Q2 2024 Fox Factory Holding Corp Earnings Call
Speaker Change: Please stand by, we're about to begin.
Speaker Change: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Fox Factory Holding Corps' second quarter fiscal 2024 earnings conference call.
Speaker Change: At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference is being recorded. And now I would like to turn the conference over to Toby Merchant, Chief Legal Officer at Fox Factory Holding Corp. Thank you, sir. You may begin.
Operator: Thank you. Good afternoon, and welcome to Fox Factory's second quarter 2024 earnings conference. I'm joined today by Mike Dennison, Chief Executive Officer, and Dennis Schemm, Chief Financial Officer. First, Mike will provide business updates, and then Dennis will review the quarterly results and outlook. If you have not had a chance to review the release, it's available on the investor relations portion of our website at investor.ridefox.com. Please note that, throughout this call, we will refer to Fox Factory as Fox or the company.
Operator: 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.
Operator: Investors should not place undue reliance on the company's forward-looking statements, and, except as required by law, the company undertakes no obligation to update any forward-looking or other statements herein, whether as a result of new information, future events, or otherwise. In addition, where appropriate, in today's prepared remarks and within our earnings release, we will refer to certain non-GAAP financial measures to evaluate our business, including adjusted gross profit, adjusted gross margin, adjusted operating expenses, adjusted net income, adjusted earnings per diluted share, adjusted EBITDA, and adjusted EBITDA margin. We believe these are useful metrics that allow investors to better understand and evaluate a company's core operating performance. Thanks, Toby.
Speaker Change: Thank you. Good afternoon and welcome to Fox Factory's second quarter 2024 earnings conference call. I'm joined today by Mike Dennison, Chief Executive Officer, and Dennis Schemm, Chief Financial Officer.
Speaker Change: 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.
Speaker Change: By now, everyone should have access to the earnings release, which went out earlier this afternoon. If you have not had a chance to review the release, it's available on the investor relations portion of our website at investor.ridefox.com.
Speaker Change: Please note that throughout this call we will refer to Fox Factory as Fox or the company.
Speaker Change: Before we begin, I would like to remind everyone that the prepared remarks contain forward-looking statements within the meaning of federal securities laws and management may make additional forward-looking statements in response to your questions.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Investors should not place undue reliance on the company's forward-looking statements, and except as required by law, the company undertakes no obligation to update any forward-looking or other statements herein, whether as a result of new information, future events, or otherwise.
Speaker Change: 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.
Speaker Change: including Adjusted Gross Profit, Adjusted Gross Margin, Adjusted Operating Expenses, Adjusted Net Income, Adjusted Earnings per Diluted Share, Adjusted EBITDA, and Adjusted EBITDA Margin.
Speaker Change: as we believe these are useful metrics that allow investors to better understand and evaluate the company's core operating performance and trends.
Speaker Change: Reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures are included in today's earnings release, which has also been posted on our website. And with that, it is my pleasure to turn the call over to our CEO , Mike Dennison.
Michael Dennison: Good afternoon, and thank you for joining us. As anticipated, our second quarter results demonstrated continued sequential improvement in both net sales and profitability, with a sequential increase of 4.5%. Since the fourth quarter of fiscal 2023, our adjusted EBITDA margins have improved by approximately 70 basis points. Furthermore, our results have stabilized due to our enhanced equilibrium between our OEMs and our aftermarket channels. When we first became a public company in 2013, our aftermarket business was 19% of sales. In 2021 through Q2, we were at 47%, and today we stand at 57%.
Mike Dennison: Thanks, Toby. Good afternoon and thank you for joining us today. As anticipated, our second quarter results demonstrated continued sequential improvement in both net sales and profitability.
Mike Dennison: For Q2, we delivered $348.5 million of revenue, a sequential increase of 4.5%, and adjusted earnings per share of $0.38.
Mike Dennison: Our focus and actions enabled adjusted EBITDA margin improvement to 12.7% from 12.1% in the prior quarter.
Mike Dennison: Since the fourth quarter of fiscal 2023, our adjusted EBITDA margins have improved approximately 70 basis points.
Mike Dennison: as a result of a continued focus on expense controls and productivity optimization.
Mike Dennison: Furthermore, our results have stabilized due to our enhanced equilibrium between our OEMs and our aftermarket channels.
Mike Dennison: When we first became a public company in 2013, our aftermarket business was 19% of sales.
Mike Dennison: In 2021 through Q2, we were at 47% and today we stand at 57%.
Michael Dennison: Diversification of our business is an essential component of our long-term strategy as it mitigates risk and enhances optionality with demand. We believe we have positioned Fox as an industry leader across the categories where we operate. While the market remains incredibly difficult to forecast, we are encouraged by the stabilization we're seeing in bikes. However, macroeconomic dynamics continue to weigh on the speed of the recovery and consumer discretion. We continue to focus on innovation and product development, driving a relentless commitment to delivering performance-defining products concurrently, particularly to reduce non-revenue generating and Workforce Reduction will assume the responsibilities for the AAG segment as it's present, following the departure of Tom Fletcher. We wish Tom well as he departs.
Mike Dennison: Diversification of our business is an essential component of our long-term strategy as it mitigates risk and enhances optionality with demand.
Mike Dennison: both of which are crucial in the current macro environment.
Mike Dennison: At the same time, diversification across business segments, products, markets, and geographies within those segments
Mike Dennison: provides incremental opportunities for growth.
Mike Dennison: When combined with our history of successful acquisitions, which have unlocked incremental growth opportunities,
Mike Dennison: We believe we have positioned Fox as an industry leader across the categories where we compete.
Mike Dennison: our launch of UpFit UTV, our expansion into the entry premium mountain bike product, and our accelerated growth internationally are perfect examples of us putting this strategy to work.
Mike Dennison: While the market remains incredibly difficult to forecast, we are encouraged by the stabilization we are seeing in bike, where revenues grew 52% sequentially.
Mike Dennison: lending more confidence that we are in the late stages of Channel D stocking.
Mike Dennison: However, macroeconomic dynamics continue to weigh on the speed of the recovery in consumer discretionary spending.
Mike Dennison: Consequently, we continue to focus on innovation and product development.
Mike Dennison: driving a relentless commitment to delivering performance-defining products.
Mike Dennison: Concurrently, we are also laser focused on aligning costs with demand and have made a concerted effort to tighten up spending across the organization.
