Q1 2024 Fox Factory Holding Corp Earnings Call
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Speaker Change: Good afternoon, ladies and gentlemen, thank you for standing by and welcome to Fox factory holding corporations first quarter fiscal 2024 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
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Operator: Please stand by; we're about to begin. Good afternoon, ladies and gentlemen. Thank you for standing by.
Please note. This conference is being recorded and now at this time I would like to turn things over to Toby merchant Chief Legal Officer at Fox Factory Holding Corporation. Please go ahead Sir.
Toby Merchant: Thank you good afternoon, and welcome to Fox Factory's first quarter 'twenty 'twenty four earnings conference call I'm joined today by Mike Dennison, Chief Executive Officer, and Dennis Schemm, Chief Financial Officer and Treasurer.
Operator: Welcome to Fox Factory Holding Corporation's first quarter fiscal 2024 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded, and now, at this time, I would like to turn things over to Toby Merchant, Chief Legal Officer, Fox Factory Holding Corporation. Please go ahead.
Toby Merchant: Thank you. Good afternoon, and welcome to Fox Factory's first quarter 2024 earnings conference call. I'm joined today by Mike Dennison, Chief Executive Officer, and Dennis Schemm, Chief Financial Officer and Treasurer. First, Mike will provide business updates, and then Dennis will review the quarterly results and outlook. Mike will then provide some closing remarks before we open up the call for your questions.
Michael C. Dennison: First Mike will provide business updates and then Dennis will review the quarterly results and outlook. Mike will then provide some closing remarks before we open up the call for your questions.
Toby Merchant: By now, everyone should have access to the earnings release, which went out earlier this afternoon. If you have not had a chance to review the release, it's available on the Investor Relations portion of our website at www.investor.ridefox.com. Please note that, throughout this call, we will refer to Fox Factory as Fox or the company. Before we begin, I would like to remind everyone that the prepared remarks contain forward-looking statements within the meaning of federal security laws, and management may make additional forward-looking statements in response to your question.
Michael C. Dennison: By now everyone should have access to the earnings release, which went out earlier. This afternoon. If you have not had a chance to review the release, it's available on the Investor Relations portion of our website at Investor Dot right Fox Dot com.
Michael C. Dennison: Please note that throughout this call we will refer to Fox factory.
Michael C. Dennison: As Fox or the company.
Michael C. Dennison: Before we begin I would like to remind everyone that the prepared remarks contain forward looking statements within the meaning of federal security laws and management may make additional forward looking statements in response to your questions such statements.
Toby Merchant: Such statements involve a number of known and unknown risks and uncertainties, many of which are outside the company's control and can cause future results, performance, or achievements to differ materially from the results, performance, or achievements expressed or implied by such forward-looking statements. Important factors and risks that could cause or contribute to such differences are detailed in the company's quarterly reports on Form 10-Q and in the company's latest annual report on Form 10-K, each filed with the Securities and Exchange Commission.
Michael C. Dennison: <unk> involve a number of known and unknown risks and uncertainties many of which are outside the company's control and can cause future results performance or achievements to differ materially from the results performance or achievements expressed or implied by such forward looking statements.
Michael C. Dennison: Important factors and risks that could cause or contribute to such differences are detailed in the company's quarterly reports on Form 10-Q and in the Companys latest annual report on Form 10-K, each filed with the Securities and Exchange Commission invest.
Toby Merchant: Investors should not place undue reliance on the company's forward-looking statements, and, except as required by law, the company undertakes no obligation to update any forward-looking statements or other statements herein, whether as a result of new information, future events, or otherwise. In addition, where appropriate, in today's prepared remarks and within our earnings release, we will refer to certain non-GAAP financial measures to evaluate our business, including adjusted gross profit, adjusted gross margin, adjusted operating expenses, adjusted net income, adjusted earnings per diluted share, adjusted EBITDA, and adjusted EBITDA margin, as we believe these are useful metrics that allow investors to better understand and evaluate the company's core operating performance and trends.
Michael C. Dennison: Investors should not place undue reliance on the company's forward looking statements, except as required by law. The company undertakes no obligation to update any forward looking statements or other statements herein, whether as a result of new information future events or otherwise.
Mike Dennison: In addition, where appropriate in today's prepared remarks and within our earnings release, we will refer to certain non-GAAP financial measures to evaluate our business, including adjusted gross profit adjusted gross margin adjusted operating expenses adjusted net income adjusted earnings per diluted.
Share adjusted EBITDA and adjusted EBITDA margin as we believe these are useful metrics that allow investors to better understand and evaluate the companys core operating performance and trends reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures are included in today.
Toby Merchant: Reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures are included in today's earnings release, which has also been posted on our website. And with that, it is my pleasure to turn the call over to our CEO, Mike Dennis.
Mike Dennison: <unk> earnings release, which has also been posted on our website.
Mike Dennison: And with that it is my pleasure to turn the call over to our CEO Mike Dennison.
Michael C. Dennison: Thanks, Toby and good afternoon, everyone and thank you for joining us today.
Michael C. Dennison: Thanks, Toby. Good afternoon, everyone, and thank you for joining us today. Diversification is a key element in building resiliency, and it is all the more important during a period of industry cyclicality. Our ability to navigate the current market headwinds is a testament to the strength of our diversified product portfolio, which spans across multiple sectors and markets. This diversification not only mitigates risk but also provides us with multiple avenues for future growth and expansion and, in turn, drives value creation for all of our stakeholders. For the first quarter of 2024, we delivered $333.5 million of revenue, which was consistent with our expectations, and adjusted earnings per share of $0.29, which exceeded our plan.
Michael C. Dennison: Diversification is a key element in building resiliency and it is all the more important during the period of industry cyclicality.
Michael C. Dennison: Our ability to navigate through the current market headwinds is a testament to the strength of our diversified product portfolio, which spans across multiple sectors and markets.
Michael C. Dennison: This diversification not only mitigates risk, but also provides us with multiple avenues for future growth and expansion and in turn drives value creation for all of our stakeholders.
Michael C. Dennison: For the first quarter of 'twenty 'twenty four we delivered $333 5 million of revenue, which was consistent with our expectations and adjusted earnings per share of 29 cents, which exceeded our plan.
Michael C. Dennison: We are confident we will see sequential improvement in our operating results over the coming quarter, ultimately returning to the strong growth rates and margins that our business can deliver. We believe that our premium positioning and innovation helps mitigate macroeconomic forces. The OEMs we serve continue to face unique challenges in the near term. In SSG, and more specifically in bike, our results continue to be impacted by the ongoing inventory recalibration. However, we are already seeing positive signs in Q2 and believe this business is trending back in the right direction.
Mike Dennison: We are confident we will see sequential improvement in our operating results over the coming quarters ultimately returning to the strong growth rates and margins that our business can deliver.
While we believe that our premium positioning and innovation helps mitigate macroeconomic forces. The Oems we serve continue to face unique challenges in the near term.
Mike Dennison: And S S G and more specifically in bike our results continued to be impacted by the ongoing inventory recalibration. However.
Mike Dennison: However, we are already seeing positive signs in Q2 and believe this business is turning back the right direction.
Mike Dennison: In P. B G power sports continues to be impacted by dealer inventory levels and an AG outfits are being challenged primarily by mix and model year changeover issues from our Oems.
Michael C. Dennison: In PVG, power sports continues to be impacted by dealer inventory levels, and in AEG, outfits are being challenged primarily by mix and model year changeover issues from our OEM. In addition, we are seeing ongoing consumer fatigue given the extended duration of high interest rates, which is impacting discretionary spending by consumers and cautious management of inventory levels at dealerships and OEMs.
Mike Dennison: In addition, we are seeing ongoing consumer fatigue, given the extended duration of high interest rates, which is impacting discretionary spending with consumers and cautious management of inventory levels at dealerships and Oems.
Mike Dennison: Despite this confluence of headwinds we remain laser focused on what we can control, which is delivering exceptional value through our uncompromising commitment to innovation and performance defining products across our diversified set of businesses. This focus is resulting in continued share growth with our OEM partners, which speak.
Michael C. Dennison: Despite this confluence of headwinds, we remain laser-focused on what we can control, which is delivering exceptional value through our uncompromising commitment to innovation and performance-defining products across our diversified set of businesses. This focus is resulting in continued share growth with our OEM partners, which speaks to the value of our product roadmap and is a central tenet of our long-term strategy. While we remain focused on product, we recognize that, near-term, we must also keep a close eye on and tight control on our customers.
Mike Dennison: As to the value of our product roadmap and is a central tenet of our long term strategy.
Mike Dennison: While we remain focused on product we recognize that near term we must also keep a close eye and tight control on our costs.
