Q4 2023 Fox Factory Holding Corp Earnings Call

Speaker Change: [music].

Operator: BF-WATCH TV 2021 BF-WATCH TV 2021 BF-WATCH TV 2021 www.foxfactory.com Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Fox Factory Holding Corporation's fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a listen-only mode.

Uh huh.

[music].

Operator: 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 your host, Vivek Bhikhuni, Senior Director of Investment Relations and Business Development. Thank you, sir.

Okay.

Yeah.

Speaker Change: Good afternoon, ladies and gentlemen, and thank you for standing by and welcome to Fox factory, holding corporations fourth quarter and full year 2023 earnings conference call.

Vivek Bhikhuni: You may begin. Thank you. Good afternoon, and welcome to Fox Factory's fourth quarter and full year 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, and then Dennis will review the quarterly and full-year financial results and then The Outlook, followed by closing remarks from me. We will then open up the call to your questions.

Speaker Change: At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

Speaker Change: Please note this conference is being recorded.

Speaker Change: I'd now like to turn the conference over to your host be baked Makoni senior director of Investor Relations and business development. Thank you Sir you may begin.

Vivek Bhikhuni: 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.RightFox.com.

Speaker Change: Thank you good afternoon, and welcome to Fox Factory's fourth quarter and full year 2023 earnings Conference call I'm joined today by Mike Dennison, Chief Executive Officer, and Dennis Schemm, Our Chief Financial Officer.

Vivek Bhikhuni: 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 security law, and management may make additional forward-looking statements in response to your question. 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.

Speaker Change: And treasure water first.

Michael Dennison: First Mike will provide business updates and then Dennis will review the quarterly and full year financial results.

Michael Dennison: And then the outlook followed by closing remarks from Mike. We will then open up the call for your questions.

Michael Dennison: By now everyone should have access to the earnings release, which went out today at approximately 405 eastern time.

Michael Dennison: If you have not had a chance to review the release, it's available on Investor Relations portion of our website at Investor that right Fox Dot com.

Michael Dennison: Please note that throughout this call, we will refer to Fox factory as Fox or the company.

Michael Dennison: Before we begin I would like to remind everyone that the prepared remarks contain forward looking statements within the meanings of federal security laws and management may make additional forward looking statements in response to your questions.

Michael Dennison: 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 could differ materially from the results performance or achievements expressed or implied by such forward looking statements.

Vivek Bhikhuni: 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 a 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 Dennis. Thank you, Zvi.

Michael Dennison: 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.

Michael Dennison: 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.

Michael Dennison: In addition, where appropriate in today's prepared remarks and within our earnings release, we 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 it just.

Michael Dennison: Good afternoon, everyone, and thank you for joining us today on our fourth quarter 2023 earnings call. Today, I will discuss our strategy, operating highlights, and business activity. Dennis will then provide additional details on our financial results, balance sheet, and outline. After our prepared remarks, we will open the call for your questions.

Michael Dennison: That EBITDA margin as you believe these are useful metrics that allow investors to better understand and evaluate the companys core operating performance and trends reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

Michael Dennison: For the fourth quarter, we delivered $332 million in revenue, which included approximately $17 million in revenue contribution from Marooch. The fourth quarter was a quarter that saw wins and achievements, as well as significant headwinds, exhibited by the ongoing OE challenges, which we began to see after Labor Day, and our current view is that these will persist in the first half of 2020. As we have previously highlighted, three main factors created these challenges for near-term results. 1.

Michael Dennison: 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.

Michael Dennison: Thank you V. Good afternoon, everyone and thank you for joining us today on our fourth quarter 2023 earnings call today, I will discuss our strategy operating highlights and business activity Dennis.

Michael Dennison: Dennis will then provide additional details on our financial results balance sheet and outlook.

Michael Dennison: After our prepared remarks, we will open the call for your questions.

Michael Dennison: For the fourth quarter, we delivered 332 million in revenue, which included approximately $17 million in revenue contribution from Orochi.

Michael Dennison: The Ongoing Inventory Recalibration in Bikes, 2. The impact of the UAW strike on PVG and AAG, and 3. Higher interest rates causing customers to be more conservative in their purchasing practices. The successes which provided partial offsets within the quarter included year-on-year growth in our aftermarket component businesses, such as wheels, lift kits, and aftermarket shocks, as well as e-commerce growth within our bike business. While these product lines and channels grew, they were unable to offset the declines in the OE-impacted areas of our business. In the Powered Vehicle Group, net sales were $118 million, down from $133 million in the prior year quarter, due to the direct impact of the UAW strike on our production and the indirect impact of the strike on original equipment manufacturers who ramped slowly, as expected, following the strike's conclusion. This combination of direct and indirect influence from the strike resulted in lower production, which led to lower sales.

Michael Dennison: The fourth quarter was a quarter, which saw wins and achievements as well as significant headwinds exhibited with the ongoing OE challenges, which we began to see after labor day and our current view is these will persist in the first half of 2024.

Michael Dennison: As we have previously highlighted three main factors created these challenges to near term results.

One the ongoing inventory recalibration in bike to the impact of the UAW strike on P. B G and AG and three higher interest rates, causing customers to be more conservative in their purchasing practices.

Michael Dennison: The successes, which provided partial offsets within the quarter included year on year growth in our aftermarket components businesses, such as wheel lift kits and aftermarket shocks as well as e-commerce growth within our bike business.

Michael Dennison: While these product lines and channels grew they were unable to offset the declines in OE impacted areas of our business.

Michael Dennison: In the powered vehicle group net sales were $118 million down from $133 million in the prior year quarter.

Due to the direct impact of the UAW strike in our production and the indirect impact of the strike on original equipment manufacturers, who ramped slowly as expected following the strikes conclusion.

Michael Dennison: Some OEs recovered by the end of November, while others exhibited sharp declines in order of volume through the end of the quarter. Based on our consistent long-term growth within the PVG business and the importance of retaining a highly trained and skilled workforce to make our technologically advanced products, we elected not to lay off or shut down any facilities during or after the strike. Consequently, the costs associated with these actions had a significant impact on profitability. PowerSports also saw less demand from OEs as their distributors and dealers worked through elevated inventory levels and seasonality factors, including a warm winter driving down sales in the snowmobile market. To further complicate the problem, high interest rates continue to cause conservatism due to inflated floor plan financing costs.

Michael Dennison: This combination of direct and indirect influence from the strike resulted in lower production, which led to lower sales.

Michael Dennison: Some oes recovered by the end of November while others exhibited sharp declines in order volume through the end of the quarter.

Michael Dennison: Based on our consistent long term growth within the P. B G business and the importance of retaining our highly trained and skilled workforce to make our technologically advanced products, we elected not to lay off or shut down any facilities during or after the strike. Consequently, the costs associated with these actions had a significant impact on <unk>.

Michael Dennison: <unk> ability.

Power Sports also saw less demand from Oes as their distributors and dealers work through elevated inventory levels and seasonality factors, including a warm winter driving down sales in the snowmobile market.

Michael Dennison: To further complicate the problem high interest rates continued to cause conservatism due to inflated floor plan financing costs on.

Michael Dennison: On the positive side for PVG, even with the external headwinds just mentioned, this business grew organically for the year by 21% over the prior year, illustrating the growth of our market share and the power of our product portfolio. In a year with so many businesses in this space exhibiting reduced revenue, we grew significantly. In the Aftermarket Applications Group, sales rose to $121 million from $117 million in the prior year quarter.

Michael Dennison: On the positive side for PPG, even with the external headwinds just mentioned this business grew organically for the year by 21% over the prior year.

Michael Dennison: Illustrating the growth of our market share and the power of our product portfolio.

Michael Dennison: In a year with so many businesses in this space exhibiting reduced revenue we grew significantly.

Michael Dennison: And aftermarket applications group sales rose to 121 million from $117 million in the prior year quarter.

Michael Dennison: The primary contributor to the increase was our custom wheelhouse business, which delivered nearly $20 million of revenue in the quarter.

Michael Dennison: The primary contributor to the increase was our custom wheelhouse business, which delivered nearly $20 million in revenue in the quarter. In addition, record quarters in Sporttrek and overall expanded e-commerce solutions contributed to the growth. However, the UAW strike had a significant impact on our upfitting business, primarily due to limited chassis availability and chassis mix caused by production delays at factories which were shut down due to the strike. As we saw in power sports, the high interest rate environment put pressure on floor plan financing, and as a result, dealers took a more conservative position on inventory.

Michael Dennison: In addition record quarters and sport truck and overall expanded E Commerce solutions contributed to the growth.

Michael Dennison: However, the UAW strike had a significant impact on our outfitting business, primarily due to limited chassis availability and chassis mix caused by production delays at factories, which were shut down due to the strike.

Michael Dennison: As we saw in power sports the high interest rate environment put pressure on floor plan financing and as a result dealers took a more conservative position on inventory.

Michael Dennison: Thankfully, dealers are reducing existing aged inventory ahead of the release of a slew of new redesigned model year vehicles which are expected to launch throughout the year. These model year changes will be an exciting opportunity for us as we develop and launch new packages in conjunction with these new models. Expansion in our kit sales is also driving future growth in our Upfit business. Customers are remaining resilient on fresh, new product releases and higher-contented vehicles, especially the Shelby and Harley-Davidson branded trucks. In SSG, with respect to bikes, OEs continue to work down their inventory levels. Our OE partners have begun to place new orders for Model Year 25 products, which is a positive sign that we will begin returning to a normal environment in late Q2. In the quarter, Byte generated $77 million in net sales, less than half of the $159 million in revenue in the fourth quarter of 2022.

Michael Dennison: Positively dealers are reducing existing aged inventory ahead of the release of a slew of new redesigned model year vehicles, which are expected to launch throughout the year.

Michael Dennison: These model year changes will be an exciting opportunity for us as we developed and launched new packages in conjunction with these new models.

Michael Dennison: Expansion in our kit sales is also driving future growth interrupted business.

Michael Dennison: Yeah.

Michael Dennison: Customers are remaining resilient on fresh new product releases and higher contented vehicles, especially the Shelby and Harley Davidson branded trucks.

Michael Dennison: In SSG with respect to bike always continue to work down their inventory levels are.

Michael Dennison: Our OE partners have begun to place new orders for model year, 'twenty five product, which is a positive sign that we will begin returning to a normal environment in late Q2.

Michael Dennison: In the quarter bike generated $77 million in net sales less than half of the 159 million of revenue in the fourth quarter of 2022.

Michael Dennison: The OE 2025 model year launches remains scheduled to begin mid year and we are excited as our innovative new products have maintained and gained spec share across our customers.

Michael Dennison: The OE 2025 model year launches remain scheduled to begin mid-year, and we are excited as our innovative new products have maintained and gained market share across our customers. While it is too early to articulate the volume of model year 25 bikes that will ultimately be ordered, we are excited by our share of whatever volume that will eventually be. These results were better than our expectations for both the top and bottom lines, especially since the prior year period included the Cat X bat lawn.

Michael Dennison: While it is too early to articulate the volume of model year 'twenty five bikes that will ultimately be ordered we are excited by our share of whatever volume that will eventually be.

Michael Dennison: The Marucci acquisition closed on November 14th Marucci generated $17 million in net sales. Following the completion of the acquisition. These results were better than our expectations for both the top and bottom lines, especially since the prior year period included the cat ex that launch.

Michael Dennison: The key drivers from a ritchie's revenue with strong new product sales driven by direct to player and team sales plus additional product launches in Japan led by aluminum and wood bats.

