Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Fox Factory Holding Corp.'s Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I'd now like to turn the conference over to Toby Merchant, Chief Legal Officer at Fox Factory Holding Corp. Thank you, sir. You may begin.

Thank you. Good afternoon, and welcome to Fox Factory's Third Quarter 2025 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. 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. 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, and 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 in 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, and 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 as 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. And with that, it is my pleasure to turn the call over to our CEO, Mike Dennison.

Thanks, Toby, and thanks to everyone for joining our Q3 call. In the quarter, we delivered net sales of $376.4 million, up 5% year-over-year and adjusted EBITDA of $44.4 million, up 6% year-over-year, led by growth in both AAG and PVG. Our SSG segment underperformed expectations during the quarter, particularly within Marucci. While we made the right investments in product innovation, including successful new bat launches and category expansion, the impact of those actions were outweighed by a softening of the consumer environment throughout the quarter as our channel partners responded by significantly reduced inventory ahead of year-end. This underperformance is reflected in our updated full year outlook, which we will cover. Our overall third quarter results demonstrate the power of our strategy even in challenging environments like this. We're executing our product road map with strong innovation across all 3 segments, and we're seeing strategic customer engagement reach new levels. Whether deeper integration with truck manufacturers, expanded platform adoptions in powersports or new bike partnerships, we're becoming more embedded in our OEMs product strategies. These wins reflect years of relationship building and validate our focus on performance-defining innovation. Our third quarter margins, while improved, continue to reflect investment in product launches with strategic customers. These launches required us to accelerate certain investments and delayed the execution of footprint consolidation activities that were originally timed for early in the third quarter. Those consolidations have since been completed early in the fourth quarter with anticipated benefits to follow. Despite these timing impacts, our $25 million cost reduction target remains on track for the fiscal year. The strategic investments we're making from new bike platforms to expanding our bat portfolio into adjacent categories like softball are setting the foundation for future revenue and margin expansion. We remain focused on delivering innovation our…

Thanks, Mike. I'll begin by discussing our third quarter financial results, followed by our balance sheet, cash flow and capital allocation strategy before concluding with a review of our guidance for the fourth quarter and full year. Total consolidated net sales in the third quarter of fiscal 2025 were $376.4 million, an increase of 4.8% versus the same quarter last year, reflecting growth in AAG and PVG, partially offset by a decline in SSG. Our gross margin was 30.4% for the third quarter of 2025 compared to 29.9% in the third quarter last year, primarily driven by favorable shifts in our product line mix. Third quarter margins include the impact of intentional timing shifts related to accelerated strategic customer launches in AAG and facility consolidation activities that have since been completed. Total operating expenses were $99.4 million or 26.4% of net sales in the third quarter of fiscal 2025 compared to $88.7 million or 24.7% of sales in the same quarter last year. The increase in operating expense on a dollar basis was driven by investments to support strategic customer launches and product innovation that Mike spoke to and ongoing organizational restructuring initiatives. Adjusted operating expenses, which exclude restructuring and other discrete expenses as well as amortization of purchased intangibles, were $85.7 million or 22.8% of net sales in the third quarter of 2025 compared to $75.8 million or 21.1% in the prior year quarter. The company's tax expense was $2.3 million in the third quarter of fiscal 2025 compared to $0.3 million in the same period last year. Net loss for the third quarter of fiscal 2025 was $0.6 million or $0.02 loss per diluted share compared to net income of $4.8 million or $0.11 per diluted share in the same period last year. Adjusted net income was $9.9…

In closing, our third quarter demonstrates the power of strategic customer engagement and performance-defining innovation. We're more embedded in our customer product strategies than ever before. From truck manufacturers to powersports OEMs and bike brands, these deepening partnerships are creating sustainable competitive advantages. The intentional investments we made in Q3 to accelerate high-value product launches have positioned us to capture significant opportunities and mitigate some of the intensified near-term macroeconomic impacts that we are seeing as we move through Q4 and into 2026. With our facility consolidations complete, our $25 million cost reduction program on track and additional optimization actions to come, we believe we have the operational foundation to deliver both innovation and profitability. I'm confident in our team's execution, our product road map and our ability to translate this to value creation for our stakeholders. With that, operator, please open the call for questions.

