Earnings call transcript Q3 2022

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Scott Humphrey

Thanks Mike. Good afternoon, everyone. I will begin by going into our third quarter financial results and then review our guidance. Sales in the third quarter of 2022 were $409.3 million, an increase of 17.8% versus sales of $347.4 million in the third quarter of 2021.

Our Powered Vehicles Group, PVG, delivered a 25.1% decrease in sales in the third quarter compared to the same quarter last year, primarily due to strong performance in our upfitting product lines and increased demand in our OEM channel.

OEM Group, the a primarily third increased in Sports sales increase due Specialty demand to compared quarter our to SSG, X.X% delivered in to Moving channel. of XXXX, were On a the period year, last million $XXX.X increase XX.X%. million same of $X,XXX.X an year-to-date over versus sales basis, by sales products. in demand, SSG from OEM jump in increased performance upfitting This business our is driven primarily and strong

in point the third gross period quarter in of increase margin from XX a Factory’s prior XX.X% Fox the the basis same in year. of XXXX XX.X%

For also in QX the primarily were The non-GAAP points led XXXX, Specialty versus third gross quarter and our of XXXX, lines. volume Group and to Sports margin XXXX. increased to in driven by non-GAAP higher adjusted strong by QX increase margin margin gross performance basis in favorable gross by product our product sales XX adjusted compared XX.X% upfitting mix

impacted in offset non-GAAP factory see were improved efficiencies. cost results by [indiscernible] higher our inflationary increases by gross also adjusted are pressures and global The starting Our we and to positively margin margin pressure. gross were

and Total year. quarter insurance XXXX third expenses to facility-related operating of million or million professional higher and was higher in $XX.X higher sales XX.X% costs in The fees. last costs, primarily of increase or XXXX of in quarter costs, compared QX the in of expenses the $XX.X higher to employee-related sales were third XX.X% operating commission due

to the our period operating basis to third year. points to prior XXXX quarter the non-GAAP as XX XX.X% by same Moving expenses XX.X% decreased of in expenses the percentage compared non-GAAP operating of a in sales, of

higher third and future expenses Research the to of of increased and of to investment more detail. primarily for product primarily in $X compared in Focusing and of compared to quarter third due XXXX, development on operating XXXX of million Sales due approximately increased XXXX, personnel marketing commissions third quarter XXXX third million. the innovation. costs growth approximately quarter million the in expenses $X.X to quarter the $X.X

increased expenses fees third the administrative of professional higher of costs as well in higher $X and approximately the as to XXXX million. to employee-related XXXX million due of by of million quarter $X.X $X.X quarter General third compared

the finalized XXXX, rate it’s XX%. to bond taxes higher increase anticipated full the derived higher a newly our by For is of of the intangible from rate XX% quarter against XX.X%, in an amount generated of U.S. were increases and as income. year on U.S. as tax well lower rate third which regulation, as income taxes tax our compensation. range was to foreign limits are that withholding lower tax effective offset resulted in taxes of primarily partially than recently benefits guidance U.S. already, impact credible These due XXXX estimated stock-based foreign The increased

$XXX.X was share a $XX.X year-to-date in On net or share to $X.XX million income period. per of compared the third per prior quarter share basis, period $X.XX XXXX in the diluted $XXX.X diluted On was or Fox per to basis, to or million compared million same or prior the a in year. $X.XX year net GAAP income million diluted the share attributable per in Fox $XX.X the to attributable diluted $X.XX

compared increase or million year Non-GAAP quarter million the in compared prior increase income the XX.X% XXXX to an to period. in earnings or non-GAAP last of $XX.X net $XXX.X in of On $XXX year-to-date $X.XX of third in year. diluted per approximately third delivered $X.XX third to of a million XX.X% quarter of adjusted XXXX. in was net basis, an non-GAAP the quarter adjusted million, approximately the was XXXX, million income adjusted quarter share third of $XX.X the $XX.X We compared million $X.X

earnings We to in $X.XX diluted the period. also compared non-GAAP per prior delivered adjusted year $X.XX share

increased to of site. million same XX% quarter to compared to EBITDA of by quarter XX.X% EBITDA EBITDA and XX.X% margin our of impact XXXX million, The the product compared increased to third $XX.X decreased to year-to-date however, On XXXX the third in pressures, stronger by the points basis the by by quarter XX XXXX at for XX.X% of prior year. in quarter in a million EBITDA the in primarily margin due offset versus the the is change $XXX third last margin adjusted in to Gainesville to points efficiencies adjusted dollar cost decreased basis, of third quarter $XX.X XX increased decrease mix, Adjusted in year. Adjusted EBITDA by XXXX. basis the adjusted XX.X% inflationary

