Q4 2024 Fox Factory Holding Corp Earnings Call
Please stand by, your program will begin momentarily.
Good afternoon ladies and gentlemen and thank you for standing by. Welcome to the Fox Factory Holding Corp's fourth quarter and full year 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 that this conference is being recorded. I'd now like to turn the conference over to Toby Merchant, Chief Legal and Compliance Officer at Fox Factory Holding Corp. Sir, you may begin.
Thank you. Good afternoon and welcome to Fox Factory's fourth quarter and full year 2024 earnings conference call. I'm joined today by Mike Dennison, Chief Executive Officer, and Dennis Schemm, Chief Financial Officer and President of the Aftermarket Applications Group.
Mike 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.
Mike Dennison: and I'm going to talk about the results, performance or achievements to defer 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.
Dennis Schemm: Dennis Schemm, Toby Merchant, Toby Merchant, Toby Merchant, Toby Merchant, Toby Merchant,
Dennis Schemm: And with that, it is my pleasure to turn the call over to our CEO, Mike Dennison.
Mike Dennison: Thanks, Toby, and thanks, everyone, for joining today's call. In the fourth quarter, we delivered on our financial commitments with sales and adjusted earnings per share in line with our guidance.
Mike Dennison: We also demonstrated progress in our $25 million cost reduction initiative, and drove improvements in our working capital, resulting in $63 million of debt paydown during the fourth quarter.
Mike Dennison: While we experienced unevenness in demand across our OEM customers during the quarter, we remained focused on executing against the strategic initiatives we outlined last quarter, continuing to exert control where we can in a challenging market environment.
Mike Dennison: More importantly, we remain committed to our long-term success through our ongoing focus on product development initiatives, which are creating new customer engagements and opportunities.
Mike Dennison: And while delivering on our long-term strategy, we drove near-term actions to improve profitability. As an example, both AAG and PVG demonstrated sequential adjusted EBITDA margin improvement of 250 basis points and 310 basis points, respectively.
Mike Dennison: through Better Inventory Controls, Strategic Chassis Mix Management, and Facility and Resource Rationalization.
Mike Dennison: Our working capital improved by $55 million year over year as we balanced strategic priorities.
Mike Dennison: In AEG, working on chassis mix resulted in a $60 million improvement in prepaids, partially offset by additional necessary inventory ahead of the holiday season.
Mike Dennison: In SSG, year-end component sales drove an improvement in inventory and in PVG, stronger sales in our aftermarket business enabled further inventory optimization.
Mike Dennison: As you may recall from last quarter's earnings, we are taking action across four key initiatives.
Mike Dennison: 1. Simplifying and consolidating our footprint 2. Fixing or eliminating non-performing products in our portfolio 3. Improving working capital 4. Reducing overhead costs
Here's a quick update.
Mike Dennison: We completed the closure of our Colorado facility in the fourth quarter and initiated additional footprint consolidation in PVG and AAG operations driving benefits starting in the second quarter of 2025.
Mike Dennison: We recently traveled to Taiwan to work with our bike team as they consolidate and optimize our footprint on the island.
Mike Dennison: We've made progress on our cost optimization plan, having identified $25 million in savings across COGS and SG&A. We've executed on multiple initiatives across the organization, from footprint optimization and operational consolidation to strategic sourcing improvements.
Mike Dennison: Some of these actions are complete, with benefits beginning to materialize in our results, while others are in various stages of implementation.
Mike Dennison: The benefits from these collective actions will continue to build as we move through 2025, with full realization expected to be visible in 2026.
Mike Dennison: And the early success gives us confidence in our ability to identify and execute on additional opportunities as we advance our optimization initiatives.
Importantly, we're not just focused on cost reduction.
We're strategically repositioning our business to operate more efficiently.
Mike Dennison: As I have said in prior calls, we are focused on continuing to diversify across segments, products, markets, and geographies.
Mike Dennison: enabled by a world-class organization which has responded to volatile customer demand and industry secretality.
Mike Dennison: We believe these efforts put us on a path to restore our best-in-class EBITDA margin as market conditions normalize, while driving higher rates of free cash flow to improve our balance sheet.
Now turning to our segment performance.
Mike Dennison: In the Powered Vehicle Group, net sales were $116 million, slightly down from $118 million in the prior year per quarter, but up $6 million, or 5% sequentially, from the third quarter.
Adjusted EBITDA margin also improved sequentially by 310 basis points.
Mike Dennison: Revenue is largely in line with expectations as we continue to navigate challenging market conditions affecting both our power sports and automotive OEM partners.
Mike Dennison: In the automotive sector we continue to face headwinds from ongoing OEM production issues affecting forecast and timing of orders. While the premium truck category continues to show resilience, growth is more subdued as consumers remain conservative in purchasing behaviors.
Mike Dennison: In the power sports sector, conditions remain consistent with what we discussed last quarter. OEMs are aggressively managing production levels to address dealer inventory and sell-through.
Mike Dennison: This aligns with what we're seeing across the industry where OEMs are expecting flat to down low single-digit retail sales in 2025 with any potential recovery skewed toward the second half of the year.
Mike Dennison: What differentiates us from everyone else is that our product development teams continue to win new customers such as CFMoto and Buell in 2024.
Mike Dennison: And additional new OEM customers to our portfolio in 2025 include BMW, Ducati, and Triumph.
Mike Dennison: By expanding our focus to suspension for motorized two-wheel vehicles and completing the purchase of the assets of Marzocchi, we are delivering our products to new customers, thereby helping to offset declines in other areas of power sports.
Mike Dennison: The Fox brand remains the standard in performance, continuing to be sought after by enthusiasts who want to partner with a leader in on and off-road performance.