Michael Dennison: The key drivers for Marucci's revenue were strong new product sales driven by direct-to-player and team sales, plus additional product launches in Japan led by aluminum and woodbath. Like our other businesses, we're inspired by the level of execution in the Marucci team and their ability to have an incredible product roadmap across all product lines throughout 2020. Reflecting on the full year 2023, which was clearly a tale of two halves, the first half of the year, generally on plan and as expected, and the back half of the year, especially after Labor Day, where previously discussed headwinds grew significantly. Overall, we delivered $1.46 billion in net sales, down 9%. All of the year-on-year decrease is attributable to Specialty Sports Group, where our bike business was down $309 million year-on-year, or 45%. Specialty Sports Group always deals with a massive inventory.

Michael Dennison: Like our other businesses were inspired by the level of execution and emergency team and their ability to have an incredible product roadmap across all product lines throughout 2024.

Michael Dennison: Reflecting on the full year 2023, which was clearly a tale of two halves. The first half of the year generally on plan and as expected in the back half of the year, especially after labor day, where previously discussed headwinds grew significantly.

Overall, we delivered 1.46 billion and net sales down 9% from 2022.

Michael Dennison: All of the year on year decrease is attributable to specialty sports group, where our bike business was down 309 million year on year or 45%.

Michael Dennison: As always dealt with a massive inventory glut.

Michael Dennison: We continue to have confidence that this is a fixable problem for these companies and that the back half of 'twenty 'twenty four will begin to return to a more normal operating environment.

Michael Dennison: We continue to have confidence that this is a fixable problem for these companies and that the back half of 2024 will begin to return to a more normal operating environment. Bike is well-positioned as OEs turn to new model year launches and product expansion, some of which are already in our back half. In the face of Q4 sales that were below expectations and an expected soft first half of 2024, we are laser focused on the key elements of our brand and product development, which make us best in class and are the keys to our long-term success. Those elements are maintaining our brand relationship, where we have gained market share across customers, ensuring that we will grow with these customers as they regain their health. Meanwhile, remaining vigilant to not dilute our brand for easy revenue. Investment in research and development with two objectives.

Michael Dennison: [noise] bike as well positioned as always turned to new model year launches and product expansion some of which are already in our back half forecast.

Michael Dennison: In the face of Q4 sales that were below expectations and an expected soft first half of 2024, we are laser focused on the key elements of our brand and product development, which make us best in class and are the keys to our long term success.

Michael Dennison: Those elements are maintaining our brand relationship where we have gained spec share across customers, ensuring that we will grow with these customers as they regain their health.

Michael Dennison: Meanwhile, remaining vigilant to not dilute our brand for an easy revenue pick up.

Michael Dennison: Investment in research and development with two objectives first to support model year 'twenty five releases that we believe will introduce innovative and best in class products and thereby expand our share of the market and second new launches within our aftermarket components, where margins are typically higher than sales to oes or through <unk>.

Michael Dennison: First, to support model year 25 releases that we believe will introduce innovative and best-in-class products and thereby expand our share of the market. And second, new launches within our aftermarket components, where margins are typically higher than sales to OEs or through dealers and distributors. A bright spot was our recently expanded e-commerce business that expanded on 2023's record-high direct-to-consumer sales, which were 3.6% of sales last year, up 260 basis points from 2022. And finally, the ongoing growth of our e-bike category, which we continue to believe will expand the demographic of riders and drive growth within the industry. On to PVG, which delivered $524 million, up 21% year-on-year due to multi-year momentum gains with Toyota and Ford and strong mixed improvements as high-end vehicles and automotive and power upgraded to more technologically advanced Fox suspension products. Our recent product launches included the most advanced suspension product ever developed for a vehicle, the dual valve system currently being utilized by Ford on their upcoming Raptor R platform.

Michael Dennison: And distributors.

Michael Dennison: Bright spot was our recently expanded ecommerce business that expanded on 2020 threes record high direct to consumer sales, which were three 6% of sales last year up 260 basis points from 2022.

Michael Dennison: And finally, the ongoing growth of our E bike category, which we continue to believe will expand the demographic of writers and drive growth within the industry.

Michael Dennison: Onto P V G, which delivered $524 million up 21% year on year due to multiyear momentum gains with Toyota and Ford and strong mix improvements as high end vehicles, and automotive and power sports upgraded to more technologically advanced Fox suspension products.

Michael Dennison: Our recent product launches included the most advanced suspension product ever developed for a vehicle the dual valve system currently being utilized by Ford on their upcoming Raptor our platform.

Michael Dennison: A a G was up 13% year on year to 551 million, mainly in the custom wheelhouse acquisition and strengthened our up fit business. Despite the impact of dealer floor plan financing and the UAW impact.

Michael Dennison: AAG was up 13% year-on-year to $551 million, mainly due to the custom wheelhouse acquisition and strength in our upfit business, despite the impact of dealer floor plan financing and the UAWM. However, we are encouraged that the higher end updates continue to see strong consumer demand and interest. We continue to have confidence in our upfitting business, which this year will expand into UTVs and high-end side-by-sides beginning in late Q1. We believe these high-contented vehicles will perform well with the affluent customer base that wants unique, customized, high performance vehicles.

Michael Dennison: However, we are encouraged that the higher end up it's continued to see strong consumer demand and interest.

Michael Dennison: We continue to have confidence that our outfitting business, which this year will expand into you Tvs and high end side by sides beginning in late Q1.

Michael Dennison: We believe these high content vehicles will perform well with the affluent customer base that wants unique customized high performance vehicles.

As we move to 2024, we remain confident in our diverse and differentiated business model all of which is focused on delivering the highest level of performance defining products and the growth that it can deliver.

Michael Dennison: As we move to 2024, we remain confident in our diverse and differentiated business model, all of which is focused on delivering the highest level of performance-defining products and the growth that they can deliver. For the full year of 2024, we see revenues growing from $1.53 billion to $1.68 billion, inclusive of Marooch. Our conservatism in this guide is a direct reflection of the conservatism exhibited by our OE customer forecast across all of our businesses, which we will not second guess.

Michael Dennison: For the full year of 2024, we see revenues growing to 1.53 billion to 1.68 billion inclusive of merging our conservatism. In this guide is a direct reflection of the conservatism exhibited by our OE customer forecast across all of our businesses, which we will not second guess when their forecasts.

Michael Dennison: When their forecasts improve, our guidance will improve. We also believe 2024 will be the inverse of what we saw in 2023, with the first half of 2024 continuing to be impacted by the same macro pressures that affected the third and fourth quarters continuing to weigh on our business. Again, this is directly aligned with our OEM customers' forecasts. Consequently, we expect the first half of 2024 to be down year over year, with the second quarter being sequentially stronger than the first. In the second half of 2024, we expect to see growth driven by easing macro pressures and improved consumer outlook, with expected interest rate easing. While this is likely to be the case, we cannot be sure of the timing or magnitude of these rate reductions.

Michael Dennison: Improve our guide will improve.

Michael Dennison: Okay.

Michael Dennison: We also believe 'twenty 'twenty four will be the inverse of what we saw in two in 'twenty three with the first half of 2024 continuing to be impacted by the same macro pressures that affected the third and fourth quarter continuing to weigh on our business.

Michael Dennison: Again, this is directly aligned with our OEM customers forecast as well.

Michael Dennison: Consequently, we expect the first half of 'twenty 'twenty four to be down year over year with the second quarter being sequentially stronger than the first quarter.

Michael Dennison: In the second half of 'twenty 'twenty, four we expect to see growth driven by easing macro pressures and improve consumer outlook with expected interest rates easing. While this is likely the case, we cannot be sure of timing or magnitude of these rate reductions.

Michael Dennison: We also believe bike OE has turned the corner from discounting to launching model year 2025 releases.

Michael Dennison: We also believe bike OEs will turn the corner from discounting to launching model year 2025 releases. And finally, chassis availability and mix improvement in our upfitted truck product. To conclude, we acknowledge the near-term exogenous challenges in front of us, yet at the same time, I am very pleased with our strategic position. We have diversification across three growing groups in AEG, PVG, and SSG anchored by industry-leading aspirational brands, deep-rooted customer loyalty driven by pro athletes, robust pipelines of innovative market-disrupting products, and our incredibly talented and dedicated team. And with that, I'll turn the call over to Dan.

Michael Dennison: And finally chassis availability and mix improvement in our outfitted truck product lines.

Michael Dennison: To conclude we acknowledge the near term exogenous challenges in front of us yet at the same time I am very pleased with our strategic positioning.

Michael Dennison: We have diversification across three growing groups in a G. P V G in SSG anchored by industry, leading aspirational brands deep rooted customer loyalty driven by the pro athletes and robust pipeline of innovative market disrupting products.

Michael Dennison: And our incredibly talented and dedicated team members.

Michael Dennison: And with that I'll turn the call over to Dennis.

Michael Dennison: Thanks, Mike and good afternoon, everyone I'll begin by discussing our fourth quarter and full year financial results and then move to our balance sheet and cash flows capital structure strategy, and then wrap up with a review of our guidance.

Dennis Shem: Thanks, Mike, and good afternoon, everyone. I'll begin by discussing our fourth quarter and full year financial results, then move on to our balance sheet and cash flows, capital structure strategy, and then wrap up with a review of our guidance. Total consolidated net sales in the fourth quarter of 2023 were $332.5 million, a decrease of 18.6% versus sales of $408.6 million in the fourth quarter of 2022. The Powered Vehicles Group, PVG, delivered a 10.7% decrease in net sales in the fourth quarter compared to the same quarter last year.

Michael Dennison: Total consolidated net sales in the fourth quarter of 2023 were $332 5 million a decrease of 18, 6% versus sales of $408 6 million in the fourth quarter of 2022.

Michael Dennison: The powered vehicles group P. B G delivered a 10.7% decrease in net sales in the fourth quarter compared to the same quarter last year. This performance was negatively impacted in October during the UAW strike given OE manufacturing site closures and for the remainder of the year on a slower ramp up.

Dennis Shem: Performance was negatively impacted in October during the UAW strike given OE manufacturing site closures and, for the remainder of the year, on a slower ramp-up given OE supply chain disruptions. The strike, along with the slower-than-anticipated Ramp-Up, also delayed upcoming development programs with OECD, which we expect will impact first half sales for 2024. DVG also had reduced sales in power sports given dealer and distributor conservatism with inventory. We expect this conservatism to continue into the first half of 2024.

Michael Dennison: Given OE supply chain disruptions.

Michael Dennison: Strike along with the slower than anticipated ramp up also delayed upcoming development programs with Oes, which we expect will impact first half sales for 2024.

Michael Dennison: <unk> also had reduced sales in power sports given dealer and distributor conservatism with inventory. We expect this conservatism to continue into the first half of 'twenty 'twenty four.

Michael Dennison: Our aftermarket applications group, a a G delivered a three 5% increase in net sales in the fourth quarter compared to the same quarter last year.

Dennis Shem: Our aftermarket applications group, AAG, delivered a 3.5% increase in net sales in the fourth quarter compared to the same quarter last year. This growth was primarily driven by sales from the custom wheelhouse acquisition and Aftermarket Lift Kits in Suspension Sales. Partially offset by lower sales in the outfitting business because of reduced chassis availability, mix, and dealer and distributor conservatism by holding lower inventory due to higher interest, net sales in the Specialty Sports Group decreased 41.4% compared to the fourth quarter of 2022 due to the persistent level of high inventory across various channels and therefore fewer new model year launches. This result also includes a $16.8 million positive revenue contribution from the Marucci brand. Exclu On a full year basis, sales were $1.46 billion versus $1.6 billion in 2022. The decrease in four-year sales is driven entirely by the decline in SSG's bike sales.