Michael C. Dennison: Although we have not executed a company-wide workforce reduction, we have consistently and continuously refined our workforce in conjunction with work optimization and productivity targets. We have also reduced spending and investments to ensure we run as lean and focused as possible. To be clear, this is not a one-and-done or even periodic management tactic at Fox, but the way we think about our jobs every day.
Mike Dennison: Although we have not executed a company wide workforce reduction, we have consistently and continuously refined our workforce in conjunction with work optimization and productivity targets.
We have also reduced spending and investments to ensure we as we run as lean and focused as possible to.
Mike Dennison: To be clear this is not a one and done or even periodic management tactic at Fox, but the way we think about our jobs every day.
Mike Dennison: Turning now to our segment performance in the powered vehicle group net sales were $118 million down from 142 million in the prior year quarter, primarily due to lower OEM demand in power sports.
Michael C. Dennison: Turning now to our segment performance, in the Powered Vehicle Group, net sales were $118 million, down from $142 million in the prior year quarter, primarily due to lower OEM demand for power. At the dealer distributor level, the industry expects 2024 Powersports retail to be done modestly versus 2023, which is driving a conservative approach to inventory management among dealers. In response, Powersports OEMs continue to curtail production to balance supply with demand, which will continue to impact our results in the near term.
Mike Dennison: At the dealer distributor level, the industry expects 2024 power sports retail to be down modestly versus 2023, which is driving a conservative approach to inventory management among dealers.
Mike Dennison: In response power sports Oems continue to curtail production to balance supply with demand, which will continue to impact our results in the near term.
Mike Dennison: In the automotive space, we continued to see strong demand from our major Oems as they produce model year 'twenty five products.
Michael C. Dennison: In the automotive space, we continue to see strong demand from our major OEMs as they produce Model Year 25 products. As these are mainly limited production vehicles, we believe this significant portion of our business is insulated from interest rate issues that have impacted us elsewhere. We remain committed to our long-term growth strategy within the PVG business. While we took prudent cost-reduction actions commensurate with volume reductions, we were more deliberate in maintaining most of our highly trained engineers and leaders, who are critical to developing our technologically advanced products.
Mike Dennison: As these are mainly limited production vehicles. We believe this significant portion of our business is insulated from interest rate issues that have impacted us elsewhere.
Mike Dennison: We remain committed to our long term growth strategy within within the PPG business, while we took prudent cost reduction actions commensurate with the volume reductions were more deliberate in maintaining most of our highly trained engineers and leaders who are critical to developing our technologically advanced products.
Michael C. Dennison: While this decision is impacting near-term profitability, it is essential to ensuring that we can support growth over the long term as industry conditions improve. We are seeing the benefits of our development team as we continue to win market share, demonstrating the power and differentiation behind our product portfolio. We're excited by new product introductions for the Polaris Indy Dynamics, Toyota 4Runner TRD Pro, and the Sierra Echo and believe we'll be able to increase our spec share with both existing and new OEMs through this cycle given our brand leadership. In AAG, net sales were $102 million compared to $139 million in the prior year quarter.
Mike Dennison: While this decision is impacting near term profitability is essential to ensuring that we can support growth over the long term as industry conditions improve.
Mike Dennison: We are seeing the benefits from our development team as we continue to win market share demonstrating the power and differentiation behind our product portfolio.
Mike Dennison: We're excited by new product introductions for the players in the dynamics title 400, TRT pro and the Sierra Echo and believe we will be able to increase our spec share with both existing and new Oems through this cycle given our brand leadership in a a G. Net sales were 102 million compared to $139 million in the prior year quarter.
Mike Dennison: <unk>.
Michael C. Dennison: The results were driven by lower sales in our upfitting business, offset by strong aftermarket growth in sales of wheels, tires, and lifts. Outfit was lower due to product mix and unique model year changeover challenges from OEMs, which delayed model year launch. We expect these impacts to largely be behind us as we exit the second quarter. Additionally, we are seeing a slowdown in sales in moderately priced stores as consumers who generally finance these purchases are challenged with a higher interest rate environment that is persisting longer than expected.
Mike Dennison: The results were driven by lower sales in our outfitting business offset by strong aftermarket growth in sales of wheels tires and lift kits.
Mike Dennison: It was lower due to product mix and <unk> unique model year changeover challenges from Oems, which delayed model year launches.
Mike Dennison: We expect these impacts to largely be behind us as we exit the second quarter.
Mike Dennison: Additionally, we are seeing a slowdown in sales in moderately priced outfits as consumers, who generally finance. These purchases are challenged with the higher interest rate environment that is persisting longer than expected.
Mike Dennison: Despite the macro environment dealers continued to make good progress in reducing exist existing aged inventory ahead of the release of new redesign model year vehicles, which are expected to launch throughout the balance of the year.
Michael C. Dennison: Despite the macro environment, dealers continue to make good progress in reducing existing aged inventory ahead of the release of new, redesigned model year vehicles, which are expected to launch throughout the balance of the year. As we've said before, these changeovers present a great opportunity for us as we collaborate with OE partners on developing and introducing new packages for the latest models. We remain encouraged that the higher-end outfits continue to see strong consumer demand and interest.
Mike Dennison: As we've said before these changeovers presents a great opportunity for us as we collaborate with OE partners on developing and introducing new packages for the latest models.
Mike Dennison: We remain encouraged that the higher end of its continued to see strong consumer demand and interest.
Michael C. Dennison: To that point, in March, we announced the launch of the company's first branded high-performance off-road upfitted truck and high-performance upfitted UTV. We're thrilled to introduce these state-of-the-art upfitted vehicles, which exemplify all of our best-in-class products engineered to work together to create a new premium class of vehicle. With our heavily contented Fox Factory trucks, our upfit is worth four times the value of our average upfit, making these vehicles significantly more valuable to our business in the future. In SSG, net sales were $114 million compared to $119 million last year.
Mike Dennison: To that point in March we announced the launch of the company's first branded high performance off road up fitted truck and high performance outfitted utv's.
Mike Dennison: We're thrilled to introduce these state of the art outfitted vehicles, which exemplify all of our best in class products engineered to work together to create a new premium class of vehicles.
Mike Dennison: With our heavily content at Fox factory trucks are up it is worth four times the value of our average of fit making these vehicles significantly more accretive to our business in the future.
Mike Dennison: S. S. G. Net sales were 114 million compared to $119 million last year.
Michael C. Dennison: The decline in revenue was primarily due to a $65 million reduction in sales within bike as a result of the OEM inventory destocking we have been discussing for the last several days. Notably, the declines in bike were partially offset by above-plan performance at Marucci, which was fueled by success across their diverse product lineup in baseball, covering their Victus and Marucci brands, softball, lizard skins, soft goods, international growth This was a strong quarter despite not having a significant new product launch.
Mike Dennison: The decline in revenue was primarily due to a 65 million dollar reduction in sales within bike as a result of the OEM inventory Destocking, we had been discussing the last several quarters.
Mike Dennison: Notably the declines in bike were partially offset by above planned performance at Maruti, which was fueled by success across our diverse product lineup in baseball covering their victim of Ritchie brands, softball, lizard skins soft goods international growth and hitters house.
Mike Dennison: This was a strong quarter, despite not having a significant new product launch.
Michael C. Dennison: As demonstrated by the results, Marucci also played a key role in bolstering the resiliency of our bottom-line performance given their attractive margin profile relative to the segment average. As we look ahead to the rest of the year, our bike segment is strengthening. OEs are gearing up for new model year launches and expanding their product offerings, which are factored into our second quarter and back half forecast. Additionally, we are seeing growth with multiple product launches which occur throughout the balance of the year.
Mike Dennison: As demonstrated by the results Murchie also played a key role in bolstering our resiliency of our bottom line performance given their attractive margin profile relative to the segment average.
Mike Dennison: As we look ahead to the rest of the year. Our bike segment is strengthening oes are gearing up for new model year launches and expanding their product offerings, which are factored into our second quarter and back half forecast. Additionally, we are seeing growth with multiple product launches, which occur throughout the balance of the year.
Michael C. Dennison: The e-bike category continues to experience robust growth as well, and we firmly believe that e-bikes will not only attract a broader demographic of riders but also fuel industry-wide expansion via this growing addressable market. In the face of these challenged results, our focus remains on key elements that define our brand and long history of excellence in product development. These elements include maintaining strong brand relationships, avoiding brand dilution for short-term gains, and investing in research and development to drive long-term growth.
Mike Dennison: The E bike category continues to experience robust growth as well and we firmly believe that E bikes will not only attract a broader demographic of writers.
Mike Dennison: But also fuel industry wide expansion via this growing addressable market.
Mike Dennison: In the face of challenged results our focus remains on key elements that define our brand and long history of excellence in product development. These elements include maintaining strong brand relationships avoiding brand dilution for short term gains and investing in research and development to drive long term growth.