Mike Dennison: particularly through reduction of non-revenue generating positions and workforce reductions in our factories.
Mike Dennison: Before reviewing our segment performance, I want to briefly touch on some leadership transitions that we announced today.
Mike Dennison: Beginning August 1st, Dennis Schemm, our Chief Financial Officer, will assume responsibilities for the AAG segment as its president.
Mike Dennison: following the departure of Tom Fletcher.
Mike Dennison: Tom has served as president of AAG since May of 2021 and during that time has been instrumental in building the AAG segment through strategic acquisitions that have bolstered our leadership position in the aftermarket channel.
Michael Dennison: As AAG's new leader, Dennis' responsibilities will include overseeing the segment's manufacturing operations. His past operating experience and fresh insights into Fox's business. Dennis will continue to lead our finance organization as well as CFO and report directly.
Speaker Change: We wish Tom well as he departs Fox.
Mike Dennison: As AAG's new leader, Dennis' responsibilities will include overseeing the segment's manufacturing operations, commercial activities, and R&D efforts.
Speaker Change: His past operating experience and fresh insights on Fox's businesses have been invaluable and impactful since joining our team.
Speaker Change: Dennis will continue to lead our finance organization as well as CFO and report directly to me.
Speaker Change: In support of this transition, Brendan Enoch, our Chief Accounting Officer, has taken over the treasurer role from Dennis.
Speaker Change: Brendan joined us in May of 2023 and has been heavily involved in driving excellence across our accounting and finance organization.
Speaker Change: Overseeing Financial Stewardship and Audit.
Speaker Change: He has demonstrated exceptional leadership and has a strong capacity to take on the treasury function.
Speaker Change: Brendan will continue to work closely with Dennis to lead the capital allocation strategy, oversee the balance sheet, and diligently manage our cash flows and financial risk.
Speaker Change: I look forward to Dennis and Brendan's contributions in their respective new roles.
Michael Dennison: In the Power Vehicle Group, net sales were $118 million, down from $140 million in the prior year due to quality issues within the auto OEM. Dealers continue to manage inventory conservatively, and OEMs are aligning production and orders. With premium trucks remaining robust as they ramp production for model year 2025, however, in the broader OEM automotive space we support, we are seeing signs of excess inventory and consumer conservatism, similar to our power sports. We remain steadfast in our long-term strategy for PVD.
Speaker Change: Turning now to discussion of our segment performance.
Speaker Change: In the Power Vehicle Group, net sales were $118 million, down from $140 million in the prior year.
Speaker Change: This reduction is primarily due to lower OEM demand in power sports and automotive.
Speaker Change: This demand reduction is a result of consumer fatigue, quality issues within the auto OEMs, and the extended duration of high interest rates.
Speaker Change: The power sports industry outlook for 2024 remains challenged.
Speaker Change: And retail sales expectations for the second half have been revised downward by many, if not all, of our OEMs.
Speaker Change: Dealers continue to manage inventory conservatively, and OEMs are aligning production and orders accordingly.
Speaker Change: In the automotive sector, demand from our major OEMs is mixed.
Speaker Change: with premium trucks remaining robust as they ramp production for model year 2025 vehicles.
Speaker Change: The premium, limited production nature of these vehicles, we believe, continues to insulate this important portion of our business from broader interest rate concerns.
Speaker Change: However, in the broader OEM automotive space we support, we are seeing the signs of excess inventory and consumer conservatism similar to our PowerSports customers.
Michael Dennison: While we've implemented targeted cost reductions, we've retained our core engineering talent to support our product roadmap and future. Meanwhile, our component aftermarket portion of this business, which includes wheels, tires, and lift, continues to show growth. However, these impacts have been tempered by the strong demand for and excitement for higher-end outfits, which aligns well with our premium brand. Our AAG business presents a huge opportunity for us to operationalize our 1 plus 1 equals 3. This dovetails perfectly with our broader goal of creating a more resilient business, supported by Aftermarket.
Speaker Change: We remain steadfast in our long-term strategy for PVG.
Speaker Change: While we've implemented targeted cost reductions, we've retained our core engineering talent to support our product roadmap and future innovations.
Speaker Change: We're already seeing the fruits of this strategy through continued market share gains, underscoring the strength and differentiation of our product portfolio.
Speaker Change: We're particularly excited about upcoming new product introductions and opportunities in motorcycle, military, and power sports.
Speaker Change: Lastly, we recently partnered with Ford to take on Dakar with the Ford Raptor T1 Plus.
Speaker Change: A program which we won based on the capability of our products and support of Ford's entire team.
Speaker Change: Look for us to be on the podium of Dakar in 2025.
Speaker Change: Moving to AAG. Net sales were $107 million compared to $156 million in the prior year quarter.
Speaker Change: Our component aftermarket portion of this business, which includes wheels, tires, and lift kits, continues to show growth.
Speaker Change: demonstrating the resilience and appeal of our portfolio.
Speaker Change: This growth also exemplifies the importance of our diversification strategy, which enables consumers to participate in the Fox product portfolio at price points which may be more approachable in the short term.
Speaker Change: Our automotive upfitting business continues to face challenges from reduced chassis supply, mix, and stubbornly high interest rates.
Speaker Change: However, these impacts have been tempered by the strong demand for and excitement for our higher-end outfits, which aligns well with our premium brand positioning.
Speaker Change: Our AAG business presents a huge opportunity for us to operationalize our 1 plus 1 equals 3 framework.
Speaker Change: which dovetails perfectly with our broader goal of creating a more resilient business supported by aftermarket channels.
Michael Dennison: Well, we believe we did a good job of creating a portfolio of leading brands, and given the intensity and rate of growth over the past five years, we have not yet fully recognized the core strategies which we saw when architecting the AAG. We believe now is the time to refocus our efforts to ensure we are meeting the needs of all the stakeholders. With this refocused effort, we believe that we can drive sustainable long-term growth and restore margins to their appropriate levels.
Speaker Change: While we believe we did a good job of creating a portfolio of leading brands in AAG, our next phase of growth is expected to maximize product synergies like what you see in our newly launched Fox Factory truck.
Speaker Change: Given the intensity and rate of growth over the past five years, we have not yet fully recognized core strategies which we saw when architecting the AAG business.
Speaker Change: We believe now is the time to refocus our efforts to ensure we are meeting the needs of all the stakeholders in this channel.