Mike Dennison: The enduring nature and value of our partnerships was recently highlighted in an article by Ford touting the value of our technology to their high-performance off-road truck segment.
Mike Dennison: This resilience reinforces a trend during this post-pandemic cycle where customers are choosing to service and upgrade their current vehicles when they're not in a position to make new vehicle purchases.
Mike Dennison: Looking ahead, while we expect continued market pressures in 2025, we're maintaining our focus on operational efficiency and cost management to protect margins.
Mike Dennison: We're also continuing to win new partnerships and expand our presence in the market as evidenced by our new products and OEM relationships.
Mike Dennison: In our aftermarket applications group, net sales were $112 million, down from $121 million in the prior year quarter, but up $12 million, or 11% sequentially.
Mike Dennison: adjusted even a margin was 12% a sequential improvement of 250 basis points as cost reduction actions were implemented.
Mike Dennison: This performance was in line with our expectations for the quarter and reflects the progress we're making on our operating initiatives.
Mike Dennison: This improvement reflects chassis inventory optimization completed in the third quarter and improving chassis mix from our OEM partners. In fact, we're seeing some of the best mix of chassis that we've received in years.
Mike Dennison: We remain cautiously optimistic about the pace of broader market recovery as our partners work through their delivery challenges and our dealers work through their higher inventory.
Mike Dennison: We're also working with our dealers to drive the appropriate vehicle mix that meet the needs of their end customers, rather than simply chasing volume.
Mike Dennison: We continue to strengthen our relationships with key partners, recently hosting OEM executive teams at our testing facility in Southern California. These engagements, along with our expanding partnership with RTR and our long-term relationship with Shelby, demonstrate the strength and opportunity in this business.
Mike Dennison: In our aftermarket components business, we are experiencing sustained growth in wheels and lift kits. In addition, we continue to make strides in optimizing strategic inventory of high-demand units to ensure availability when customers are ready to buy.
Mike Dennison: This was particularly evident during the holidays where our decision to increase select inventory levels enabled record sales in several product lines.
Mike Dennison: Additionally, we're expanding into new categories, including the launch of what we have termed the AgWagon.
Mike Dennison: The AgWagon represents an exciting expansion into a new market, offering performance-built vehicles designed for farmers, ranchers, and anyone else who uses their vehicle to not only get to work, but to do their work.
Mike Dennison: Available across all major super-duty and heavy-duty truck platforms, this product combines rugged performance with practical features tailored for the unique demands of these customers.
Mike Dennison: We also launched a suspension package with Grand Design RV for vehicles based on a Ford chassis. This product recently debuted at the Tampa RV Show and showcased a better driving experience using adjustable suspension settings, from highway cruising to off-road exploration.
Mike Dennison: This system includes remote reservoir FOX shocks at each corner, as well as BDS control and custom radius arms, delivering unprecedented performance.
Mike Dennison: Looking ahead, our optimized inventory position, strengthening dealer relationships, and operational improvements provide a solid foundation for long-term growth.
Mike Dennison: and combined with our expanded product portfolio and successful facility consolidation efforts, we believe we are well positioned to capture opportunities as market conditions normalize.
Mike Dennison: In SSG, net sales were $125 million compared to $93 million last year, primarily reflecting a $41.5 million increase from a full quarter of Marucci and a $6.7 million increase in the bike category, consistent with our expectations.
Mike Dennison: Adjusted EBITDA margin of 22.4% was down sequentially by 190 basis points due to inventory optimization efforts in the fourth quarter, as well as incremental investments were making at Marucci.
ahead of the upcoming MLB baseball season.
Mike Dennison: As with the previous quarter, we're seeing varied recovery rates in our bike business, across different geographies, channels, and customers.
with this uneven pattern likely to continue through 2025.
Mike Dennison: Similar to the chassis inventory optimization work we completed in AAG in the third quarter, we took action in our bike business to better align inventory with current demand levels.
Mike Dennison: While the inventory rebalancing significantly impacted our SSG segment margins in the fourth quarter, our working capital will benefit from a healthier inventory position and better alignment between production and demand as we enter 2025.
Mike Dennison: Additionally, the consolidation of our Taiwan operations that I mentioned earlier, combined with strategic sourcing projects and cost-saving opportunities, will provide additional levers for margin improvement beginning this quarter and gaining strength as we move forward.
Mike Dennison: Our expansion into the entry premium bike segment continues to progress, with growing strength among our top OEM customers helping to offset softness with smaller OEMs.
Mike Dennison: While the European market demonstrated strength in early 2024, a reluctance to end the year with inventory weighed on purchasing habits in Q4.
Mike Dennison: Throughout the last year, we have implemented enhanced forecasting and planning processes with our strategic OEM partners to ensure better alignment between our production capabilities and their demand patterns.
which continues to improve our visibility.
Mike Dennison: In product development, we have been hard at work developing several new products we will announce and launch in 2025.
Mike Dennison: Some of these, we believe, are going to revolutionize the way people think about suspension in bikes.
Mike Dennison: We are excited to get these products out on the trails and in our enthusiast's hands.
Mike Dennison: In our Marucci business, we're excited to have officially begun our role as MLB's official bat partner as of January 1st.
Mike Dennison: We have expanded our BAT manufacturing capacity, as well as designed new products to drive incremental sales and reinforce our market-leading position in the MLB with Meruchi Invictus.
Mike Dennison: Incidentally, both of these brands had record market share in the MLB for 2024.
Mike Dennison: Additionally, we have made growth investments in our softball business to further capitalize on the fastest growing team sport in America.
Mike Dennison: We have aligned and coordinated our Fox and Marucci engineers to accelerate new product advancements that we can drive additional growth.