Michael C. Dennison: Our objectives with R&D investment are twofold. First, to support innovative model year 2025 releases, which will expand our share of the OEM market. And second, capitalizing on new launches of higher-margin aftermarket components, where we are also gaining significant traction with our recently expanded e-commerce business. Now for some comments on our outlook for the balance of 2024. We continue to expect the first half of 2024 to be down year over year, with the second quarter being sequentially stronger than the first. Our expectation for the second quarter remains unchanged and is consistent with our plan.
Mike Dennison: Our objectives with R&D investment are twofold first support innovative model year, 2025 releases, which will expand our share of the OEM market and second capitalizing on new launches of higher margin aftermarket components. While we are also gaining significant traction with our recently expanded ecommerce business.
Mike Dennison: Now for some comments on our outlook for the balance of 'twenty 'twenty four.
Mike Dennison: We continue to 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.
Mike Dennison: Our expectation for the second quarter remains unchanged and is consistent with our plan.
Michael C. Dennison: Dennis will speak more to our second quarter guidance in his remarks. Our full year guidance continues to be awaited in the back half and predicated on the following. Bikes, Channel Inventory, Continuing to Improve, and OEM's Model Year 25 Release. Marucci's continued growth across its diversified portfolio and new product launch. Power Sports Dealer Inventory Improvement, Upfit Chassis Availability and Mix Improvement, and New Product Launches Within Our Lift Kit and Wheel Business. While those assumptions remain intact and show positive signs so far within Q2, our full year guidance also assumes easing macro pressures in an improved consumer outlook driven by the timing of interest rate release. With the Fed recently signaling that rates are likely to remain higher for longer, we have removed that as a positive catalyst in our FY24.
Mike Dennison: Dennis will speak more to our second quarter guidance in his remarks.
Mike Dennison: Our full year guidance continues to be weighted to the back half and predicated on the following bikes channel inventory continuing to improve and Oems model year 'twenty five releases.
Mike Dennison: <unk> continued growth across its diversified portfolio and new product launches.
Mike Dennison: Our sports dealer inventory improvement.
Mike Dennison: Fit chassis availability and mix improvement and new product launches within our lift kit and wheel business.
Mike Dennison: While those assumptions remain intact and show positive signs so far within Q2, our full year guidance also assumed easing macro pressures and an improved consumer outlook driven by the timing of interest rate relief.
Mike Dennison: With the fed recently signaling that rates are likely to remain higher for longer we have removed that as a positive catalyst in our FY 'twenty four thesis.
Mike Dennison: Thus, while we continue to expect solid growth for the second half we are prudently we narrowed our full year 2024 outlook to the bottom half of our previous range in.
Michael C. Dennison: Thus, while we continue to expect solid growth for the second half, we have prudently narrowed our full year 2024 outlook to the bottom half of our previous. In closing, we continue to be positive about the second half of the year. In terms of innovation, we have a robust product roadmap in place. We eagerly anticipate our upcoming product launches, which are happening across all three segments of our business. And we are confident that these new products, coupled with our spec share gains in the OEM market, will drive growth in the second half of the year.
Mike Dennison: In closing we continue to be positive about the back half of the year in terms of innovation, we have a robust product roadmap in place, we eagerly anticipate our upcoming product launches, which are happening across all three segments of our business.
Mike Dennison: And we are confident that these new products, coupled with our spec share gains in the OEM market, we will drive growth in the second half of the year.
Michael C. Dennison: As we navigate this cycle, we remain focused on managing the elements of the business that we can control while playing to our strengths, which include balanced growth through improved diversification, a deep technological moat that is advanced by our unwavering commitment to innovation, and our ability to deliver free cash flow through the cycle, which allows for opportunistic share repurchases and management of our capital structure. And with that, I'll turn the call over to Dennis.
Mike Dennison: As we navigate this cycle, we remain focused on managing the elements of the business that we can control while playing to our strengths which include balanced growth through improved diversification of deep technological moat that is advanced by our unwavering commitment to innovation and our ability to deliver free cash flow through the cycle, which allows for.
Mike Dennison: Mystic share repurchases and management of our capital structure.
Mike Dennison: And with that I'll turn the call over to Dennis.
Dennis Charles Schemm: Thanks, Mike and good afternoon, everyone I'll begin by discussing our first quarter 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 Charles Schemm: Thanks, Mike, and good afternoon, everyone. I'll begin by discussing our first quarter financial results and 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 first quarter of fiscal 2024 were $333 million, a decrease of 16.6% versus sales of $399.9 million in the first quarter of fiscal 2023. Our performance continues to reflect the temporary and unique challenges that exist within the various industries we serve.
Dennis Charles Schemm: Total consolidated net sales in the first quarter of fiscal 'twenty 'twenty, four or 333 million 0.5, a decrease of 16, 6% versus sales of 399.9 million in the first quarter of fiscal 2023.
Dennis Charles Schemm: Our performance continues to reflect the temporary and unique challenges that exist within the various industries we serve.
Dennis Charles Schemm: Our gross margin was 30.9% in the first quarter of fiscal 2024 compared to 33.3% in the same quarter last year. The decrease in gross margin was primarily driven by shifts in our product line mix and reduced operating leverage on lower volumes across our three segments, partially offset by increased efficiencies at our North American facilities and cost controls. Adjusted gross margin, which excludes the effects of amortization of acquired inventory valuation markup, decreased to 32.3% in the first quarter of fiscal 2024 versus 34.1% in the prior year.
Dennis Charles Schemm: Our gross margin was 30.9% in the first quarter of fiscal 'twenty 'twenty four compared to 33, 3% in the same quarter last year.
Mike Dennison: The decrease in gross margin was primarily driven by shifts in our product line mix and reduced operating leverage on lower volumes across our three segments, partially offset by increased efficiencies at our north American facilities and cost controls.
Mike Dennison: Adjusted gross margin, which excludes the effects of amortization of acquired inventory valuation markup decreased to 32, 3% in the first quarter of fiscal 'twenty 'twenty four versus 34.1% in the prior year.
Mike Dennison: Total operating expenses were 94.3 million or 28, 3% of net sales in the first quarter of fiscal 'twenty 'twenty, four compared to $78 6 million or 19.7% of net sales in the same quarter last year.
Dennis Charles Schemm: Total operating expenses were $94.3 million, or 28.3% of net sales in the first quarter of fiscal 2024, compared to $78.6 million, or 19.7% of net sales in the same quarter last year. The increase in operating expenses as a percentage of sales was attributed to the inclusion of operating expenses from our custom wheelhouse and Marucci acquisitions, and the Amortization of Acquired Intangibles. Excluding these acquisitions, our base organic operating expenses decreased by approximately $8.8 million, driven by cost controls and continuous improvement.
Mike Dennison: The increase in operating expenses as a percentage of sales was attributed to the inclusion of operating expenses from our custom wheelhouse and marucci acquisitions.
Mike Dennison: And the amortization of acquired intangibles.
Mike Dennison: Excluding these acquisitions our base organic operating expenses decreased by approximately $8 8 million driven by cost controls and continuous improvement.
Mike Dennison: Adjusted operating expenses as a percentage of sales increased to 24.1% in the first quarter of 'twenty 'twenty four compared to 17, 6% in the same period last year.
Dennis Charles Schemm: Adjusted operating expenses as a percentage of sales increased to 24.1% in the first quarter of 2024, compared to 17.6% in the same period last year. The company's tax benefit was $1.3 million in the first quarter of fiscal 2024, compared to a tax expense of $9.4 million in the first quarter of fiscal 2023. The tax benefit was primarily due to a decrease in pre-tax income coupled with a one-time foreign tax credit adjustment.
Mike Dennison: Company's tax benefit was 1.3 million in the first quarter of fiscal 'twenty 'twenty four compared to a tax expense of $9 4 million in the first quarter of fiscal 2023.
Mike Dennison: The tax benefit was primarily due to a decrease in pretax income coupled with a onetime foreign tax credit adjustment.
Mike Dennison: Net loss in the first quarter of fiscal 2024 was $3 5 million or eight cents per diluted share compared to net income of 41.8 million or 98 cents per diluted share in the same quarter last year and adjusted net income was $11.9 million or 29 cents per diluted.
Dennis Charles Schemm: Net loss in the first quarter of fiscal 2024 was $3.5 million, or $0.08 per diluted share, compared to net income of $41.8 million, or $0.98 per diluted share, in the same quarter last year. And adjusted net income was $11.9 million, or $0.29 per diluted share, compared to $51 million, or $1.20 per diluted share, in the first quarter of last year. Adjusted EBITDA was $40.4 million for the first quarter of fiscal 2024, compared to $79.2 million in the same quarter last year.
Mike Dennison: Could share compared to $51 million or a dollar and 20 cents per diluted share in the first quarter last year.
