Product Innovation and Development - Fox Factory Holding Corp. reported a strong focus on premium-priced products, which are positioned in the high-end segment of the market, enhancing performance and control for consumers[13] - Recent product innovations include the Live Valve electronic suspension system, which adjusts to changing terrain in real-time, currently utilized in UTVs and mountain bikes[25] - The company has seen increasing consumer demand for performance-defining products, with a focus on high-end bikes and powered vehicles, contributing to growth opportunities in international markets[23] - Fox Factory's revenue growth is supported by a track record of innovation, with multiple new products developed over the past several years, enhancing ride dynamics and performance[22] - The company aims to expand its leadership position by continuing to introduce new products that meet evolving market trends, such as changing bike wheel sizes and the rise of off-road capable vehicles[27] - The company emphasizes ongoing research and development, leveraging feedback from professional athletes and consumers to refine its product offerings[24] - The company is focused on leveraging technology and innovation to develop a diverse portfolio of performance-defining products, including expansion into recreational vehicles and street car applications[28] Market Presence and Sales - The company has established strategic relationships with leading OEMs, including Specialized and Ford, to develop and design innovative products, reinforcing its brand image and driving sales in the aftermarket channel[16] - In fiscal year 2023, approximately 36% of net sales were attributable to powered vehicle-related products, compared to 27% in 2022 and 28% in 2021[42] - Approximately 38% of net sales in fiscal year 2023 were from aftermarket applications, up from 31% in 2022 and 28% in 2021[44] - The company currently sells to approximately 100 OEMs and distributes products to over 5,000 retail dealers and distributors worldwide, with 50% of net sales coming from OEM customers[53] - The company has long-standing relationships with top bike OEMs, including Specialized and Trek Bicycles, which contribute to its market presence[59] - The company aims to increase its aftermarket penetration by selectively adding dealers and distributors and expanding aftermarket-specific products and services[30] Financial Performance and Growth Strategy - The company generated approximately 25% of its net sales from bike products in 2023, indicating a strong reliance on the high-end bike market[121] - The company reported a consolidated net income of $X million for the year ended December 29, 2023, representing a Y% increase compared to the previous year[12] - The company provided guidance for the next fiscal year, projecting revenue growth of B% and an expected net income of $C million[12] - New product launches are anticipated to contribute an additional D million in revenue, with a focus on expanding into E markets[12] - The company is investing $F million in R&D for new technologies aimed at enhancing user experience and operational efficiency[12] - Market expansion efforts include entering G new regions, which are expected to drive an increase in market share by H%[12] Acquisitions and Strategic Initiatives - The company completed several strategic acquisitions, including SCA Performance Holdings in March 2020 and Wheelhouse Holdings in November 2023, to enhance its product offerings and expand its market presence[29] - The acquisition of Marucci in Q4 2023 aims to enhance the company's position in the baseball and softball industry, which is dependent on high-performing products[122] - The company has completed the acquisition of I, which is projected to add J million in annual revenue and strengthen its competitive position[12] Operational Challenges and Risks - The company faces risks from international geopolitical conflicts, which may negatively impact its business and operations[99] - The company relies on a limited number of suppliers, and disruptions could lead to significant production delays or increased costs[100] - The company must continuously enhance existing products and develop new ones to meet consumer needs and maintain market acceptance[105] - The company operates in a highly competitive environment, facing competitors with greater financial and marketing resources[108] - The company’s performance-defining products are discretionary purchases, making them vulnerable to economic changes[93] - The company’s financial condition may be adversely affected by global public health epidemics, including the ongoing effects of COVID-19[93] - The company is vulnerable to supply chain disruptions, particularly from labor disputes at West Coast ports, which could negatively affect its operations[127] - The company faces competitive risks from new technologies such as artificial intelligence and machine learning, which could impact its ability to