focusing on balance Now sheet. our

third September XXXX XXXX, ended other ended Inventory and million. the Prepaid million assets, $XXX.X hand our $XXX.X XX, payable on XXXX, to compared quarter, which receivable compared of For which year, ended compared accounts million. million $XXX.X million. $XXX December $XXX.X $XXX.X on with Accounts was and to was to $XXX.X on million compared $XXX.X to full million $XXX.X to million we $XXX current cash million, compared to was was compared million. XX,

the end long in increase inventory had been chassis the the been current primarily and account other business is increase costs lead The of vendor in our securing time reflect growth. the input is The primarily and and payments. of as growth in by to receipt as due XXXX, delayed. items well changes which payable XX, September significant at timing deposits experiencing driven for business, accounts higher assets the prepaid for of that of upfitting receivable The as has quarter

compared equipment capital $XXX end fiscal year XXXX, million property as of XX, $XXX.X increased and expenditures XXXX, net million to to million September $XX.X reflecting the year-to-date. at of plant of Our

QX Georgia. a of expense $X and interest was primary of in land our increase went $X.X from versus of down of XXXX. Lastly, sale other small The a track million of driver the income the gain and million by

expect and non-GAAP diluted quarter million $XXX per million guidance, earnings of $X.XX in to of range per share. the the adjusted for $X.XX sales we $XXX turning the share Now to of to range XXXX, fourth in

billion in non-GAAP share expects adjusted $X.XX. the range fiscal to to sales year in diluted $X.XXX and $X.XX of For XXXX, the range per earnings of billion company the $X.XXX the

our closer XXXX range. the tax to guidance, XX% rate expect year had to XX% we full where our guided for tax to be we year, For previously XX%

computing also effort we’re And reconciliations. as of provided elements not EPS without the that cannot difficulty note due and to a guidance me let provide be on GAAP such actually providing guidance necessary reasonable it the to

to With would I turn that, Mike. the call back over like to

Mike Dennison

produced third quarter, I economic with the operational especially pleased Once again, extremely team the backdrop. tough the given you, Scott. Thank am has and results our in

Looking is environment. forward, ability before. on changes to important Consequently, cognizant pivot in multiple scenarios of we rapid are deliver ever than our more the the and macro the

As uncertain XXXX, approach for economic balanced plan outlook. a against focused we are on we what ahead taking an we’re can we and control,

increasing inventory and priorities of free include agility. cash decision top through Our trends generation flow driven production the and

employees our goals, and We and remain in are one predictable any shareholders. certainly be to defenses our performance robust with to long-term for thus, believe improvement our sustained of continued operating We economic we against committed top our balance it and sheet, model may bumps the I environment value the experience. for pleased maximizing to that in

like for now the open would to call questions. Operator? I

Operator

from will Securities. CJS [Operator Instructions] We Larry our from take Solow first question

Larry Solow

I Thanks, guess moving of first lots Mike, guys. parts. question,

normal. below remain still levels inventory mentioned You

outlook. Your least economy the And a to worse. obviously, vehicle backlog part look though second into like of of visibility, that giving but about continues as What ‘XX? good sounds on And is, guidance, like little then your at ago, you is not XXXX pretty power visibility get still out how bit side. a year is gave it’s your kind the question you

I that you think good did feel back that then? together almost Do like today about you as you outlook years put as ago. X

Mike Dennison

question in Yes, still XXXX Larry. second confident vision. vision. to when we We last we the out in have years SSG are the first. expect I’ll X in start laid seen your that see growth didn’t We

long-term and comfortable stronger kind the the OEM a So X a because But still our number with ahead in of Partially years. with a we we probably feel in getting question, SSG the first business on great plan. gotten with or share basis, on success throughout bike short-term ourselves strong few got the flattened remained last that our to a years. diminished spec even of bit XXXX this has

gaining year we is we’re a next drivetrain kind positive. in the foreign inflation is else shocks just That’s you’ve or around specifically, Europe chain clunky but share. be a market there negative meaning So The so might moving of question, something about is, pieces by the deliver to and really many else. your somebody deliver currency got to and in world foreign can’t currency forks, supply still from where

to somewhere to of net a And be view ‘XX of pieces a and parts of supply of lots causing got look chain opaque actual needs bikes in clunkiness out the you’ve relative like that that’s would lot sitting very and what demand. So configured.

