Fox Factory Holding Corp. reported earnings on an adjusted basis fell 25.9 percent in the second quarter ended July 3 as revenues declined 4.7 percent. The sales decline reflects a 14.5 percent decrease in Powered Vehicles Group sales, partially offset by a 10.0 percent increase in Specialty Sports Group sales.

Second Quarter Fiscal 2020 Highlights

  • Sales decreased 4.7 percent to $183.1 million, compared to $192.1 million in the same period last fiscal year
  • Gross margin increased 40 basis points to 32.8 percent, compared to 32.4 percent in the same period last fiscal year; non-GAAP adjusted gross margin increased 40 basis points to 33.1 percent compared to the same period last fiscal year
  • Net income attributable to Fox stockholders was $12.6 million, or 6.9 percent of sales and $0.32 of earnings per diluted share, compared to $22.9 million, or 11.9 percent of sales and $0.59 of earnings per diluted share in the same period last fiscal year
  • Non-GAAP adjusted net income was $19.7 million, or $0.50 of adjusted earnings per diluted share, compared to $26.6 million, or $0.68 of adjusted earnings per diluted share in the same period last fiscal year
  • Adjusted EBITDA was $33.7 million, or 18.4 percent of sales, compared to $38.2 million, or 19.9 percent of sales in the same period last fiscal year

“Fox’s resilient second-quarter results reflect the strength of our diversified customer base and performance-defining product portfolio, as well as the commitment and dedication of our talented management team,” commented Mike Dennison, FOX’s chief executive officer. “We overcame an unprecedented shutdown of our U.S. factories and economy associated with the COVID-19 pandemic which lasted for over half of our quarter and we were able to not only effectively restart our business but support an incredibly strong surge in demand for our products across all channels. In addition, our Specialty Sports Group was a standout success in the quarter, exceeding our pre-COVID-19 expectations and delivering 10.0 percent growth.”

“We remain optimistic and confident about the growth opportunities ahead of us, grounded in our strategic initiatives as well as the consumer loyalty and power of the FOX brand,” Dennison went on to say.

Sales for the second quarter of fiscal 2020 were $183.1 million, a decrease of 4.7 percent as compared to sales of $192.1 million in the second quarter of fiscal 2019. This decrease in sales reflects a 14.5 percent decrease in Powered Vehicles Group sales, partially offset by a 10.0 percent increase in Specialty Sports Group sales. The decrease in Powered Vehicles Group products is primarily due to impacts of COVID-19, including production shutdowns at certain OEM customers, partially offset by the impact of SCA, a subsidiary that was acquired in March 2020. The increase in Specialty Sports Group products is primarily driven by increased demand in both the OEM and aftermarket channels.

Gross margin was 32.8 percent for the second quarter of fiscal 2020, a 40 basis point increase from gross margin of 32.4 percent in the second quarter of fiscal 2019. Non-GAAP adjusted gross margin increased 40 basis points to 33.1 percent from the same prior fiscal year period, excluding the effects of strategic transformation and acquisition-related costs. The increase in gross margin was primarily due to the impact of the SCA acquisition, product and channel mix, and improvement in supply chain efficiencies, partially offset by higher factory related costs including incremental costs related to COVID-19. A reconciliation of gross profit to non-GAAP adjusted gross profit and the resulting non-GAAP adjusted gross margin is provided at the end of this press release.

Total operating expenses were $40.6 million for the second quarter of fiscal 2020 compared to $32.7 million in the second quarter of fiscal 2019. The increase in operating expenses is primarily due to the inclusion of SCA operating costs of $4.5 million, amortization expense of $3.7 million, and acquisition-related compensation costs of $1.2 million, partially offset by reductions in various other expenses.

As a percentage of sales, operating expenses were 22.2 percent for the second quarter of fiscal 2020, compared to 17.0 percent in the second quarter of fiscal 2019. Non-GAAP operating expenses were $32.7 million, or 17.9 percent of sales in the second quarter of fiscal 2020, compared to $29.0 million, or 15.1 percent of sales in the second quarter of the prior fiscal year. Reconciliations of operating expenses to non-GAAP operating expenses are provided at the end of this press release.

The company’s effective tax rate was 19.5 percent in the second quarter of fiscal 2020, compared to an effective tax rate of 16.2 percent in the second quarter of fiscal 2019.

Net income attributable to Fox stockholders in the second quarter of fiscal 2020 was $12.6 million, compared to $22.9 million in the second quarter of the prior fiscal year. Earnings per diluted share for the second quarter of fiscal 2020 were $0.32, compared to earnings per diluted share of $0.59 for the second quarter of fiscal 2019.