Michael Dennison: This growth was primarily driven by sales from the custom wheelhouse acquisition and aftermarket lift kits and suspension sales, partially offset by lower sales in the up fitting business because of reduced chassis availability mix and dealer and distributor conservatism by holding lower inventory due to.

Michael Dennison: Higher interest rates.

Michael Dennison: Net sales in the specialty sports group decreased 41, 4% compared to the fourth quarter of 2022 due to the persistent level of high inventory across various channels and therefore fewer new model year launches.

Michael Dennison: This result also includes a $16 8 million positive revenue contribution from the Meru Chi acquisition.

Excluding the impact of Maruti SSG sales declined by 52%.

Michael Dennison: On a full year basis sales were 1.46 billion versus $1 6 billion in 2022.

Michael Dennison: The decrease in full year sales is driven entirely by the decline in Ssg's bike sales.

Michael Dennison: The decline in Ssg's bike overshadows significant accomplishments and PV G. In AG, which grew over 21, 2% and 12, 7% for the full year, even when taking into consideration the UAW strike the slow ramp up after the strikes conclusion and the mixing chassis allocation.

Dennis Shem: The decline in SSG's bike overshadows significant accomplishments in PBG and AAG, which grew over 21.2% and 12.7% for the full year, even when taking into consideration the UAW strike, the slow ramp-up after the strike's conclusion, and the mix-in chassis allocation decline that impacted our up-to-date, while we address the dealer conservative. Chassis Allocation Mix Impact, and Model Year Changeovers, which are I think it's important to note that our upfit business has grown more than 40% over the last two years. Fox Factory's gross margin was 27.7% in the fourth quarter of 2023, a 430 basis point decrease from 32% in the same period in the prior year.

Michael Dennison: Decline that impacted our uptick business.

While we address the dealer conservatism chassis allocation mix impact and model year, changeovers, which are delaying sales I think it's important to note that our up fit business has grown more than 40% over the last two years.

Michael Dennison: Fox Factory's gross margin was 27, 7% in the fourth quarter of 2023 of 430 basis point decrease from 32% in the same period in the prior year.

Michael Dennison: The decrease in gross margin in Q4, 2023 is primarily driven by a shift in our portfolio mix with lesser sales from high margin bike and up fitting.

Dennis Shem: The decrease in gross margin in Q4 2023 is primarily driven by a shift in our portfolio mix with lesser sales from high-margin bikes and upfitting. The impact of the UAW strike as we absorbed fewer costs given our decreased production and our decision to maintain our manufacturing workforce, offset by increased efficiencies at our North American facilities. Adjusted gross margin, which excludes the effects of amortization of acquired inventory valuation markup, organizational restructuring expenses, and strategic transformation costs, decreased 300 basis points to 29% versus 32% in Q4 of 2022, on an annual basis. Both gross and adjusted gross margin decreased by 150 and 60 basis points, respectively.

Michael Dennison: The impact of the UAW strike as we absorb less costs, given our decreased production and our decision to maintain our manufacturing workforce offset by increased efficiencies at our North American facilities.

Michael Dennison: Adjusted gross margin, which excludes the effects of amortization of acquired inventory valuation markup organizational restructuring expenses and strategic transformation costs decreased 300 basis points to 29% versus 32% in Q4 of 2022.

Michael Dennison: On an annual basis.

Michael Dennison: Both gross and adjusted gross margin decreased by 150% and 60 basis points, respectively. The decrease in gross margin was primarily due to shifting the portfolio mix offset by increased efficiencies at our North American facilities.

Dennis Shem: The decrease in gross margin was primarily due to a shift in the portfolio mix offset by increased efficiencies at our North American facilities. Total operating expenses were $81 million, or 24.4% of sales, in the fourth quarter of 2023, compared to $74.2 million, or 18.1% of sales, in the fourth quarter of last year. Operating expenses as a percentage of sales were higher compared to the same quarter in the prior period due to the inclusion of custom wheelhouse and Marucci operating expenses and the amortization of intangibles.

Michael Dennison: Total operating expenses were $81 million or 24, 4% of sales in the fourth quarter of 2023 compared to $74 2 million or 18.1% of sales in the fourth quarter of last year.

Michael Dennison: Operating expenses as a percentage of sales were higher compared to the same quarter in the prior period due to the inclusion of custom wheelhouse and marucci operating expenses and the amortization of intangibles, partially offset by cost controls and continuous improvement.

Dennis Shem: Although partially offset by cost controls and continuous improvement, adjusted operating expenses as a percentage of sales increased by 440 basis points to 20.6% in the fourth quarter of 2023, compared to 16.2% in the same period in the prior year. On an annual basis, total operating expenses were $304.7 million, or 20.8% of net sales for fiscal year 2023, compared to $284.6 million, or 17.8% of net sales for fiscal year 2022. Operating expenses increased by $20 million primarily due to the inclusion of custom wheelhouse and Marucci operating expenses of $15 million and $6 million, respectively.

Michael Dennison: Adjusted operating expenses as a percentage of sales increased by 440 basis points to 26% in the fourth quarter of 2023 compared to 16, 2% in the same period in the prior year.

Michael Dennison: On an annual basis total operating expenses were $304 7 million or 28% of net sales for fiscal year 2023, compared to $284 6 million or 17, 8% of net sales for fiscal year 2022.

Michael Dennison: Operating expenses increased by $20 million, primarily due to the inclusion of custom wheelhouse and maruti operating expenses of $15 million and 6 million respectively.

Michael Dennison: Amortization of additional acquired intangibles and operating expenses associated with facility expansion, partially offset by strong cost controls.

Dennis Shem: Amortization of additional acquired intangibles and operating expenses associated with facility expansion were partially offset by strong cost controls. Adjusted operating expenses were $268.1 million, or 18.3% of sales in the fiscal year 2023, compared to $257.1 million, or 16% of net sales in the prior year. The company's effective tax benefit was $3.1 million in the fourth quarter of fiscal 2023, compared to an effective tax expense of $0.2 million in the fourth quarter of fiscal year 2022. The decrease in the company's effective tax expense was primarily due to a decrease in pre-tax income.

Michael Dennison: Adjusted operating expenses were $268 1 million or 18, 3% of sales in the fiscal year 2023, compared to $257 1 million or 16% of net sales in the prior year.

Michael Dennison: The company's effective tax benefit was $3 1 million in the fourth quarter of fiscal 2023 compared to an effective tax expense of <unk> 2 million in the fourth quarter of fiscal year 2022.

Michael Dennison: The decrease in the company's income tax expense was primarily due to a decrease in pretax income.

Michael Dennison: For the full year, the company's effective tax expense was $17 8 million versus $28 5 million in the prior year period due to a lower pretax net income net income in the fourth quarter of 2023 was 4 million or 10 cents per.

Dennis Shem: For the full year, the company's effective tax expense was $17.8 million versus $28.5 million in the prior year period due to a lower pre-tax net income. Net income in the fourth quarter of 2023 was $4 million, or $0.10 per diluted share, compared to $53 million, or $1.25 per diluted share, in the same prior year period. Adjusted net income was $20.3 million in the fourth quarter of 2023, a decrease of approximately $40.6 million, or 66.7%, compared to $60.8 million in the fourth quarter of last year. We delivered $0.48 of adjusted earnings per diluted share in the fourth quarter of 2023, compared to $1.43 in the fourth quarter of 2022. On a full year basis, net income was $120.8 million compared to $205.3 million in the prior fiscal year.

Michael Dennison: Diluted share compared to $53 million or $1.25 per diluted share in the same prior year period. Adjusted net income was $20 3 million in the fourth quarter of 2023, a decrease of approximately $40 6 million or 66, 7% compared to <unk> <unk>.

Michael Dennison: $68 million in the fourth quarter of last year, we delivered 48 cents of adjusted earnings per diluted share in the fourth quarter of 2023 compared to $1.43 in the fourth quarter of 2022.

Michael Dennison: On a full year basis, net income was $128 million compared to $205 3 million in the prior fiscal year.

Michael Dennison: Earnings per diluted share for fiscal year, 2023 were $2.85 compared to $4.84 in fiscal year 2022.

Dennis Shem: Earnings per diluted share for fiscal year 2023 were $2.85, compared to $4.84 in fiscal year 2022. Adjusted net income for fiscal year 2023 was $167.5 million, or $3.95, of adjusted earnings per diluted share, compared to $232.7 million, or $5.49, of adjusted earnings per diluted share for the prior year. Adjusted EBITDA decreased by 49.5% to $38.8 million for the fourth quarter of 2023, compared to $76.8 million in the same quarter last year. Adjusted EBITDA margin decreased by 710 basis points to 11.7% in the fourth quarter of 2023, compared to 18.8% in the fourth quarter of 2022.

Michael Dennison: Adjusted net income in fiscal year, 2023 was $167 5 million or $3 95 of adjusted earnings per diluted share compared to $232 7 million or $5 49 of adjusted earnings per diluted share for the prior year.

Michael Dennison: Yes.

Michael Dennison: Adjusted EBITDA decreased by 49, 5% to $38 8 million for the fourth quarter of 2023 compared to $76 8 million in the same quarter last year.

Michael Dennison: Adjusted EBIT margin decreased by 710 basis points to 11, 7% in the fourth quarter of 2023 compared to 18, 8% in the fourth quarter of 2020 to.

Michael Dennison: The decrease in the adjusted EBITDA margin in the fourth quarter of 2023 is primarily due to the change in the portfolio mix the impact of the UAW strike and a slow ramp up after the strike ended the decision to keep our highly trained workforce and cost increases associated with our facilities.

Dennis Shem: The decrease in the adjusted EBITDA margin in the fourth quarter of 2023 is primarily due to the change in the portfolio mix, the impact of the UAW strike and the slow ramp-up after the strike ended, the decision to keep our highly trained workforce, and cost increases associated with our facility expansion to support our continued growth. Adjusted EBITDA decreased to $261 million in FY2023 compared to $321.8 million in FY2022, and the adjusted EBITDA margin decreased to 17.8% in FY2023 compared to 20.1% in FY2022. Moving on to the Balance Sheet and Cash Flow. Our balance sheet continues to be a source of strength for Fox and underpins our capital allocation strategy. The increase in inventory of $21.2 million is driven by the inclusion of $52.5 million of inventory from Marucci and $13.5 million from Custom Wheelhouse. Excluding Marucci and Custom Wheelhouse, we decreased inventory by 44.7 million, driven by lower sales and by our continuous improvement efforts to further optimize inventory across the organization.

Michael Dennison: Expansion to support our continued growth.

Michael Dennison: Adjusted EBITDA decreased to 261 million in fiscal year, 'twenty twenty-three compared to 321 8 million in fiscal year 2020 to adjust.

Michael Dennison: Adjusted EBITDA margin decreased to 17, 8% in fiscal year 2023, compared to 21% in fiscal year 2022.

Michael Dennison: Moving to the balance sheet and cash flows.

Michael Dennison: Our balance sheet continues to be a source of strength for Fox and underpins our capital allocation strategy. The increase in inventory of 21.2 million is driven by the inclusion of $52 5 million of inventory from Maruti and $13 5 million from custom wheelhouse, excluding meru Chi and custom wheelhouse.