Speaker Change: With this refocused effort, we believe that we can drive sustainable long-term growth and restore margins to their appropriate levels.
Michael Dennison: In SSG, net sales were $124 million compared to $105 million last year. The year is nearing its conclusion, and we were pleased to deliver a 52% sequential increase in bike revenue. In addition, our move into the entry premium space has been very well received and is helping offset broader slugging. The European market continues to improve on a relative basis due to its lower exposure to... On the other side of the house, Marucci continues to be a standout performer. The highlight was watching young players compete for the championship.
Speaker Change: In SSG, net sales were $124 million compared to $105 million last year, reflecting a $19 million increase.
Speaker Change: driven by the inclusion of Orochi and offset by a 23 million dollar reduction in sales within our bike business.
Speaker Change: However, within BIKE, we're seeing positive signals of the OEM inventory de-stocking phase, which we have been discussing over the last several quarters, is nearing its conclusion.
Speaker Change: We were pleased to deliver a 52% sequential increase in bike revenue, which was a positive sign of both significance and predictability.
Speaker Change: In addition, our move into the entry premium space has been very well received and is helping offset broader sluggishness.
Speaker Change: Although the U.S. market remains in a state of transition toward stabilization,
Speaker Change: The European market continues to improve on a relative basis due to its lower exposure to excess inventory.
Speaker Change: I'm particularly excited about our multiple new product launches scheduled throughout the year.
Speaker Change: These innovations are already generating incremental demand and are expected to drive growth in the coming quarters.
Speaker Change: The e-bike category also continues to exceed our expectations and is an important avenue for our expanding addressable market.
Speaker Change: On the other side of the house, Marucci continues to be a standout performer.
Speaker Change: I just returned from attending the Maroochee World Series where over 10,000 fans, players, coaches, and families descended upon Baton Rouge.
Speaker Change: While the highlight was watching young players compete for the championship, the excitement for me was seeing the potential for our combined businesses.
Michael Dennison: Our hitters' house and associated pop-up stores were essentially sold out. Marucci and Vick's bats were literally everywhere as thousands of players got into the studio to make high-performance products for... Marucci's success is being driven by a host of growth factors across their product portfolio, including the Victus and Marucci brands in baseball, LizardSkinsExpert.com, Apparel, and International.
Speaker Change: Our Hitter's House and associated pop-up stores were essentially sold out.
Speaker Change: Marucci and Vick's bats were literally everywhere as thousands of players got into the swing of things.
Speaker Change: And parking lots were filled with trucks boasting Fox Shocks, including our latest vehicles such as the Fox Factory truck and outfitted UTVs, which generated tons of interest.
Speaker Change: It was a reminder that Marucci and Fox customers are one in the same, united by two aspirational brands and a combined vision to make high performance products for our enthusiasts.
Speaker Change: Marucci's success is being driven by a host of growth factors across their product portfolio, including the Victus and Marucci brands in baseball and softball.
Michael Dennison: The Hitter's House platform also continues to gain traction and further solidifies Marucci's market position. Both our Victus and Marucci brands were very well represented at the MLB's recent All-Star Game. To that end, I'm particularly thrilled to highlight that we recently announced an exclusive license agreement with Major League Baseball. This four-year agreement not only underscores our brand's leadership in professional baseball but also provides exclusive rights for our This partnership, combined with Lizard Skin's position as the official backgrip of MLB, The Anticipated Recovery in the Bike Segment, coupled with Marucci's consistent strong performance and our exciting product pipeline.
Speaker Change: Lizard Skins Accessories, Apparel, and International Markets.
Speaker Change: The Hitter's House platform also continues to gain traction.
Speaker Change: And with the opening of Hitter's House Tokyo, it further solidifies Marucci's market position as the innovation leader in this category.
Speaker Change: In fact,
Speaker Change: Both our Victus and Marucci brands were very well represented at the MLB's recent All-Star Game with both finalists of the Home Run Derby using our bats.
Speaker Change: To that end, I'm particularly thrilled to highlight that we recently announced the exclusive license agreement with Major League Baseball.
Speaker Change: designated Marucci and Victus as the official bats of MLB starting January 1st, 2025.
Speaker Change: This four-year agreement not only underscores our brand's leadership in professional baseball, but also provides exclusive rights for our products.
Speaker Change: This partnership, combined with LizardSkin's position as the official backgrip of MLB, further cement our status as a premier choice for players at all levels.
Speaker Change: With this new MLB agreement on the horizon, we're even more excited about Marucci's future growth potential and congratulate the team for achieving this distinction.
Speaker Change: Looking ahead, we're optimistic about the trajectory of SSG. The anticipated recovery in the bike segment, coupled with Marucci's consistent strong performance and our exciting product pipeline, positions us well for continued growth through the second half of this year.
Michael Dennison: Now for some comments on our outlook. While we continue to see encouraging signs of stabilization in the bike market, we must be prudent and responsible in aligning our guidance with revised expectations. As a result, we are adjusting our four-year guidance to reflect a more tempered sequential revenue lift. This adjustment is directly driven by ongoing industry demand and quality challenges which pass from our OEMs directly to us in the form of lowered forecasts, culminating in reduced orders that are subduing, but not eliminating, our anticipated growth.
Speaker Change: Now for some comments on our outlook. While we continue to see encouraging signs of stabilization in bike, we must be prudent and responsible in aligning our guidance with revised expectations of our large OEM customers.
Speaker Change: As a result, we are adjusting our four-year guidance to reflect a more tempered sequential revenue lift in the second half of the year.
Speaker Change: This adjustment is directly driven by ongoing industry demand and quality challenges which pass from our OEMs directly to us in the form of lowered forecasts which culminate in reduced orders that are subduing, but not eliminating, our anticipated growth.
Michael Dennison: Despite these near-term challenges, we maintain a positive outlook. We still expect sequential growth throughout the second half of the year, albeit at a more moderate pace than initially projected. Furthermore, we anticipate this trend of sequential improvement to continue through 2025, due to gradual improvement in bite-chail inventory and the impact of OE's model year 25.
Speaker Change: Despite these near-term challenges, we maintain a positive outlook. We still expect sequential growth throughout the second half of the year, albeit at a more moderate pace than initially projected.
Speaker Change: Furthermore, we anticipate this trend of sequential improvement to continue through 2025.
Speaker Change: Our revised assumptions for the second half of the year include
Speaker Change: Gradual improvement in bite-channel inventory and the impact of OE's model year 25 releases.