Mike Dennison: These near-term investments weighed on our Q4 margins as we focused on long-term success.
Mike Dennison: We look forward to sharing more details about several of these exciting initiatives in the coming months as we ramp up for the 2025 MLB season.
Mike Dennison: In closing, I'll share some high-level comments on our Outlook, which Dennis will review in more detail.
Mike Dennison: Based on our recent performance, our current order book, and latest forecasts from OEM partners across all segments, the framework for 2025 remains in line with what we shared in our third quarter update.
Mike Dennison: While we see several opportunities for year-over-year growth, our base case expectation is for the OEM customer environment to remain challenged.
Mike Dennison: I'd emphasize that amid the tempered industry growth expectations for 2025, we are committed to driving margin improvement and enhanced free cash flow generation through our comprehensive cost optimization and operational excellence initiatives.
which are already yielding results.
And finally...
Mike Dennison: With the new administration, multiple changes have begun to surface in regulatory policy as well, including tariffs.
Mike Dennison: Our teams have spent considerable time analyzing these potential and planned tariffs. As you can imagine, it's a complex and fluid environment.
Mike Dennison: Our current manufacturing footprint is well positioned relative to these policy shifts, with no significant presence in Mexico, Canada, or China, with the exception of some of our wheels and all of our aluminum baseball bats, which are manufactured in China.
Mike Dennison: In both of these categories, we are executing plans to mitigate the potential impacts through cost reductions and pricing adjustments.
Mike Dennison: Our bike business operates out of Taiwan and therefore the majority of aluminum tariffs would be felt by our customers as they import our products or completed bikes into the U.S.
Mike Dennison: The impact to the U.S. bike industry is yet to be fully understood by our OEM customers.
Mike Dennison: As you know, the core of our powered vehicle manufacturing resides here in the U.S.
Mike Dennison: Although we use aluminum and steel in our products, much of the supply chain originates in the U.S. with no impact.
Mike Dennison: For the portion of our supply chain which is imported, our customer agreements have passed through provisions related to the specific indexes on materials for scenarios such as this.
Mike Dennison: However, while Fox is not disadvantaged relative to our competitors, we share our customers concerns as many of these OEMs face meaningful direct exposure across their global manufacturing footprints.
Mike Dennison: This added complexity during a period of right-sizing production and ongoing macro challenges may create additional inflationary pressure for consumers and present another headwind for the industry to overcome as it works through this cycle.
Mike Dennison: We plan to provide a more comprehensive update during our next earnings call.
And with that, I'll turn the call over to Dennis.
Dennis Schemm: Thanks, Mike, and good afternoon, everyone. I'll begin by discussing our fourth quarter financial results.
Dennis Schemm: Briefly summarize our full year results and then move to our discussion on the balance sheet, cash flow, and capital allocation strategy before concluding with a review of our guidance.
Dennis Schemm: Total consolidated net sales in the fourth quarter of fiscal 2024 were $352.8 million, an increase of 6.1% versus sales of $332.5 million in the same quarter last year, primarily reflecting the impact of the Marucci acquisition and year-over-year growth in our bike business.
Dennis Schemm: We realized growth in AAG and, to a lesser extent, in PVG, which helped to offset the anticipated step-down in our SSG business this quarter due to the timing of OE order patterns, which is typical for this time of year.
Dennis Schemm: Our gross margin increased 120 basis points to 28.9% in the fourth quarter of fiscal 2024, compared to 27.7% in the same quarter last year.
Dennis Schemm: The increase primarily reflects margin benefits from the absence of acquisition-related inventory costs for Marucci that impacted the prior year period following the closing of this transaction in November of 2023.
Dennis Schemm: Our adjusted gross margin increased 20 basis points to 29.2% versus the prior year quarter.
Mike Dennison: Sequentially, our gross margin is down 100 basis points, primarily because of our strategic growth investments in Marucci and bike inventory actions that Mike commented on earlier.
Mike Dennison: The increase in operating expenses was attributed primarily to the inclusion of $18.7 million of operating expenses from our Marucci acquisition.
Mike Dennison: Net loss in the fourth quarter of fiscal 2024 was 0.1 million, or zero per diluted share, compared to net income of 4.1 million, or 10 cents per diluted share, in the same quarter last year.
Mike Dennison: An adjusted net income was $12.8 million, or $0.31 per diluted share, compared to $20.3 million, or $0.48 per diluted share, in the fourth quarter last year.
Mike Dennison: Net loss is primarily driven by the increase in interest expense.
Mike Dennison: Adjusted EBITDA increased to $40.4 million for the fourth quarter of fiscal 2024, compared to $38.8 million in the same quarter last year.
Mike Dennison: Adjusted EBITDA margin was 11.5% in the fourth quarter of fiscal 2024 compared to 11.7% in the fourth quarter of fiscal 2023.
Mike Dennison: The decrease in our adjusted EBITDA margin continues to reflect 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 the inventory optimization actions we took in bike, partially offset by control measures.
Mike Dennison: Continuous Improvement Initiatives, and the results of the inventory optimization work we completed in AAG.
Mike Dennison: Sequentially, adjusted EBITDA margin of 11.5% was down slightly given the decisive inventory actions we executed in bike.
Mike Dennison: Partially offset by improvements in adjusted EBITDA margin in both AAG and PBG, where cost improvement actions are being executed.
Mike Dennison: Now I'll briefly touch on our full year results for fiscal 2024.
Mike Dennison: Net sales for the year were 1.39 billion compared to net sales of 1.46 billion in the prior year.
This decrease reflects a 23.5% contraction in AAG net sales.
Mike Dennison: and a 12% decrease in PBG net sales, partially offset by a 31.3% increase in net sales for our SSG segment, which reflects the inclusion of Marucci.