Mike Dennison: Adjusted EBITDA was $40 4 million for the first quarter of fiscal 'twenty 'twenty four compared to $79 2 million in the same quarter last year.
Dennis Charles Schemm: Adjusted EBITDA margin was 12.1% in the first quarter of fiscal 2024 compared to 19.8% in the first quarter of fiscal 2024. The decrease in our adjusted EBITDA margin reflects the temporary and unique challenges that our customers across various industries are facing, which is impacting volumes and fixed cost absorption at our facility. Other drivers of our adjusted EBITDA margin performance include ships in our portfolio mix and cost increases associated with our facilities expansion to support growth, partially offset by cost control measures and continuous improvement initiatives.
Mike Dennison: Adjusted EBITDA margin was 12, 1% in the first quarter of fiscal 'twenty 'twenty four compared to 19, 8% in the first quarter of fiscal 'twenty 'twenty four.
Mike Dennison: The decrease in our adjusted EBITDA margin reflects the temporary and unique challenges that our customers across various industries are facing which is impacting volumes and fixed cost absorption at our facilities.
Mike Dennison: Other drivers of our adjusted EBITDA margin performance include shifts in our portfolio mix and cost increases associated with our facilities expansion to support growth, partially offset by cost control measures and continuous improvement initiatives.
Dennis Charles Schemm: sequentially, we delivered a 40 basis point improvement in EBITDA margin to 12.1% on the strength of aftermarket sales and our cost control measures. Moving to the balance sheet and cash flows, Our balance sheet continues to be a source of strength for Fox and underpins our capital allocation strategy. In the first quarter, we were able to reduce inventory by 17.9 million, or 5%, compared to year-end 2023, driven by our strong execution of continuous improvement efforts to optimize inventory levels across the organization, particularly within PVG.
Mike Dennison: Sequentially, we delivered a 40 basis point improvement in EBITDA margin to 12, 1% on the strength of aftermarket sales and our cost control measures.
Mike Dennison: Moving to the balance sheet and cash flows.
Mike Dennison: Our balance sheet continues to be a source of strength for Fox and underpins our capital allocation strategy.
Mike Dennison: In the first quarter, we were able to reduce inventory by $17 9 million or 5% compared to year end 2023, driven by our strong execution of continuous improvement efforts to optimize inventory levels across the organization, particularly within P. B G.
Mike Dennison: Our net net leverage is 2.9 times as of quarter end and in line with our expectations. Our flexible capital structure gives us the ability to invest in growth through R&D, and capex and sales and marketing and pay down debt, while providing the optionality to repurchase.
Dennis Charles Schemm: Our net net leverage is 2.9 times as of quarter 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 pay down debt, while providing the optionality to repurchase shares. Our revolver balance as of March 29, 2024 was $392,000,000 versus $370,000,000 as of December 29, 2023. Our term loan A balance was approximately $370 million net of loan fees.
Mike Dennison: Shares.
Mike Dennison: Our revolver balance as of March 29, 2024 was $392 million versus $370 million as of December 29, 2023.
Mike Dennison: Our term loan a balance was approximately $370 million net of loan fees.
Dennis Charles Schemm: During the first quarter of fiscal 2024, we incurred $70 million of debt on our revolver to support working capital, which included $24 million in prepaid chassis, partially offset by $48 million in payments on our revolver and $3.6 million in payments on our term loan. During the first quarter, we repurchased approximately $25 million in shares, and we have a remaining balance of $250 million on our $300 million share repurchase authorization. Now, I would like to share some select guidance.
Mike Dennison: During the first quarter of fiscal 'twenty 'twenty, four we incurred $70 million of debt on our revolver to support working capital, which included $24 million in prepaid chassis, partially offset by 48 million in payments on our revolver and 3.6 million and payments on our term loan.
Mike Dennison: During the first quarter, we repurchased approximately 25 million in shares and we have a remaining balance of $250 million on our 300 million share repurchase authorization.
Mike Dennison: Now I would like to share some select guidance, while we continue to expect solid growth for the second half of 'twenty 'twenty four we are tempering, our prior assumption for meaningful interest rate relief and out of Prudence, we have narrowed our full year 2024 outlook to the bottom half of the previous range.
Dennis Charles Schemm: While we continue to expect solid growth for the second half of 2024, we are tempering our prior assumption for meaningful interest rate relief, and out of prudence, we have narrowed our full-year 2024 outlook to the bottom half of the previous range. As a result, we now expect fiscal 2024 full-year sales in the range of $1.53 billion to $1.61 billion and adjusted earnings per diluted share in the range of $2.30 to $2.55.
Mike Dennison: As a result, we now expect fiscal 'twenty 'twenty four full year sales in the range of 1.53 billion to 1.61 billion and adjusted earnings per diluted share in the range of $2.30 to $2.55 are.
Dennis Charles Schemm: Our full-year guidance continues to assume our income tax rate to be in the range of 15 to 18 percent. For the second quarter of 2024, we expect sales in the range of $340 million to $360 million and adjusted earnings per diluted share of $0.30 to $0.40. There are several drivers underpinning this sequential improvement, including bike OEs, gearing up for model year 2025 releases, improving chassis mix, and availability, and the new model year launch for our RAMs.
Mike Dennison: Our full year guidance continues to assume our income tax rate to be in the range of 15% to 18%.
Mike Dennison: For the second quarter of 'twenty 'twenty four we expect sales in the range of 340 million to $360 million and adjusted earnings per diluted share a 30 to 40 cents.
Mike Dennison: There are several drivers underpinning this sequential improvement, including bike Oes gearing up for model year, 'twenty twenty-five releases, improving chassis mix and availability and the new model year launch for our ramps.
Dennis Charles Schemm: Our second quarter guidance is consistent with our operating plan at the beginning of the year, which baked in a year-over-year decline in the first half of 2024 before returning to growth in the second half of 2024. As we said previously, we will revisit our 2025 aspirations in the second half of this year when we have more visibility. Our entire team at Fox Factory remains focused on controlling the aspects of the business that we can in order to keep our business optimally positioned to reaccelerate growth as industry conditions improve. With that, I'd like to turn the call back over to Mike.
Mike Dennison: Our second quarter guidance is consistent with our operating plan at the beginning of the year, which had baked in a year over year decline in the first half of 'twenty 'twenty four before returning to growth in the second half of 2024.
Mike Dennison: Yeah.
Mike Dennison: As we said previously we will revisit 'twenty twenty-five aspirations in the second half of this year when we have more visibility our entire team at Fox factory remains focused on controlling the aspects of the business that we can in order to keep our business optimally positioned to reaccelerate growth as industry conditions.
Mike Dennison: Improve.
Mike Dennison: With that I'd like to turn the call back over to Mike.
Michael C. Dennison: Thank you Dennis Thank you all for joining US today, we appreciate your time and interest in Fox to recap, we navigated through some significant industry headwinds in the first quarter, but our diversified business model and strategic growth initiatives have allowed us to remain resilient and unplanned for the year.
Michael C. Dennison: Thank you, Dennis. Thank you all for joining us today.
Michael C. Dennison: We appreciate your time and interest in Fox. To recap, we navigated through some significant industry headwinds in the first quarter, but our diversified business model and strategic growth initiatives have allowed us to remain resilient and on plan for the year. We are particularly excited about the strong performance of Marucci, its attractive margin profile, and the long-term growth potential it brings to our portfolio. Looking ahead, we are optimistic about the back half of the year based on a robust product roadmap, and consequently, we expect growth to be driven by spec share gains in the bike OEM market, strength in the aftermarket, including Marucci, and new product launches in AEG and PVG. I would now like to open the call for questions, Operator.
Mike Dennison: We are particularly excited about the strong performance of merging its attractive margin profile in the long term growth potential it brings to our portfolio.
Mike Dennison: Looking ahead, we are optimistic about the back half of the year based on a robust product roadmap and consequently, we expect growth to be driven by spec share gains in the bike OEM market strength in aftermarket, including marucci and new product launches in AG in PPG.
Speaker Change: I would now like to open the call for questions operator.
Operator: Thank you, Mr. Dennison. Ladies and gentlemen, at this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question. We'll go first this afternoon to Larry Solow of CJSC.
Speaker Change: Thank you Mr Dennison, ladies and gentlemen at this time, if you would like to ask a question. Please press the star one on your telephone keypad, you may remove yourself from the queue at any time by pressing star to once again that is star one to ask a question.
Lawrence Scott Solow: We'll go first this afternoon to Larry solo of C. J S Securities.
Lawrence Scott Solow: Great. Good afternoon, guys. Hi.
Lawrence Scott Solow: Great Good afternoon guys.
Lawrence Scott Solow: Okay.
Lawrence Scott Solow: Hi, first question I guess just on the guidance. It sounds like Q1 was relatively in line in <unk>.