innovate and maintain market share[110] Financial and Economic Factors - The company experienced increasing prices for raw materials and supplies, leading to price adjustments for customers; however, continued inflation may reduce customer demand or sales volumes[171] - The Federal Reserve increased benchmark interest rates multiple times in 2022 and 2023, which may continue to rise in 2024, potentially increasing the company's interest expense and reducing available funds for operations[178] - A hypothetical 100 basis point increase in interest rates would result in an approximately $6.5 million increase in interest expense for the year ended December 29, 2023[179] - The company is subject to extensive laws and regulations related to environmental compliance, which may require additional expenses and modifications to product offerings[182] - The company may incur significant costs due to intellectual property disputes, which could distract management and affect operations[146] Compliance and Regulatory Risks - The company is subject to evolving privacy laws, such as the GDPR and CCPA, which could increase compliance costs and legal risks[164] - The company faces risks related to compliance with employment practice laws, which could lead to increased costs and litigation risks[189] - The company is subject to various litigation matters that could have a material adverse effect on its business and financial condition[198] - Compliance with regulations regarding conflict minerals may lead to additional expenses and impact sourcing and pricing of materials[193] Employee and Talent Management - The company employs approximately 4,300 employees across various regions, primarily in the U.S.[75] - The company relies on skilled engineers for product design and production, with intense competition for talent in Taiwan, California, and Georgia[130] - The company is facing challenges in retaining skilled finance personnel due to increased demand in the market, which could impact financial reporting accuracy[210] Stock and Shareholder Information - The company is authorized to repurchase up to $300.0 million of outstanding shares of common stock through various methods, with the program expiring on November 1, 2028[208] - From January 2, 2021, to December 29, 2023, the company's stock price fluctuated between $190.29 and $49.12 per share, indicating significant volatility[199] - The company has 41,953,938 shares of common stock outstanding as of December 29, 2023, out of an authorized 90,000,000 shares[202]

Financial Performance - Fourth quarter 2023 net sales were $332 million, a decrease of 18.6% from $408.6 million in Q4 2022, driven by a 41.4% decrease in Specialty Sports Group (SSG) sales[5] - The company achieved a net income of $4 million, with earnings per diluted share of $0.10, compared to $53 million and $1.25 in Q4 2022[9] - Adjusted EBITDA for Q4 2023 was $38.8 million, resulting in an adjusted EBITDA margin of 11.7%, down from 18.8% in Q4 2022[10] - For the fiscal year 2023, net sales totaled $1.464 billion, an 8.6% decrease compared to fiscal 2022, with SSG sales down 42.8%[11] - Gross profit for the twelve months ended December 29, 2023, was $464,812 thousand, down 12.5% from $531,343 thousand in the previous year[28] - Adjusted net income for the twelve months ended December 29, 2023, was $120,846 thousand, a decline of 41.0% compared to $205,278 thousand for the same period in 2022[30] - For the three months ended December 29, 2023, net income was $4,051 thousand, a decrease of 92.3% compared to $52,959 thousand for the same period in 2022[33] - Adjusted net income for the twelve months ended December 29, 2023, was $167,473 thousand, down 28.0% from $232,670 thousand in the previous year[33] - Adjusted EBITDA for the twelve months ended December 29, 2023, was $261,048 thousand, a decrease of 18.9% compared to $321,831 thousand for the previous year[37] Expenses and Margins - The company reported a gross margin of 31.7% for fiscal 2023, a decrease of 150 basis points from 33.2% in fiscal 2022[11] - Total operating expenses for fiscal 2023 were $304.7 million, or 20.8% of net sales, compared to $284.6 million, or 17.8% in fiscal 2022[12] - Operating expense for the three months ended December 29, 2023, was $81,009 thousand, an increase of 9.9% from $74,167 thousand in the same period of 2022[44] - The company reported a net income margin of 1.2% for the three months ended December 29, 2023, down from 13.0% in the same period of 2022[37] - Adjusted gross margin for the twelve months ended December 29, 2023, was 32.8%, compared to 33.4% for the previous year[41] - Adjusted operating margin for the three months ended December 29, 2023, was 20.6%, compared to 16.2% for the same period in 2022[44] Acquisitions and Growth - The company completed the acquisition of Marucci, contributing $17 million in revenue for Q4 2023, and also acquired Custom Wheel House earlier in the year[4] - The company is focused on the