Mike Dennison: Net income for fiscal 2024 was $6.6 million or $0.16 per diluted share. This compares to net income for fiscal 2023 of $120.8 million or $2.85 per diluted share.
Mike Dennison: Adjusted net income for the fiscal 2024 year was $55.4 million or $1.33 of adjusted earnings per diluted share.
Mike Dennison: which compares to $167.5 of adjusted net income or $3.95 of adjusted earnings per diluted share in the fiscal year 2023.
Mike Dennison: Lastly, adjusted EBITDA was $167 million for the full year 2024, compared to $261 million in the prior year.
Moving to the balance sheet and cash flows.
Mike Dennison: Our focus on the balance sheet resulted in a $55 million dollar improvement in working capital, driven primarily by AAG, where our decisive chassis inventory optimization actions, taken in Q3, resulted in a $62 million dollar improvement in prepaids.
Mike Dennison: and in PBG, where we decreased inventory by $17 million through improved ordering controls in the fourth quarter.
Mike Dennison: In SSG, bike inventory increased slightly, offset by action on end-of-year inventory that it converted into finished goods for sale into the aftermarket.
Mike Dennison: In the full year ended January 3rd, 2025, inventory rose by 32.9 million, or 8.8%, compared to year-end 2023.
Mike Dennison: Driven by the imbalance in expected versus fulfilled orders and because of planned seasonal inventory builds primarily in AAG to ensure high-moving stocking units were available during the holidays.
Mike Dennison: I'd like to stress that working capital will continue to be an area of focus for us as we navigate through these turbulent times.
Mike Dennison: Our revolver balance as of January 3rd, 2025 was $153 million versus $370 million as of December 29th, 2023.
Mike Dennison: Our term loan balance was approximately $552 million in net of loan fees.
Mike Dennison: During the third quarter, we implemented a 400 million interest rate swap, improving predictability, and together with the 100 million existing swap,
Mike Dennison: Saving approximately $1.8 million in interest expense for the fourth quarter. And we paid down $63 million in debt.
Mike Dennison: We will continue to prioritize R&D and sales and marketing, but to be very clear, debt pay down remains the number one priority for capital allocation.
Now moving to our Outlook for 2025.
Mike Dennison: For the fiscal year 2025, the company expects net sales in the range of $1.385 billion to $1.485 billion, adjusted earnings per diluted share in the range of $1.60 to $2.60,
Mike Dennison: and a full year adjusted tax rate in the range of 15% to 18%.
Mike Dennison: Underpinning our full-year guidance are several key assumptions including continued growth in AAG as we move past specific OE concerns such as quality issues and disruption from model year changeovers.
Mike Dennison: Continued momentum in Maroochee benefiting from our new Major League Baseball partnership taking effect in our upcoming schedule of exciting new bat launches both in softball and in baseball.
Mike Dennison: A gradually stabilizing environment in PVG and bike, with performance consistent with 2024 levels in terms of absolute dollars.
Mike Dennison: The cost reduction is being conducted across the entire company, where we have identified approximately 15-20% of the savings coming from expense reductions and the remainder in cost of goods.
Mike Dennison: Roughly 10% is coming from corporate, with the remainder coming ratably across the three segments.
Mike Dennison: In addition, we expect 30-35% of the savings to impact our first half earnings and the remainder coming in the second half.
Mike Dennison: Shifting to the first quarter of fiscal 2025, the company expects net sales in the range of $320 million to $350 million, and adjusted earnings per diluted share in the range of $0.12 to $0.32.
To be clear, our guidance excludes the impacts of tariffs.
Mike Dennison: Importantly, while we remain in a cautious near-term outlook given the current demand environment, we continue to invest in strategic growth initiatives that position us to capture opportunities as market conditions normalize.
Mike, back to you for closing remarks.
Mike Dennison: Thanks Dennis. In closing, we enter 2025 poised with a clear focus on operational excellence and strategic positioning across our segments.
Mike Dennison: While near-term market conditions remain challenging, we believe the decisive actions we've taken to optimize our operations and strengthen our foundation will strengthen our business.
Mike Dennison: Our comprehensive cost reduction program, combined with our enhanced inventory management and strengthened partnerships with OEM customers and dealers, positions us well to drive margin improvement even in a tempered growth environment.
Mike Dennison: The diversity of our portfolio, from our expanding presence in agriculture and motorsports markets, to our new role as MLB's official VAT partner.
Mike Dennison: demonstrates our ability to find opportunities for strategic growth while maintaining our commitment to developing premium performance enhancing products.
Mike Dennison: As we look ahead, we remain focused on what we can control. Operational efficiency, innovation, and strategic growth initiatives that will drive long-term value for our shareholders.
With that, Operator, please open the call for questions.
Mike Dennison: At this time, if you'd like to ask a question, please press the star and one keys on your telephone keypad. Keep in mind, you may remove yourself from the question queue at any time by pressing star and two.
Mike Dennison: In the interest of time, we ask that you limit yourself to one question and one follow-up.
Speaker Change: We'll take our first question from Jim Duffy with Stiefel. Please go ahead, your line is open.
Jim Duffy: Oh, thank you. Good afternoon. It's good to hear from you guys. Feels like it's been a while.
Jim Duffy: I wanted to start just by asking about the Taiwan Facilities Consolidation, where capacity sits relative to pre-COVID levels after the adjustments you've made, the expectations, and where capacity sits relative to the expectations for normalization of that business. Can you give us a little more flavor there, please?