Michael Dennison: Marucci's continued growth across its diversified portfolio and new product line, and new product launches within our Lip Kit and Wheel business. In closing, Brand Strength, Product Excellence, and Relentless Innovation. Our R&D investments are strategically targeted at groundbreaking 2025 model releases, both of which we believe will expand our market share and augment our. In the meantime, we're navigating this cycle by focusing on what we can control to position us to emerge stronger and well-equipped to capitalize on future opportunities. And with that, I'll turn the call over to Dennis.
Marucci: Marucci's continued growth across its diversified portfolio and new product launches.
Speaker Change: Slow but steady improvement in PowerSports dealer inventory.
Speaker Change: Ongoing progress in upfit chassis availability and mix.
Speaker Change: and new product launches within our Lip Kit and Wheel business.
Speaker Change: In closing, our company remains well-positioned for the second half fueled by a strong pipeline of new product launches.
Speaker Change: We're doubling down on what's made us successful, our brand strength, product excellence, and relentless innovation.
Speaker Change: Our R&D investments are strategically targeted at groundbreaking 2025 model releases and high-margin aftermarket components.
Speaker Change: both of which we believe will expand our market share and augment our growth.
Speaker Change: In the meantime, we're navigating the cycle by focusing on what we can control to position us to emerge stronger and well-equipped to capitalize on future opportunities.
Speaker Change: We're not just adapting to the current environment, we're building a more diversified company intended to enhance and protect shareholder value.
Speaker Change: And with that, I'll turn the call over to Dennis.
Dennis: Thanks, Mike, and good afternoon, everyone. I'll begin by discussing our second 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 Schemm: Before we dive into the quarter, I want to build upon Mike's comments about my new responsibility; I'm honored to lead the AAG segment as its next president. This includes a focused effort on improving our operational efficiency, streamlining our internal processes, and I'm eager to deploy a fresh perspective to the business and accelerate the execution of the strategy and work with the team to unlock our full potential within AHA. I'd also like to recognize our Chief Accounting Officer, Brendan Enoch, for his solid leadership of our finance team, including accounting, financial planning, and analysis, and treasurer. In particular, his hard work with Marucci, including his involvement in the term loan deal given its size and scale. His many contributions to our broader finance team have prepared him well to take on the role of treasurer.
Dennis: Before we dive into the quarter, I want to build upon Mike's comments about my new responsibilities. I am honored to lead the AAG segment as its next president.
Speaker Change: Since joining Fox last year, I've had the pleasure of working closely with Mike in the leadership across all three segments.
Speaker Change: This includes a focused effort on improving our operational efficiency, streamlining our internal processes, and enhancing execution capabilities both within our organization and in our interactions with partners and customers.
Speaker Change: I believe we have a very strong foundation to build upon in AEG. In fact, we have an opportunity to take our brands and leverage the power of the portfolio that the team has created. I'm convinced that 1 plus 1 is not quite adding up to 3 right now.
Speaker Change: And I'm eager to deploy a fresh perspective to the business and accelerate the execution of the strategy and work with the team to unlock our full potential within AAG.
Speaker Change: I'd also like to recognize our Chief Accounting Officer, Brendan Enoch.
Speaker Change: for his solid leadership of our finance team, including accounting, financial planning and analysis, and treasury, and his aptitude for methodically working to integrate our acquisitions in an efficient manner.
Speaker Change: particularly his hard work with Marucci including his involvement in the term loan deal given its size and scale.
Speaker Change: His many contributions to our broader finance team have prepared him well to take on the role of treasurer, which frees up capacity for me to focus on our AAG business.
Speaker Change: I look forward to our continued partnership and making sure that Fox remains well positioned to drive growth and maximize shareholder value.
Dennis Schemm: Total consolidated net sales in the second quarter of fiscal 2024 were $348.5 million, and Gross Margin was primarily driven by shifts in our product line. We produced Operating Leverage on Lower Volumes Across the Three Segments at our North American facility. Adjusted operating expenses as a percentage of sales increased to 22.5% in the second quarter of 2024, compared to 17.7% in the same period last year. Tax benefit was primarily due to a decrease in pre-tax, Adjusted EBITDA was $44.1 million for the second quarter of fiscal 2024. The adjusted EBITDA margin was 12.7% in the second quarter of fiscal 2024 compared to 19.8% in the second quarter of fiscal 2023.
Speaker Change: Now, on to the results.
Speaker Change: Total consolidated net sales in the second quarter of fiscal 2024 were $348.5 million, a decrease of 13% versus sales of $400.7 million in the second quarter of fiscal 2023.
Speaker Change: We delivered in the second quarter and for the first half of the year in line with our expectations albeit at a lower year-over-year result due to the macro headwinds and temporary and unique challenges that exist within the various industries we serve.
Speaker Change: Our gross margin was 31.8% in the second quarter of fiscal 2024 compared to 32.9% in the same quarter last year.
Speaker Change: The decrease in gross margin was primarily driven by shifts in our product line mix and reduced operating leverage on lower volumes across the three segments, partially offset by increased efficiencies at our North American facilities.
Speaker Change: Adjusted gross margin, which excludes the effects of amortization of acquired inventory valuation markup, decreased to 31.9% in the second quarter of fiscal 2024 versus 34.4% in the prior year.
Speaker Change: Total operating expenses were $92.4 million, or 26.5% of net sales, in the second quarter of fiscal 2024, compared to $79.2 million, or 19.8% of net sales, in the same quarter last year.
Speaker Change: 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, partially offset by cost controls.
Speaker Change: Excluding these acquisitions are base organic operating expenses decreased year-over-year.
Speaker Change: Adjusted operating expenses as a percentage of sales increased to 22.5% in the second quarter of 2024, compared to 17.7% in the same period last year.
Speaker Change: The company's tax benefit was $0.4 million in the second quarter of fiscal 2024, compared to a tax expense of $8.1 million in the second quarter of 2023.
Speaker Change: Tax benefit was primarily due to a decrease in pre-tax income.
Speaker Change: Net income in the second quarter of fiscal 2024 was $5.4 million, or $0.13 per diluted share, compared to net income of $39.7 million, or $0.94 per diluted share, in the same quarter last year.
Speaker Change: An adjusted net income was $15.9 million or $0.38 per diluted share compared to $51.4 million or $1.21 per diluted share in the second quarter last year.