acquisition of Marucci and expects future performance improvements from this acquisition[45] - The company aims for $2 billion in sales by 2025, contingent on various market factors including OEM demand and macroeconomic conditions[18] - The company is exploring opportunities for international growth and market expansion[45] - The company is focused on increasing its aftermarket penetration to enhance revenue streams[45] Cash and Assets - The company had cash and cash equivalents of $83.6 million as of December 29, 2023, down from $145.3 million a year earlier, primarily due to debt payments and share repurchases[16] - Total assets increased to $2,242,298 thousand as of December 29, 2023, from $1,618,336 thousand as of December 30, 2022, representing a growth of 38.5%[26] - Cash and cash equivalents decreased to $83,642 thousand as of December 29, 2023, from $145,250 thousand as of December 30, 2022, a decline of 42.4%[26] - Total liabilities rose to $1,020,537 thousand as of December 29, 2023, compared to $496,950 thousand as of December 30, 2022, an increase of 105.5%[26] Future Outlook and Challenges - Fiscal 2024 guidance projects net sales between $1.53 billion and $1.68 billion, with adjusted earnings per diluted share expected to range from $2.30 to $2.60[17] - The company anticipates demand for its products to remain strong despite potential supply chain disruptions[45] - The company aims to improve operating efficiencies and maintain profitability in the upcoming quarters[45] - The company is committed to developing new and innovative products to expand into new categories and end-markets[45] - The company is facing risks related to inflation and interest rate increases by the U.S. Federal Reserve[45] - The company acknowledges potential challenges from geopolitical tensions affecting its supply chain[45] - The company is aware of the impact of consumer preferences on its product demand and is prepared to adapt accordingly[45] - The company incurred interest expenses of $19,320 thousand for the twelve months ended December 29, 2023, compared to $8,939 thousand in the previous year, reflecting a significant increase[28] - Research and development expenses for the twelve months ended December 29, 2023, were $53,179 thousand, a decrease of 5.4% from $56,205 thousand in the previous year[28] - The weighted-average shares used to compute diluted earnings per share for the twelve months ended December 29, 2023, were 42,432 thousand, slightly up from 42,384 thousand in the previous year[28]

Financial Data and Key Metrics Changes - Total consolidated net sales in Q3 2023 were $331.1 million, a decrease of 19.1% compared to $409.2 million in Q3 2022 [37] - Adjusted net income was $44.8 million in Q3 2023, a decrease of approximately $12.6 million or 22% compared to $57.4 million in the same quarter last year [45] - Adjusted EBITDA decreased by 25.1% to $63.7 million for Q3 2023 compared to $85.1 million in Q3 2022 [46] - Adjusted EBITDA margin decreased by 160 basis points to 19.2% in Q3 2023 compared to 20.8% in Q3 2022 [46] Business Line Data and Key Metrics Changes - The Powered Vehicles Group (PVG) delivered a 12.4% increase in net sales in Q3 compared to the same quarter last year, but was negatively impacted by the UAW strike [37] - The Aftermarket Applications Group (AAG) delivered an 8.2% increase in net sales in Q3 compared to the same quarter last year, driven by the Custom Wheel House acquisition [38] - Specialty Sports Group (SSG) net sales decreased by 58.6% compared to Q3 2022 due to high inventory levels across various channels [39] Market Data and Key Metrics Changes - Year-to-date growth in PVG and AAG was 35% and 16% respectively, despite the challenges faced in Q3 [34] - The company expects the inventory recalibration in SSG to continue through the first half of 2024 [39] Company Strategy and Development Direction - The company announced the acquisition of Marucci Sports, which is expected to be accretive to revenue and EBITDA margins, aligning with its diversification strategy [25][51] - The company continues to focus on innovation and brand strength as core elements of its growth strategy [22] - The "one plus one equals three" growth mindset is driving topline and bottom-line improvement [14] Management Comments on Operating Environment and Future Outlook - Management acknowledged the ongoing inventory recalibration in SSG and the impact of the UAW strike on business performance [21][32] - The company remains optimistic about future growth opportunities, particularly in the powered vehicles and aftermarket applications segments [34] - Management expects Q4 2023 sales in the range of $300 million to $340 million, with full-year guidance of $1.43 billion to $1.47 billion [58] Other Important Information - The company approved a share repurchase program of up to $300 million, demonstrating confidence in its operating model and growth plans [31] - The effective tax rate was 9% in Q3 2023, down from 