Sure
Mike Dennison: Jim, the capacity is about in line with pre-COVID, but keep in mind, that's from a footprint perspective. From an efficiency and lean perspective, we've increased our capacity even within that same footprint. So we've got room to run for this year in Taiwan relative to what we expect that business to do. As we think about long-term capacity expansion,
Speaker Change: Think about that probably not on the island. Think about that in probably Southeast Asia, Thailand, Vietnam, etc. So we're really solidifying kind of the footprint we need in Taiwan and our future growth projections would take us probably off the island.
Dennis Schemm: Okay, thank you. And then one more if I may, Dennis, just can you give us an update on the upfitting business, the dealership dialogue, and what you're thinking about for expectation of number of dealerships as you look across 2025?
There's your opportunity. Go ahead.
Dennis Schemm: Yeah, thanks for that question. There is a lot of hard work going on right now across that PBD team. We've done a
Dennis Schemm: A recent meeting that we had in Baton Rouge with our sales managers and we invited dealers there as well, getting a lot of feedback from them.
Dennis Schemm: and I can tell you that they were really appreciative of taking the move that we did on reducing some of the older chassis out there, getting our inventory well repositioned. At the same time, we are cultivating really strong relationships.
Dennis Schemm: and cultivating innovation with them to make sure that we're delivering the right products to the customers.
Dennis Schemm: So we are in full realization that in order to continue to grow, we've got to grow our dealers as well, and we're doing a great job of diversifying those dealers across the US.
Thank you.
Dennis Schemm: We'll take our next question from Mike Schwartz with Truist. Please go ahead, your line is open.
Mike Schwartz: Hey guys, good morning, or sorry, good afternoon. First question, just on the bike business, I think in...
Speaker Change: Your commentary suggested your flat revenue year-over-year in that business for 25
Speaker Change: Maybe help us understand the puts and takes there I guess I had assumed given the lack of you know a new model year product last year that would create somewhat of a Tailwind on the year-over-year basis this year, but it sounds like you're also bringing inventory in line So just help us understand you know the again the puts and takes there
Speaker Change: We think there could be upside in the bike business this year, but keep in mind We've had a couple of years of really challenged forecasting in that business, so we're being pretty conservative Mike right now
Speaker Change: You know, from what we see in Q4, what we've seen so far in Q1, are pretty positive signals. We think inventory is better in control, that's a great sign. We think our product launches and our product diversification in that space is good.
Speaker Change: So right now, we're going to be conservative and just kind of wait and see how the cards fall relative to the OEMs. Obviously, there's a lot of noise out there in the system that we want to understand. But, you know, we believe, you know, obviously we believe we hit the base in 2024. We hit kind of the ground in that business.
Speaker Change: And, you know, with our new product launches, we think there's some upside. So, we'll wait and see that actually materialize, but we feel pretty good about it.
Okay, that's helpful.
Speaker Change: Maybe just switching over to Marucci, the new MLB partnership. Is there any way to frame what that actually means just in terms of size and maybe timing of when that would impact you?
Speaker Change: Well, timing's easier because timing, you know, the Major League Baseball season really, you know, kicks off at the end of this quarter and into Q2 where it really grows and then into, you know, the summer and finally October. So, you know, we see a lot of the growth coming in kind of Q2, Q3 relative to that relationship, but there's a lot of hard work being done now to get prepared for that. Obviously, capacity planning, things like that. In terms of putting a number to it, I think we're a little premature for that. We don't want to get ahead of our skis. We're really changing the way MLB thinks about that partnership.
Speaker Change: It's positive signs, let me tell you, but I think there's a lot of work to do. So before we really start to put a number to it, let us actually grow into that relationship and deliver bats and get it going and then we'll come back to you with what that means in an upside.
Understood, thanks Mike.
Speaker Change: We'll take our next question from Anna Glaskin with B Riley. Please go ahead, your line is open.
Anna Glaskin: I'd like to start on the auto business, particularly on the OEM side, you know, clearly understanding that the tariff situation is fairly fluid, but would love if you could expand on, you know, how your conversations with key partners are going in light of any planned.
Anna Glaskin: or how they plan to adjust potential production in the face of escalating tariffs and how you guys are contemplating this within your go forward plan.
Anna Glaskin: Yeah, you know, the interesting thing, and you've heard all the reports come out from the different OEMs, but the interesting thing about our business, Anna, that you have to remember is that when we're talking to Ford, we're talking to a very select set of... On PVG OEM, we're talking to a very select set of chassis, mainly produced in the U.S., that are their high-end premium product.
Anna Glaskin: So Ford has a lot of things to contemplate and think about relative to tariffs, but relative to the space we play, a little bit less affected.
Anna Glaskin: And we think that that product set has a bit more resilience to these tariff issues than maybe the rest of Ford. So we feel pretty good about that. You know, when it comes to Toyota, when it comes to,
you know, Stellantis, our other two big partners.
Anna Glaskin: Stellantis was significantly down in 24 relative to dealer inventory and some of the challenges they had. So we're already seeing an upside on Stellantis over 24. I don't expect that the tariff issue is going to change dramatically what we have in the current forecast because it's in line with what we did in 24 and like I said we were seeing some upside.
Anna Glaskin: So, a little too early to tell you, you know, we need to hear more from Stellantis and what they think about that relative to the Mojave product and even the G product.
Anna Glaskin: And then Toyota, we're on their higher end vehicles, you know, we're on their TRD Pro class vehicles. So, again, being in the premium space helps us in automotive. I don't want to sit here and tell you that there isn't going to be a lot of...
teeth-gnashing and challenging conversations around
Anna Glaskin: consumer demand relative to what could be a very inflationary event. So I think that's what we need to think about is what's the inflationary impact to a consumer and their willingness to buy these vehicles. Relative to our product
Anna Glaskin: How we price it etc. We've got that indexing in our pricing model with these OEMs
Anna Glaskin: So, it doesn't have a direct implication necessarily to what we sell to them, it has an implication to what it means in the end side, relative to end customers. Again, Ford and our products, more protected, less protected in Solantis.
