Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Fox Factory Holding Corp.'s Fourth 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 fourth quarter 2025 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, 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, uncertainties, many of which are outside of 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 statement 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 fourth quarter call today. I want to use our time today to do something beyond a traditional quarter recap. While we'll cover our fourth quarter results, the more important conversation is about where this business is headed and the specific actions we are taking to improve profitability. We have a comprehensive plan. We're executing against it, and we want to make sure you leave with a clear understanding of the building blocks and how they translate into meaningful improved margins. To this end, we've shifted our guidance approach to lead with adjusted EBITDA to better align with the goals we will outline today and importantly, so you can more easily measure our results. Full year sales were $1.47 billion, which was an increase of 5.3% and fourth quarter sales were $361.1 million, which was an increase of 2.3%. While we demonstrated the relevance of our brands and products across our end markets, our margin performance was not where it needs to be. Revenue growth alone is not the objective. Profitable growth is. And the actions we're laying out today are designed to close that gap with urgency. Ultimately, we are a growth company, and our product pipeline is focused on sustainable long-term growth. However, in the near term and specifically 2026, we must rebuild profitability to establish the appropriate foundation for future growth. We began our initial cost reduction program at the beginning of 2025 with a goal of setting the company on a path to restore our historical adjusted EBITDA margins to the mid- to high teens and accelerate our path to balance sheet improvement. I'm pleased that we successfully delivered our Phase 1 $25 million profit optimization plan on target and on time. This was a comprehensive effort focused…

Thanks, Mike. I'll begin by discussing our fourth quarter financial results, followed by our balance sheet, cash flow and capital allocation strategy before concluding with a review of our outlook for fiscal 2026. Total consolidated net sales in the fourth quarter of fiscal 2025 were $361.1 million, an increase of 2.3% versus the same quarter last year. Gross margin was 28.3% for the fourth quarter of fiscal 2025 compared to 28.9% in the fourth quarter last year, with the decrease primarily driven by shifts in our product line mix and impact of tariffs. Total operating expense for the quarter included a noncash goodwill impairment charge of $295.2 million related to our share price. Adjusted operating expenses, which excludes the impact of the goodwill impairment charge, restructuring and other discrete expenses as well as the amortization of purchased intangibles were $82.6 million or 22.9% of net sales in the fourth quarter of 2025 compared to $76.4 million or 21.7% in the prior year quarter, with the increase primarily attributed to the reinstatement of incentive compensation payouts for the current year compared to no bonus payouts for the prior year period. The company's tax benefit was $33 million in the fourth quarter of fiscal 2025 compared to a tax benefit of $4.1 million in the same period last year with the difference being driven by the impairment of nondeductible goodwill recognized this year. Adjusted net income normalizing for the goodwill impairment was $8.3 million or $0.20 per diluted share compared to $12.8 million or $0.31 per diluted share in the fourth quarter last year. Adjusted EBITDA in the fourth quarter of fiscal 2025 was $35 million compared to $40.4 million in the prior year period. Adjusted EBITDA margin was 9.7% in the fourth quarter of 2025 versus 11.5% in the prior year…

In closing, I want to leave you with 3 key messages. First, we're not waiting for markets to improve. The actions we are taking now around Phase 2 objectives as well as capital discipline and working capital improvements are within our control, and our team is executing them with precision and urgency. Second, our fiscal 2026 targets are achievable through self-help. Our outlook calls for material margin expansion on flattish organic revenues. That's our commitment. When markets do recover, we'll be positioned to deliver even stronger results. Third, our business is built to deliver long-term growth, and we will ensure that growth comes with the right margin and leverage by taking aggressive action to optimize the system end to end. Our performance-defining products continue to resonate with customers. Our operational foundation is stronger following a significant cycle of investment, and our Board and management team are fully aligned on creating value for our shareholders. I'm confident in our ability to demonstrate progress this year toward our goals. I want to thank our employees for their incredible focus and resilience during this time. The decisions we're making today, while difficult, are necessary to position FOX for sustainable profitable growth. With that, operator, please open the call for questions.

[Operator Instructions] We'll move first to Peter McGoldrick with Stifel.

I appreciate all the detail today. I'd like to dive in on the moving parts on guidance. So I was thinking -- I wanted to ask if -- as we think about the underlying growth profile of your ongoing business, can you talk about the revenue and profitability related to those that are expected to be sold at the end of the quarter and what that means for the organic business?

Well, what we've been doing is taking a look at the overall complexion of the business, looking at those businesses that are dilutive to our overall profile that we've been expecting. So at the end of the day, after we take out Geiser, Upfit UTV and Shock Therapy, which should happen later on this quarter, that's going to result in a couple hundred basis points of improvement there. And then we're going to continue just to look at other businesses along the way. Marzocchi has not been included in any of this as well.

And to be clear, Peter, when we talk about 200 basis points of improvement relative to the Phoenix, Arizona operations, that's for AAG specifically.

It's a great point.

Okay. I appreciate that. And then as we think about the size and the shape of the go-forward business, can you talk about how much of your current portfolio is -- makes up the sort of the core synergistic and accretive criteria that you pointed to that would be a part of your core business and not related to any potential divestitures or changes in the portfolio?