Lawrence Scott Solow: In Q2, it sounds like in line with where you originally expected so just on the back half lowering.
Michael C. Dennison: First question, I guess, just on the guidance, it sounds like Q1 was relatively in line and Q2 sounds like it is in line with where you originally expected. So just on the back half lowering, strictly, is everything mostly the same, plus and minuses, X, the fact that interest rates are – clearly, we don't see any indication of them falling anytime soon. Is that the biggest negating factor there? And is that impact – can you just help us? Is that impact more in AAG than the other two? Or is it sort of spread out? I'm just trying to get some feel for that.
Speaker Change: Strictly and everything mostly the same plus or minuses ex the fact that interest rates are clearly we don't see any indication of a lowering anytime soon is that the.
Speaker Change: The biggest gating factor there is that impact can you just help us is that impact more than a a G than the other two is it sort of spread out just trying to.
Speaker Change: Get some feel for that too yes.
Michael C. Dennison: Yeah, Larry, it's a good question. For us, the back half is in line with us from a product launch perspective and from a market share perspective. So everything that we had intended for the year in the back half is in place and on plan. The difference is really just the accelerator that the macro or the interest rate reduction would have given us, which would have been the top end of that guide.
Speaker Change: Yes, Larry its a good question for us the back half is in line with us from a product launch perspective and from a market share perspective, so everything that we had an internal for the year in the back half is implying an unplanned. The difference is really just accelerated that.
Speaker Change: The macro or the interest rate reduction would have given us that would have been the top end of that guide and to your question I think that really does affect us most in probably two predominant areas. It does affect everything frankly interest rates at a high level.
Michael C. Dennison: And to your question, I think that really affects us most in probably two predominant areas. It does affect everything, frankly, interest rates at a high level are a damper on, excuse the pun, all the things in a discretionary consumer purchasing habit. But for the most part, in the back half of the year, we're going to feel that most of that impact is going to be in power sports and in AAG around upfit. So that's kind of what we've tempered in the back half relative to, again, fully just the interest rate.
Lawrence Scott Solow: As a damper to excuse the pun too all of the things in a discretionary consumer purchasing habits, but for the most part in the back half of the year, where you will feel the most of that impact is going to be in power sports and in AG around outfit trucks, so that kind of what we've tempered in the back half relative to again.
Lawrence Scott Solow: Fully just the interest rate issue itself.
Michael C. Dennison: And you're getting more into that customized, higher-content stuff. You think over time, those folks that target are not necessarily impacted as much by interest rates, are they? Yep.
Lawrence Scott Solow: And you're getting more into that customize more higher content stuff do you think over time, those folks that target or not necessarily impacted as much by the interest rates. That's yes, that's correct and I think with the Fox factory truck launch, we're seeing demand on that vehicle kind of directly to us not even through dealers.
Michael C. Dennison: Yep, that's correct. And I think, you know, with the Fox Factory truck launch, we're seeing demand for that vehicle coming directly to us, not even through dealers, which is a sign that, you know, the further you go in performance and content, the better off you're going to be.
Lawrence Scott Solow: Which is a sign that the further you go in.
Lawrence Scott Solow: Performance on content, the better off you're going to be.
Speaker Change: Okay, and just lastly, just on the bike market I think I think you had thought this would be the bottom this quarter. It seemed maybe a little bit lower than you thought certainly lower than we had estimated it sounds like $54 million I guess, it looks like the selling side.
Michael C. Dennison: Okay, just lastly, just on the bike market, I think, you know, I think you had thought this would be the bottom this quarter. It seemed maybe a little bit lower than you thought, certainly lower than we had estimated, down to like $54 million, I guess it looks like, on the upside. Sounds like you're confident we're at the bottom. What gives you that confidence, and do we kind of bounce around at the bottom, or do we think we kind of bounce, you know, off that bottom? and Tara Leo for the next few quarters. Thanks.
Lawrence Scott Solow: It sounds like you're confident where we're at the bottom what gives you that confidence and do.
Lawrence Scott Solow: Do we kind of bounce around the bottom or do you think we kind of bounce off that bottom in <unk>.
Lawrence Scott Solow: Materially over the next few quarters.
Michael C. Dennison: So I'll tell you, Q1 is interesting; it's actually above what we had forecasted for the quarter, but slightly above. It's the first quarter in a long time that we were actually able to predict the business effectively, which is a great sign. The second great sign is Q2 is already booked above Q1, so bookings mean a lot for us. We stopped, as you have heard me talk about before, Larry; forecasts got hard to follow because they weren't accurate.
Speaker Change: Tell you Q1 is interesting it's actually above what we had forecasted for the quarter, but slightly above it is the first quarter in a long time that we actually were able to predict the business effectively.
Lawrence Scott Solow: Which is a great time second grade side Q2 is already booked above Q1 bookings mean, a lot for us where we stopped as you have heard me talk about poorly forecast got hard to follow because they weren't accurate bookings are more accurate and having bookings in Q2 already above Q1 is a great step forward. The second the third thing frankly.
Michael C. Dennison: Bookings are more accurate, and having bookings in Q2 already above Q1 is a great step forward. The third thing, frankly, is just the product launches. We've got three extra product launches this year in the bike category than we've had in the past in any given year. And the pep and the stuff from the bike team is noticeable.
Lawrence Scott Solow: It is just the product launches we've got three extra product launches. This year old bank that we've had in the past on any given year and pep in the step from the buyer pool is noticeable.
Michael C. Dennison: I mean, the team really is starting to feel better about the business and the customers and the health of the customers, especially customers in Europe. And all that kind of attributes to feeling a lot better about Q2. And we've been seeing some positive signs already for Q3. So, yeah, no, Q1 is right where we thought it would be. Q2 I think is going to be right where we think it's going to be, and we're hopefully turning the corner and getting back on the gas. Okay, great.
Lawrence Scott Solow: The key really is starting to feel better about the business and the customers and the health of the core stores, especially customers in Europe.
Lawrence Scott Solow: And all that kind of attributes to feel a lot better about Q2, and even seeing some positive signs already for Q3. So yes, no. We Q1 right, where we thought it would be Q2, I think well we think.
Lawrence Scott Solow: Well, hopefully turning the corner and back on the gas.
Lawrence Scott Solow: Okay, great. Thanks. I appreciate the call.
Speaker Change: Okay, great. Thanks, I appreciate the color.
Speaker Change: Okay.
Speaker Change: Well go next now to Jim Duffy at Stifel.
Operator: We'll go next to Jim Duffy at Stiefel.
James Vincent Duffy: Thank you. Hi Mike, Dennis, and Toby. I hope you guys are doing well.
James Vincent Duffy: Thank you Dennis.
James Vincent Duffy: Dennis Tobey I Hope you guys are.
James Vincent Duffy: Doing well.
James Vincent Duffy: I'll focus on two questions. I wanted to ask one on the auto OEM dimension of the PVG business, and I have a question on gross margin. The PVG group numbers in the quarter were a little bit better than we thought. If I heard you correctly, it seems like the entirety of the year-to-year decline was due to power sports. Is that accurate?
James Vincent Duffy: Our focus is to two questions I wanted to ask one on the auto OEM dimension of the <unk> business and I have a question on gross margin.
James Vincent Duffy: The PV G group numbers in the quarter.
James Vincent Duffy: We're a little bit better than we thought.
James Vincent Duffy: If I heard you correctly it seems like the entirety of the year to year climbed decline was due to power sports is that accurate.
Michael C. Dennison: That, I would say, majorly. Everything else is kind of immaterial, but Power Sports is the one. End of the month throughout the quarter, frankly, from beginning to end, so it was a consistent decline too.
Speaker Change: Got it I would say majority.
James Vincent Duffy: Everything else is kind of immaterial, but power sports is the wireless decline.
James Vincent Duffy: Throughout the quarter frankly from beginning to end. So it was it was a consistent decline too.
James Vincent Duffy: No.
James Vincent Duffy: And then on the auto OEM production schedules, can you just help us with what you saw in the first quarter and then your visibility on auto OEM production for the balance of the year? As a guide, assume you know just a ramp in existing platforms or is there any consideration for new platforms on the auto OEM front for the balance of the year?
Speaker Change: Understood and then on.
Speaker Change: On the auto OEM production schedules can you just help us with what you saw in the first quarter and then your visibility on auto OEM production for the balance of the year I am curious as to guide.
Speaker Change: I assume.
Speaker Change: Just a ramp in existing platforms or is there any consideration for.
Speaker Change: New platforms on the auto OEM front and the.
Speaker Change: Balance.
Michael C. Dennison: Yeah, Jim, and our guide is fundamentally what's already in play. As you know, there are long duration cycles to get designs to production, so we can see that years in advance.