20.8% in Q3 2022, due to benefits from R&D tax credits [44] Q&A Session Questions and Answers Question: What drove the acquisition of Marucci? - The acquisition was driven by Marucci's strong brand, engineered products, and cultural alignment with the company [61][68] Question: Is the Marucci acquisition immediately accretive? - Yes, the acquisition is expected to be accretive to both revenue and EBITDA margins [70][72] Question: What are the prospects for the upfitting business in 2024 and 2025? - The upfitting business is expected to grow, particularly with new facilities and product offerings [88] Question: How is the company addressing the impact of the UAW strike? - The company is managing inventory levels and expects residual impacts into November [32][102] Question: What is the expected impact of the UAW strike on Q4? - The UAW strike is expected to have a combined impact of approximately $100 million, including $25 million specifically related to SSG [113]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company presents unaudited financial statements showing decreased sales and net income, alongside details of recent and planned acquisitions [Unaudited Condensed Consolidated Balance Sheets](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) Total assets grew to $1.67 billion driven by acquisitions, while total liabilities decreased to $433.1 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 29, 2023 | December 30, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $737,223 | $797,674 | | Inventory | $341,209 | $350,620 | | Goodwill | $386,139 | $323,978 | | **Total Assets** | **$1,674,358** | **$1,618,336** | | **Total Current Liabilities** | $191,677 | $258,889 | | Line of credit | $190,000 | $200,000 | | **Total Liabilities** | **$433,055** | **$496,950** | | **Total Stockholders' Equity** | **$1,241,303** | **$1,121,386** | [Unaudited Condensed Consolidated Statements of Income](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Income) Net sales and net income declined for both the third quarter and the first nine months of 2023 compared to the prior year Consolidated Statements of Income (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $331,117 | $409,168 | $1,131,683 | $1,193,850 | | Gross profit | $107,227 | $137,267 | $372,551 | $400,471 | | Income from operations | $41,365 | $65,362 | $148,839 | $189,992 | | Net income | $35,293 | $50,771 | $116,795 | $152,319 | | Diluted EPS | $0.83 | $1.20 | $2.75 | $3.59 | [Unaudited Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow increased significantly, while investing activities for an acquisition led to a lower year-end cash balance Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 29, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $126,685 | $57,035 | | Net cash used in investing activities | ($165,398) | ($32,379) | | Net cash used in financing activities | ($16,163) | ($54,004) | | **Change in Cash and Cash Equivalents** | **($54,619)** | **($26,549)** | | **Cash and Cash Equivalents - End of period** | **$90,631** | **$153,137** | - Cash used in investing activities for the nine months of 2023 included **$130.9 million for the acquisition of Custom Wheel House** and $32.0 million for property and equipment purchases[22](index=22&type=chunk)[140](index=140&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes detail revenue breakdowns, acquisitions, credit facilities, and significant subsequent events like a major acquisition and share repurchase plan Net Sales by Product Group (in thousands) | Product Group | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Powered Vehicles Group | $123,076 | $109,467 | $405,519 | $299,831 | | Aftermarket Applications Group | $136,039 | $125,729 | $430,391 | $372,504 | | Specialty Sports Group | $72,002 | $173,972 | $295,773 | $521,515 | | **Total net sales** | **$331,117** | **$409,168** | **$1,131,683** | **$1,193,850** | - On March 3, 2023, the Company **acquired Custom Wheel House** for cash consideration of **$130.9 million**[91](index=91&type=chunk)[92](index=92&type=chunk) - Subsequent to the quarter end, the Company entered an agreement to **acquire Marucci Sports for $572 million** and authorized a new **$300 million share repurchase plan**[97](index=97&type=chunk)[100](index=100&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes a Q3 sales decline driven by the Specialty Sports Group and the UAW strike, alongside a lower gross margin - The **United Auto Workers (UAW) strike** had an undesirable impact on Q3 sales and is expected to continue to affect the business[110](index=110&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Q3 net sales fell 19.1% due to a sharp decline in the Specialty Sports Group, leading to lower gross margin and net income Q3 2023 vs Q3 2022 Net Sales Change (in millions) | Product Group | Q3 2023 | Q3 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Powered Vehicle Group | $123.1 | $109.5 | $13.6 | 12.4% | | Aftermarket Applications