TRD Pro probably more protected as well.
Does that help?
Anna Glaskin: Great, yeah, thanks Mike, that was super helpful. Turning to Marucci, you guys commented on continued momentum, I believe is how you put it, for 2025. I believe when they were acquired, you know, we thought about growth in the low double-digit range. Is that still the right...
a way to benchmark that business.
Anna Glaskin: That is, and you're thinking about it right. You know, when you look back at 24, and you'll do the math, you know, we had three record quarters out of four with Marucci. They had a record year.
Anna Glaskin: A lot to celebrate, a lot of really good learning by the way, learning in some mistakes that were made in 24 that we learned from.
Anna Glaskin: When I look back, I like to think that, you know, it didn't quite hit the number I had expected for it in 24, but again, three record quarters out of four isn't too bad in the market that we all had in 24.
Anna Glaskin: In 25, I think it's a double-digit growth business. I think the MLB helps that even further. And the set of products that we're coming out with in softball.
Anna Glaskin: and some of these other spaces are really, really good. So I'm pretty excited. I'm very bullish. Marushi's one of our growers this year for sure, even in light of kind of the macro dysfunction.
Great, thanks guys.
Speaker Change: We'll take our next question from Larry Sallow with CJS Securities. Please go ahead, your line is open.
Great, thanks and good afternoon guys.
Speaker Change: Just from a high level summary, so it looks like the guidance, sales guidance,
Speaker Change: All flat, mid-single digits, I think, minus 1 to 7 percent. So, sort of low and mid-single digits, that 3 percent growth number. So, it sounds like you're getting a little growth out of Marucci, a lot of growth, but it's a relatively smaller piece. And then, the sort of rest of that will be mostly in AAG.
Speaker Change: Is that kind of a good broad brush of just, you know, what to look for when it's a little more back-end loaded?
Speaker Change: Yeah, Larry, the way I think about it, it's flatter than it was in the guide last year in terms of quarter-to-quarter. It's really a function of, by the way, product launch is not macro improvement. So we think about in 2025's view.
Speaker Change: when do our products launch, when do they come out, which quarter they come out in, you know, what's the implication of that. That's more the driver. We don't have any any goodness baked in relative to a macro, so no upside from that. When you think about the businesses, think about AAG and Marucci as up in 2025.
Speaker Change: Slightly down and then bike, you know, as I said to Mike earlier, I think bike is is pretty flat We could see some upside from bike That would be one of the ones that you we'd call out and future earnings calls is probably helping us in the year
Speaker Change: Just because it's coming from such a low base, but for now, we're going to call, you know, bike and PBG fairly flat and the other two up.
Speaker Change: Got it. Okay. And just on bikes, just I typed in a little bit more. I know 24 was a much better year, good recovery, and I think it was led by initially some of the smaller, more nimble OEMs.
Speaker Change: What, you know, the slower down, I mean, again, we're not, hopefully not going contrived and going backwards, but sounds like there's still some inventory in the channels. Is there any, like, particular, you know, more stress areas?
Speaker Change: coming out of there. I think you had mentioned Europe got a little slower too as an end market, I guess last year there was some rain. But, you know, anything on that? Is it e-bikes driving any of this sort of still unevenness in the channel?
Speaker Change: Yeah, e-bikes are actually a little softer than we expected, especially in the lower-end e-bikes where we really don't play as much, but e-bikes as a segment in that industry are a little bit soft right now. You know, the thing that we're seeing is that
Speaker Change: The bike dealers, distributors, and OEMs are all very resistant to inventory positions. So whereas they would have inventoried more coming out of...
24.
Speaker Change: They have not, which is actually, in a weird way, kind of affected our Q4 numbers a little bit, but it's a good thing. So, even though it might look on paper like it's bad, Larry, we actually appreciate it. We'd rather have them run much thinner inventory levels.
Speaker Change: and be much more reactive to market demand signals than building a big inventory pile. So.
Speaker Change: I think in general the bike industry is significantly healthier coming out of 24 than coming out of 23. That's pretty easy to say and I think you know there's going to be a good build this year as new products really start to get launched. Remember
Speaker Change: The industry really hasn't seen a lot of new product in the last several years because people were trying to burn through inventory That could have been two three years old. So
Speaker Change: This is the first chance to bring some real fresh, new, innovative product to the market. So we're pretty excited about that. Again, we're not baking in growth because we think that could be offset by macro.
But that's the upside.
Speaker Change: And I guess the one macro, maybe not a macro benefit, but a little bit of a, at least your end market benefit within AAG too is the chastity mix improvement, I think you said it's the best it's been in quite some time, so hopefully at least you'll have product to sell, hopefully there's still some demand there.
Speaker Change: Well, that's just it. Chassis mix is making sure we have the chassis that have demand and you know what's interesting about the AEG business and Dennis can speak to it better than I can in a later time, but you know in AEG
Dennis Schemm: We're finding OEMs really approaching us for really creative new product development programs where we're actually working hand-in-hand with them versus more historically we would do it on our own. You know, the Fox factory truck was completely the innovation of Fox.
Dennis Schemm: Now what we're seeing is OEMs really looking for new, fresh product to put on their dealer lots and coming to us to partner with them up front in that vehicle development roadmap.
Dennis Schemm: That's a big change. I mean, it doesn't sound like a lot when I say it, but that's actually a big change in how OEMs think about Fox, and we're pretty excited by that, because that means they're going to help us market, that means they're going to help us, you know, develop and deliver these trucks, versus doing it on our own.
