Fox Factory Raises Fiscal Guidance After Solid Q2

Fox Factory Holding Corp. on Thursday reported adjusted net income of $21.9 million, or earnings of 56 cents per diluted share, compared to $15 million, or 39 cents earnings per diluted share, in the same period last fiscal year. The company reported that sales increased 29.8 percent to $156.8 million from $120.8 million in the same period last fiscal year

Gross margin increased 110 basis points to 33.4 percent compared to 32.3 percent in the same period last fiscal year. And adjusted EBITDA was $32.4 million, or 20.7 percent of sales, compared to $24.0 million, or 19.9 percent of sales in the same period last fiscal year

“Our differentiated bike and powered vehicle market positions fueled broad-based strength across our product portfolio, resulting in record second quarter sales and profitability, both of which exceeded our expectations,” said Larry L. Enterline, Fox’s CEO. “We are pleased with our team’s continued execution as we further expand into new and existing end markets building upon our core bike and powered vehicle category capabilities with compelling product innovation. We believe we remain well positioned for future growth, and based on these strong operational and financial results, as well as our outlook for the remainder of the year, we are raising our annual guidance.”

The revenue increase reflected a 46.8 percent increase in sales of powered vehicle products and a 15.1 percent increase in sales of bike products. The increase in sales across markets was primarily due to the continued success of the company’s product lineup, particularly in the OEM channel. Additionally, sales of powered vehicle products includes the company’s recent acquisition of Tuscany.

The improvement in gross margin was primarily due to increased operating leverage on higher volume and improved manufacturing efficiencies.

Total operating expenses were $28.1 million for the second quarter of fiscal 2018 compared to $20.9 million in the second quarter of fiscal 2017. The increase in operating expenses is primarily a result of inclusion of the company’s Tuscany subsidiary, higher patent litigation-related expenses, investments in research and development to support future growth and higher amortization expense on acquired intangible assets.

As a percentage of sales, operating expenses were 18.1 percent for the second quarter of fiscal 2018 compared to 17.2 percent in the second quarter of fiscal 2017. Non-GAAP operating expenses were $23.7 million, or 15.1 percent of sales in the second quarter of fiscal 2018 compared to $19.0 million, or 15.7 percent of sales, in the second quarter of the prior fiscal year. Reconciliations of operating expense to non-GAAP operating expense are provided at the end of this press release.

The company’s effective tax rate was 20.0 percent in the second quarter of fiscal 2018, compared to 22.7 percent in the second quarter of fiscal 2017, resulting in $4.7 million and $4.0 million of tax expense in the respective quarters. The decrease in the effective tax rate was primarily due to the reduction in the US tax rate.

Net income to Fox in the second quarter of fiscal 2018 was $18.4 million, compared to $13.7 million in the second quarter of the prior fiscal year. Earnings per diluted share for the second quarter of fiscal 2018 was $0.47, compared to earnings per diluted share of $0.35 for the second quarter of fiscal 2017.

Adjusted EBITDA in the second quarter of fiscal 2018 was $32.4 million, compared to $24.0 million in the second quarter of fiscal 2017. Adjusted EBITDA margin in the second quarter of fiscal 2018 was 20.7 percent, compared to 19.9 percent in the second quarter of fiscal 2017. Reconciliations of net income to adjusted EBITDA and the calculation of adjusted EBITDA margin are provided at the end of this press release.

Non-GAAP adjusted net income was $21.9 million, or $0.56 of adjusted earnings per diluted share, compared to adjusted net income of $15.0 million, or $0.39 of adjusted earnings per diluted share in the same period of last fiscal year. R

First Six Months Fiscal Year 2018 Results

Sales for the six months ended June 29, 2018, were $286.6 million, an increase of 26.2 percent compared to the same period in 2017. Sales of powered vehicle and bike products increased 40.2 percent and 13.0 percent, respectively, for the first six months of 2018 compared to the prior year period.

Gross margin was 32.8 percent in the first six months of fiscal 2018, an 80 basis point increase compared to gross margin of 32.0 percent in the first six months of fiscal 2017. The year-to-date gross margin improved primarily due to increased operating leverage on higher volume and improved manufacturing efficiencies.

Pre-tax income in the first six months of fiscal 2018 was $38.4 million, compared to $29.0 million in the first six months of fiscal 2017. Adjusted EBITDA increased to $55.5 million in the first six months of fiscal 2018, compared to $43.3 million in the first six months of fiscal 2017. Adjusted EBITDA margin in the first six months of fiscal 2018 was 19.3 percent, compared to 19.0 percent in the first six months of fiscal 2017.

Net income to Fox in the first six months of fiscal 2018 was $39.6 million, compared to $24.3 million in the first six months of the prior year. Earnings per diluted share for the first six months of fiscal 2018 was $1.02, compared to $0.63 in the same period of fiscal 2017. Non-GAAP adjusted net income was $36.0 million, or $0.93 of adjusted earnings per diluted share, compared to $28.6 million, or $0.74 of adjusted earnings per diluted share in the same period of the prior fiscal year.

Balance Sheet Highlights

As of June 29, 2018, the company had cash and cash equivalents of $22.7 million compared to $35.9 million as of December 29, 2017. Total debt was $65.9 million, compared to $98.6 million as of December 29, 2017, reflecting pay down of debt incurred in connection with the company’s 2017 acquisition of Tuscany. Inventory was $95.4 million as of June 29, 2018, compared to $84.8 million as of December 29, 2017. As of June 29, 2018, accounts receivable and accounts payable were $77.9 million and $58.3 million, respectively, compared to December 29, 2017 balances of $61.1 million and $40.8 million, respectively. The changes in inventory, accounts receivable and accounts payable are primarily attributable to business growth and the company’s normal seasonality.

Fiscal 2018 Guidance

For the third quarter of fiscal 2018, the company expects sales in the range of $166 million to $176 million and non-GAAP adjusted earnings per diluted share in the range of $0.59 to $0.67.

For the fiscal year 2018, the company expects sales in the range of $596 million to $614 million and non-GAAP adjusted earnings per diluted share in the range of $1.96 to $2.12 The company’s full year 2018 guidance assumes a non-GAAP tax rate of 19 percent to 21 percent.