Michael Dennison: We decreased inventory by $44 7 million driven by lower sales and by our continuous improvement efforts to further optimize inventory across the organization.

Michael Dennison: The increase in goodwill and intangibles reflects the custom wheelhouse and marucci acquisitions.

Dennis Shem: The increase in goodwill and intangibles reflects the Custom Wheelhouse and Marucci acquisitions. Our net leverage is 2.3 times as of year end, and in line with our expectations. Our flexible capital structure gives us the ability to invest in growth through R&D, CapEx, and sales and marketing, and provides the optionality to repurchase shares and pay down debt. For example, our revolver balance as of December 29th, 2023 is $370 million versus $200 million as of December 30th, 2022. Our term loan A balance is $380 million. We drew $400 million from our existing revolver and $400 million from our new term loan during 2023 to finance our purchase of Custom Wheelhouse in March 2023 and Marucci in November 2023 and to support our working capital.

Michael Dennison: Our net leverage is two three times as of year end and in line with our expectations.

Michael Dennison: Our flexible capital structure gives us the ability to invest in growth through R&D, capex and sales and marketing and provides the optionality to repurchase shares and pay down debt.

Michael Dennison: Our revolver balance as of December 29, 2023 is $370 million versus 200 million as of December 30th 2020 to our term loan a balance is $380 million.

Michael Dennison: We drew 400 million from our existing revolver and 400 million from our new term loan during 2023 to finance our purchase of custom wheelhouse in March 2023, and Marucci in November 2023, and to support our working capital. These withdrawals were partially offset by $230 million in payments on.

Dennis Shem: These withdrawals were partially offset by $230 million in payments on a revolver and $20 million in prepayments on our new term revolver. In the third quarter of 2023, our Board of Directors approved a $300 million share repurchase program. During the fourth quarter, we repurchased $25 million in shares at an average purchase price of $58.80 per share. CapEx spend for the quarter was $14.8 million, up 81.8% versus the prior year quarter of $8.1 million.

Michael Dennison: Our revolver and $20 million in prepayments on our new term loan.

Michael Dennison: In the third quarter of 2023, our board of directors approved a $300 million share repurchase program.

Michael Dennison: During the fourth quarter, we repurchased 25 million in shares at an average purchase price of $58.80 per share.

Michael Dennison: Capex spend for the quarter was $14 8 million up 81, 8% versus the prior year quarter of $8 1 million.

Dennis Shem: CapEx for the full year was $46.9 million, up 7.2% versus the prior year spend of $43.7 million. The increase in CapEx spend in the fourth quarter is due to SSG's Bike Test and Innovation Lab, upgrades to PBG's Machine Shop, and its PowerSports Upfit Capacity. Additionally, we stayed true to our capital allocation tenants and invested back into our core. In R&D, we invested $13.8 million, and in sales and marketing, we invested $25.8 million, representing 4.2% and 7.8% of sales versus 3.8% and 5%, respectively, in the prior year period. For the full year, we invested $53.2 million in R&D and $100.5 million in sales and marketing, representing 3.6% and 6.9% of sales respectively, versus 3.5% and 5.7%, respectively, in the prior year period.

Michael Dennison: Capex for the full year was $46 9 million up seven 2% versus the prior year spend of $43 7 million.

Michael Dennison: The increase in Capex spend in the fourth quarter is due to Ssg's bike test an innovation lab upgrades to Ppg's machine shop, and its power sports up at capacity.

Michael Dennison: Additionally, we stay true to our capital allocation tenants and invested back into our core.

Michael Dennison: In R&D, we invested $13 8 million and in sales and marketing, we invested $25 8 million, representing 4.2, and seven 8% of sales versus 3.8, and 5% respectively in the prior year period.

Dennis Shem: In PVG, our R&D efforts resulted in 141 new SKUs during the year, and we are looking to introduce north of 160 in 2024. On SSG's bike, our investments continue to drive innovation, supporting podium-winning Fox riders in both suspension and in compound. We are proud that we continue to gain market share as well, and we are advancing exciting new releases in the e-bike space. And at AAG, we are focusing on multiple growth vectors. We continue to invest in improving content and design for our off-road upfitting business and in our new business venture in side-by-side upfitting, where we are designing premium, high-performance, state-of-the-art models to cater to different price ranges. And lastly, we are heavily investing in and expanding our e-commerce capabilities across all of our businesses. Now, I would like to share some select guidance.

Michael Dennison: Now.

Speaker Change: Now I would like to share some select guidance.

Dennis Shem: We continue facing headwinds in AAG and PVG due to the higher interest rate environment and macroeconomic outlook at the consumer level and at the dealer-distributor level, as the cost of carrying inventory is more expensive, while SSG's bike. Although Hit trough-like levels in the fourth quarter, we expect to see further declines in the first half, with the first quarter of 2024 being the lowest since the destocking began, as the inventory recalibration is taking longer than anticipated, and Consumer Demand is expected to decline year over year, but will be partially offset by new product launches and growth in e-commerce. For the first quarter of 2024, we expect sales in the range of $315 million to $350 and Nongap Adjusted Earnings per Diluted Share in the range of $0.17 to $0.27.

Speaker Change: We continue facing headwinds in a G. M. P. B G due to the higher interest rate environment and macro economic outlook at the consumer level and at the dealer distributor level is the cost of carrying inventory is more expensive.

Speaker Change: While S S jeeze bike.

Speaker Change: Trump like levels in the fourth quarter, we expect to see further declines in the first half with the first quarter of 2024 being the lowest since the Destocking began as the inventory recalibration is taking longer than anticipated and consumer demand is expected to decline year over year, but will be partially offset by new.

Speaker Change: Product launches and growth and e-commerce.

Speaker Change: For the first quarter of 2024, we expect sales in the range of 315 million to $350 million and non-GAAP adjusted earnings per diluted share in the range of 17 cents to 27 cents.

Dennis Shem: Our net sales and EPS are lower year on year in Q1 given the continuation of bike OED stocking, overhang from the UAW strike that impacted chassis availability and mix, and model year changeover timing, which is delaying dealer purchases and weaker demand from PowerSports and PBG. We expect to see sequential improvement into the second quarter as bike OEs prepare for model year 2025, Jesse Mixon availability improves, the model year change for RAM is launched, and the expectation that the interest rate environment improves. As a result, we expect the first half of 2024 to decline year over year before expanding to growth in the second half of 2020. For the fiscal year 2024, the company expects sales in the range of $1.53 billion to $1.68 billion and adjusted earnings per diluted share of $2.30 to $2.60. Our full-year guidance assumes an income tax rate to be in the range of 15% to 18%.

Speaker Change: Our net sales in EPS are lower year on year and Q1, given the continuation of bike O E. Destocking overhang from the U a W strike that impacted chassis availability and mix model year, changeover timing, which is delaying dealer purchases and weaker demand from power sports and P. B G.

Speaker Change: We expect to see sequential improvement into the second quarter. His bike Oh, he's prepared for model year 2000 twenty-five releases Jesse mixon availability improve motto year change for Ram is launched in the expectation that the interest rate environment improves.

Speaker Change: As a result, we expect the first half of 2024 to decline year over year for expanding to growth in the second half of 2024.

Speaker Change: For the fiscal year 2024, the company expects sales in the range of 1.53 billion to 1.68 billion and adjusted earnings per diluted share of $2.30 to $2.60.

Speaker Change: Our full year guidance assumes an income tax rate to be in the range of 15% to 18%.

Speaker Change: Our belief is that this race will be won by the innovator and given our robust pipeline of innovative products industry, leading market share and best in class brands. We believe our product roadmap supports our 2000 twenty-five vision of $2 billion in sales. However.

Dennis Shem: Our belief is that this race will be won by the innovator, and given our robust pipeline of innovative products, industry-leading market share, and best-in-class brands, we believe our product roadmap supports our 2025 vision of $2 billion in sales. However, our vision of $2 billion in sales and 25% EBITDA margins will depend on several factors, including uncertainties on volume and product mix since we are largely tied to OEM. The larger macro environment, including interest rates, and our exit rate in Q4 of this year.

Speaker Change: However, our vision of 2 billion in sales and twenty-five percent EBITDA margins will depend on several factors, including.

Speaker Change: Uncertainties on volume and product mix since we are largely tied to Oems.

Speaker Change: The larger macro environment, including interest rates and our exit right in Q4 of this year.

Michael Dennison: As a result, we will revisit our 2025 aspirations in the second half of this year when we have more visibility. We're certainly operating in a dynamic environment and will continue to watch retail and consumer trends to adjust our cost and business model accordingly. However, because of our strong and flexible capital structure, we are working from a position of strength during this downturn and investing in our future. With that, I would like to turn the call back over to Mike. Thank you, Dennis.

Speaker Change: As a result, we will revisit 20 twenty-five aspirations in the second half of this year when we have more visibility.

Speaker Change: We're certainly operating in a dynamic environment and will continue to watch retail and consumer trends to adjuster cost and business model. Accordingly. However.

Speaker Change: However, because of our strong and flexible capital structure, we are working from a position of strength during this downturn in investing in our future.

Speaker Change: With that I would like to turn the call back over to Mike.

Michael Dennison: Thank you Dennis as we start the new year, we recognize that we're still managing through some of the same challenges that we faced last year.

Michael Dennison: As we start the new year, we recognize that we're still managing through some of the same challenges that we faced last year. However, I have never had more conviction in this business or this team based on the number of product launches, new customer relationships, and other exciting developments around EV platforms. The ability to sustain and increase our prices based on innovation and advanced product development and our international expansion. There is much to be proud of in our accomplishments, and I am energized by a future where we are shifting into a higher gear across the globe. The team remains galvanized on winning, as we prove every day, in every way.

Michael Dennison: However, I have never had more conviction in this business or this team based on the number of product launches new customer relationships exciting developments around EEV platforms, the ability to sustain an increase our pricing based on innovation in an advanced product development and our international expansion.

Michael Dennison: There is much to be proud of our accomplishments and I am energized by a future where we're shifting into a higher gear across the enterprise.

Michael Dennison: The team remains galvanized on winning as we prove every day in every way.

Operator: Armed with a strong balance sheet, cash flow, and our 1 plus 1 equals 3 strategy, I could not be more excited about our positioning and our future. I would now like to open the call to questions, Operator. Thank you. At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2.

Michael Dennison: Armed with a strong balance sheet cash flow and our one plus one equals three strategy I cannot be more excited about our positioning and our future.

Speaker Change: I would now like to open the call for questions operator.

Speaker Change: Thank you at this time, if you would like to ask a question. Please press the star and one on your telephone keypad, you may remove yourself from the acute anytime by pressing star too.

Larry S. Solow: Once again, that is the star and one to ask a question. And we'll take our first question today from Larry Solow with VGS Security. Hey, good afternoon, guys.

Speaker Change: Once again it is star N one to ask a question.

Speaker Change: And we'll take our first question a day from Larry So low with C. G S Securities.

Larry S. Solow: Good afternoon got I guess, the layers question, Mike, Hey, Hey, lots of moving parts feels like.

