Fox Factory Holding Corp. Common Stock 2026 Q2 Earnings Call

Thank you. Good afternoon and welcome to Fox Factory's second quarter 2026 earnings conference call. I'm joined today by Mike Dennison, Chief Executive Officer, and Dennis Schemm, Chief Financial Officer. First, Mike will provide business updates. Dennis will then review the quarterly results and outlook. Mike will then provide some closing remarks before we open up the call for your questions. By now, everyone should have access to the earnings release, which went out earlier this afternoon. If you have not had a chance to review the release, it's available on the investor relations portion of our website at investor.ridefox.com. Please note that throughout this call, we will refer to Fox Factory as Fox or the company.

Before we begin, I would like to remind everyone that the prepared remarks contain forward-looking statements within the meaning of federal securities laws. Management may make additional forward-looking statements in response to your questions. Such statements involve a number of known and unknown risks and uncertainties, many of which are outside the company's control and can cause future results, performance, or achievements to differ materially from the results, performance, or achievements expressed or implied by such forward-looking statements. Important factors and risks that could cause or contribute to such differences are detailed in the company's quarterly reports on Form 10-Q and the company's latest annual report on Form 10-K, each filed with the Securities and Exchange Commission.

Investors should not place undue reliance on the company's forward-looking statements. Except as required by law, the company undertakes no obligation to update any forward-looking or other statements herein, whether as a result of new information, future events, or otherwise. In addition, where appropriate in today's prepared remarks and within our earnings release, we will refer to certain non-GAAP financial measures to evaluate our business, including adjusted gross profit, adjusted gross margin, adjusted operating expenses, adjusted net income, adjusted earnings per diluted share, adjusted EBITDA, and adjusted EBITDA margin. We believe these are useful metrics that allow investors to better understand and evaluate the company's core operating performance and trends. Reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures are included in today's earnings release, which has also been posted on our website.

With that, it is my pleasure to turn the call over to our CEO, Mike Dennison.

Thanks, Toby, and thanks to everyone joining the call today. We delivered second quarter revenue of $358.1 million at the high end of our guided range and adjusted EBITDA of $45.5 million, approximately $5 million above the high end of our range. While revenue was at the high end of our expectations, it stepped down sequentially, which was expected and consistent with our guidance, reflecting portfolio optimization associated with the Phoenix operations divestiture as well as the discrete timing of shipments we flagged last quarter and lower F-150 volume tied to the aluminum supply disruption. The takeaway is significant. Revenue growth is returning, and our outlook for the balance of the year is a continued step up from original expectations. Our revised view of revenue for the back half will be detailed later by Dennis.

Revenue growth is critical not just for the diversification of partnerships and the addition of new markets, but what it brings to our factories and operations with productivity. Our investment in R&D and product roadmaps over the last couple of years has negatively impacted results short term but has set us up for a more constructive forecast in the back half of 2026, as well as meaningful growth in 2027 and beyond. In addition, our profit optimization program is on schedule. We captured more than $25 million of gross savings in the first half, and we remain confident in our expectations to deliver approximately $50 million of gross savings this year. Roughly $10 million of phase one carryover and approximately $40 million from phase two, consistent with our framework we laid out in February.

Profit optimization is necessary in the current macro environment because while we do everything we can do internally, the macro issues continue to work against us. On our last call, I flagged that steel and aluminum costs were moving higher with pressure building in the second quarter. That pressure came in ahead of what we planned. Escalating geopolitical conflict has pushed commodity prices, including fuel, ocean, and inland freight rates higher. Carrier surcharges as well as added expedite freight and rerouting costs drive friction in our channels. We remain focused on what we control and are pleased with the progress we've made on margin expansion through early realization of these initiatives. From a market served, we are encouraged by the stabilization emerging in powersports and bike, two important businesses for Fox.