[Operator Instructions] And our first question will come from Pete McGoldrick with Stifel.

SSG on the bike side, you pointed to moderating orders on the mountain bike side in line with expectations. Can you quantify the year-over-year revenue progression? And then what the outlook for leaner inventory positioning in the channel means as we look into the fourth quarter?

Yes, Pete, this is Mike. Good question. So when you think about the year-on-year compare, it's a little bit tough in bike because the first half of '25 was higher relative to new product launches that you and I have talked about in the past. So a lot more weight towards the front half, a lot less weight in revenue towards the back half. On the whole, though, think about it, as I've said before, as kind of the stability year. So '24, '25 looking very much the same from a stability perspective, which sets us up for kind of the new baseline into '26. When we think about Q4, really, we're focused on kind of SSG in total, but I'll talk about bike specifically, it's really a retail story. As we think about the inventory levels associated with a lot of these dealers, distributors and even OEMs, as they go to the end of the year, they don't want to get overburdened with inventory so they can have another robust '26 first half relative to new product launches. So we're seeing a fairly significant change in the way they order, and that's reflected back again through mainly retail and distribution. So that's why we think about Q4 as really not a product story, but a retail story and how they're thinking about the macro. Does that make sense?

Yes, that's helpful. I also wanted to change gears and talk about the budgeting process as you look to align your cost structure and achieve your free cash flow vision. Can you help us think about what that means, whether in magnitude of cost realignment or the areas of opportunity that we might be considering as we turn the page into 2026?

Yes, it's great because I'm really focused on '26. We have a lot of work to do in Q4, but the work we do in Q4 is really a function of what we deliver in '26, as you know. When I think about '26, I'm really thinking about the investments made in '24 and '25, which were significant relative to product, relative to capacity and innovation. That CapEx story, as you probably remember, was kind of a 3% of revenue story. And while we're not -- it's too early to guide '26, so this is not a guide. But when you think about things like investment in CapEx, think about '25 was kind of a 3%-ish of revenue story. We're built for what we need. So when you think about CapEx in '26, Pete, think about something kind of sub-1. That's a good example of kind of how we think about investments in '26 and what we can do with what we've built versus what we need to go build. I think there's a lot more work to be done. One thing that I would tell you is hope is not a plan. When we think about '26 and the actions we need to take in Q4 and Q1 to deliver the '26 that we all expect, including yourself, it's a function of not just cost reduction, but true optimization and making these businesses, helping these businesses perform at a profitability level that is commensurate with what we expect.

Our next question will come from Larry Solow with CJS Securities.

It's actually Lee Jagoda for Larry.

We knew it wasn't Larry. So you don't sound like Larry either, but that's okay. Go ahead.

I do my best. Mike, starting on the PVG side, I think you made some comments that the aluminum supplier fire was impacting supply chains and your sales in both Q4 and likely in Q1. Is there any way to quantify that relative to the sort of the miss versus consensus in the guide for revenue in Q4?

Well, I think the best way to quantify it because, again, that's a bit of a moving target. We actually think that resolves itself sometime mid-Q1. Pretty hard to depict exactly where that lands just yet, but it's for sure, a significant issue across Q4. But when you think of Q4, it's really a tale of 2 cities. One is that fire, which not only impacts the PVG OEM automotive business, but AAG relative to chassis. So you have to think about it in both of those camps, and it's not insignificant in either one. The other half of that change in guide is purely a reflection of the retail environment that I talked about earlier with Pete. So those are really the 2 buckets within the change for Q4. Outside of that, we believe the businesses will perform as they did in Q3 and continue.

Got it. And I guess I'll follow up, Pete, and ask some questions about 2026. I think in your prepared remarks, you made the comment that the macro is increasingly challenging. Can you talk about the various end markets that you're selling and the expectations for growth in 2026? Or -- and if not, kind of why not? And then on the things that you can control in terms of new product development, new product launches, how should we think about the stuff in your control leading to growth in 2026 outside of whatever the end markets are going to do?