Michael Dennison: I guess my first question, Mike, lots of moving parts, it feels like... Not a lot of new issues, but the issues have just, seems to have gotten deeper and a little, and probably a little worse. I guess, what, you know, clearly your guidance builds in a big ramp up, not only in sales, but in margin as the year progresses. You talk about exit rates, I'm sure you're not ready to share what your guidance incorporates in terms of what you, you know, exit in the year, but clearly a lot higher than when you start the year. What, you know, as you exit the year, what your vision today, what, you know, how much of that, you know, correction from today to the year end is just driven by improved chassis supply, OEM production, and slowed down inventory destocking, you know, which hopefully, maybe that's a little bit less certain, that, you know, but if you can get most of those improvements versus kind of an improvement in demand that you need to, you know, drive from today to the year end again.

Larry S. Solow: Not a lot of new issues, but the issues of just seemed to have gotten deeper in a little and I'd probably or worse.

Larry S. Solow: What what you know.

Speaker Change: Clearly <unk> your guide and filled with a big ramp up not only in sale, but marginal but.

Speaker Change: Progressive <unk> <unk>.

Michael Dennison: You're talking about exit right, so I'm not sure.

Speaker Change: Sure what you what you got in to incorporate in terms of what you're you know exiting the ear, but clearly a lot higher than what you start <unk> what <unk> what your vision today, what you know how much of that correction from today to a year and it just driven by improve fast food supply OEM production and.

Speaker Change: Slowdown inventory Destocking, which hopefully maybe that's a little bit less certain that you know, but if you can get most of those improvements versus kind of improvement in demand that you need to you know.

Speaker Change: Drive and <unk> you know that quick can you go to that question just kind of put your bucket like how much of that you know that the improvement is driven by some of the demand versus some of the things that hopefully will improve just over time.

Michael Dennison: If you know what that is, could you gather that question, just kind of, could you bucket like how much of that is driven by some of the demand versus some of the things that hopefully will improve just over time? Yeah, thanks, Lori. That's a good question and a lot of questions, so let me take a minute to try to piece through that and give you some feedback.

Speaker Change: Yeah. Thanks for you that's a good question and a lot of questions. So let me take a minute to try to get them pay through that with some feedback the things that give us positivity towards the towards the back half of the year or the the number of product launches that starting now and continuing through the years. So internally the things that we can control you know are you know.

Michael Dennison: The things that give us positivity towards the back half of the year are the number of product launches that start now and continue through the year. Internally, the things that we can control, as you know, are the quality of the product, product innovation, and product launches. And as an example, in PBG alone, we're launching 160 new products this year alone. That's more than 140 that we launched in 2023 to support 2024, and the year prior to that was 42.

Speaker Change: Quality of product product innovation and product launches in his example, and P. B G.

Speaker Change: Alone P. P. G alone, we're launching 160 new products. This year alone. That's that's over 140 to be launched in total pull three to support 2024.

Speaker Change: A year prior to that was 42. So you can see that we have been on our game relative to driving new product development, which is key to our business.

Michael Dennison: So you can see that we have been on our game relative to driving new product development, which is key to our business. So our product portfolio and our product roadmap this year support that exit rate and that vision for the back half. What we need to materialize to continue to drive volume with those product launches are things like, you know, model year 25 is gonna happen on the bike. We're very comfortable with that, but what are the volumes of model year 25 bikes? That's the question that needs to materialize.

Speaker Change: So our product.

Speaker Change: <unk> that'll product roadmap. This year supports that exit rate that vision for the back half what we needed materialize to continue to drive volume with this product launches are things like you know a model you 25 is gonna happen and bike, we're very comfortable with that but what are the volumes of malia twenty-five bikes. That's the question that needs to mature.

Speaker Change: Realize we need is the interest rates start to come down a little bit to give consumers more confidence in those big spend items.

Michael Dennison: We need to see interest rates start to come down a little bit to give consumers more confidence in those big-ticket items. You know, again, on the high end of our range with the highly affluent customer, it's less impacted, but in that middle range, those interest rates do matter. So that macro has to continue to improve in the back half, and then OEMs just have to get back to their forecast. You know, what we saw in the late Q4 timeframe was OEMs really backed off their commitments on forecasts. Interestingly enough, and when you think about what it was like in COVID, Larry, where they would under-forecast and then we would over-deliver because they'd come back and ask for more, we got into an environment in 23, and especially late 23, where they over-forecasted and then backed off massively And so we've learned a lot in this process, and now when we think about their forecasts, we're pretty conservative, and we tend to hedge down versus hedge up, like we had to do in the past. You're seeing that too?

Speaker Change: Or on the high end of a range on.

Speaker Change: Highly affluent customer less impacted.

Speaker Change: Middle range those interest rates do matters. So that macro has to continue to improve in the back half and then oem's, you've gotta get back to the forecasts, but what we saw in the late Q4 timeframe with Oem's really backed off their commitments on forecasts.

Speaker Change: Interestingly enough when you think about.

Speaker Change: What it was like in Covid, Larry where they would under forecast and then we would over deliver because they'd come back and ask for more we got into an environment I twenty-three and especially late twenty-three where they over forecasted and then backed off massively and so we've learned a lot in this process and now when we think about their forecasts were pretty conservative and we tend to hedge down versus heads.

Speaker Change: Up like we Gotta do my ears past, you're seeing that too so they have to get back to actual forecast that we can believe in it as we do that I think will be in great shape.

Michael Dennison: So they have to get back to actual forecasts that we can believe in. And as we do that, I think we'll be in great shape. And have you seen any real switch in demand? I get that in the interest rate environment, higher interest rates, dealers don't want to hold as many vehicles, but in terms of end market demand, are you actually getting a feel for, at least in some of your higher end markets on the vehicle side, are you seeing any actual customer slowdown too, or are you just more fearful that that could occur in this environment? I think, you know, we're not seeing customers slow down in the aftermarket for sure, so maybe customers are moving away from buying a brand new vehicle and they're, you know, fixing the one they have in the driveway.

Speaker Change: <unk> have you seen any any real switching demand I get that the interest rate environment higher interest rate the dealers don't want to hold as much vehicles, but in terms of and market demand that you actually getting the at least in some of your higher.

Speaker Change: And markets on the vehicle side I use any.

Speaker Change: Any actual customer slow down too or are you just more fearful that that could occur in this environment.

Speaker Change: I I think you know what I've seen customer slowdown an aftermarket for sure. So new customers are living away from buying a brand new vehicle <unk>.

Speaker Change: Fixing the one that you have on the driveway, we can talk about that as well you know that's what we.

Michael Dennison: We've talked about that as well, as you know, that's one of the things that we have going for us in the portfolio is that, you know, if the OEM business slows down because new vehicle sales slow down, then the aftermarket picks up. I'll tell you this though, on the OEM side, and we talked about Raptor, Raptor R, and a lot of those projects, Ranger, Raptor, they're at max capacity in 2024, so they're not seeing any slowdown in the sales of those units. So we have a lot of conviction that that customer has stayed just as strong. It's another part of the business where we see some of that start to soften. I got it. And then just one last question.

Speaker Change: We have going for us is in the portfolio is that.

Speaker Change: Oh, Yeah that was slows down because new vehicle sales slowdown than than I'm worth it picks up I'll tell you. This <unk> talk about Raptor Raptor are a lot of those projects range of Raptor there at Max capacity in 2024, so they're not seeing any slowdown in the sales of those unions. So we have a lot of <unk>.

Speaker Change: Condition of that customer has stayed just as strong as in other parts of the business, where we see somebody that start to soften.

Speaker Change: Got it and then just just last question it sounds like there's not much in terms of cost cutting you you're not cost cutting too much cause you're expecting a rebound in these businesses right. So <unk> will likely suffer a dining in Q1, maybe even a little bit worse than they weren't two four and then start to improve just.

Michael Dennison: It sounds like there's not much, you know, in terms of cost cutting; you're not cutting too much because you're expecting a rebound in these businesses, right? So the margins will likely suffer again in Q1, maybe even a little bit worse than they were in Q4, and then start to improve just as absorption improves, and leverage improves in the back half of the year. Is that a good way to look at it? That's a great way to look at it. You know, we're doing some optimization on the corporate side just to be better and more efficient. That's just an improvement. In my mind, it should be an ongoing event. We're doing some trimming in factories where, for whatever reason, we don't need a shift right now, or we don't need a certain, you know, night shift or something like that. But for the majority of this, we understand that we're in a near-term, you know, problem. And it's hard to find great people.

Speaker Change: <unk> leverage improves in the back half of the year is that a good way to look at it.

Speaker Change: It's a great way to look at it you know we're doing some optimization incorporated in the corporate side just to be better and more efficient. That's just that's just improvement in my mind that should be an ongoing event, we're doing some training in factories, where.

Speaker Change: For whatever reason, we don't need is a shift right now or we don't need a certain night shift or something like that but for the majority of this we understand that were in the near term problem and it's hard to find great people and we have a huge amount of congestion or a longterm future. So we're sticking to our guns and stick them in the background that yeah, So you'll see sales marketing orange.

Michael Dennison: And we have a huge amount of conviction in our long-term future. So we're sticking to our guns and sticking to the product roadmap. So you'll see sales, marketing, R&D, we're going to continue to spend all through this period. We think it's the right move for the future on this, but great, thank you for the call. I appreciate it. Thanks, Larry. Thanks, Larry. Next, we'll hear from Alex Perry with Bank of America. Hi, thanks for taking my questions here.

Speaker Change: <unk>, we're gonna continue to spend all through this period.

Speaker Change: It's the right move for the future.

Speaker Change: Understood great. Thank thank you for the call I appreciate it.

Speaker Change: <unk>.

Speaker Change: Next we'll hear from Alex Parry with Bank of America.

Alex Maroccia: Alright, Thanks for taking my questions here for searches, hoping we could get some more color about higher thinking about the various business segments for the year you know maybe S. S. C vs PVC and a a G from a growth rate standpoint, and then I guess, if we just you know isolate the legacy SSG business, how are you thinking about that.

Alex Perry: First, I was just hoping we could get some more color about how you're thinking about the various business segments for the year, you know, maybe SSG versus PVG and AAG from a growth rate standpoint. And then I guess, if we just, you know, isolate the legacy SSG business, how are you thinking about that coming in versus the, you know, $370 million that you did in 2023? Thanks. Yeah, good question, Alex

Alex Maroccia: Coming in versus the $370 million that you did in 2023. Thanks.

Speaker Change: Yeah. Good question now so we'll talk SSD, specifically here for a second so we're not expecting you'll see it in the guide you can see it obviously and the guy who will not expecting any improvement necessary. This year, just as a function the first half being down in the back half kind of recovering the inversion of 2023 and 2024 is is is Dennis talk.

Michael Dennison: So we'll talk, you know, SSG specifically here for a second. So we're not expecting, you'll see it in the guide, you can see it obviously in the guide, we're not expecting any improvement in SSG this year, just as a function of the first half being down and the back half kind of recovering the inversion of 2023 and 2024, as Dennis talked about. So, you know, we'd like to see improvement in that business this year. We think there's an opportunity for improvement in that business this year. But our forecast visibility there is, or our PO visibility is pretty short, about 45 days.

Speaker Change: About so yeah, we'd like to see improvement in that business. This year, we think there's an opportunity for improvement in business and that business. This year, but our forecast visibility. There is is where our P. O visibility is pretty sure about 45 days, so our customers give us.

Speaker Change: Have you heard what my answer to Larry as customers give us growing forecast that we love to see you take that with a big Bill with Salt and so right now we don't have that big indoor numbers and so we're expecting that business to be flat to them in 24.

Speaker Change: Any other businesses is really a reflection, it's gonna be a reflection of Powersports Malian P V G.