pretty X being get a about lot’s By we’re weeks. QX stuff we’re but pretty last guide, have we you daily. just a to I’m mentioned, not and Obviously, clear to time not So conservative guide there changing the guide as will is going is also, the ‘XX that to just over view, changed And we ‘XX in yet. even going because it it.

we’ve his that gave So contemplated you the guide comments. in that Scott

the that cause what around to ‘XX to I of hands couple our to going look us conservative a would [indiscernible] we us estimate pretty I give to be volatility is and even need like. the the just of to downside market in overall expect months think upside with get you really But ‘XX. economy in

Larry Solow

Right.

normal on least that at like SSG sort sounds it growth. side targeted of below So the

Mike Dennison

really on we is through but auto coming seeing Larry, which volume side, PVG SSG still talk side, the we’re powersports the strong. OEM and On significant about, the side, in didn’t

other business in our the seeing I doing continue we well. a to really some right? bike the still So of little do really PBD of the well, even the if of see strength bit will parts weakness benefit is in is and diversification, side, business, model So we’re

So that’s about what I business. love the

through. I is diversification really think carry help there us the

Larry Solow

Right.

obviously, improvement, to right? be are move you Georgia, at of expect mode least XXX of incremental where per we they kind quarter we bps of Okay. XXX But accretive adding have point should I efficiencies It in out? sort you the improve sort of kind linear now a kind to reaffirmed benefits question of as won’t improvement. additional there. continue a guess Great. basis And your you be I is that mentioned,

Mike Dennison

Yes.

that. I see as think didn’t now. that to think you’ll start see we really you as think it I QX, throughout but in ‘XX. see And incremental I it see We start to benefit continue

Larry Solow

by And also too, quarter OEM, Right. auto I OEM impacted, piece... the this mix guess, was the

Mike Dennison

You know well. Yes. us

see mix, that you mix that low the in high of – other there you you of volume, get the move the more would the of don’t As that is some of business. parts auto to gross benefit margins get you of OEM benefit

Larry Solow

Great. be this an the Would Or the keep then balance just idea on last And dry? it’s acquisition sheet, Okay. you environment? a of powder might entertain in you obviously, years. question couple of improved more some little cautious and last the

Mike Dennison

A little bit both, of actually.

good at got We the space, some are opportunities. in potential always and looking we’ve opportunities

away So going we pretty acquisition. as much in uncertain have how a [indiscernible] team into go stepped talked conservative we the leverage we’ve year, we’re And pretty notion business. we economic today want not of from to that be as on an management next times

[indiscernible] And we that is, bad to cheaper. is well targeted And acquisitions, recession good do think the less that’s our really that bad valuable things what a mean a So might or news good in long-term up news the a pick but we things good to dry is significant powder there are economy, get using if acquisitions. company.

Larry Solow

it. all I okay. color. appreciate the Got Thanks. Excellent. Great,

Mike Dennison

bet. You

Operator

Mike comes Truist Swartz question from next Securities. from Our

Mike Swartz

of you’re EPS here Hey, guys. puts $X.XX. currency Good us Maybe beat think third about should the your and that that. probably some raising I quarter know are we rates couple know the year But give you by some by context interest midpoint Maybe the guidance just how about guidance, of headwinds a $X.XX. questions I to full to takes. on increase? of afternoon. just about guide

Scott Humphrey

Yes. No, Mike. absolutely,

we but a we’re hedging as And always, but interest QX, help conservative otherwise. all little We certainly successful outlook, rate started helping some which a to I somewhat program mitigate be seen robust fairly a think fighting us in place headwind. rates, in bit fixed. swapped program already in interest impact of have against are in of was currency to very trying had to, that that would have we combat we not swap we’ve our

not some through headwinds, we a are in by year so for have QX, bit. so little OE mix come impacted just because to had in us for improvements to which, provision adjustments we also expected, as bit mention tougher automotive said makes Taxes, some we’ve overcome And our to to higher the with will even continuing we raised return rates that on guidance side, materialize a but it Mike little more efficiencies we as Gainesville. in the

a So faced for of with. kind just of sort our the outlook things very I think balanced to of non-business taking QX that some approach we’re given

I business we with think QX what we’re still in a see happy perspective. from

of whole We’re other things. just fighting a bunch against

Mike Swartz

Okay. upfitting the prepaids on business? balance I the sheet, chassis came terms how either that in That’s sequentially helpful. And supply should noticed we nicely. I demand pretty read in the down guess, of or