Speaker Change: Adjusted EBITDA was $44.1 million for the second quarter of fiscal 2024, compared to $79.4 million in the same quarter last year.
Speaker Change: Adjusted EBITDA margin was 12.7% in the second quarter of fiscal 2024 compared to 19.8% in the second quarter of fiscal 2023.
Dennis Schemm: The drivers of our adjusted EBITDA margin performance include shifts in our portfolio, cost increases associated with our facilities expansion, and support growth. Our balance sheet continues to be a source of strength for Fox and underpins our capital allocation strategy, driven by planned inventory builds to ensure sufficient inventory to meet anticipated demand, partially offset by our strong execution of continuous improvement efforts to optimize inventory levels across the organization, particularly within PVG. Our flexible cap structure gives us the ability to invest in growth through R&D, CapEx, sales, and marketing, and to allow us to pay down debt. Term Loan A-Balance was approximately $570 million net of loan.
Speaker Change: and cost increases associated with our facilities expansions to support growth.
Speaker Change: Partially offset by cost control measures and continuous improvement initiatives.
Speaker Change: Sequentially, we delivered a 60 basis point improvement in EBITDA margin to 12.7% on the strength of aftermarket sales in our cost control measures.
Speaker Change: Now moving to the balance sheet and cash flows.
Speaker Change: Our balance sheet continues to be a source of strength for Fox and underpins our capital allocation strategy.
Speaker Change: And the six months ended June 28, 2024. Inventory rose by 8.6 million or 2.3% compared to year-end 2023.
Speaker Change: driven by planned inventory builds to ensure sufficient inventory to meet anticipated demand, partially offset by our strong execution of continuous improvement efforts to optimize inventory levels across the organization, particularly within PBG.
Speaker Change: Our net leverage is 3.46 times as of quarter end and in line with our expectations.
Speaker Change: Our flexible cap structure gives us the ability to invest in growth through R&D, CapEx, sales and marketing, and to allow us to pay down debt.
Speaker Change: Our revolver balances of June 28, 2024 was $194 million versus $370 million as of December 29, 2023. Our term loan A balance was approximately $570 million net of loan fees.
Speaker Change: During the first six months of fiscal 2024, we drew $200 million on our delayed draw term loan and used those proceeds to pay down the revolver balance.
Speaker Change: We recently secured an improved covenant profile on our capital structure to provide us with more flexibility given the uncertain macro.
Speaker Change: Now I'd like to comment on guidance.
Speaker Change: While our year-to-date performance has been largely in line with our expectations, we must acknowledge the duration of the headwinds influencing the broader macro environment.
Dennis Schemm: We must acknowledge the duration of the headwinds influencing the broader macro environment. We now expect full-year sales to be in the range of $1.407 billion to $1.477 billion and continue to assume an income tax rate in the range of 15 to 18%. For the third quarter of 2024, we expect sales in the range of $355 million to $385 million and adjusted earnings per diluted share of $0.35 to $0.50, albeit at a more moderate pace than what was suggested in our prior four-year plan.
Speaker Change: As a result, we are revising our outlook for fiscal 2024.
Speaker Change: We now expect full-year sales to be in the range of $1.407 billion to $1.477 billion and adjusted earnings per diluted share in the range of $1.40 to $1.72.
Speaker Change: Our full year guidance continues to assume an income tax rate in the range of 15 to 18 percent.
Speaker Change: For the third quarter of 2024, we expect sales in the range of $355 million to $385 million and adjusted earnings per diluted share of $0.35 to $0.50.
Speaker Change: While this reflects impacts from the prevailing industry conditions, it still implies an expectation of a return to year-over-year growth beginning in the third quarter at the midpoint, albeit at a more moderate pace than what was suggested in our prior full-year plan.
Dennis Schemm: And we expect that year-over-year growth to continue into Q4 as well. There are several drivers underpinning the sequential growth in the second half of the year, including bike stabilization and our launch of new products into the entry premium bike market. Improving Chassis Mix and Availability in AAG and New Product Launches in the Aftermarket. With that, I'd like to turn the call back to Mike. Thanks, Dennis.
Speaker Change: And we expect that year-over-year growth to continue into Q4 as well.
Speaker Change: There are several drivers underpinning the sequential growth in the second half of the year, including bike stabilizing and our launch of new products into the entry premium bike market.
Speaker Change: Marucci's launch of the CAT X2 and growth from its diversified portfolio, improving chassis mix and availability in AAG, and new product launches in the aftermarket space.
Speaker Change: However, the impact of these positive factors has been tempered by the ongoing industry challenges and macroeconomic headwinds.
Speaker Change: With that, I'd like to turn the call back to Mike.
Michael Dennison: While we remain grounded in the realities of the current macroeconomic dynamics and the current challenges facing our large OEM, Yeah, Larry, this is Mike. So, from our perspective, SSG, which is combining both BIKE and Marucci, are both meeting plan and on plan for the balance of the year. So, they're intact with what we've got for the year so far. In terms of the takedown for the back half of the year, it is a function of AAG and PVG, and it's really around those large OEMs, especially in the automotive space, which are seeing such a significant impact caused by interest rates and quality issues, in some cases, and other challenges they have in their supply chain. So, that's a significant portion of that back half takedown.
Mike Dennison: Thanks Dennis. While we remain grounded in the realities of the current macro economic dynamics and the current challenges facing our large OEM customers.
Mike Dennison: I'd like to reiterate that we're entering the second half of the year very well positioned with leading market share in a product portfolio that is better than it's ever been.
Speaker Change: Our diversified business model, premium brand positioning, and commitment to innovation
Speaker Change: have us prepare to capitalize on improving market conditions and deliver value to our shareholders.
Speaker Change: I would like to thank the entire Fox team for their commitment to our company, our culture, and our customers.
Speaker Change: I would now like to open the call for questions. Operator?
Speaker Change: Thank you, Mr.
Speaker Change: 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, star 1, please, for questions. And we'll go first this afternoon to Larry Solow of CJS Securities.
Larry Solo: Good afternoon. Thanks.
Larry Solo: Lots to unwrap there. Can you maybe, I guess, to start us on just the revised outlook? It sounds like you're not revising SSG too much. Sounds like that seems pretty good. But you did throw out the term caution there too, but feels like most of that's coming from SSG, excuse me, PVG and AAG.