Speaker Change: And and potentially some of the automotive space as they go through their their cycle changes and things like that but that's really going to be driven by Oh, Yeah. We've got we've got a aftermarket bill absolutely. The way you want it built we're going to do a lot of product launches an aftermarket that will help us, but you know there's so much volume in L. E M.

Michael Dennison: So our customers give us, As you heard from my answer to Larry, as customers give us these glowing forecasts that we love to see, we take that with a big grain of salt. And so right now, we don't have the big indoor numbers, and so we're expecting that business to be flat to down, you know, in 20... In the other businesses, it's really a reflection of power sports, mainly in PVG, and, you know, potentially some in the automotive space as they go through their cycle changes and things like that. But that's really going to be driven by OEM. We've got our aftermarket built absolutely the way we want it built.

Speaker Change: They'll get a forecast rides with tough and so we're again rolling with forecast and hedging those forecast to give us some room for for for improvement later in the year.

Speaker Change: And relative to a G. I mean, this is mainly a flattish year for them and since that we've got the outfitting business is relatively flat, but we also have the new side by side operation going into effect that I think will help us offset some of that decline that we're seeing in the.

Michael Dennison: We're going to do a lot of product launches in the aftermarket. That will help us. But you know, there's so much volume in OEM. If they don't get their forecast right, it's going to be tough.

Speaker Change: The first half of the update business.

Michael Dennison: And so we're, again, revising those forecasts and hedging those forecasts to give us some room for improvement later in the year. Relative to AAG, I mean, this is mainly a flattish year for them in the sense that we've got the upfitting business relatively flat, but we also have the new side-by-side operation going into effect that I think will help us offset some of that decline that we're seeing in the first half of the upfit business. Perfect. That's really helpful.

Speaker Change: Perfect. That's very helpful. And then just one one other modeling question what is the expected murchie contribution in 2024, you know any help on that sort of how that plays out by quarter given the seasonality of the business. Thank you.

Speaker Change: Yeah, Little putting me in a little challenging position here because.

Speaker Change: <unk> certainly has not gone live yet with the results rucci, so, but what we do know is this like through three quarters last year <unk>.

Dennis Shem: And then just one, one other modeling question. What is the expected Marucci contribution in 2024? You know, any help on sort of how that plays out by quarter given the seasonality of the business? Thank you. Yeah, putting me in a little challenging position here because Cody certainly has not gone live yet with the results of Marucci.

Speaker Change: <unk> delivered about 144 million.

Speaker Change: With us they did 17, so essentially you're at 160, and so and you just gotta account for that period of time October to November where.

Speaker Change: Cody is not reported yet.

Dennis Shem: But what we do know is that through three quarters last year, Marucci delivered about $144 million. With us, they did $17 million. So, essentially, you're at 160.

Speaker Change: My my take on it is they probably had a bigger October and early November because that would been pre black Friday sales. So roughly speaking I'm guessing. These guys were probably around 180 185 ish. It's.

Dennis Shem: And so then you just got to count for that period of time, October to November, where Cody has not reported yet. My take on it is they probably had a bigger October and early November because that would have been pre-Black Friday sales. So roughly speaking, I'm guessing these guys were probably around $180, $185-ish. That's how I would get there.

Speaker Change: How I would get there I think that would be normal assumptions that you guys could make as well and then so just put some growth on top of that right.

Speaker Change: Probably the best way to look at it without me, giving you.

Speaker Change: More details.

Speaker Change: That makes perfect Yep, that's incredibly helpful best of luck going forward.

Speaker Change: Thank you.

Speaker Change: Our next question will come from Craig Kennison with bird.

Craig Kennison: Hey, good afternoon, Thanks for <unk>, Hey, Thanks for taking my question.

Craig Kennison: On the Powersports side I'm curious how recently your Powersport OEM customers.

Dennis Shem: I think that would be normal assumptions that you guys could make as well. And then, just put some growth on top of that, right? That's probably the best way to look at it without me giving you, you know, more details. Does that make sense? Perfect. Yes. That's incredibly helpful.

Craig Kennison: Re.

Craig Kennison: Reset their ordered pattern with Ya.

Speaker Change: Yeah, I would it's it's not digital Craig think about it is a bit more analog but it it started kind of post labor day carried into the queue for the biggest shift was probably really late in queue for call. It in December.

Alex Maroccia: Best of luck going forward. Thank you. Our next question will come from Craig Kennison with Barry, www.foxfactoryholdings.com Hey, good afternoon. Thanks for taking my question. On the PowerSports side, I'm curious how recently your PowerSport OEM customers have reset their order pattern with you. Yeah, I would, it's not digital.

Speaker Change: January and and the and the reduction between December.

Craig Kennison: December and early February was significant so that's what really caused us to go you know what we're not gonna take these forecasts at face value. We're gonna back off because we think these customers are are in the process of backing up on their own when there's not telling us yet. So that's that's what you're sensing from us is that Conservatives conservatism.

Craig Kennison: Is really just coming from you know as we saw the really significant.

Craig Kennison: Craig, think about it as a bit more analog, but it started kind of after Labor Day and carried into Q4. The biggest shift was probably really late in Q4, call it December and early January. And the reduction even between December and early February was significant.

Craig Kennison: A significant reduction December February that.

Craig Kennison: They're having some inventory challenges.

Speaker Change: Yeah. Thank you yeah that helps that we've done some work in that area. Just feels like there is an inventory issue and I'm wondering whether you know the recent glut that we've detected has been been processed and your guidance or whether.

Michael Dennison: So that's what really caused us to go, you know what? We're not going to take these forecasts at face value. We're going to back off, because we think these customers are in the process of backing up on their own, and they're just not telling us. So that's what you're sensing from us, is that conservatism is really just coming from, you know, as we saw the really significant reduction in December to February, that they're having some inventory challenges. Yeah, thanks.

Speaker Change: There's still another signal for the whole channel to absorb.

Craig Kennison: Cause it's in our guidance you know, we we like I said, we've taken the forecast that we get and we've hedged and down based on what we're seeing any any actually at a real time basis.

Craig Kennison: Could it get worse potentially you know the good news is we're actually approaching some new customers and some new products. This year in that space that that might help offset some of that so like I said before a product development and product roadmap is everything for us and I think we can help offset some of this with some of that it's just we.

Craig Kennison: We don't we're not gonna just buy into the current forecast.

Craig Kennison: We will be given for the year and believe it completely.

Speaker Change: Yeah, great. Thank you.

Michael Dennison: Yeah, that helps that we've done some work in that area. It just feels like there is an inventory issue. And I'm wondering whether, you know, the recent glut that we've detected has been processed under your guidance, or whether there's still another signal for the whole channel to absorb. I think it's in our guidance. You know, we've, like I said, taken the forecast that we get and hedged it down based on what we're seeing in the actuals on a real-time basis. Could it get worse, potentially?

Speaker Change: Thank you.

Speaker Change: Our next question will come from Michael Schwartz with two of Securities.

Michael Swartz: Hey, guys good evening.

Michael Swartz: Sticking with the bike business I mean.

Michael Swartz: Maybe provide a little more color around your commentary on the motto your twenty-five change over and the timing there within and it also are you seeing any difference in the behavior between some of the larger global Oems and some of the more domestic oriented customers.

Speaker Change: Yeah, It's great Great question like my my perspective is this what we're seeing is the smaller boutique whether it's in Europe are here in the U S companies by companies that are are exiting that inventory problem or have already actually that inventory problems are already back on the gas and we were taken P. O is now familiar 25 with those companies, which.

Michael Swartz: The good news is we're actually approaching some new customers and some new products this year in that space that might help offset some of that. So, like I said before, product development and product roadmap are everything for us, and I think we can help offset some of this with some of that. We're not going to just buy into the current forecast that we would be given for the year and believe it completely. Great. Thank you. Thank you. The next question will come from Michael Swartz with Truist Securities. Hey guys, good evening.

Speaker Change: Is.

Michael Swartz: Obviously, a great side of positivity rats that that's that's the good side. The bad side is while we have tons of spec model with 25 launches for later in the year with the Big Global guys that you referred to.

Michael Swartz: Just sticking with the bike business, I mean, maybe provide a little more color around your commentary on the model year 25 changeover and the timing there within. And also, are you seeing any difference in the behavior between some of the larger global OEMs and some of the more domestic-oriented customers? Great question, Mike.

Michael Swartz: We are confident they'll have they will move tomorrow. The 25, what were what were cause.

Michael Swartz: Conservative about is what's the volume behind that model 25.

Michael Swartz: Large the <unk> or the the they're actually going to add it up so.

Speaker Change: Yeah, we're pretty comfortable there's all the companies will be on the 25 by.

Speaker Change: Eight Q3, it's just a function of what the volume, while you're 25 as a as a exit their inventory challenges. So that's how we're kind of reading it we love our spec where games back we've got some great new product launches, we're actually seeing some products that we just recently lost fell out fairly quickly and the aftermarket so.

Michael Dennison: My perspective is this. What we're seeing is the smaller boutiques, whether it's in Europe or here in the U.S., companies that are exiting that inventory problem or have already exited that inventory problem are already back on the gas. And we're taking POs now for Model Year 25 with those companies, which is obviously a great sign of positivity. So that's the good side.

Speaker Change: There's there's there's some green.

Speaker Change: It's out there, it's just too too early the.

Speaker Change: Say, we won the war of this Destocking, we've all faced and you're gonna have to give us some time before we want a that'd be that'd.

Michael Dennison: The bad side is while we have tons of spec on Model Year 25 launches for later in the year with the big global guys that you referred to, we're confident they will move to Model Year 25. What we're conservative about is the volume behind that Model Year 25 launch that they're actually going to have. We're pretty comfortable that all the companies will be on model year 25 by late Q3. It's just a function of what the volume of model year 25 will be as they exit their inventory challenges. So that's how we're kind of reading it. We love our spec.

Speaker Change: That aggressive about it.

Speaker Change: Okay awesome. Thanks, Mike.

Speaker Change: And then maybe for Denison you you would just referenced it you know, adding some growth for the for the marucci business in 24 as it pertains to what's embedded in your guidance baby remind us again, what the big growth opportunities are in that business, you know, maybe 24 and longer term.

Speaker Change: Yeah. They you know one of the things that really impressed us when we purchase them back.

Speaker Change: Back in November was the multiple growth factors that they had.

Speaker Change: And you know some of them that were expecting to capitalize on this year, they're they're clearly continuing to see strong growth in the bats strong growth in softball, it's probably one of the fastest growing sports out there feel like we're well positioned to demonstrate some growth there as well they've got some really <unk>.

Michael Dennison: We're gaining spec. We've got some great new product launches. We're actually seeing some products that we just recently launched sell out fairly quickly in the aftermarket. There are some green jutes out there, but it's just too early to say we've won the war of this destocking that we've all faced, and you're going to have to give us some time before we want to go out and be aggressive about it. Okay, awesome, thanks, Mike.

Speaker Change: Really cool apparel launches and you know try to keep a tight tight lipped on those but those are due to come out as well. This year and then we'll see continued expansion on the hitters house as well.