That's that's a good change
Dennis Schemm: Just last week, we just hosted a few of our OEM partners and strategic partners out in Ocotillo. It's one of our proving grounds.
Speaker Change: differentiated we are. So Mike is right, it's that we were able to bring to light all that Fox is able to offer OEs and strategic partners.
Speaker Change: And we'll take our next question from Alex Perry with Bank of America. Please go ahead. Your line is open.
Alex Perry: You know, sort of the range of outcomes and guidance seems pretty wide this year.
Alex Perry: EPS Guide sort of straddles like a dollar, you know, bottom to top. Can you talk about, you know, what's sort of informing that? What would need to go right to hit the high end of the range? And similarly, you know, on the bottom end of the range, what does that sort of assume? Thanks.
Speaker Change: Yeah, I think Mike has done a great job just lining out, you know, the expectations there. Really, in our opinion,
Speaker Change: license and partnership there. That's going to help us in the back half of the year. You know the work that we've done getting those chassis in place and in our dealership expansion efforts in AAG is going to help us as well in the second half combined with the product innovation roadmap and the launches that we have planned really beginning now.
Speaker Change: are going to really start paving the way in the second half.
Speaker Change: for stronger growth. And so, really, to get to that high end, you know, it's really seeing really strong execution, delivery, and acceptance.
of that product roadmap.
Speaker Change: So, we're just trying to be as realistic as we can, taking into consideration the macro.
Alex Perry: and these high interest rates still that are weighing us down. Yeah, Alex, I'd just add to that. I think that's right, Dennis. I'd add to that. The high end of that EPS range is a function of what we have in control relative to cost management in the business. So our ability to take out the $25 million.
Alex Perry: gets us to that high end of the EPS range. That is, you know, those are the things that we have to do internally while we're doing product development, which Dennis, I think, described very well.
Alex Perry: We have to take care of what's in our backyard, and that is our own costs, our own systems, our own footprint. And if we deliver on those things, which we are well in line to do, we will be at the higher end of that range. So keep us on task with that as we go through the year.
Speaker Change: You know any help on a little bit more for the color on on tariffs so understanding it's sort of not in the guide, but
Speaker Change: Sounds like maybe the aluminum bats coming from China is maybe the most direct impact like any help in sort of sizing That is that a you know, relatively small part of the business Sending more color there would be helpful. Thanks
Speaker Change: and and resourcing or vertically integrating where we can. That's kind of what we can control and I think we feel pretty good about that piece. That's within the domain of these four walls.
Speaker Change: As we start to get out of that and we start to think about things like aluminum bats, which we source out of China, there are things that we can do in cost negotiations with that manufacturer and with, you know, pricing elasticity in the market.
Speaker Change: and even around the design of those BATs. So there's some things that we can do. Maybe not as, there's more of a lag time in some of those activities, but there's things that we can do there. We can also do some sourcing changes relative to that business, but it's a longer term process.
The thing that probably makes us the most nervous.
Speaker Change: is really what this does to the economy, what this does to the end consumer, and what it does to our largest OEM customers.
Speaker Change: That is really hard for us to contemplate or to quantify for you. And we don't want to stand here and tell you we've got that under control because it's not ours to control.
Speaker Change: We've offered help in a couple of our OEMs that could use our help relative to manufacturing footprint, where we could step in and help them in finished goods assembly.
Speaker Change: So, we're trying to do what we can to help them, but they, I think, are trying to build their own structure, their own ability to go defend and attack that issue, and as they develop those plans, we'll be there to help them out.
Scott Stember: We'll take our next question from Scott Stember with Roth MKM. Please go ahead your line is open. Good evening guys.
Hey Scott
Scott Stember: maybe you could just dial in a little closer to PBG and AAG on the
Speaker Change: the automotive side, the truck upfitting side. I heard a comment in there about even on the higher end, it sounds like demand could be waning a little bit. Just trying to get a sense of what the...
you know, where things are right now.
Speaker Change: Yeah, on the high end, so let's talk PVG first, on the high end of our vehicle where we're supplying shocks into the high end products that Ford sells or Toyota sells.
Speaker Change: When it comes to actually end user demand, that's remained intact. You know, it fluctuates a little bit up and down, but for the most part, you know, that was a growth business for us in 24. So, for the most part...
Speaker Change: Ford specifically was a growth business for us, so that is positive. I don't see that changing that dramatically as we look into 2025.
Speaker Change: But I think other areas of those of those of the automotive business, you know can be a bit softer We're seeing Stellantis actually rebound a bit in 25 or early days of 25 Versus what happened in 24. So that was really more of just
Speaker Change: Cleaning up inventory issues at the dealer level. So again, we're not really calling out growth in a business like our Stellantis relationship For 25, we're assuming it's flat Potentially some upside there is as again with that inventory getting
Speaker Change: mitigated. And then on AEG, really you know it's such a mixed bag because in 24 we had chassis delivery issues relative to quality at the at the OEM level so we were missing chassis we needed. What we found
Speaker Change: When we get the appropriate chassis and do the appropriate upfit, whether it's a Shelby or a Fox Factory truck or a Harley-Davidson truck, these really iconic, enthusiast-driven brands, we're fine.
Speaker Change: When we get down into products that are not as iconic or kind of middle market, it's more of a challenge. And, you know, I'd add to that in...
in the dealer world of selling trucks.
Speaker Change: Interest rates matter no matter what and we have found that in the last couple of years that as interest rates have climbed or stayed high
you know, that has a headwind to truck sales.
Speaker Change: We're hoping, probably not so much in 2025, but as we look forward in 2026 and 2027 that that interest rate environment starts to improve.
Speaker Change: Right now, we're just going to go build the best trucks we can and make sure it's the right mix, as Dennis said, on the dealer lots that attract those customers that want.