On the portfolio, we continue to evaluate every business we own against the same three criteria that led to our decision to divest our Phoenix operations: alignment with our brands, synergy with our core competencies, and an ability to deliver accretive margins and durable cash flows. Where a business or program does not meet those thresholds, we are taking action. Any cash proceeds from these activities will go directly to debt reduction. With that, let me walk through our segments. PVG delivered net sales of $124.2 million in the second quarter, a slight increase year-over-year. Sequentially, revenue stepped down from a first quarter that, as we flagged in May, benefited from shipment timing in that quarter. As expected, segment margins were down from the first quarter, given our forecasted product mix in the quarter.

In Powersports, which grew 22.5% in the second quarter and 28% in the first half year-over-year, our OEM customers have worked through much of the channel inventory imbalance that weighed on the industry. We believe we remain well-positioned across all of the major OEMs in the category. Although we continue to monitor the underlying retail environment in close collaboration with our customers, we have greater confidence that Powersports can continue to be a stabilizing force for us through the balance of the year. On the automotive side, our premium truck OE business performance reflects the timing of shipments against continued aluminum supply chain and production issues that our automotive OEMs are facing. While we anticipated seeing some relief during Q2, aluminum supply remains a constraint for the production of F-150 trucks. In addition, supply chain issues at Toyota also reduced their forecast for high-demand vehicles in the quarter.

The most compelling commentary for PVG is not about the puts and takes of Q2, it is about the awards we have won so far this year, which begin to hit our P&L in late Q4 of 2026 and add meaningful upside in 2027. As you know, we have been extremely focused on R&D within PVG. These efforts include applications ranging from our traditional light truck market to vehicles that cover rough terrain and space, and plenty of applications in between. I want to take a few seconds to talk about what we have achieved. So far this year, we have launched 12 new vehicle fitments, including expansion of our aftermarket Live Valve offerings. Our industrial business unit in PVG is also building a robust pipeline of products and services, which we expect to make public by early 2027.

In the UTV sector, Kawasaki announced this week their newest vehicle, the Teryx H2, with our advanced chassis control system, which is a fully integrated, electronically controlled linkage solution. The end links working together as one integrated unit in combination with our Live Valve shock package, providing, we believe, the best driving experience from both a performance and safety perspective. The adoption of our proprietary ECU continues to grow as well, with three distinct OEs now incorporating it into their halo models. This milestone clearly demonstrates our ability to deliver enhanced value beyond what has traditionally been a mechanical passive solution. Earlier this week, Polaris also launched their new RZR Pro R Boost, which utilizes our 3.0 Live Valve X2 shocks.

In automotive, we were awarded a new vehicle with an existing OEM that will drive meaningful volume in 2028, continuing to expand that customer portfolio with Fox in a meaningful way. We also recently received a new award in the electric vehicle market. This is an entirely new automotive OEM for Fox and incorporates our advanced technology on an autonomous vehicle. This represents a significant step in our journey. This product should begin shipping at the tail end of 2026 and drive incremental volume in 2027. All of the above supports our belief that we can continue to grow our brand in traditional markets as well as develop novel applications using our software-defined technology, delivering significant incremental revenue over the next several years in PVG.

AAG delivered net sales of $109.6 million, a decrease of 4% year-over-year, reflecting an impact of approximately $5.5 million from the divestiture of our Phoenix operations, partially offset by strength in our aftermarket products businesses. Excluding the divestiture impact, the segment grew modestly year-over-year, even with the reduction in Ford F-150 volumes in PVD. AAG adjusted EBITDA dollars were up, with the segment margin improving approximately 70 basis points year-over-year and roughly 500 basis points sequentially. Our aftermarket components business grew year-on-year with categories like Custom Wheel House, RideTech and Sport Truck continuing to benefit from product launches and consistent demand. At the current interest rate levels, we are seeing aspirational customers who can't afford to buy new trucks pivot to investing in the trucks they already have, and that plays directly to our diversified aftermarket portfolio.