Speaker Change: Yes, Jim and our guide is fundamentally what's already in play as you know there's long duration cycles to get designs to production. So we can see that.
James Vincent Duffy: Orders in advance and so we have a pretty good deal. What this year will look like from product launches handful of vehicles, we have in play today frankly.
James Vincent Duffy: And so we have a pretty good view of what this year will look like from product launches and from the vehicles we have in play today. Frankly, our automotive business has stayed very consistent. As you know, we're on kind of limited production vehicles with the Raptor series and TRD Pro. Those vehicles tend to weather the storm very well. And we've seen that materialize in their forecast and their actual pull of material. So that feels pretty good for us right now.
Speaker Change: Our automotive business has stayed very consistent as you know I'm kind of limited production of vehicles with the Raptor series and charity Pro those vehicles tend to weather the storm very well and we've seen that not materializing and therefore castle, Larry Theyre actual pool of materials. So that's.
Speaker Change: That feels pretty good for us right now.
Dennis Charles Schemm: Okay, good. And then Dennis, I wanted to ask you about gross margins. Assuming Marucci did its thing on gross margins with the accretive contribution, the report implies some pretty big margin compression in the organic business. What I'm trying to get my arms around is how much of that is mixed versus regular wave pressure, and then within that regular wave pressure, how much of its fixed cost do you leverage, or is there something else we should be considering with respect to the gross margins as we try to think about normalization?
Speaker Change: Okay. Good and then Dennis I wanted to ask on gross margin assuming the route you did its thing on gross margins with the accretive contribution the report implies some pretty big margin compression in the organic business, what I'm trying to get my arms around is how much of that is mix versus regular wage pressure.
Speaker Change: Then within that regular way pressure.
Speaker Change: How much of it's fixed cost deleverage or is there something else, we should be considering with respect to the gross margins as we try to think about normalization.
Dennis Charles Schemm: Yeah, so two things here. One, Marucci delivered right on track, you know, across the board, margins in place exactly where we thought they would be. You know, their new product launches, and the strength of the business continues to impress. So we're back on Maroochi, so getting back to base business. You know, it comes down to volume; it all comes down to operating leverage, both in those plants and then from the op-ex standpoint.
Dennis: Yeah. So so two things here. So one marucci delivered right on track across the board margins in place exactly where we thought they would be their new product launches strength of the business continues to impress.
Speaker Change: On Meru Chi so getting back to business.
Speaker Change: Comes down to the ball.
Speaker Change: Got.
Speaker Change: It all comes down to operating leverage both in those plants and then from the Opex standpoint, so when we were.
Dennis Charles Schemm: So, we were pretty much coming right in line with the forecast, and it's all about how do we optimize these plants. And so, you heard it in my commentary, you heard it in Mike's commentary, we're continuing to look for the lost out.
Speaker Change: Pretty much coming right in line forecast and it's all about how do we optimize the plants and so you heard it in my commentary you heard in Mike's commentary.
Speaker Change: We're continuing to look for last outs and we were very delighted to see those cost improvements come in in a big way in Q1 to help offset these volume declines that we've been seeing.
Dennis Charles Schemm: And we were very delighted to see those cost improvements come in a big way in Q1 to help offset these volume declines that we have been seeing. And we continue to think that we're going to see them through the year as we start to ramp back up because our cost structure will lag the volume growth that we're going to be seeing. So it will actually serve as a slight tailwind for us as we progress through the year.
Speaker Change: And we continue to think that we're going to see them through the year.
Speaker Change: As we start to ramp back up because our cost structure will lag the volume growth that we're going to be seeing so it will actually serve as a slight tailwind for us as we progress through the year. The trick in all of this is not to cut too deep because we expect this business to turn around and.
Dennis Charles Schemm: The trick in all of this is not to cut too deep because we expect this business to turn around and ramp back up, and so we want to hold on to the really good people. And so what we've been doing is really looking at when somebody leaves, are they non-revenue generating, or are they revenue generating? If they're revenue generating, we're going to make a decision to backfill. If they're not, we're going to see what we can do to hold off until it's absolutely necessary to add somebody. And so we've been absolutely militant about it.
Speaker Change: To ramp back up and so we want to hold hold onto the really good people and so what we've been doing is really looking at when somebody leaves are they non revenue generating or are they revenue generating if their revenue generating we're going to take a decision to backfill if they're not we're going to see what we can do to hold off until.
Speaker Change: Until it's absolutely necessary to add somebody and so we've been absolutely military on the cost front.
Speaker Change: Okay helpful. And then a final clarification question I think in the prepared remarks, there was a comment about PV G. Inventories is this related to inventories on your books or.
James Vincent Duffy: Okay, helpful. And then, final clarification question. I think in the prepared remarks, there was a comment about PVG inventories. Does this relate to inventories on your books, or was that relating more to channel inventories? I'm trying to understand, like...
Speaker Change: What is that related more to channel inventories.
Speaker Change: I'm trying to understand right.
Dennis Charles Schemm: Yeah, twofold. So, if it were under my section, it would be about us continuing to make improvements in inventory within PBG, and we're absolutely taking out inventory and reducing that commensurate with the decline in the business. So, we're managing the working capital extremely well. I think on the demand side, if it were there, then we're talking about power sports inventory challenges in the channel, which we expect to get cleared up by year end as there's a lot of focus on us, you know, with the likes of Polaris and BRP and helping dealers manage that inventory. It could have been two-fold where you heard inventory. Understandable. Thank you for that, Clark.
Speaker Change: Yes, two fold. So if it were in my four and under my section it would be about us continuing to make improvements in inventory with NPV G and were absolutely taking out inventory and reducing that commensurate with the decline in the business. So we're managing the working capital extremely well.
Speaker Change: I think on the demand side. If it were there then we're talking about like power sports inventory challenges in the channel, which we expect to get cleared up by year end as Theres a lot of focus on us with the likes of Polaris N V ERP and helping dealers manage that.
Speaker Change: Sorry.
Speaker Change: So it could have been two fold.
Speaker Change: You heard inventories.
James Vincent Duffy: I understand. Thank you for that clarification.
Speaker Change: Understood. Thank you for that clarification.
Speaker Change: Okay.
Speaker Change: Thank you well go next now to antique glass skin at B Riley.
Operator: Thank you. We go next now to Anna Glaessgen at B Reilly.
Speaker Change: Yes.
Speaker Change: Hi, good afternoon guys.
Anna Glaessgen: Hi, good afternoon, guys. I'd like to touch back on bikes, you know, between the first half and implied guidance in the second half. We are expecting to see, you know, a pretty big improvement in the back half as the model year 25 launches. You know, clearly expectations have been a bit fluid in this segment as the industry works through channel inventories. Can you speak to where channel inventories stand today and how much improvement you need to see to really meet the expectations for this business in the back half?
Speaker Change: Anna.
Speaker Change: I'd like to touch back on bikes.
Speaker Change: In the first half.
Speaker Change: Implied guidance in the second half.
Speaker Change: We are expecting to see a pretty big improvement in the back half of the model year 'twenty five launches.
Speaker Change: Clearly expectations have been that fluid in this segment as the industry works through channel inventory can you speak to where do you channel inventories stand today and how much improvement you need to see to really meet the expectations.
Speaker Change: Yes.
Speaker Change: In the back half.
Speaker Change: Yeah, and the inventory improvement is mixed across the board within bike Oems.
Michael C. Dennison: Yeah, Anna, the inventory improvement is mixed across the board within bike OEMs. The more boutique or smaller bike manufacturers, European bike manufacturers specifically, have done a great job.
Speaker Change: The more boutique or smaller bike manufacturers.
Speaker Change: European bike manufacturers, specifically have done a great job already through all the inventory challenges alere, they're gone fairly quickly in the model you told five and pushing pretty hard in fact, pushing SBR and some of our current inventory levels. So we're chasing some inventory, which is a nice place to be.
Michael C. Dennison: They're already through all the inventory challenges, and they're going fairly quickly in the model year 25 and pushing us pretty hard. In fact, pushing us beyond some of our current inventory levels. So we're chasing some inventory, which is a nice place to be. It's pretty clear and really clean. Other bigger, larger OEMs are working through it, and some are getting pretty close, and some are still a little ways away. So it's a bit of a mixed bag.
Speaker Change: That's that's pretty clear and really clean other bigger larger Oems are working through it and some are getting pretty close and some are still little ways away. So it's a bit of a mixed bag.
Michael C. Dennison: We've kind of taken that whole And again, what we started to do at the end of last year was take a look at those forecasts from OEMs and give them a pretty significant haircut as to what we think they would actually do. And that helped us in Q1. As I said in an earlier comment, we actually delivered Q1 right above the plan we had for Q1. So getting that confidence back in the team and the ability to plan the business is really important to us. And I think that's happening and will happen for sure in Q1.