Non-GAAP adjusted net income was $19.7 million, or $0.50 of adjusted earnings per diluted share, compared to adjusted net income of $26.6 million, or $0.68 of adjusted earnings per diluted share in the same period of the prior fiscal year. Reconciliations of net income attributable to Fox stockholders as compared to non-GAAP adjusted net income and the calculation of non-GAAP adjusted earnings per diluted share are provided at the end of this press release.

Adjusted EBITDA in the second quarter of fiscal 2020 was $33.7 million, compared to $38.2 million in the second quarter of fiscal 2019. Adjusted EBITDA margin in the second quarter of fiscal 2020 was 18.4 percent, compared to 19.9 percent in the second quarter of fiscal 2019. Reconciliations of net income to adjusted EBITDA and the calculation of adjusted EBITDA margin are provided at the end of this press release.

First Six Months Fiscal 2020 Results
Sales for the six months ended July 3, 2020, were $367.5 million, an increase of 3.9 percent compared to the same period in 2019. Sales of Powered Vehicle and Specialty Sports products increased by 3.3 percent and 4.7 percent, respectively, for the first six months of 2020 compared to the prior-year period.

Gross margin was 31.7 percent in the first six months of fiscal 2020, a 30 basis point decrease, compared to the gross margin of 32.0 percent in the first six months of fiscal 2019. On a non-GAAP basis, adjusted gross margin decreased 30 basis points, excluding the effects of strategic transformation and acquisition-related costs. The decrease in year-to-date gross margin was primarily due to factory costs incurred during the government-mandated closures in response to COVID-19, partially offset by a change in product and channel mix, and the impact of the SCA acquisition. A reconciliation of gross profit to non-GAAP adjusted gross profit and the resulting non-GAAP adjusted gross margin is provided at the end of this press release.

Net income attributable to FOX stockholders in the first six months of fiscal 2020 was $20.9 million, compared to $41.0 million in the first six months of the prior year. Earnings per diluted share for the first six months of fiscal 2020 was $0.53, compared to $1.05 in the same period of fiscal 2019.

Non-GAAP adjusted net income in the first six months of fiscal 2020 was $40.2 million, or $1.02 of adjusted earnings per diluted share, compared to $48.3 million, or $1.23 of adjusted earnings per diluted share in the same period of the prior fiscal year. Reconciliations of net income attributable to FOX stockholders to non-GAAP adjusted net income and the calculation of non-GAAP adjusted earnings per share are provided at the end of this press release.

Adjusted EBITDA decreased to $65.0 million in the first six months of fiscal 2020, compared to $68.2 million in the first six months of fiscal 2019. Adjusted EBITDA margin decreased to 17.7 percent in the first six months of fiscal 2020, compared to 19.3 percent in the first six months of fiscal 2019. Reconciliations of net income to adjusted EBITDA and the calculation of non-GAAP adjusted EBITDA margin are provided at the end of this press release.

Balance Sheet Highlights
As of July 3, 2020, the company had cash and cash equivalents of $218.0 million compared to $43.7 million as of January 3, 2020. The cash balance reflects $198.2 million from the company’s June 2020 common stock offering of 2.8 million shares. Inventory was $148.5 million as of July 3, 2020, compared to $128.5 million as of January 3, 2020. As of July 3, 2020, accounts receivable and accounts payable were $87.7 million and $64.9 million, respectively, compared to $91.6 million and $55.1 million, respectively, as of January 3, 2020. The changes in accounts receivable, inventory and accounts payable reflect the SCA acquisition, seasonality, and the impacts of COVID-19 on the company’s shipment, collection and payment cycles. Prepaids and other current assets increased to $46.1 million as of July 3, 2020, compared to $17.9 million as of January 3, 2020, primarily due to SCA-related items including vehicle chassis deposits and contingent retention incentives held in escrow.

Property, plant and equipment, net was $147.0 million as of July 3, 2020, compared to $108.4 million as of January 3, 2020 reflecting capital expenditures of $32.8 million as well as the acquisition of SCA.

Total debt was $406.4 million, compared to $68.0 million as of January 3, 2020. The increase is primarily due to borrowings to fund the acquisition of SCA in the first quarter of fiscal 2020.

Fiscal 2020 Guidance
Due to the rapidly evolving market conditions domestically and internationally in response to the continued spread of COVID-19, full fiscal 2020 guidance remains suspended as previously reported on April 9, 2020 and the company does not intend to provide quarterly guidance until the effects of the pandemic can be better assessed.

Announces Chief Financial Officer Appointment

Fox also announced today in a separate press release that veteran strategic and financial executive Scott Humphrey was promoted to Chief Financial Officer effective August 4, 2020. Humphrey succeeds interim CFO, John Blocher who reassures the role of Senior VP, Finance.

Photo courtesy Fox Factory