Mike Dennison

we’re from Yes. for relationships chassis good chassis felt in getting in because should sort supply read and OEs. that supply, it our and strong Demand a our thing still is enough you the very our actually, feedback we of comfortable as

it primarily felt sheet to hits relationship Jeep, Ram that on. during we we that FCA so bought comfortable everything chassis pretty had balance how an could and be with our access Specifically, hands able to to our we that we’ve when get that gone and like prepaids about were were going out we that’s get in and talked pandemic,

that curtailed better manage capital. our in working have We to order

working was As to be especially our getting months. Birmingham big living to down working and for get going group And last more so capital that quarter, over for versus to at XX months on X XX credit chassis PVD us SCA that like I to level of in inventory in focus due we’re a team the that under all mentioned is control. was

Mike Swartz

great. that. Appreciate Okay,

Operator

Our next from from Anna Jefferies. question comes Glaessgen

Anna Glaessgen

Hi. Thanks for my question. taking

is on sensitivity you see how towards the demand have to of Could to we to upfitting about entry-level First, there. the that strength some talk tier? pricing how the about I business business. by touch could wanted Great see business. Previously, side that talked start macro performing you

Mike Dennison

across performing Anna, entire this Yes. strongly It’s still the is Mike. platform.

in time haven’t good. seen So, pretty we bit, dealer’s the September, fall length a increase off. of saw we kind anything of would average, a little I on still lot say, but on historical

we think of year, pressures it it’s business that inflationary of as that into weathering we because of PVD parts bullish kind some does business consumer So, pretty on than are about products. next and seem the these QX better other other and

pretty far, so about feeling are So, we good it.

Anna Glaessgen

a stand better? a matching POS you in of Great. expectation maybe comment Thanks. into little bit where And to or little SSG, then XXXX? channel how bit to Is still build on more turning inventories, could back terms is we that there self the in and should shape

Mike Dennison

Yes.

The this I unfinished challenge not clunkiness in that bikes. of parts because equilibrium. think of close bike question side a got Larry’s supply pieces mentioned got getting it’s of still but have have the is, full and in to chain lot you bikes is I and the you

bikes. high-end bit kind I work to But that we for see in the of equilibrium of still really hopefully to little flow early get and got where under we that we premium our channels in a now, way volumes good direction. the that are sense in will say are So, really through QX QX the a would

will QX. in we that So, see seasonality

going things to We feel it cliff. because will I and in you fall said think confidence landing see a the that soft like are drivers, that as have are we gives us you seasonality, you bike of can QX. in to reasonably that, have kind some without Those off I before

are to through quarters. so next And feel pretty we see of good that going I that the couple in come to start

Anna Glaessgen

Great. Thanks.

Operator

will from [Operator next Stifel. from question Instructions] take Jim our We Duffy

Jim Duffy

the a and you dealer penetration now dealers want the you I where to lots, you to about in business? from on that stand with on Can business. engage right question opportunity Michael, upfitting relative appetite incremental for opportunity with you. the Thank to additional speak start

Mike Dennison

been but us, beyond. dealers That’s out a that’s engagements, we to the big of the support opportunity for to X,XXX enough see from challenge year lever slow back our quarters QX to to trucks to I year current X,XXX get new if in still of And this is stuff dealer and through into the we better. sales start end dealers in first going to lots It’s range. three the expand get dealer really certainly think next a

me heard past. talk have You the in about it

consumers that across broader dealer network the a getting across efficient in our really the a way think to country I upside more is opportunity.

to But We is growth business, the throughput our in of a capacity are top space so get PVD into and are for in kind to obviously we us. close expanding capability be year. bit to of next more going line [ph] going the dealer little some

Jim Duffy

But out line. Gainesville away there just margin about realize to some respect questions mix vehicles from there realize on Scott, Then to coming top in towards a mix XXXX, benefit SSG? XXXX. of encouraging uncertainty commentary some was from call I couple standpoint and your from am curious way, the the powered I is opportunities into Great. margin then to gross with a

Scott Humphrey

Yes. Sure, Jim.

to certainly, we the I expecting to growth continue, that to last change, that. years, a perspective, so we couple thinking back see are seeing help I as go about many from that that will mentioned, the you not think are not I Mike that’s talking offset But we margin over Gainesville in you think improvements mix or a as in the efficiencies in of side, then mix And have talked and be mean uncertainty, about fact, I and times impacted we see are to something about weakness. any are PVG the concern by going think and mix hopefully I big to on are when right there. want

of going are to of so results, up it’s the be in showing there as may be not clearly posted mix. any sort improvements mitigating in they how but And that the

