High-performance off-road vehicle launches highlight innovation and premium product focus.
Strategic Focus and Outlook
Emphasis on innovation, premium positioning, and OEM partnerships despite macroeconomic headwinds.
Continuous workforce optimization and spending reduction to maintain lean operations.
Full-year 2024 sales guidance adjusted to $1.53 billion to $1.61 billion, with adjusted EPS in the range of $2.30 to $2.55.
Q2 2024 expected sales range from $340 million to $360 million, with adjusted EPS of $0.30 to $0.40.
Capital Management
Inventory reduction of $17.9 million in Q1, reflecting continuous improvement efforts.
Net leverage at 2.9x; $25 million in shares repurchased in Q1.
Revolver and term loan balances detailed, with continued investment in R&D and capital expenditures.
Forward-Looking Statements
Despite industry headwinds, optimism for H2 2024 driven by product launches and OEM market share gains.
Adjustments to full-year guidance reflect caution due to prolonged high interest rates and macro pressures.
Question and Answer
Back-Half Guidance and Interest Rates Impact
Question
Is the back-half guidance of the company mostly in line with previous expectations, and to what extent is the potential impact of lower interest rates factored into this guidance?
Answer
The back-half guidance is in line with the company’s product launch and market share plans, with the primary difference being the potential impact of lower interest rates.
Lower interest rates are expected to have the most significant effect on the power sports and aftermarket automotive upfit truck segments.
Impact of Interest Rates on Customized and High-Content Vehicles
Question
Are customers of customized and high-content vehicles, such as the Fox Factory Truck, expected to be less affected by lower interest rates compared to other segments?
Answer
Yes, customers of customized and high-content vehicles are likely to be less affected by lower interest rates, as demonstrated by the strong demand for the Fox Factory Truck, which is sold directly to customers.
Bike Market Recovery and Q1 Performance
Question
What factors contribute to the confidence that the bike market has reached its bottom, and is a significant recovery expected in the coming quarters?
Answer
Several positive indicators suggest a bike market recovery, including Q1 performance exceeding expectations, Q2 bookings surpassing Q1, and a significant increase in product launches compared to previous years.
The company also highlights the improved health of European customers and the positive reception of new bike products.
Power Sports and Auto OEM Production
Question
Was the decline in gross margin primarily due to power sports, and what were the trends in auto OEM production schedules during the first quarter and expectations for the rest of the year?
Answer
Yes, the decline in gross margin was primarily driven by the power sports segment.
The auto OEM production schedules for the rest of the year are expected to remain consistent with current plans, as the company has good visibility due to long lead times in the automotive industry.
Gross Margin and Cost Management
Question
Can you provide more details on the drivers of gross margin compression in the organic business, and how is the company managing costs to mitigate the impact of lower volumes?
Answer
The main driver of gross margin compression is lower volume and the resulting impact on operating leverage.
The company is actively managing costs by optimizing its plants and operating expenses, while also being cautious not to make deep cuts that could hinder the ability to ramp up production when demand recovers.
PVG Inventories and Demand
Question
The prepared remarks mentioned PVG inventories. Can you clarify if this refers to the company’s inventories or channel inventories, and provide more details on the inventory situation in the power sports segment?
Answer
The reference to PVG inventories in the prepared remarks pertains to the company’s own inventory management within the PVG segment, where efforts are being made to reduce inventory in line with the decline in the business.
Channel inventories in the power sports segment are experiencing challenges, but the company expects these to be cleared up by year-end due to focused efforts by major players in the industry.
Bike Channel Inventories and Cancellations
Question
Can you provide an update on the current status of channel inventories in the bike market and whether the level of last-minute cancellations has decreased in 2024?
Answer
Channel inventories in the bike market vary across different OEMs, with smaller and European manufacturers generally performing better in inventory management.
The level of last-minute cancellations has eased in 2024, with purchase orders being placed further in advance and a more positive outlook on inventory management.
Marucci Growth and Synergies
Question
Can you provide an update on the growth potential for Marucci, now that the company has owned it for six months, and discuss the opportunities for synergies and cost optimization with this acquisition?
Answer
Marucci is expected to be a double-digit growth business for the company, with growth in the low double digits anticipated for the foreseeable future.
The primary synergies and cost optimization opportunities with the Marucci acquisition lie in the supply chain, factory management, vertical integration, and design processes, which are currently being explored for potential implementation in 2025.
Powersports Market and Diversification
Question
Can you provide more details on the current trends in the powersports market, including inventory levels, demand, and conversion rates, and discuss the importance of diversification in mitigating market challenges?
Answer
The powersports market remains soft, with seasonal variations and some impact from a poor snow season.
The company emphasizes the importance of diversification, particularly through aftermarket and disruptive, high-margin products like Marucci, which help the company maintain control, relevance, and market differentiation.
Bike Market Bottoming and Growth
Question
Can you clarify the timing of the bike market bottom and potential return to growth, and address any discrepancies with the statements made by another public supplier, Shimano?
Answer
While Shimano’s statements about the bike market bottoming in the third quarter and returning to growth in the fourth quarter may apply to the overall market, the company believes that the high-end, niche segment where it operates could experience a quicker turnaround, potentially as early as the first or second quarter.
Prepaid Balances and Margin Risks
Question
Can you elaborate on the challenges related to prepaid balances, particularly in terms of older model inventory, and discuss any potential impact on margins in the back half of the year?
Answer
Any prepaid balances currently on the books are associated with newer model chassis, so there is no significant risk to margins from older models.
The mention of prepaid balances primarily relates to the working capital impact and the seasonality of prepaids being billed during this time of the year.
Bike Product Launch Volumes and Dealer Caution
Question
Given the cautious approach of dealers due to floor plan and interest rate concerns, what is the expected size of the 2025 bike product launch in terms of volumes, despite the threefold increase compared to previous years?
Answer
The company remains conservative in its volume expectations for the 2025 bike product launches, as it acknowledges the dealer caution and the need for new and compelling products to drive demand.
Fox Factory Truck and Upfitting Strategy
Question
Can you provide more details on the Fox Factory Truck and the upfitting strategy for both trucks and side-by-sides, including the potential for cannibalization and the target market for these premium products?
Answer
The Fox Factory Truck represents a premium, high-content vehicle that is positioned well above standard factory production trucks, targeting a niche market of affluent and performance-oriented customers.
There is minimal concern about cannibalization, as these offerings are distinct from standard products and have the potential to open new doors and partnerships within the industry.
