Fox Factory’s Q3 Sales Jump 23 Percent

Fox Factory Holding Corp sales for the third quarter were $260.7 million, an increase of 23.4 percent year-over-year.  The increase in sales reflects a 17.7 percent increase in Powered Vehicles Group sales and a 32.4 percent increase in Specialty Sports Group sales.

The increase in Powered Vehicles Group products is primarily due to 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 original equipment manufacturer (“OEM”) and aftermarket channels.

Gross margin was 34.3 percent for the third quarter of fiscal 2020, a 130 basis point increase from gross margin of 33.0 percent in the third quarter of fiscal 2019. Non-GAAP adjusted gross margin increased 110 basis points to 34.5 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 favorable product and channel mix including the impact of the SCA acquisition.

Total operating expenses were $43.9 million for the third quarter of fiscal 2020, compared to $34.5 million in the third quarter of fiscal 2019. The increase in operating expenses is primarily due to the inclusion of SCA operating costs of $4.4 million, amortization expense of $3.6 million and acquisition-related compensation costs of $1.3 million. As a percentage of sales, operating expenses were 16.8 percent for the third quarter of fiscal 2020, compared to 16.3 percent in the third quarter of fiscal 2019. Non-GAAP operating expenses were $36.4 million, or 14.0 percent of sales in the third quarter of fiscal 2020, compared to $31.5 million, or 14.9 percent, of sales in the third quarter of the prior fiscal year.

The company’s effective tax rate was 12.5 percent in the third quarter of fiscal 2020, compared to an effective tax rate of 12.9 percent in the third quarter of fiscal 2019.

Net income attributable to FOX stockholders in the third quarter of fiscal 2020 was $38.0 million, compared to $29.5 million in the third quarter of the prior fiscal year. Earnings per diluted share for the third quarter of fiscal 2020 were $0.90, compared to earnings per diluted share of $0.75 for the third quarter of fiscal 2019.

Non-GAAP adjusted net income was $45.4 million, or $1.07 of adjusted earnings per diluted share, compared to adjusted net income of $32.7 million, or $0.83 of adjusted earnings per diluted share in the same period of the prior fiscal year.

Adjusted EBITDA in the third quarter of fiscal 2020 was $60.1 million, compared to $43.6 million in the third quarter of fiscal 2019. Adjusted EBITDA margin in the third quarter of fiscal 2020 was 23.1 percent, compared to 20.6 percent in the third quarter of fiscal 2019.

“Our record third-quarter results demonstrate not only the success of our superior products but also the phenomenal resilience and execution by our entire global team. With the swift allocation of resources, we were able to take advantage of the strong demand trends within our end markets while still driving gross margin improvement amid an uncertain and complex manufacturing environment” commented Mike Dennison, FOX’s chief executive officer.

“The FOX brand is resonating with consumers who are seeking innovative products with high performance and industry-defining capabilities, which is evident in the exceptional 32 percent revenue growth of our Specialty Sports Group. FOX’s premium brand positioning is a key differentiator for OEM partners and aftermarket enthusiasts, and our Powered Vehicles Group is the beneficiary of our long heritage as an industry pioneer. Based on the strength of our year-to-date results and our expectation for momentum to continue through the fourth quarter, we are pleased to reinitiate annual guidance for 2020,” Dennison continued.

First Nine Months Fiscal 2020 Results
Sales for the nine months ended October 2, 2020, were $628.2 million, an increase of 11.2 percent compared to the same period in 2019. Sales of Powered Vehicle and Specialty Sports products increased 8.8 percent and 14.8 percent, respectively, for the first nine months of 2020 compared to the prior-year period.

Gross margin was 32.8 percent in the first nine months of fiscal 2020, a 40 basis point increase, compared to a gross margin of 32.4 percent in the first nine months of fiscal 2019. On a non-GAAP basis, adjusted gross margin increased 30 basis points, excluding the effects of strategic transformation and acquisition-related costs. The increase in year-to-date gross margin was primarily due to the impact of the SCA acquisition and a change in product and channel mix partially offset by incremental cost due to government-mandated closures in response to the COVID-19 pandemic.

Net income attributable to FOX stockholders in the first nine months of fiscal 2020 was $58.9 million, compared to $70.5 million in the first nine months of the prior year. Earnings per diluted share for the first nine months of fiscal 2020 was $1.46, compared to $1.80 in the same period of fiscal 2019.

Non-GAAP adjusted net income in the first nine months of fiscal 2020 was $85.6 million, or $2.12 of adjusted earnings per diluted share, compared to $80.9 million, or $2.07 of adjusted earnings per diluted share in the same period of the prior fiscal year.

Adjusted EBITDA increased to $125.1 million in the first nine months of fiscal 2020, compared to $111.8 million in the first nine months of fiscal 2019. Adjusted EBITDA margin increased to 19.9 percent in the first nine months of fiscal 2020, compared to 19.8 percent in the first nine months of fiscal 2019.

Balance Sheet Highlights
As of October 2, 2020, the company had cash and cash equivalents of $278.2 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 $135.7 million as of October 2, 2020, compared to $128.5 million as of January 3, 2020. As of October 2, 2020, accounts receivable and accounts payable were $114.1 million and $101.4 million, respectively, compared to $91.6 million and $55.1 million, respectively, as of January 3, 2020. The changes in inventory, accounts receivable and accounts payable reflect seasonality as well as the timing of vendor payments. Prepaids and other current assets increased to $31.6 million as of October 2, 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.

In property, plant and equipment, the net was $156.8 million as of October 2, 2020, compared to $108.4 million as of January 3, 2020, reflecting capital expenditures of $46.0 million as well as the acquisition of SCA.

Total debt was $389.2 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
For the fourth quarter of fiscal 2020, the company is reinitiating guidance and now expects sales in the range of $240.0 million to $250.0 million and non-GAAP adjusted earnings per diluted share in the range of 72 cents to 80 cents a share.

For the fiscal year 2020, the company expects sales in the range of $868.2 million to $878.2 million and non-GAAP adjusted earnings per diluted share in the range of $2.84 to $2.92. Its guidance assumes there are no additional government restrictions or other unforeseen COVID-19-related impacts.

Photo courtesy Fox Factory