That's a big question. There's a couple of pieces to that. One, think about it from the standpoint of where we have control over the channel in which we sell, think about AAG and upfitted trucks or our relationship with our big OEMs in automotive and powersports. Those are fairly intact. And our ability to drive growth in those markets is easier than it is in retail environments where we need to work within the confines of a major retailer or even a smaller bike retailer who is trying to deal with the implications of the macro and government shutdowns and all the stuff you're aware of. So when I think about growth, what we can control is ensuring as we did in Q3 and as we'll continue to do to make sure we deliver that premium performance product. We still believe, and I think it's showing itself in terms of Q3 revenue growth, that if we develop the best premium performance product, we will still have an enthusiast who is willing to get -- to spend money to buy our products. So we are very -- we continue to be very fixated on delivering those product launches per our plan. That aside, when we think about '26, just to kind of give you an early view, I'm focused on profitability, ensuring that we deliver the product launches to make sure our product resonates with those enthusiasts, that's job 1. But job 1.1 is ensuring that we optimize this business to get to the profitability regardless of that top line in 2026. So that's really where the focus is. Again, too early to guide, but you're getting kind of a sense of where I'm going to spend my time and energy.

[Operator Instructions] And our next question will come from Anna Glaessgen with B. Riley.

I think you alluded to it in the prepared remarks talking about labor issues with a key OEM in SSG. We saw reports of an import ban on Giant hitting late in September. To what extent is that being contemplated in the 4Q guide down?

Yes. I mean the labor issues continue to be a challenge for our OEM customers, some specifically that have been reported on. So it doesn't -- it's not a tailwind. It's a headwind. How much of a headwind, I think, is still fairly fluid. We assume it's not going to be insignificant in Q4. I think those OEMs will work through it. However, as one of many extraneous events that causes challenges for that business on a near-term basis. So we'll keep working through it. The upside of all of it could be defined as -- you've seen the reports, Anna, from a lot of those companies who do report kind of what their industry, what their business is doing relative to the current macro and bike. Being flat year-on-year is predominantly a really strong positive when you look at kind of what everybody else is going through. So while we don't expect significant growth this year or potentially even next year in bike, the fact that we can remain healthy relative to our product, I think, is what we have to focus on and ensuring that we just continue to optimize that business as best we can.

Got it. And then turning to auto. One of the things on some of the OEM earnings calls a couple of weeks ago, the potential ramifications or tailwinds from listed environmental compliance rules. So potentially suggesting that some of the heavier hitters like Raptor, Tremor, et cetera, might have supply unlocked as they don't have to constrain them as much. Is there any way to think through the possible tailwind as volume is unlocked there?

I think the tailwind is what we've talked about in the past, which is the profitability for these vehicles in the premium sector of automotive tend to outrun the general pace of automotive typically. And so while we play in that space and continue to grow in that space, I think the unlock for us is significant, which is why we're so positive on PVG. The growth rate in Q3 was a significant step up for them. And while it's a little bit lumpy because we're defining and developing product for 2, 3, 4 years out. So it's not always incredibly completely linear. In total is a good growth story for us. So I actually agree with you. I think those products tend to do better in a tough macro, and we're on the right products.

Got it. And then just one more, if I could, kind of trying to tackle the macro question in a different way. In the past, you've talked about how the premium trucks within upfitting are selling a lot better than maybe in the $60,000 range. Is that still the case? And any more color you can provide on the various segments within the auto upfit business to understand the macro impact?

If you deliver the right product, and again, a good example is AAG in Q3 that grew over 17%. If you deliver the right product at a more premium class than kind of the common meat and potatoes of that business, you'll win. And so the growth was a direct reflection of delivering the right product at the right price points, which are more premium than the average truck on a lot.

At this time, I would like to turn the floor back over to Mike Dennison for any concluding remarks.

Thanks for the time today, and we look forward to talking to you soon.

This does conclude the Fox Factory Holding Corporation's Third Quarter 2025 Earnings Call. You may now disconnect your line, and have a great day.