Michael Dennison: In terms of what we see going into 2025, you know, we're focused on driving product and product innovation, and we think that outweighs a lot of these headwinds, but not all. So, as we see sequential growth continuing in Q3 and Q4, it's a function of that, and we think that same scenario plays out in 2020. Underneath the demand, that is a big question.
Speaker Change: Ford and Toyota where these are premium products, usually limited edition demand isn't the problem when I talked about that in the path of these trucks are typically pre sold the vehicles are pre sold or or highly sought after that's not a demand problem. That's a quality issue and those supply chains continue to kind of be ahead.
Speaker Change: For both <unk> and.
Speaker Change: The Lantus and Jeep and Ram it's a different story in those cases, there is an inventory issue as inventory at the dealers, which is a function of both product and interest rate and thats, probably a harder challenge to solve than the quality issues you mentioned in the supply chain.
Speaker Change: So you can kind of breaking those two pieces and it's pretty clear for us where we land.
Speaker Change: Got you and if I can squeeze one more just on cost management.
Speaker Change: I guess, there's only so much you can do.
Speaker Change:
Speaker Change: So what what some on some of the initiatives and are you actually trying to manage head count or I know you expect growth to come back, but maybe not so fast as fast or do you start to manage head count as well.
Speaker Change: <unk>.
Speaker Change: It's a great question and my job as CFO is all about protecting margin given the lack of absorption that we're seeing in our plants.
Mike Dennison: Super proud of the team for the decisions that they're making right now to really curtail on cost and Mike Let me break it down for you in like three different buckets of where I'm seeing these cost actions because I think it's really important corporate opex is one and you can see this rate on our press release, we are down $3 $5 million in our court.
Speaker Change: Opex year over year year to date.
Speaker Change: Opex in general we are down year to date $15 million when excluding Meru Chi.
Michael Dennison: That is significant. That's over, you know, 11, almost 11% decline. And so it's really, really hard to keep your operating leverage when you're having revenue decreases that are much more significant than that.
Speaker Change: That is significant and that's over 11, almost 11% decline and so it's really really hard to keep your operating leverage when you're having revenue decreases that are much more significant than that but to take out that amount of cost very very significant and then I wanted to talk about some cogs.
Michael Dennison: But to take out that amount of cost, very, very significant. And then I wanted to talk about some COGS actions as well, because these are some things that we just took decisions on here recently. And one is in the AAG group. We decided to close our Colorado facility, and we saw that 50% increase in revenue. Great. I appreciate all the calls.
Speaker Change: Actions as well because these are some things that we just took decisions on here recently and one is in the a G group, we decided to close our Colorado facility.
Speaker Change: That is going to give us some basis point improvements in the future on year over year basis, and then also in AG. We also took an action on one of our manufacturing.
Speaker Change: Facilities and outside bands and so we did like a consolidation move there, which will also save Cogs dollars moving forward.
Speaker Change: But I think what I'm most excited about on the operating leverage standpoint is the following remember we have discussed with you guys about our ability to flex up that.
Speaker Change: Costs are going to lag revenue growth and you've got to look no further than bite to see that take shape here in the second quarter as they move from Q1 to Q2.
Speaker Change: We saw that 50% increase in revenue.
Speaker Change: But our Cogs AD was very very insignificant so our operating leverage there went from 25% to 17%.
Speaker Change: This is what gets me extremely excited and this was what Mike was talking about early days when we start to turn a corner and these businesses come out of the trough.
Mike Dennison: We are going to be well positioned to see.
Speaker Change: Great great leverage.
Speaker Change: Okay.
Speaker Change: Great I appreciate all the color. Thank you.
Speaker Change: Thank you and just a reminder, ladies and gentlemen, you do ask that you. Please limit yourself to one question and one follow up we'll go next now to Mike Swartz at Truest.
Operator: Thanks. Thank you. And just a reminder, ladies and gentlemen, we do ask that you please limit yourself to one question and one follow-up. We'll go next to Mike Swartz at True. I guess, what's the cadence of that launch, and was there any de-stocking at retail that needed to be done just with prior generation inventory before that hits the channel? Did that help? Strong double digits here for the full year. So I think last year they did right around 184.
Mike Swartz: Hey, guys good afternoon.
Mike Swartz: So I just wanted to follow up on the commentary I think you talked about.
Speaker Change: Sequential growth through the back half of the year and then kind of the expectation is that continues to.
Speaker Change: 2025, if we look at the guidance the implied revenue guidance for the fourth quarter, which I think brackets right around $400 million or so.
Speaker Change: That is the right baseline to use to say, we grow off of that quarter in quarter out through 2025.
Speaker Change: Yes, I mean, it's too early to guide 2025 today, but that's where we see our product and our product mix going in 2025 and keep in mind, we have a lot of things that are going to become tailwind very quickly for us in 2025 like our our license agreements with the MLP.
Speaker Change: We've got a lot of good tailwind starting beginning.
Mike Swartz: Beginning of the year that we think are going to be meaningful for us we can't predict the economy, and we don't want to try to predict that yet, but we can tell you that we have set up everything we can to see sequential growth off of that 400.
Mike Swartz: We're about to enter into Q1 and Q2 of next year.
Speaker Change: Okay, Great and I think on the first quarter call you kind of get you gave a little color around backlog and order books in the bike business.
Speaker Change: Do you have any updates on that as we're sitting here kind of almost midway through the third quarter, what we're seeing for third quarter and I guess, whether there's any visibility in the fourth quarter right now at all.
Speaker Change: We're seeing limited visibility into Q4 Q4. This early but Q3 is trending like we saw in Q2, where Q3 is above Q2 and looking strong. So it's pretty positive like I said in my comments to Larry.
Speaker Change: Our back half predictions and projections for both the bike business than our merger.
Speaker Change: As a online they are doing very very well.
Speaker Change: Okay, Great and then.
Speaker Change: Just final question within the merchant business, you've got the <unk>.
Speaker Change: <unk> two launch.
Speaker Change: I guess, what's the what's the cadence of that launch and was there any.
Speaker Change: Was there any destocking at retail that needs to be done just with prior generation inventory before that that hits the channel.
Speaker Change: No we didn't see any destocking required, but one of the things we're doing with our Wuxi Bezeq Laredo, we see product launches and product innovation as you know within Fox is we're more aggressive on that front, so you're going to see more product launches more.
Speaker Change: Quicker going forward with Laurentian Victor for your other brands and you've probably seen in the past. So we think it's important to continue to continuing to provide new products and new technology to the enthusiastic consumer base, though.