Speaker Change: That whole guar.
Speaker Change: Huawei, it's the aggregation of all those different customers into our guide into our forecast for this year and again, what we started to do.
Speaker Change: End of last year, we've taken a look at the forecast from Oems and give them a pretty significant haircut as to what we think they would actually do and that helped us in Q1 as I said in an earlier comment we actually delivered Q1 right above the plan. We had for Q1, so getting that confidence back in the team and the ability to plan. The business is really important to us. So I think thats had.
Speaker Change: It will happen for sure in Q1.
Speaker Change: Thanks, Mike and Yeah, I know last year, particularly you are dealing with a lot of last minute cancellations I guess is that is.
Michael C. Dennison: Thanks, Micah. And yeah, I know last year, particularly, you were dealing with a lot of last minute cancellations. Is it fair to say that dynamic has eased a bit, you know, in 2024? That has, yep.
Speaker Change: Is it fair to say that dynamic is that in 2024.
Michael C. Dennison: And they're starting to place purchase orders out a little bit further again. And again, the whole, whole, you know, chasing inventory to meet demand is a great place for us to be. So seeing some of that pressure, positive pressure on the system is really, still too early, you know, we're still in the woods, so I'm not, we're not calling this a victory lap yet on the bike, but again, seeing the positivity in the team, seeing the positivity in the market with our customers has been great, and the product launches have been really strong so far.
Michael C. Dennison: That has them. Yep, that has these.
Speaker Change: That is we're starting to place purchase orders that are a little bit further again and again the whole the whole chasing inventory to meet demand as a great place for us debates of things some of that pressure positive pressure on the system is really good.
Speaker Change: Too early we're still in the woods or not.
Michael C. Dennison: We're not calling victory lap yet on bike, but we just again.
Speaker Change: The positivity and the teams and the positivity in the market with our customers has been great and the product launches have been really strong so far.
Anna Glaessgen: Great, and shifting gears to Marucci, I think the quarter grew in the low single digits based on, you know, Cody's prior disclosures. Now that you've owned the business for, you know, six months or so, can you give a little bit of an update on what the go-forward growth opportunities should be?
Speaker Change: And second case tomorrow.
Speaker Change: I think in the quarter grew in the low single digits, they find coatings prior disclosures.
Speaker Change: You've owned the business.
Speaker Change: Six months okay.
Speaker Change: Give a little bit of an update on what the go forward growth opportunities should be there.
Michael C. Dennison: Yeah, I mean, again, they delivered a little bit above the plan in Q1. They've got solid product launches to balance this year to get, you know, to get above the plan or at the plan for the balance of the year, and frankly, we think this is a double-digit growth business for us. So kind of, you know, you should park it somewhere in the low double digits, and we think we can go from there.
Speaker Change: Yeah, I mean again, they delivered a little bit above the plan in Q1.
Dennis Schemm: That solid product launches the balance of this year to get to get above the poll.
Michael C. Dennison: At the plan for the balance of the year and frankly, we think this is a double digit growth business for us So kind of what you should park it somewhere in the low double digit.
Speaker Change: We think we've got a lot of exciting things coming on on the Orange side of the business and frankly.
Michael C. Dennison: We've got a lot of exciting things coming on the merchandise side of the business, and frankly, we're gonna unlock some doors and create some new opportunities from that business organically. Yeah, we're excited about the growth there, both at Marucci and at Victus.
Speaker Change: Unlocking doors and creates new opportunities from from that that business organically. We're excited about the growth there both maruti and Victor So invictus is important part of the bat.
Michael C. Dennison: You know, we're excited about the growth there, both Marucci and Victus, so Victus is an important part of the balance sheet composition as well, and just, again, could not be more delighted with the EBITDA profile as well that we continue to see.
Michael C. Dennison: Composition as well and just yeah.
Speaker Change: Again could not be more delighted with the EBITDA profile as well that we continue to see.
Speaker Change: Great. Thanks, guys.
Operator: We'll next go to Bret Jordan and Jeff.
Speaker Change: With next now to Bret Jordan at Jefferies.
Bret David Jordan: Hey, guys.
Bret David Jordan: On the overhead, I guess if you look at the year over year addition from Custom Wheelhouse and Marucci, is there much synergy available or cost to take out as you integrate those businesses, or are you going to run them with the incremental overhead?
Bret David Jordan: I thought like overhead I guess, if you look at the year over year addition from custom wheelhouse and Meru Chi is there much synergy available or cost to take out as you as you integrate those businesses or are you going to run them with the incremental overhead.
Michael C. Dennison: You know, Greg, on the fringe, there's probably some opportunities that are not significant. But where the opportunity really lies with the Morici acquisition is in the supply chain. I've talked about that in the past, where we think some of our factory management structure, some of our vertical integration, how we think about design, some of those synergies can still be had. But we never planned them for early 24. You know, we're starting to work on those projects now, and I think that's more material for 25. Think back office, not front office.
Bret David Jordan: Greg on the fringe Theres, probably some opportunities that not will not significant where the opportunity really lies with the morici acquisition is in the supply chain I talked about that in the past, while we think some of our factory management structure. Some of our vertical integration how do we think about design. Some of those synergies can can still be had.
Michael C. Dennison: And we never planned for early 'twenty four we're starting to work on those projects now and I think thats more material in 'twenty five but we do think there are some long term synergies in that part of the business I think back I think back office front office and to.
Dennis Charles Schemm: And to add on that, you know, we haven't talked about this in a long time, but last year, we talked about these acquisitions being, some acquisitions being OpEx-heavy, CapEx-light, and in this particular case, both with Marucci and Custom Wheelhouse, these are more OpEx-heavy businesses, CapEx-light businesses, and they are delivering right on track, so we are very, very pleased with the models that we have there with both companies.
Bret David Jordan: To add on that we haven't talked about this in a long time, but last year, we talked about these acquisitions being.
Dennis Charles Schemm: Some acquisitions being Opex heavy capex light.
Dennis Charles Schemm: In this particular case, both with Maruti and custom wheelhouse. These are more opex heavy businesses Capex light businesses and they are delivering right on track. So we're very very pleased with the models that we have there.
Dennis Charles Schemm: Both both companies.
Bret David Jordan: Okay, and could you talk about the cadence of what you're seeing in power sports? Are we seeing inventory clearing, demand, and conversion picking up, or is it still sort of soft but maybe getting softer at the consumer level given rates and all the headwinds?
Speaker Change: Okay, and then could you talk about the cadence of what Youre seeing in power sports are we.
Bret David Jordan: As the quarter progressed at the channel level are you seeing inventory clearing in demand and conversion picking up or is it still sort of soft, but maybe getting softer at the consumer level given rates and all the headwinds.
Michael C. Dennison: You know, I think it's still soft. I wouldn't say it's picking up yet. I think it's seasonal, depending on the product as well. So, obviously, we had a bad snow season, so snowmobile sales were way off. We've got a new snowmobile launch this year, so maybe this upcoming season will be better, depending on the snow. But in UTVs and side-by-sides, it's a bit of a mix, but I'd say it's soft, and we're expecting it to be soft for at least the next two quarters.
Speaker Change: I think its still soft I wouldnt say, it's picking up yet I think it's seasonal depending on on the product as well. So obviously, we had a bad snow season for snowmobile sales were way off.
Michael C. Dennison: We've got a new store will be launched this year. So maybe this.
Speaker Change: Coming feels better defendable flow, but new Tvs and side by side, it's a bit of a mix, but I'd say, it's soft and we're expecting it to be thoughtful with the next three.
Michael C. Dennison: Quarters.
Speaker Change: Okay, great. Thank you.
Speaker Change: Yeah. This is a great point because.
Dennis Charles Schemm: And this is a great point because our reports came in hard with, you know, order books and strong order books. And throughout that first quarter, what did we see? They just kept pulling it back, pulling it back, pulling it down.
Dennis Charles Schemm: <unk> came in hardware order books, and strong order books and throughout that first quarter. What did we see it just kept pulling it back pulling it back pulling it down.
Dennis Charles Schemm: And so this is why Mike, in his opening comments, talked so heavily about diversification, diversification into the aftermarket, and why it's so strategically important to us. Because it gives us that ability to exert control, be relevant, create new and different markets, and this is what Marucci does for us. It's disruptive. It's high-margin. It takes advantage of all the industry's complacency and makes a difference, and that's why we love the diversification model that Mike has put in place. And, you know, interestingly enough, Greg, a point on the PowerSport side.
Dennis Charles Schemm: So this is why Mike in his opening comments talked heavily about diversification diversification into aftermarket and wide. So strategically important to us because it gives us that ability to exert control be relevant create new and different markets and this is what <unk> does for us it's disruptive.