Dennis Shem: And then maybe for Dennison, you just referenced it, adding some growth for the Marucci business in 24 as it relates to what's embedded in your guidance. Maybe remind us again what the big growth opportunities are in that business, you know, maybe both in 24 and longer term. Yeah, they, you know, one of the things that really impressed us when we purchased them back in November was the multiple growth factors that they had and, you know, some of them that we're expecting to capitalize on this year. They're clearly, you know, continuing to see strong growth in the bats, strong growth in softball. It's probably one of the fastest growing sports out there, and feel like we're well positioned to demonstrate some growth there And then we'll see continued expansion of the hitters house as well.

Speaker Change: And so that should be revenue generating for us too. So yeah lots of lots of strong growth opportunities here and then strong accretion in the margin side as well one final point international expansion is pretty significant too so that'd be <unk>.

Speaker Change: <unk> some news there as well just because you know we're we're getting more of a presence there in Japan and so we should start to see some acceleration there okay.

Speaker Change: Okay, and just follow up of emergency or are you a bedding any materials synergies and we've talked about the cost synergies or you're betting any of those in the twenty-four outlook.

Speaker Change: Not in 24, I think there are opportunities for that and twenty-five there's some work to do in 24 and I don't think those are insignificant opportunities by the way, but I am putting that in 24 again.

Dennis Shem: And so that should be revenue-generating for us too. So again, lots of, lots of strong growth opportunities here and then strong accretion on the margin side as well. One final point: international expansion is pretty significant too. So, you know, be expecting some news there as well, just because, you know, we're getting more of a presence there in Japan.

Speaker Change: Okay awesome. Thank you.

Speaker Change: Our next question will come from Brett Jordan with Jeffries.

Brett Jordan: Good morning, guys. The follow up I guess I'm I'm a <unk>.

Brett Jordan: The the seasonality I think you've talked about maybe 180, but maybe some strength around things like fall sales, but how do we think about that.

Dennis Shem: And so we should start to see some acceleration there. And just a follow up on Mergi, are you embedding any material synergies, I know you've talked about the cost synergies, are you embedding any of those in the 24 Outlook? Not in 24.

Brett Jordan: I'd think it sells into the startup baseball season, and maybe softens after that but what's the quarterly check out.

Brett Jordan: The season now there used to be more extreme than than it is now Brad deal with the the <unk> the newest product launches that Denis referred to in a different spaces, not just bats, and the rest of the product portfolio again 45 per cent of their business today is not bad per se. So that's taken some that seasonality out.

Dennis Shem: I think there are opportunities for that in 25. There's some work to do in 24. And I don't think those are insignificant opportunities, by the way, but we're not putting that in our 25. Okay, awesome. Thank you. Our next question will come from Brett Jordan with Jeffries. Good morning, guys.

Brett Jordan: [noise] I think you'll see the biggest quarters typically are used to be historically Q4 and Q1. What we're seeing now is Q3 is actually a quite a big <unk> for them. So it's Q3 Q for the lighter quarter, probably being a little bit lighter quarter being Q too, but it really comes down to what proud of the lunch and when and and as we enter some new spaces I think we can.

Brett Jordan: To follow up, I guess, on the Marucci. The seasonality, I think you talked about maybe 180, but maybe some strength around things like fall sales, but how do we think about that on a quarterly basis? I think it sells into the start of the baseball season and maybe softens after that, but what's the quarterly shakeout? The seasonality used to be more extreme than it is now, Brad. You know, with the numerous product launches that Dennis referred to in the different spaces, not just BATs in the rest of the product portfolio. Again, 45% of their business today is not BAT per se.

Brett Jordan: We can absorb that even further into a more even even revenue throughout the year.

Speaker Change: And then I guess, we haven't talked to the last couple of quarters about the margin potential from Gainesville production leverage is that something that you know.

Speaker Change: Is there.

Speaker Change: Ah number we need to get back to you before you start getting the fixed overhead absorption there or have you changed your thoughts as far as that.

Speaker Change: 250 basis points, plus a margin potential from that facility.

Speaker Change: We saw a lot of improvement in and twenty-three. Although Q4, we didn't see any of course as we call it out and they're prepared remarks, just because of U a W. So we're back on that on that path now in Q1, and we'll keep pushing all those improvements throughout the year, but we came a long way you know until let's say Labour day in and then just himself.

Michael Dennison: So that's taking some of that seasonality out. And I think, you know, their biggest quarters typically, or used to be historically, you know, Q4 and Q1. What we're seeing now is Q3 is actually quite a big quarter for them. So it's Q3, Q4, the lighter quarter probably being a little bit lighter being Q2.

Speaker Change: This is a new a W. So we know what to do volume does matter to your point so.

Speaker Change: Once we get past none of her past U a W. And we're moving forward I think we'll see that come back in.

Speaker Change: Great. Thank you.

Michael Dennison: But it really comes down to what product we launch and when. And as we enter some new spaces, I think we can, you know, absorb that even further into a more even revenue throughout the year. Okay, and then I guess we haven't talked in the last couple quarters about the margin potential from Gainesville production leverage. Is that something that, you know, is there a number we need to get back to before you start getting the fixed overhead absorption there? Or have you changed your thoughts as far as that, whatever, 250 basis points plus of margin potential from that facility?

Speaker Change: Our next question will come from an increase in with Riley.

Riley: Yeah. Good afternoon ninth thanks for taking my question.

Riley: I, just I'm trying to understand a little bit better you know what's changed.

Riley: We last spoke in November the last record you know it seems like you know the U a W strike in tax at least at that point with fairly well understood. We had started incorporating higher interest rates in transit dealer reluctant to take inventory would it be fair then to say that this power sports shift and and inventory.

Speaker Change: Tori Recalibration is kind of the biggest piece that since then any way to kind of find out those pockets a little bit more I would be great.

Brett Jordan: We saw a lot of improvement in 23, although in Q4, we didn't see any, of course, as we called out in the prepared remarks just because of UAW. So we're back on that path now in Q1, and we'll keep pushing all those improvements throughout the year. But we came a long way, you know, until, let's say, Labor Day and then just some softness, and then UAW. So we know what to do. Volume does indeed matter, to your point.

Speaker Change: You know I think in general this is really just the function of alien forecasting and softness and I don't think that's just an powersports, though that that's probably the made the major contributor in December in Q1, we do see some softening in the automotive space not necessarily on the high end vehicles.

Speaker Change: Other vehicles, we see some softening in age age is relative.

Speaker Change: Financing is we've called out in the past is it more significant yes, and no. It's really a function of for financing tied to do you have the right product on the right lot.

Anna Gleason: So, you know, once we get past UAW and we're moving forward, I think we'll see that come back in. All right, thank you. Our next question will come from Anna Gleason with Riley. Good afternoon, guys.

Speaker Change: If it's a shelby truck at 120, plus thousand dollars you're fine. If it's 75000 dollar Ram truck you may not be fine. So, it's just a functional macro interest rates and mix.

Michael Dennison: Thanks for taking my question. I guess I'm trying to understand a little bit better what's changed since we last spoke in November or the last report. It seems like, at that point, the UAW strike impact, at least at that point, was fairly well understood. We had started incorporating higher interest rates in terms of, you know, dealer reluctance to take inventory. Would it be fair then to say that, you know, this power forward shift and inventory recalibration is kind of the biggest piece that's moved since then? Or any way to kind of frame out those buckets a little bit more would be great.

Speaker Change: And I think that stuff works itself out it's nothing again, it's nothing around product development or product roadmap issues.

Speaker Change: Just around you know you have to have something new and fresh for a consumer to want to spend their money and I think you're seeing then all all companies like ours. If you can if you can create something that's enticing to a consumer they're gonna pull out their wallet and spend money and you know if you don't then then it can be a problem. So these product launches in 2024 are gonna be incredibly important too.

Speaker Change: You are to our growth and success this year and I think the other thing to add to that Mike would just be bike certainly was a little softer than what we had expected when we were out with you in November so clearly there's been some deterioration and demand and so we built that into the fork.

Michael Dennison: You know, I think in general, this is really just a function of OEM forecasting and OEM softness. And I don't think that's just in power sports, although that's probably the major contributor in December in Q1. You know, we do see some softening in the automotive space, not necessarily on the high-end vehicles but on other vehicles. And we see some softening in AEG just relative to floor plan financing, as we've called out in the past. Is it more significant? Yes and no.

Speaker Change: <unk>. This is in the first quarter and we should start seeing growth there in the second quarter as more and more of these oem's go to that model year 25, that's a good point yeah. You've heard me say you know the faster they they get out of this problem and the better off we're all gonna be so perhaps take more pain, just take it and get it done you know.

Speaker Change: I'm not so worried about a quarter, whether it's Q for Q1, I want to get back to a normalized business pattern, where our product waves inspect sure. You know show that have differentiated we are but I can't get there until they get through this stuff. So it's like just take the pain and go let's deal is deal with it.

Michael Dennison: It's really a function of floor plan financing tied to whether you have the right product on the right lot. If it's a Shelby truck at $120,000 plus, you're fine. If it's a $75,000 RAM truck, you may not be fine.

Speaker Change: Thanks, I I just want to clarify what did you then if they just think back to growth and to kill or was it the second half or ethics Wentzell sequential growth, we should all kind of wanted to keep to the sequential growth in that in the back half would be growth with our current expectations.

Michael Dennison: So, you know, it's just a function of macro, you know, interest rates and mix. And I think that stuff works itself out. It's nothing, again, it's nothing around product development or product roadmap issues. It's just that, you know, you have to have something new and fresh for a consumer to want to spend their money. I think you're seeing that in all companies like ours. If you can create something that's enticing to a consumer, they're going to pull out their wallets and spend money. And, you know, if you don't, then it's going to be a problem.

Speaker Change: Got it and yeah, I'm not going back to some of the prepared comments I think he said S. S. G b.

Speaker Change: Like the lowest level in one Q.

Speaker Change: The Destocking started so that would be now.

Speaker Change: 72 million and three Q is that the right way to think about that.

Anna Gleason: So these product launches in 2024 are going to be incredibly important to our growth and success this year. And I think the other thing to add to that, Mike, would just be the bike was certainly a little softer than what we had expected when we were, you know, out with you in November. So, you know, clearly there's been some deterioration, you know, in demand. And so we built that into the forecast. This is in the first quarter.

Speaker Change: That is absolutely correct, we will be lower than 72.

Speaker Change: Okay. That's it for me.

Speaker Change: Okay. Thank you.

Speaker Change: My final question will come from Jim Duffy with Stifel.

Jim Duffy: Thank you hi, guys could hear your voice and jammed together in an update on the business.

Jim Duffy: Okay I appreciate it a difficult environment for sure and I appreciate Visibilities a challenge.

Jim Duffy: That in mind can you help us a little more detail on your process and the assumptions that are shaping the guide and I wanted to dig in some on the update business, which has been a big driver in recent years dealerships had been Destocking I appreciate fortune.

Dennis Shem: We should start seeing growth there in the second quarter as more and more of these OEMs go to that model year 25. It's a good point. Anna, you've heard me say, the faster they get out of this problem, the better off we're all going to be. So if they have to take more pain, just take it and get it done.

Michael Dennison: And I'm not so worried about a quarter, whether it's Q4 or Q1. I want to get back to a normalized business pattern where our product wins and spec share show how differentiated we are. But I can't get there until they get through this stuff. So it's like just take the pain and go.

Jim Duffy: Four plan financing has been a challenge.

Speaker Change: Where are they in the destocking process like how much aged inventory is still around is there a framework you guys used to think about the spirit number of dealerships vehicles per dealership that type of thing.

Anna Gleason: Let's deal with it. Thanks. I just want to clarify. Did you, Dennis, say back to growth in 2Q? Or was it the second half for SSG?