Speaker Change: That's why we're driving so hard.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you. We'll go next now to Alex Perry at Bank of America.
Alex Perry: Hi to sort of like modeling questions here.
Alex Perry: I guess, just first where does sort of embedded in the growth by segment and the guide or.
Alex Perry: As far as sequential recovery by segment and then what is the expected marucci contribution in the back half. Thanks.
Speaker Change: Yeah. So the way I would look at this is.
Speaker Change: Yes.
Speaker Change: When we're thinking about.
Mike: The second half, Mike talked about bike and Meru G basically being on track so really no changes there from the guide perspective on those two the real change in the back half is essentially PV G and AG and.
Speaker Change: Essentially the two of them combined are coming off around $100 million to $120 million.
Speaker Change: I think from a modeling perspective.
Speaker Change: Yes.
Speaker Change: <unk> been fairly say fair to say kind of flattish going forward like.
Speaker Change: For the full year PV G is right around that 120, Mark I think it's fine to be right around there for PV G and I would probably put a G. Similar to the first couple of quarters.
Speaker Change: Inflection in Q4.
Speaker Change: That's probably our main driver in Q4 as a G starts to flex up.
Speaker Change: Does that help.
Speaker Change: Great and then any commentary on <unk> and how we should be thinking of that in the back half.
Speaker Change: Well I mean Meru Chi is the growth story the entire year, we're looking at seeing strong double digits here for the full year. So I think last year. They did right right around 184.
Operator: And I think from a conservative standpoint, putting them around 200 million plus would be good modeling. Again, we're thinking that they're gonna be around 10% up year on year. Incredibly helpful. Best of luck going forward. Thanks, Alex. And again, ladies and gentlemen, we do ask that you please limit yourself to one question and one follow-up question. We'll go next to Jim Duffy.
Speaker Change: And I think from a conservative standpoint, putting them around $200 million.
Speaker Change: Plus would be good modeling again, we're thinking that they're going to be around 10% up year on year.
Speaker Change: Our current order book with launches, it's pretty exciting to see when you're in an economy that's deflating.
Speaker Change: Across most consumer discretionary goods Lawrence you will literally have a record quarter every quarter this year.
Lawrence: Incredibly helpful Best of luck going forward.
Lawrence: Thanks, Alex.
Speaker Change: And again, ladies and gentlemen, we do ask that you. Please limit yourself to one question and one follow up question well go next now to Jim Duffy with Stifel.
Jim Duffy: Hi, Thanks, good afternoon guys.
Jim Duffy: I wanted to zoom out and chosen.
Jim Duffy: I'm going to try to take a big picture view on on bikes and upgrading two of your higher margin businesses have also been two of the more volatile recently and I know you want to stay away from guiding to 2025, but I'm, hoping you can help us take a bottoms up approach trying to anchor those businesses to 2019 levels.
Speaker Change: Encouragingly the bike business in <unk> is back to the <unk> 19 run rate bikes.
Speaker Change: Bikes in the $300 million business in 19.
Speaker Change: If I understand it correctly since that time, you have pricing you've got the addition of E. Bikes. You also have capacity to expand into lower price spikes. When do you think about OEM units and content for bike.
Speaker Change: What should we be thinking about relative to that 300 million figure in 2019.
Speaker Change: Yes, you've got it right, Jim well said when we look at.
Speaker Change: 2025, as you said, we're not guiding towards 25, yet, but we believe that number gets back north of 400 and bike.
Speaker Change: And we think Thats, a very positive sign that that recovery has occurred in the industry and then it gets down to as you said product product mix innovation pricing power.
Speaker Change: Expanding our portfolio all of those things are helping us those are all tailwind for us this year, which is why we're kind of bucking the trends in bike as you can see in our results. We think that continues to be a tailwind for us in 2025 as we emerge out of this destocking scenario. So we think that that's our view of total path.
Speaker Change: Im going to represent just as a follow up question, but shift offsetting.
Speaker Change: Yes, I think with the Colorado facility out of the equation and you are probably between 10000 15000 units capacity can you help us like in 2019 before you acquired that business what type of vehicle volume was that business do that on an annual basis, maybe that's a good.
Speaker Change: <unk> indicator of kind of normalization of our baseline of the marketplace.
Speaker Change: I'd have to go back and pull the data on that Larry, but I'm going to give you a range. If it can be accurate I would say it was between $8 11.
Speaker Change: Pre kind of in that 2019 timeframe.
Speaker Change: So it was well here's the difference one of the things that we've been talking about relative to outfit vehicles as the increase in content and the average <unk> per vehicle from 2019 is significantly higher. So we think we can run a really strong business. When we put the right pieces together with Delek his support and leadership in that area.
Speaker Change: Even on a lower volume base in 2025 drive a significant improvement in revenue off of 2024, it really comes down to product content.
Speaker Change: And our relationships with our dealers.
Speaker Change: That makes good sense. Thank you Mike.
Operator: Thank you. We'll take our next question now from Scott Stember of Roth M.K. On the SSG side, the bike business, last quarter you talked about seeing some encouraging signs. And I think that's the real positive of this story, of our entry into the entry premium, is that in years like this, you're not growing TAMs, right? That total addressable market is probably E2, if not declining, and here we are, and we've been working on this since the day we started talking to the board.
Speaker Change: Thank you we'll take our next question now from Scott <unk> of Roth and Cam.
Speaker Change: Thank you we'll take our next question now from Scott's Denver of Ralph M can.
Speaker Change: Mr. <unk> your line is open.
Speaker Change: Sure.
Speaker Change: Hello can you hear me, we can yes, Scott here.
Speaker Change: Got it.
Speaker Change: Got it excellent.
Speaker Change: Question is on.
Speaker Change: On the SSG side business.
Speaker Change: Last quarter, you had talked about seeing some encouraging signs.
Speaker Change: For the 25 model your product that's going out I think you said mainly over in Europe, but what are you seeing here.
Speaker Change: In the U S. Maybe just give us an idea of the size or how big this launch will be versus the previous two or three years.
Speaker Change: Yes, I mean keep in mind when we launch products were launched at the OEM T cell product across all continents.
Speaker Change: These OEM launches cover both Europe and U S. Even European OEM sell bikes into the U S and we're seeing European customers in the consumer in Europe.