Speaker Change: want these vehicles no matter what. Yeah, I remember when joining, you know, Mike talked about the way to win is contenting up these vehicles, the right content on the right vehicles, the right design, and that's what we're focused on in doing. So he's right, that demand, that demand will be there at that very high end.
Speaker Change: And what we have to do, you know, is we have to make sure that we're diversifying in that space and creating vehicles that people need and want.
Speaker Change: When you think about, I mentioned agriculture, which is interesting for us to talk about agriculture at a company like Fox, but when you think about ranchers and ag guys, they're changing trucks every couple of years and they take these trucks that are basically stock off of a dealer lot, then they have to modify the heck out of them to make them useful in their environment, in their lifestyle.
Speaker Change: We're doing that for them now with really, really cool enhancements to these vehicles and when we can do it through our ag dealership relationships that are very unique and specific to that product set
Speaker Change: We're very compelling to a use case and to a buyer that we really haven't touched in the past So we got to continue to think about how do we get?
Speaker Change: And you know expanded broader relationships with different dealers on products that are sellable kind of regardless of the macro
Speaker Change: And just one last question on the expense savings that you're expecting. $25 million for 25 or is that all in stuff that you've done in the 3Q and 4Q?
Yes. So this is going to be, you know
A really tremendous lift for this company.
Speaker Change: It is a really difficult exercise, and we are making progress against that goal of $25 million. Tangible progress.
Speaker Change: You know, as we talked about earlier, we closed the Colorado plant in AAG. In Taiwan, we're in the process of closing a facility there. Mike and I just visited there in February, and the progress is going extremely well.
Speaker Change: In our PVG business, we've conducted several RIFs, we're down about 25% of the headcount there. And when we look at one of our key metrics there, revenue per employee, it's up 25%.
These are no small matters. This is really...
Speaker Change: work that's being done week in and week out, making a difference to really drive out costs, continuing to take decisions on footprint consolidations.
Speaker Change: Putting in CapEx where we can get the make versus buy favorable Lots of work going on. We expect to hit that 25 and that would be you know Mainly in the back half of the year as many of these projects get ramped up
and Toby Merchant. Thank you.
Speaker Change: And we will take our next question from Craig Kennison with Baird. Please go ahead, your line is open.
Speaker Change: Hey, good afternoon. Appreciate all the color so far. Dennis, any comment on EBITDA margin by segment as we think about the year and how it unfolds?
Speaker Change: Well, yeah, that's a great question. I mean, as you think about early on, from an SSG standpoint,
Speaker Change: We're going to be seeing some margin. In Q1, for instance, we're still investing.
in the MLB relationship in our engineering there.
Speaker Change: start out a little soft and then they'll start to recover in the second half as volumes start to recover in Marucci as well.
bike will kind of follow suit in the sense that
Speaker Change: We'll start off light, just like last year in the first half, and then it will start to build and those margins will improve as well. They will also be bolstered by the cost-out actions that we're taking.
Speaker Change: You'll see a very similar progression in AAG. As we start to move through the year, the cost savings initiatives will start to ramp, as well as some of our volumes will start to ramp, commensurate with some product releases.
Speaker Change: Relative to PVG, I'd say, you know, flattish. Well, they'll start to grow sequentially here in Q1 and Q2, and then it will start to pick up a little more as their cost savings initiatives start to run through the P&L.
Great, thank you.
Speaker Change: And we'll take our next question from Brett Jordan with Jeffries. Please go ahead, your line is open. Hey, good afternoon guys.
Brett Jordan: You mentioned, I think, in the bike discussion, sort of, I think you said positive signals that you'd seen in Q4 and Q1. Are you seeing anything anecdotal that says the consumer is feeling better in Q1? It seems like some of the consumer sentiment data recently has not said that.
Brett Jordan: You know, we're seeing some positive signs again, but not enough to make us feel like
Brett Jordan: being very bold about 2025, which is what's reflected in our guide, as you know.
Brett Jordan: So, while we've seen positivity, you know, clearly we were slightly better in Q4 than we expected, and we saw the inventory takedown really help us or help our OEM customers in the back half of the year.
Brett Jordan: So, you know, we feel like the business is a cleaner business in 2025. Your question is really around more as the end consumer buying bikes.
If the bikes are new and exciting, they are.
Brett Jordan: You know and that's a matter of what model years come out this year and how much different they are versus 24 25 model bikes that were sold in 24
Brett Jordan: So that's going to be the real test, you know, when we get to this spring and we've got model year 26 hitting the showrooms.
Brett Jordan: You know, are the consumers incented, are they motivated to go buy high-end mountain bikes? I think the answer is going to be yes, but it's a little bit too early to tell. Yeah, the one thing that keeps showing up over and over again is number one bike, number one brand. Fox just continues to win those awards.
Brett Jordan: and all the early feedback is they're really excited about the new product innovation coming out.
That's what we can control, product innovation.
Brett Jordan: And then the guy rang to assume that there's no rate change, no interest rate change this year.
Brett Jordan: pretty much you know we haven't reflected anything from an extraneous macro benefit or a rate change benefit you know obviously with the guide kind of being flat to you know single digit up at the enterprise level we're not expecting much help from
Anybody outside of Fox.
Great. Thank you. Thanks.
Speaker Change: And there are no further questions on the line at this time. I'll turn the program back to management for any final remarks.
Speaker Change: Thanks, David, and thank you for joining us on today's call. Appreciate the time, and we'll talk to you guys soon. Good evening.
Speaker Change: This does conclude the Fox Factory Holdings Corporation's fourth quarter and full year 2024 earnings call. You may now disconnect your line and have a great day.
If you enjoyed this, please subscribe.
[inaudible]