Jim Duffy

working capital inventory can prepaid the cash think just about Scott, with Would we our more here? then, like flows? to accounts to is you then an help how expect certainly It opportunities progress in you seems efficiency. talk from to see And opportunity. improve that XXXX about Okay. should And balance

Scott Humphrey

Yes.

still working optimize inventory to are levels upfitting. We our in

And prepaid so the piece. that’s

bit moving the has of sort on actually need I their our But can a take of into a We short-term. benefit of can before, to like I in, get of that readjusting in think what need out a we of demand say, would kind COVID. kind job hands have more get team more mindset we that to do here phenomenal everything done little to to I and said the moving we from head space. meet

your I is us a for right be to next we think debt inventory year. continue focus on will now and

We focus to and huge related prepared get in inventory have QX, It and and mentioned turns got our improved. our improving his for year cash flow that. that to we remarks. turns Mike us are next our a managing is in even how

Jim Duffy

Thank you.

Operator

last our from from Baird. question And comes Craig Kennison

Craig Kennison

are Hey. pandemic your had through well. side am severe this maybe power as but seeing. that on am improving. Thanks seeing your customers OEM through curious And little at very taking We those have orders all period for know I side-by-side I if what to of am ATVs, make you are inventory curious the shortage. as question customers my curious they the period, and get products. snowmobiles you taper that’s have what begun sports I channels with other

Mike Dennison

Craig, is Yes. Mike. this

In half the terms we yet. seen of any of tapering question, that haven’t back

produce to are us more. Our customers pushing

are We quarter-on-quarter. better getting

already, we get are better lot out the this to of first product a part door. quarter doing The that

with backlog customers. significant those pretty situation a still are We

we will deliver to hard really products work meet and their in. So, expectations

even to it will the first the see that back think to probably in the know the like I more don’t is don’t I going of yet, for start like but next early trend but half ball Powersports call half it. year, year. year, just of ultimately, too bike, we next that is this look know will I to

of So, of yet. here my some are expectation coming is Powersports, eventually that we we that in but back equilibrium will see kind into not

Craig Kennison

a then just Thanks. And as follow-up.

brands? opportunities opportunity the your opportunity what you? at does see to within space with get you? it look new white you spec or to specifically, on what If new Powersports any do have grow share, Do Where industry you you like look beyond provide biggest models the can win to

Mike Dennison

We process have some stuff now, in Craig. right

We call just that of the of it. it’s I bought it are for new approaching technologies us out in very therapy working shock we space think better. interesting, still new on parts I there help understand details is white of it don’t business been has us, that in business new really not think market. to and but small through a But space vehicles, for call creates the that in or as a I time. ways to a the Aftermarket long significant want

have acquisition, even We learned small lot was a a in acquisition. it that though

start market about to that getting growth are And changes out. I that so we talking will excited ‘XX of earnings even the next ready for significant we calls in starts some us about pretty as some couple we kind show itself in that are good that balance think can of

Craig Kennison

Great.

Okay. Thank you.

Scott Humphrey

Thanks Craig.

Operator

remarks. appears It this turn concluding for will time. I Mike at back more no over any to have the now we program Dennison questions

Mike Dennison

appreciate to We to to taking call. hope soon, have Thank today’s you Thanks. And and on a join the you. evening. good everyone us talk time we

Operator

call. Holding does earnings the Fox quarter XXXX conclude Corporation This third Factory

You may a line day. disconnect now and great have your

Mike Dennison	Chief Executive Officer
Scott Humphrey	Chief Financial Officer and Treasurer
Larry Solow	CJS Securities
Mike Swartz	Truist Securities
Anna Glaessgen	Jefferies
Jim Duffy	Stifel
Craig Kennison	Baird
[Abrupt Start]
….and as always	remain agile and nimble. On a long-term basis - and as these headwinds abate - we remain committed to our expectations of mid to high single-digit growth.
We will continue to strengthen our core competencies and be relentless in extending our competitive differentiation. We also believe the continued optimization of our Gainesville plant will drive margin improvement	as I discussed earlier. The dynamic operating environment has only become more complex as the year has progressed. And still - the team has delivered another record revenue quarter. This - along with raising our revenue guidance to close out the year - deserves to be celebrated and I cannot thank each and every single member of our Fox family enough for helping us challenge the impossible everyday.
And with that	I will turn the call over to Scott.

Fox Factory Holding (FOXF) 3 Nov 222022 Q3 Earnings call transcript