Speaker Change: Doing battery with the Destocking of that of that region. So thats been helpful. The UFC lagging, but it'll catch up and I think I think the U S will be strong by the time, we get to the end of this year going into totaled 25, but it still has work to do in terms of getting the inventory through the system and the final cleanup I think we're late stages.
Speaker Change: Around most of our product mix again, what the premium level of the product anyway, So thats benefiting us in both U S and Europe.
Speaker Change: It's going to it's going to be the balance if you were to get to get any hold up and we're going to see that in our numbers.
Speaker Change: And I think thats the real positive of the story of our entry into entry premium is that in.
Speaker Change: And in years like this youre not growing tamps right that total addressable market is probably.
Speaker Change: Equal to if not declining and here we are.
Speaker Change: Doing very very well on those entry premium segment launches and so we feel like must be taking share.
Speaker Change: And that would not surprise me because of our innovation track record and how we continue to invest in R&D and what the customers looking for.
Speaker Change: Got it and then last question on Meru Chi the major League baseball contract could you maybe just frame out.
Speaker Change: How big that could be.
Speaker Change: And it will be in the 25 and 26.
Speaker Change: Yes, it's a little bit early as we work with MLB it to <unk>.
Speaker Change: Think about <unk> 25 is probably a little bit and we will start putting financial numbers to it but just think about the number of doorways. The number of storefronts that we gain with all the MLB stadiums and $12 five as the exclusive partner and the ability to really represent a relationship with.
Speaker Change: The players, which we really couldnt do before.
Speaker Change: Now.
Speaker Change: As a partner with those players and launching new battlelines in using a customization capability and taking what we do on the MLB all way down a little bit a little league. So.
Speaker Change: We actually think this is a significant step up and a huge part of our ability to go double this business in the next three to five years. It will come from these partnerships like the MLB, so a little bit too early to call out numbers for 2025, but it's significant it was a really important.
Speaker Change: Part of this business relationship.
Speaker Change: And we've been working with them today, we started talking about AG.
Speaker Change: Got it that's all I have thank you.
Operator: Thank you. We'll go next now to Craig Kennison at Baird, you know, for the long term on our cost structure, and it's going to be about people. From my days at Danaher, something has always stuck with me, and that's been that the best team wins. I think we've got the best team in AAG and we have a great team in PVD, and I think we're going to put this together, and we're going to win. But those are going to be my focuses going in the first 30, 60 days.
Speaker Change: Thank you we'll go next now to Craig Kennison at Baird.
Craig Kennison: Yes. Good afternoon. Thanks, I think you've addressed most of my questions, but I wanted to make another run at the up fitting.
Craig Kennison: Business I mean in the past you would characterize that as an opportunity to grow with and grow the number of dealers, but also the number of trucks per dealer and I'm just wondering.
Craig Kennison: Dennis as you step into that role if he might re size that opportunity.
Dennis: For the long term.
Dennis: Yes, yes, thanks for the question and I Couldnt be more excited about getting involved with the AG team and in specific the PDD up fitting business, because we offer a fantastic product.
Speaker Change: And so when I'm going I'm going in wise I'd open, but there are four things that I'm really going to be paying attention to and that's going to be customer and making sure that we're meeting the customer on how he or she wants to buy we got to be showing up in a great way with the dealer.
Dennis: Product is going to be extremely important for us moving forward to and ensuring we have a product roadmap that looks.
Operator: Well around the corners here, so that as the market is changing we're changing with it.
Operator: And then costs going to be an emphasis this is why we've got to make sure that we have the right level of focus on our cost structure.
Operator: It's going to be about people.
Speaker Change: From my days at Danaher, something there's always stuck with me and Thats been at best team wins I think we got the best team in AG and with a great team in PV D and I think we're going to put this together and we're going to win.
Operator: But those are going to be my focus is get going in in the first 30 60 days.
Speaker Change: Could it be a situation where.
Speaker Change: Maybe a shrink to grow in other words, just partner with dealers that are anxious to carrier product and then.
Speaker Change: From there build the base is maybe rates and other economic pressures.
Speaker Change: I'll go away.
Operator: Yes.
Operator: I think we have some great relationships right now with our dealers I think it really is about execution.
Operator: And it's really making sure that we've got the product and then again, it's meeting the customer on how he or she wants to buy I think we need to do a better job there too, but again I've got to get in there and start working with the team I know the team has a lot of great ideas and we'll be reporting back out on this for sure.
Speaker Change: Next quarter.
Speaker Change: What we're seeing is the opportunities.
Operator: Yeah, and Craig, I just want to add on to that. I think we had to shrink. You're seeing that shrinkage now this year in getting the right chassis and the right dealer lineups, you know, settled, if you will. Once we've got that work done, getting the right product into the dealers will be the turning point to see growth in AG and PVD specifically.
Speaker Change: And Craig I'll, just I'll just add on to that I think we had to shrink and youre seeing that shrinkage now this year in getting the right chassis and the right dealer lineup.
Operator: Settled if you will.
Operator: Once we've got that worked on getting the right product and the dealers will will be the turning point to see growth in AGM pvt, specifically, so I think from that shrinkage. If you will has has occurred partially caused by just chassis mix than what we had available to sell and partially caused by having the right product to offer them.
Speaker Change: Dealers, yeah, when we think about Fox factory truck, we're adding new dealerships by adding that Halo vehicle in our lineup. So if we provide the right product. We will continue to increase dealerships or add dealerships going forward, but it's a combination of a lot of things that benefit as we go focus on.
Operator: And we will focus on to make sure that we've got the right the right dealers the right product.
Operator: And.
Speaker Change: The right the right focus on the market.
Operator: So I think some of that shrinkage, if you will, has occurred. Great, thank you. And gentlemen, it appears we have no further questions this afternoon. Mr. Dennison, I'll hand things back to you, sir. Thank you. I want to thank everyone for taking the time and their interest in Fox Factory, and we hope you guys have a good evening. And we'll talk soon.
Speaker Change: Great. Thank you.
Operator: Yes.
Operator: And gentlemen, it appears we have no further questions. This afternoon, Mr. Dennison I'll hand things back to you Sir for any closing comments.
Operator: Thank you I want to thank everyone for taking the time and your interest in Fox factoring. We hope you guys have a good evening rule, we'll talk soon.
Speaker Change: Thank you Mr. Jonathan again, ladies and gentlemen that will conclude today's conference call again. Thanks, so much for joining US everyone wish you all a great evening Goodbye.
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