Group | $136.0 | $125.7 | $10.3 | 8.2% | | Specialty Sports Group | $72.0 | $174.0 | ($102.0) | (58.6)% | | **Total net sales** | **$331.1** | **$409.2** | **($78.1)** | **(19.1)%** | - **Gross margin for Q3 2023 decreased by 110 basis points to 32.4%**, primarily due to a shift in product mix and costs from the UAW strike[116](index=116&type=chunk) Nine Months 2023 vs 2022 Net Sales Change (in millions) | Product Group | 9M 2023 | 9M 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Powered Vehicle Group | $405.5 | $299.8 | $105.7 | 35.4% | | Aftermarket Applications Group | $430.4 | $372.5 | $57.9 | 15.5% | | Specialty Sports Group | $295.8 | $521.5 | ($225.7) | (43.3)% | | **Total net sales** | **$1,131.7** | **$1,193.8** | **($62.1)** | **(5.2)%** | [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with $90.6 million in cash and $460.0 million in credit availability to fund future operations Cash Flow Summary (in millions) | Activity | Nine Months Ended Sep 29, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $126.7 | $57.0 | | Net cash used in investing activities | ($165.4) | ($32.4) | | Net cash used in financing activities | ($16.2) | ($54.0) | | **Change in cash and cash equivalents** | **($54.6)** | **($26.5)** | - As of September 29, 2023, the company had **$190.0 million outstanding** on its line of credit, with **$460.0 million in available borrowing capacity**[61](index=61&type=chunk)[237](index=237&type=chunk) - The company believes that **current liquidity is sufficient** to fund operations for the next 12 months and beyond[137](index=137&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There were no material changes to the company's market risk disclosures from the prior fiscal year-end - There have been **no material changes** to the market risk disclosures in the company's 2022 Annual Report on Form 10-K[151](index=151&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the company's **disclosure controls and procedures were effective** as of September 29, 2023[153](index=153&type=chunk) - **No material changes** in internal control over financial reporting occurred during the quarter[154](index=154&type=chunk) [PART II. OTHER INFORMATION](index=33&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) Pending legal proceedings are not expected to have a material adverse effect on the company's financial condition or results - Management believes pending legal proceedings will have **no material adverse effect** on the Company's financial condition or operations[157](index=157&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from supplier dependency, OEM reliance, supply chain disruptions, and economic conditions - The business could be materially impacted by **geopolitical tensions** in Taiwan and Ukraine, affecting the economy and raw material supplies[166](index=166&type=chunk) - The company depends on a limited number of suppliers, including a **sole-source supplier, Miyaki Corporation**, for its exclusive Kashima coating[167](index=167&type=chunk)[169](index=169&type=chunk) - Work stoppages, such as the **UAW strike**, can adversely affect operating results by idling customer production facilities[190](index=190&type=chunk) - Sales to the **five largest OEM customers accounted for approximately 23% of sales** in fiscal 2022, representing a concentration risk[200](index=200&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=56&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 8,377 shares during Q3 2023 to satisfy tax-withholding obligations on employee stock awards Issuer Purchases of Equity Securities (Q3 2023) | Period | Total Number of Shares Purchased | Weighted-average Price Paid per Share | | :--- | :--- | :--- | | 7/1-8/4 | 8,046 | $108.99 | | 8/5-9/1 | 331 | $110.20 | | 9/2-9/29 | — | $— | | **Total** | **8,377** | **$109.03** | - All shares repurchased during the quarter were acquired from holders of restricted stock unit awards to **satisfy tax-withholding obligations**[275](index=275&type=chunk) [Item 5. Other Information](index=56&type=section&id=Item%205.%20Other%20Information) No officers or directors adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No officers or directors adopted or terminated a **Rule 10b5-1 or non-Rule 10b5-1 trading arrangement** during the third quarter[278](index=278&type=chunk) [Item 6. Exhibits](index=57&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including required officer certifications and XBRL data

Fox Factory Holding Corp. (NASDAQ:FOXF) Q2 2023 Earnings Conference Call August 3, 2023 4:30 PM ET Company Participants Vivek Bhakuni – Senior Director of Investor Relations and Business Development Mike Dennison – Chief Executive Officer Dennis Schemm – Chief Financial Officer and Treasurer Conference Call Participants Larry Solow – CJS Securities Jim Duffy – Stifel Anna Glaessgen – B. Riley Michael Swartz – Truist Securities Scott Stember – Roth MKM Alice Wycklendt – Baird Operator Good afternoon, ladies ...

