in heavily over the last couple of years to build that team and to build our abilities and product offering to support that part of the sport. It's grown significantly. At the beginning of this year, we've talked about it in prior earnings calls. It continues to grow. And we outpace growth in most other sectors of Marucci with what we've done in softball. both college, pre-college, and even adult low-pitched softball, which is a crazy, crazy enthusiast market for sure. Thank you.

Thank you. Our next question will come from Scott Stember with Roth Capital. Your line is open.

Good afternoon or evening, and thanks for taking my questions as well. Question on Marucci. I know we're talking about the bats for a while and the movement into softball to some of these other areas, but can you talk about how some of the non-baseball bat things are doing within Marucci, whether it's the hitter's warehouse or the major league contract or maybe even like the grips business? How is that stuff doing?

Yeah, so Lizard Skins, I'll start with the last one you mentioned, which is Lizard Skins. That's doing fantastic. I mean, we're really, really proud of what that team's done. We've moved the warehousing and distribution of that business to Baton Rouge to make it more optimized. That's helping us on the cost basis and more productivity and efficiency in our warehouse. So that's good. The end market demand is really strong across Lizard Skins as that expands into lots of sports beyond baseball, of course, and it's even in our bike business. So we like that business a lot. The rest of the business is, you know, you look at what's working really well in Marucci around things like gloves and some other business, you know, verticals, if you will. Quite strong. Probably more softness in some parts around shoes and some of the other things that we do in Orochi. So we're trimming those back because we really focus on the things that work the best.

Yeah, but the big drivers, again, it's going to be baseball and it's going to be softball and having a lot of success internationally with Japan as well.

Yeah, I think the way to think about it is if you win in bats, you win across the board. If you're not winning in bats, you're going to struggle. Our MLB relationship, by the way, you asked about that too, very good. And, you know, through the All-Star Game, the Home Run Derby, you know, we did fantastic. It was a, you know, proud moment for the team.

And then on the tariff environment, looking past IEPA refunds, obviously a lot of changes happened. have some replacements, the 232s and now the 301s. Can you just give us what the net go-forward narrative is on tariffs heading into the back half of the year and into next year?

Yeah, I mean, the tariff environment, clearly we've anniversaried a lot of that, right? So I believe we talked about 80 million annual impact, direct, indirect. And then we netted this down to around 40 million just through so much work from our teams on the operations side, supply chain, et cetera. And so, you know, going forward we are expecting, you know, those obviously tariffs just continue to some degree. and slightly benefiting Marucci near year end as well, just because of some of the changes that had cycled through.

If we're through the majority of the changes in tariffs, if there's not a lot of additional volatility, as you go into 27, tariffs effectively become fairly priced into our products and our markets. So tariffs become a lesser factor on a go-forward basis. relative to impact the P&L on any quarterly or annual level. So eventually you kind of get all these things baked into your model, and you get it into your pricing, and you get it into your customer relationships, and eventually it gets into the consumer pricing model. And then it's a lesser factor for us to talk about on these calls.

Got it. And then if you take in the same talk about the $20 million of incremental input costs and – Your current right-sizing plan right now, how much of that is built into pricing for 27?

So very little would be built in now because that's so fresh, and right now the teams are taking a look at that. and they'll be building their plans as we move further into the back half of the year. And that's when a lot of the customer conversations will start to occur and pricing changes would have to be made. And quite frankly, we'll continue our operational prowess and look for the cost outs as well. And so inflation is very persistent. It's tricky. and more. We are doing everything we can, heads down, every single day, trying to offset the inflation that continues to come at us.

I think the way to think about that, too, is you have to break it into the pieces where you're seeing the inflation. If it's a temporary inflation because of a shipping channel, that's fairly transient. If you're thinking about a commodity index increase, that can be stickier. And those things are easier to price through to end customers, especially on the OEM side. So those, not so much a factor necessarily in a 27 outlook. If freight rates, if container rates, if fuel costs stayed significantly higher, you'd need to think about changes you can make in your supply chain structure, changes in your routing on a more permanent basis. Those things we'll figure out between Q3 and Q4. They tend to be a little bit less sticky over the long haul and therefore not as time sensitive relative to those customer conversations.

Gotcha. That's all I got. Thank you.

Thank you. We'll go next to Larry Solo with CJS Securities. Your line is now open.

Yeah, hi, it's Pete Lucas for Larry. Just for AAG, can you update us on any progress with diversification into other platforms outside of Ford, Toyota, and Ram? If there's anything we should be focused on there?

Most of our diversification, good question, Pete. Most of our diversification is really coming through these new partnerships with You know, predominantly Ford and Stellantis today. Those are significant. And those have been a really, you know, strong collaboration between us and the OEMs. That not only helps us Thank you for joining us. And that diversification is really compelling, probably more so than adding additional OEM brands to the mix, if that makes sense.

Yes, thanks. And then just on bikes, you normally launch next year's models in Q2. Did that occur this time?

It did. Yep. Perfect. That'll do. Yep. Thanks, Pete. Thanks. Thanks.

Thank you. At this time, there are no further questions in queue. I will now turn the meeting back to Mike Dennison for any additional or closing remarks.

Thanks, everybody. Have a good evening. Talk to you soon.

This does conclude the Fox Factory Holding Corporation's second quarter 2026 earnings call. You may now disconnect your line and have a great day.