Speaker Change: Yeah I'm in framing up some of those components again, just starting with us S. G.

Speaker Change: We are off to a slower start in Q1, yeah. We are experiencing those trough levels now because of demand because of worthy always are are at right now and that's you know clearly I'm pretty significant factor in the guide right. So just a a softer SSG bitch.

Dennis Shem: sequential growth. We should take Q1 to Q2 as sequential growth, and then the back half would be growth with our current expectation. Got it.

Anna Gleason: And on that, going back to some of the prepared comments, I think you said SSG should be like the lowest level in 1Q since the de-stocking started. So that would be, you know, $72 million in 3Q. Is that the right way to think about that? That is absolutely correct. We will be lower than 72. Okay, thanks. That's it for me.

Speaker Change: <unk> overall year on year, so flat to down here on year, but especially in the first half.

Speaker Change: From a P. B G perspective, again last year fantastic growth when you think about it with 21% year over year growth with a U a W headwind and a slow ramp up.

Jim Duffy: Okay, thank you. Our final question will come from Jim Duffy on Default. Thank you. Hi guys.

Jim Duffy: Good to hear your voices. Good to get an update on the business. I understand it's a difficult environment, for sure, and I understand visibility is a challenge. With that in mind, can you give us a little more detail on your process and the assumptions that are shaping the guide?

Speaker Change: But as we start to move into Q1 that power Sports Division is off to a slower start and so that's clearly built into our guide and that's shaping a tougher mountain for them. This year because of a weaker power sports group.

Jim Duffy: And I wanted to dig in some on the Upfit business, which has been a big driver in recent years. Dealerships have been destocking. I understand floor plan financing has been a challenge. Where are they in the destocking process? Like, how much aged inventory is still around?

Jim Duffy: And that's you know, we're seeing that with the dealers and distributors just having a tougher time with the floor plan financing there.

Jim Duffy: Is there a framework you guys use to think about this, be it number of dealerships, vehicles per dealership, that type of thing? Yeah, I mean, framing up some of those components, again, just starting with SSG, you know, we are off to a slower start in Q1, and we are experiencing those trough levels now because of demand, because of where the OEs are at right now. And that's, you know, clearly a pretty significant factor in the guide, right?

Speaker Change: And then N a G.

Speaker Change: Again fantastic growth over the last couple of years with with the outfit business I mean, it was 40% from for for two years back to back and and so that that growth is is fantastic in the <unk> business, but this year definitely slower just because.

Dennis Shem: So just a softer SSG business overall year-on-year, so flat to down year-on-year, but especially in the first half. You know, from a PVG perspective, again, last year, fantastic growth when you think about it, with 21% year-over-year growth with a UAW headwind and a slow ramp-up. And as we start to move into Q1, that Power Sports division is off to a slower start, and so that's clearly built into our guide, and that's shaping a tougher mountain for them this year because of a weaker Power Sports group.

Dennis Shem: Cause we're not getting the right chassis, we're not getting.

Speaker Change: Enough chassis and then you have dealer Floorplan financing just you know really inhibiting dealers I'm, taking more risk and putting the product on their lot and so that's having a pretty significant influence on us and quite frankly from the margin standpoint as well.

Speaker Change: On the other.

Dennis Shem: That help business.

Dennis Shem: It does to some more on the uptick business are you close to a point where cell in kenmore closely match sell through.

Dennis Shem: And that's, you know, we're seeing that with the dealers and distributors just having a tougher time with the floor plan financing there. And then, you know, in AAG, again, fantastic growth over the last couple of years with the Upfit business. I mean, it was 40% for two years back to back.

Dennis Shem: Or is there even an opportunity for restocking in that outfit business.

Speaker Change: Giving all the Destocking that's happened on dealer lots of your own fault.

Dennis Shem: And so growth is fantastic in the Upfit business. But this year, definitely slower just because we're not getting the right chassis. We're not getting enough chassis, and then you have dealer floor plan financing just, you know, really inhibiting dealers from taking more risk and putting the product on their lot, and so that's having pretty significant influence on us and, quite frankly, from the margin standpoint as well. The help is this: It does.

Speaker Change: You know Jim as Mike, Let me jump and so what we're seeing from the dealers is a very conservative approach to model year changes. So, let's say you're a ram dealer Ram has had the same same truck four or five years. They have enough data that truck you know in the last five years.

Dennis Shem: And so while there's inventory available for them to put on your lap right now they're they're a whole now familiar 25, which is actually gonna get launched in early 24, So you'll find dealers, who you know because of Fulton financing at don't Wanna go with the current model year, because they're just gonna wait for the next.

Michael Dennison: Just some more on the upfit business. Are you close to a point where sell-in can more closely match sell-through? Or is there even an opportunity for restocking in that outfit business given all the destocking that's happened on dealer lots as the year unfolds? Jim and Mike, let me jump in.

Speaker Change: <unk> you're in this case, it's gonna come out fairly early in the year. So you've got a you've got a challenge dealer who's really trying to understand what do I want to have on my lot in words, how many vehicles don't Wanna have in my life. It's a dynamic is pretty interesting and it. It just means as I said before it's gonna come down to do you have the new product of new models with the new test and <unk>.

Michael Dennison: So what we're seeing from the dealers is a very conservative approach to modeling your changes. So let's say you're a Ram dealer. You know, Ram has had the same truck for five years; they haven't updated that truck, you know, in the last five years. And so while there's inventory available for them to put on their lot right now, they're, they're holding out for model year 25, which is actually going to get launched in early 24. So you'll find dealers who, because of floor plan financing, and don't want to go with the current model year, because they're just going to wait for the next model year, in this case, it's going to come out, you know, fairly early So you've got a challenged dealer who's really trying to understand what do I want to have on my lot? And when? How many vehicles do I want to have on my lot?

Michael Dennison: Packages when you have that the selling and fell through work out just fine I I don't think it can be a problem at all even if we're still in a bit of an elevated interest rate world. I think if you can show the customer something new and fresh they're gonna come by it and we feel the same way about side by side of fitting but it really comes down to.

Michael Dennison: Windows model years, new bottle of your vehicles lunch and how fast can we get our customer of the model your trucks out I'm gonna be at a loss to sell.

Speaker Change: Thanks for that my last question for me I'll I'll take the arrest offline, but I'm still trying to get my arms around the influence from the U a W strike, which platforms have been most influenced by the U a W strike and I'm curious like how this rolls forward is there a catch up opera.

Michael Dennison: It's a dynamic, it's, it's pretty interesting. And it just means, as I said before, it's going to come down to whether you have the new product and new models with the new, you know, custom packages. When you have that, the selling and selling through will work out just fine. I don't think it can be a problem at all.

Speaker Change: <unk> from the strike when would that started to manifest in the numbers and then specific to add Otto O. M business is there now difference in the timing for new platforms like the Ranger raptor or even the ramp up production per vehicles like the Bronco Raptor and and so forth, which we had been thinking about is nice incremental contributors.

Jim Duffy: Even if we're still in a bit of an elevated, you know, interest rate world, I think if you can show the customer something new and fresh, they're going to come buy it, and we feel the same way about side by side upfitting. But it really comes down to when those model years, new model year vehicles, launch, and how fast can we get our custom-upfitted model year trucks out on the dealer lots. Thanks for that, Mike. Last question for me; I'll take the rest offline.

Speaker Change: Yeah, it's interesting because we're not we're not being told that you HW specifically changed a launch timeframe for a vehicle from our early m's.

Jim Duffy: It looks to us like some of these things where you a W potentially induced and so we saw some things push into Q1 of this year that we're supposed to be launched in Q4 of last year. So there is there is some implication there again nobody says that outright Jim So it's hard for us to just make that statement, but we went in for that from what we've seen.

Michael Dennison: But I'm still trying to get my arms around the influence of the UAW strike. Which platforms have been most influenced by the UAW strike? And I'm curious, like how this will roll forward.

Michael Dennison:

Michael Dennison: Is there a catch-up opportunity from the strike? When would that start to manifest itself in the numbers? And then specific to that auto OEM business, is there now a difference in the timing for new platforms like the Ranger Raptor or even the ramp of production for vehicles like the Bronco Raptor and so forth, which we had been thinking about as nice incremental contributors? Yeah, it's interesting because we're not being told that UAW specifically changed a launch time frame for a vehicle from our OEMs. And it looks to us like some of these things were UAW-related potentially induced. And so we saw some things push into Q1 of this year that were supposed to be launched in Q4 of last year. So there is some implication there. Again, nobody says that outright, Jim, so it's hard for us to just make that statement. But we would infer that from what we've seen.

Speaker Change: I think.

Michael Dennison: What we saw was some cuts some companies Oems, we're faster to get back on on production Ah.

Michael Dennison: In November and others really kind of left the year play out I think he had enough inventory out there in the dealers.

Michael Dennison: To not be in any real hurry to get back to full production and we saw them exit the quarter not being back in full production, which was interesting to us and not what we expected now with the forecasted but in fact, what materialized. So.

Michael Dennison: I think.

Michael Dennison: You know for a long term basis I think there are some ketchup that can happen, but I think it's so influenced by the macro so influenced by the model your changes and by interest rates.

Michael Dennison: Hard to just just take a number out of Q4 and re apply it to a core any quarter of this year. So I think there is.

Michael Dennison: Positivity, but I would be hard pressed to say that you know what we're gonna get a one for one move Q for the Q2 Q3.

Michael Dennison: You know, I think what we saw was some companies, OEMs, were faster to get back on production in November, and others really kind of let the year play out. I think they had enough inventory out there and the dealers to not be in any real hurry to get back to full production. We saw them exit the quarter not being back at full production, which was interesting to us and not what was expected, not what was forecasted, but in fact, kind of what materialized. I think. You know, on a long-term basis, I think there is some catch-up that can happen. But I think it's so influenced by the macro, so influenced by the model year changes and by interest rates that it's hard to just take a number out of Q4 and reapply it to any quarter of this year. So I think there is... positivity, but I would be hard-pressed to say that, you know what? We're going to get a one-for-one move from Q4 into Q2 or Q3. We might, but we're not betting on that.

Speaker Change: Right, but we'll have gotten on that just yet.

Speaker Change: I understand thank you Mike.

Michael Dennison: Nation.

Michael Dennison: That will conclude today's question and answer session I'll now turn the call over to Mike denizens for any additional closing remarks.

Speaker Change: Thanks, James again, I appreciate everybody's interest and <unk> have a good evening will talk to you soon.

Speaker Change: This does conclude the Fox factory holding corporations fourth quarter and full year 2023 earnings call. You may now disconnect your lines and have a great day.

Michael Dennison: Mmm Mmm Mmm Mmm.

Michael Dennison: [music].

Michael Dennison:

Michael Dennison:

Michael Dennison: [noise] Mmm Mmm Mmm Mmm Mmm.

Michael Dennison: [music].

Jim Duffy: I understand. Thank you, Mike. Thanks, Jim. That will conclude today's question and answer session. I will now turn the call over to Mike Dennison for any additional closing remarks. Thanks, James. Again, appreciate everybody's interest in Fox Factory. Have a good evening. We'll talk to you soon. This does conclude the Fox Factory Holding Corporation's fourth quarter and full year 2023 earnings call. You may now disconnect your line and have a great day, www. FoxFactory.com ¶¶ ¶¶ ¶¶ ? ? ? ? ? ? ? ?? ?? ?? ?? ??