Financial Performance - Net sales for Q2 2023 were $400.7 million, a decrease of $6.0 million or 1.5% compared to Q2 2022[109] - Powered Vehicle Group net sales increased by $34.5 million, or 32.6%, driven by higher demand in the OEM channel[109] - Aftermarket Applications Group net sales rose by $32.3 million, or 26.2%, due to the acquisition of Custom Wheel House and strong performance in upfitting products[109] - Specialty Sports Group net sales decreased by $72.8 million, or 41.0%, attributed to higher inventory levels across various channels[109] - Total net sales for the six months ended June 30, 2023 increased by $15.9 million, or 2.0%, to $800.6 million compared to $784.7 million for the same period in 2022[119] - Powered Vehicle Group net sales increased by $92.0 million, or 48.4%, primarily due to increased demand in the OEM channel[119] Expenses and Costs - Cost of sales for Q2 2023 increased by $4.9 million, or 1.9%, leading to a gross margin decrease of 220 basis points to 32.9%[110] - Total operating expenses for Q2 2023 were $79.2 million, an increase of $6.7 million or 9.2% compared to Q2 2022[111] - General and administrative expenses rose by $1.7 million, or 6.0%, primarily due to the inclusion of Custom Wheel House operating costs[111] - Research and development costs increased by $1.0 million, reflecting investments in personnel for future growth and product innovation[111] - Operating expenses for the six months ended June 30, 2023 increased by $19.3 million, or 13.9%, to $157.9 million compared to $138.6 million for the same period in 2022[121] Income and Profitability - Net income for the six months ended June 30, 2023, was $81.5 million, compared to $101.5 million for the same period in 2022[107] - Income from operations for the three months ended June 30, 2023 decreased by $17.7 million, or 25.1%, to $52.8 million compared to $70.5 million for the same period in 2022[112] - Net income for the three months ended June 30, 2023 decreased by $13.8 million, or 25.8%, to $39.7 million from $53.5 million for the same period in 2022[117] - Net income for the six months ended June 30, 2023 decreased by $20.0 million, or 19.7%, to $81.5 million from $101.5 million for the same period in 2022[127] Cash Flow and Financing - Net cash used in operating activities for the six months ended June 30, 2023 was $3.3 million, a significant improvement compared to $85.4 million for the same period in 2022[130][131] - Net cash used in investing activities for the six months ended June 30, 2023, was $156.5 million, compared to $19.9 million for the same period in 2022[133] - Cash consideration of $130.9 million was used for the purchase of Custom Wheel House in the first half of 2023[133] - Net cash provided by financing activities for the six months ended June 30, 2023, was $119.8 million, significantly up from $32.3 million in the same period of 2022[134][135] Debt and Interest - The 2022 Credit Facility provides for revolving loans and letters of credit up to an aggregate amount of $650.0 million, maturing on April 5, 2027[137] - The company borrowed $475.0 million under the 2022 Credit Facility, which was used to repay all outstanding amounts owed under the Prior Credit Facility[138] - As of June 30, 2023, the weighted-average interest rate on outstanding borrowing was 5.56%[140] - The company was in compliance with the covenants of the 2022 Credit Facility as of June 30, 2023[141] Market and Economic Conditions - Significant increases in inflation, particularly related to wages and raw materials, could adversely impact the company's financial condition and results of operations[143] - There have been no material changes to the company's material cash requirements related to commitments or contractual obligations since the last annual report[142] - No material changes were reported in the disclosures about market risk compared to the previous annual report[144]

Financial Data and Key Metrics Changes - The company reported first-quarter sales of approximately $400 million, an increase of 5.8% compared to the same period last year [41] - Earnings per diluted share for the quarter were $0.98, a decrease of 13.3% from $1.13 in the same period in 2022 [37] - Non-GAAP adjusted earnings per diluted share were $1.20, down 9.1% from $1.32 in the first quarter of 2022 [43] - Gross margin increased to 33.3%, up 150 basis points from 31.8% in the prior year [29] - Adjusted EBITDA increased by 10.3% to $79.2 million, with an adjusted EBITDA margin of 19.8% [31] Business Line Data and Key Metrics Changes - The Powered Vehicles Group (PVG) achieved a 35% growth in sales, reaching $281 million, marking a fifth consecutive record revenue quarter [25] - The Specialty Sports Group (SSG) saw a 30% decline in sales compared to the first quarter of 2022, primarily due to seasonality and inventory issues [29][75] Market Data and Key Metrics Changes - The company noted a significant inventory glut in the bike business, impacting sales and leading to a conservative outlook for the SSG [75] - There are positive signs of end customer