Yes. I think overall, when I think about core and Mike thinks about core, we're thinking SSG Bike is core to our operations. When you look at AAG, core to those operations there are going to be PVD and then your Sport Truck, RideTech, Custom Wheel House and then on PVG, obviously, that is core to who we are as well. Again, though, we're going to be taking a look at everything as we move forward, making sure that it is lining up with the 3 aspects that Mike talked about during his prepared remarks, and that is alignment with our brands and then it's going to be the synergistic nature of that. We've talked about 1 plus 1 equals 3. That needs to continue as well. And then it's got to have the durability of profit generation over the long haul.

We'll move next to Anna Glaessgen with B. Riley Securities.

I'd like -- I'm curious on the thought process behind divesting the Phoenix business, which is focused mostly on Power Sports. I'm curious the extent to which this is a margin play. I don't know the degree to which that was more dilutive than maybe other businesses within the line, maybe a function of the outlook for Power Sports, at least near to medium term. Just any help there as we contemplate maybe what else could be contemplated within the broader portfolio, as you noted, assessing other noncore assets?

Yes, Anna, it's a good question. When we think about that business and the lens that Dennis just described, which I talked about in the earlier remarks, we have to use a lens of these are good businesses. However, at their current size and scale, to get them to be at the scale we need them to be, to be a productive and durable value component of our enterprise, there is heavy investment, and there has been heavy investment and heavy working capital utilization to support that growth curve. And as we look at the next several years, while they're great businesses, they are hard to own in our portfolio because of the draw on capital, the draw on SG&A and the dilution in the margin for that time frame. So we actually will continue to partner with these companies in product development and innovation in a lot of ways. This is not about us just exiting them in a way that we will never work with them again. That's not the point. The point is in our current portfolio, they just don't fit and the dilution effect over the next 2 years is significant enough that we need to do something different. So this is a well thought out process that we've started in Q4 and, as we've mentioned, executing in Q1.

And then on the guidance, you referenced 3 separate points that are being contemplated in sales, the business divestment, some product rationalization and then thirdly, a down market. Would it be possible to frame up roughly your expectations across the end markets in 2026?

In general here, when we talk about the top line, I mean, essentially, what we're getting at is we are going to scale down the business through thoughtful divestitures and product line rationalization. That will be the bulk of that decrease of about 6.5% at the midpoint. In addition, as we look at SG&A and those expenses, we would be -- we need to consider that if we're going to reduce some of those expenses, they're going to have some impact on the top line. So that's another aspect of it. And then in general, we're just hedging against a macro environment that's a little weaker. And so while we always expect our products to outperform, we're trying to put a hedge on the overall market there as well. And so I'd leave you in summary with its divestitures, product line rationalization result in the bulk of the decrease, then it would be the impact of the cost-outs on the SG&A line that deliver that 6.5% decrease.

We'll move next to Scott Stember with ROTH Capital.

Can you talk about tariffs? What was the net impact to the business? I don't know if you mentioned it or not in '25? And what is baked into guidance at this point, assuming no material changes with all the happenings as of late?

Yes. So that's a great question. Thanks for that. And so essentially, what we experienced in 2025 was $50 million of gross tariff impact. We were able to offset $25 million of that through cost-out initiatives, et cetera, with supply chain, passing on cost to suppliers and customers, et cetera. And then going forward into 2026, we're estimating an additional $30 million of gross tariff impact, and we expect to mitigate about 50% of that. So leaving a net tariff impact in the first half of 2026 of $15 million.

And we have not [indiscernible] or input from the most recent noise you mentioned. We -- I think it's too early to try to input some sort of benefit from those -- from the statements and from the Supreme Court.

Got it. And then last question on the balance sheet and cash flow. What was the net leverage ratio at the end of the quarter -- at the end of the year? And what are you targeting as far as free cash flow and the leverage ratio by the end of '26?

Yes. So another great question. Balance sheet is obviously a key priority for us moving into 2026 as it was in 2025 as well. We finished comfortably in Q4. We are at 3.74 versus a covenant ratio of 4.5. So we are well within the range there. And as we move forward, cash flow is really going to be primarily a function of the EBITDA contribution that we'll be driving in 2026, along with extreme focus on working capital reductions as well and a reduction in our CapEx. So those are going to be some of the big drivers as we move forward into 2026.

We'll take our next question from Craig Kennison with Baird.

A lot of information to process. I wanted to follow up on Scott's question with respect to tariffs. Do you plan to pursue a refund of your tariff payments?

We will do everything possible to get a refund for sure. Now how that works and how that plays out and when that actually arrives, we are not going to put in the guide because that is a crystal ball we cannot see through.

And then as we look at the businesses that you plan to divest, the way you're speaking about them suggests you have a buyer in place. Can you confirm that's true? And then how would you plan to use the proceeds from any sale?

That's true and debt reduction.

100% debt reduction.

It's pretty simple, pretty straightforward.

And this does conclude the Q&A portion of today's program. I would now like to turn the call back to Mike Dennison for any closing remarks.

Thanks for your time today, everybody, and we will talk to you soon. Have a good evening.

This does conclude the Fox Factory Holding Corporation's fourth quarter 2025 earnings call. You may now disconnect your line and have a great day.