Dennis Charles Schemm: It's high margin takes advantage of all the industry complacency and makes a difference and that's why we love the diversification model that Mike has put in place and you know interestingly enough Gregg a point on the power sports side, what we did in that space with what we actually started our own outfit side by side Big local conjuncture of Polaris and others and that is the premium <unk>.
Michael C. Dennison: And, you know, interestingly enough, Greg, a point on the power sports side, what we did in that space is we actually started our own outfit side-by-side business in conjunction with Polaris and others. And that is the premium end of content and vehicle pricing that we talk about in the automotive industry, where it's more resilient to affluent buyers. And we're seeing strength in that business that, you know, the middle market, kind of lower cost type vehicles side-by-side, isn't seeing.
Michael C. Dennison: End of content and vehicle pricing that we've talked about in automotive, where it's more resilient affluent buyers and wisdom.
Michael C. Dennison: Strength in that business that middle market kind of lower cost type vehicles.
Michael C. Dennison: <unk>.
Michael C. Dennison: So I do think with performance and content, you can get around some of the softness and some of this, you know, high interest rate challenge by delivering a premium product that people really want and are willing to stand in line for.
Michael C. Dennison: So I do think with performance in context, if we will get around the corner of some of the softness in some of those high interest rate challenge by delivering a premium product that people really want.
Michael C. Dennison: To have and are willing to stand in line to get.
Greg: Great. Thank you.
Michael C. Dennison: And we wouldn't act now to Mike Swartz of tourists.
Operator: And we'll go now to Mike Swartz of Truist.
Michael Swartz: Hey, guys good evening.
Michael Swartz: Hey guys, good evening. I just want to start on the bike side, and if we go back over the past 18 months, I think to frame it at a high level, you know, visibility has been the biggest challenge. It does sound now like you might have better visibility than you did three months ago, but I just wanted to tie your commentary into something that, you know, another public supplier, Shimano, had called out a couple weeks back talking about, you know, they thought the industry would bottom in the third quarter and maybe start to return to growth in the fourth quarter, but it sounds like you're thinking bottoming is more, you know, first quarter or second quarter. Is there any discrepancy or any other thoughts or colors, you know, between those two columns?
Michael Swartz: Just.
Michael Swartz: Just wanted to start on the on the bike side and if we go back over the past 18 months I think to frame it at a high level.
Michael Swartz: Visibility has been the biggest challenge it does sound now like you might have better visibility than you did three months ago, but I just wanted to tie your commentary into something that.
Michael Swartz: Another public supplier should monoid called out a couple of weeks back talking about.
Michael Swartz: The industry would bottom in the third quarter and maybe start to return to growth in the fourth quarter, but it sounds like youre thinking bottoming as more first quarter second quarter or is that.
Michael Swartz: Any discrepancies or any other thoughts or color.
Michael Swartz: Between that between those two comments.
Michael Swartz: Yeah, Mike, we look at Shimano pretty closely, so we understand the same comments that they're calling out. But again, they're in a different space than we are.
Michael C. Dennison: You know, we're very niche, we're very premium high-end, and I think when you look at the overall bike market in general, their statements are probably pretty accurate. Where it comes to our business, I think it can be different, and so I think you're off only by a couple of quarters or a quarter or two, which might be a reflection of just where we sit in the market versus where they do. I mean, they're in the high-end as well, but they're in the entire line of bikes, not just the high-end.
Michael C. Dennison: So I think that's the difference. And again, I don't, you know, Q2 is not gonna be. We're not looking to knock it out of the park in Q2, but we're looking to be predictable and to go into a quarter feeling comfortable that we're going to hit the number that we projected and we're feeling good about that. And that's the start of the turnaround, in my mind.
Michael Swartz: Okay, great. Thanks for the color there.
Michael Swartz: And then second question, something I picked up in the press release just as it pertains to the prepaids. I think you made a comment about older model inventory or prepaids being one of the challenges right now, but is there any commentary you can add to that or any thoughts you can add to that about how to think about the percentage of your prepaids that's older model chassis versus new model chassis? I'm just wondering if that has any impact on potential risk to margins in the back half of the year. Yeah, any type
Dennis Charles Schemm: Any type of prepaid balance right now would be associated with newer models coming on board, so there is no real risk there. I think we mentioned the prepaid status just because that is an increase in our working capital and a hit on free cashflow for us. But we talk about that because this is the season when we actually have those prepaid bills.
Michael C. Dennison: Yeah, yeah, thanks. Mike, I think the other thing to think about there, too, is in Q1, we had to incentivize, and we worked with our dealers to make sure inventory that was aging was moving across their lot, getting off their lot. This is, you know, kind of a constant thing that we think about as we want to get into the new vehicle years and model year changes, so some of that pressure in Q1 was a function of us helping incentivize those dealers to move those vehicles. I think that's really just around the model year changeover, which happens, you know, in Q1, Q2 this year, and we're kind of through it.
Operator: Thank you, and we'll take our final question today from Scott Stember of Roth MKN.
Scott Lewis Stember: Good evening and thanks for taking my question. A question about the launch of the 25 bike products. You did say that it should be... three times more than, I guess, what you've done in recent years. You know, given what's still in the pipeline in the bike market and knowing dealers, I guess, still, you know, they're going to be very cautious. I guess with the floor plan and interest rates, about how much inventory they bring in. What are you looking at as far as the size of this actual launch, despite the fact or take into account that you're talking about, you know, three times? Are we looking at something that's bigger?
Scott Lewis Stember: Scott, I think you're referring to the volume curve. Yeah, yeah, yeah, yeah, so I think that's a good question.
Michael C. Dennison: Yes. Yes. Yes. Yes.
Michael C. Dennison: of the year, just based on the nature of the environment that you kind of described. I would tell you what we're seeing in our conversations with dealers and distributors is that if it's a new product, if it's interesting and different, you don't have to discount it, and customers want it. If you're really just restocking the same stuff that was on the shelf last year and the year before, you're heavily discounting, and people are walking past it because they've already got it in their garage. They just don't need it.
Michael C. Dennison: But if it's something new and different, they want it, and that's what's so exciting. We've got a couple of launches that have already been pretty productive for us and compelling relative to demand for those products. So I think in our space right now on the bike, new and different is everything. If you can't come up with something new and exciting, you're going to have a challenge. So that's what makes us so excited about the 3X product launches. But again, I think on the volume for product launches, we'll stay... Let's see if we can serve them on what we think they'll actually do until we see the results.
Scott Lewis Stember: Scott, and then just a last question about the upfitting, or I guess the Fox Factory branded upfitting in trucks and side-by-sides. Maybe you could give us a little more context of how that will fit in with the individual platforms and what your expectations are for contributions. I can give you that.
Michael C. Dennison: Yeah, it's a new space for us. So, you know, in side-by-side upfitting, we're really talking about creating a class of vehicles in either the race, you know, race content, or in the luxury UTV space that are well above what can be purchased from a factory-made production vehicle on a dealer floor. That's been exciting for us because we're reaching out to customers directly and through dealerships to sell those vehicles, and we think that's kind of a different model.
Michael C. Dennison: Same thing with the Fox Factory truck. We actually have a concierge service now where you can contact us directly to put a deposit down on that truck. Now, ultimately, transact that truck through a dealer near that individual or somewhere in the country, but we're getting, you know, a direct connection to the customer that's purchasing the truck in that environment, and that's a new thing for us, so that's pretty exciting. We think as we expand those vehicles in both the automotive and side-by-side, that that just continues to grow and expand and create kind of a new channel for us in how we market our high-end vehicles, so pretty positive step for us.
Scott Lewis Stember: And then on the truck side, just as a last question, are you worried about any potential cannibalization, or will this be so far up the food chain that there will be no overlap?
Michael C. Dennison: Pretty far up the food chain, you know. I've had a lot of conversations when we launched the Fox Factory truck with OEMs. It actually brought demand to us. Other OEMs came to us and said, "hey, that's pretty cool." We would actually like to talk about doing something like that with you. So it's actually opened some doors, interestingly enough. And it's so high up in kind of that pinnacle or that pyramid of vehicles that it doesn't, it's not in the same, you know, businesses or Shelby businesses or anything else.
Scott Lewis Stember: Got it. That's all I have. Thank you.
Operator: Thank you. And at this time, Mr. Dennison, I'd like to turn things back to you, sir, for any closing comments.
Michael C. Dennison: Thanks both. I want to thank everyone for taking the time to join us tonight, and we will keep you guys updated as we progress through the quarter. And I look forward to talking to you soon. Have a good evening.
Operator: Thank you again, Mr. Dennison. Again, ladies and gentlemen, that does conclude today's Fox Factory Holding Corporation's first quarter fiscal 2024 earnings call. Again, thanks so much for joining us. We wish you all a great evening. Goodbye.
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