demand in certain markets, although the overall inventory situation remains challenging [49] Company Strategy and Development Direction - The company is focusing on long-term sustainable growth, with cost reductions and workforce alignment as key strategies [24] - Plans to bifurcate the Powered Vehicles Group into two new product groups to better align go-to-market strategies [73] - The company is actively pursuing M&A opportunities in the bike business, taking advantage of lower valuations [16] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the SSG for the second quarter, anticipating continued revenue mix normalization in the PVG [61] - The company expects to see further margin expansion in the PVG as volume increases, with a line of sight to additional improvements over the next 12 to 18 months [26] Other Important Information - The company completed the acquisition of Custom Wheel House, contributing $6.9 million to the top line in Q1, with an expected full-year revenue contribution of $60 million to $70 million [38] - General and administrative expenses increased by approximately $8.1 million due to higher employee-related costs and legal fees [30] Q&A Session Summary Question: Inventory issues in the bike business - Management clarified that the inventory issue is primarily in the supply chain, with a need for faster movement into dealers [5][6] Question: Gross margin performance - The better-than-expected gross margin was attributed to factory optimization and efficiencies achieved in Q1 [7][8] Question: Incremental margin potential from Gainesville - Management indicated that only a slight increase in volume is needed to see further margin accretion, emphasizing the importance of consistent volume [14] Question: Chassis deposits and inventory management - Management expects Q1 to be the seasonal peak for chassis inventory, with gradual work through expected for the rest of the year [15] Question: M&A opportunities in the bike business - Management confirmed that the current inventory situation does create M&A opportunities, with a recent acquisition already completed [16] Question: Marketplace inventory posture between regions - Management noted that both North America and Europe are experiencing similar inventory challenges, with no significant demand issues [57][68]

Financial Performance - For the three months ended March 31, 2023, total sales increased by approximately $21.9 million, or 5.8%, compared to the same period in 2022, reaching $399.9 million[117] - Powered Vehicle product sales rose by $72.9 million, or 35.0%, driven by increased demand in the OEM channel and strong performance in upfitting product lines[117] - Specialty Sports product sales decreased by $51.0 million, or 30.0%, attributed to a return to seasonality and pre-pandemic market conditions[117] - Income from operations for the three months ended March 31, 2023, increased by approximately $0.5 million, or 0.9%, totaling $54.7 million[122] - Net income for the three months ended March 31, 2023, was $41.8 million, a decrease from $48.1 million in the same period in 2022[113] - For the three months ended March 31, 2023, net income decreased by $6.3 million, or 13.1%, to $41.8 million compared to $48.1 million for the same period in 2022[127] Costs and Expenses - Cost of sales for the three months ended March 31, 2023, increased by approximately $8.9 million, or 3.5%, totaling $266.6 million[118] - Gross margin improved by 150 basis points to 33.3% compared to 31.8% for the same period in 2022, due to lower materials costs and increased efficiencies[119] - Total operating expenses increased to $78.6 million, up $12.5 million or 18.9% from $66.1 million in the prior year[120] - Research and development expenses rose by approximately $2.7 million, or 21.4%, reflecting investments in personnel to support future growth and product innovation[121] - Provision for income taxes increased significantly to $9.4 million from $2.4 million in the prior year, reflecting a higher effective tax rate[113] - Interest expense increased by $1.5 million to $3.5 million, a rise of 75.0%, primarily due to higher outstanding borrowings and interest rates[123] Cash Flow and Financing - Net cash used in operating activities was $66.8 million for the three months ended March 31, 2023, compared to $143.1 million in the same period of 2022[130] - Cash used in investing activities increased significantly to $144.3 million, primarily due to the acquisition of Custom Wheel House for $130.9 million[136] - Net cash provided by financing activities was $157.8 million, largely from the 2022 Credit Facility, which included net proceeds of $160.0 million[138] - As of March 31, 2023, the company held $45.7 million of its $91.9 million cash and cash equivalents in foreign accounts, which may be repatriated[129] - The company’s weighted-average interest rate on outstanding borrowings was 5.38% as of March 31, 2023[144] - The company expects that cash on hand and cash flow from operations will be sufficient to fund operations for the next 12 months[130] Acquisitions and Growth - The acquisition of Custom Wheel House in February 2023 is expected to enhance the company's product offerings and market position[136] - The company has completed several acquisitions, including SCA in March 2020 and Custom Wheel House, LLC in February 2023, and intends to evaluate additional acquisitions in the future[219] Risks and Challenges - The company faces risks related to global public health issues, including the ongoing COVID-19 pandemic, which could negatively impact its operations and financial results[161] - The company is dependent on a limited number of suppliers, which could lead to increased material costs and supply chain disruptions[166] - The company relies on a sole-source supplier, Miyaki Corporation, for a specific coating, and any disruption in supply could adversely affect its operations[168] - The company has experienced and may continue to experience adverse effects from geopolitical conflicts, including tensions between Taiwan and China and the war in Ukraine[165] - The company may face challenges in passing on increased costs of raw materials to customers, which could negatively impact its financial condition[167] - Disruptions in supply chains, such as labor disputes at ports, could adversely affect the company's operating results[183] Market and Competition - The company faces intense competition from manufacturers with greater financial and marketing resources, which could negatively impact its market position[173] - Economic conditions significantly affect consumer spending on the company's discretionary products, with potential adverse impacts from inflation and recessions[174] - The company’s growth in the powered vehicle category relies on expanding product sales and market growth for powered vehicles requiring performance-defining products[178] - The company must maintain its premium brand image to ensure continued selection by OEM dealers and distributors, which is critical for sales[176] Operational and Compliance Issues - The company is subject to extensive laws and regulations relating to safety, environmental, and other standards, which may require additional expenses or modifications to product offerings[239] - Compliance with environmental laws and regulations may result in significant fines, penalties, and costs that could negatively affect the company's financial condition[247] - The company faces risks related to climate change, including potential disruptions to the supply chain and increased costs due to extreme weather conditions[244] - The SEC's proposed rules for climate-related disclosures may impose additional costs and affect the company's operations and financial condition[243] Employee and Talent Management - The company is dependent on attracting and retaining qualified talent, particularly in engineering and management roles, to sustain product quality and innovation[186] - The company is subject to government-mandated wage and benefit laws, which could increase employee costs and impact financial condition[211] - Inflation in healthcare costs and potential changes in federal or state healthcare legislation could significantly increase employee healthcare costs[212] Information Systems and Cybersecurity - The company relies on complex information systems for operations, and any failure or disruption could negatively affect business performance[213] - Cybersecurity attacks pose a risk to the company's information systems, potentially leading to financial and reputational damage[216] Stock and Market Performance - The stock price has fluctuated between $190.29 and $35.54 per share from April 3, 2020, to March 31, 2023, indicating significant volatility[255] - The company completed a follow-on offering of approximately 2.8 million shares of common stock in June 2020, which could dilute existing shareholders' ownership[257] - The trading price of the company's common stock could be influenced by fluctuations in the stock market and changes in consumer preferences[256] Internal Controls and Governance - As of March 31, 2023, the company's disclosure controls and procedures were effective at the reasonable assurance level[150] - There were no changes in internal control over financial reporting that materially affected the company's financial reporting[151] - Internal control failures over financial reporting could adversely affect the company's financial results and investor confidence[265]

Fox Factory Holding Corp. (NASDAQ:FOXF) Q4 2022 Earnings Conference Call February 23, 2023 4:30 PM ET Company Participants Vivek Bhakuni - Investor Relations Mike Dennison - Chief Executive Officer Scott Humphrey - Chief Financial Officer and Treasurer Conference Call Participants Michael Swartz - Truist Securities Larry Solow - CJS Securities Jim Duffy - Stifel Anna Glaessgen - Jefferies Alex Perry - Bank of America Craig Kennison - Baird Operator Good afternoon, ladies and gentlemen and thank you for stan ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-36040 Fox Factory Holding Corp. (Exact Name of Registrant as Specified in its Charter) Delaware 26-1647258 (State ...