Fox Factory Holding Corp. reported significant earnings improvement in the third quarter ended October 1, 2021. Sales in the quarter rose 33.3 percent. The increase reflects a 48.1 percent increase in Specialty Sports Group sales and a 22.8 percent increase in Powered Vehicles Group sales.

Third Quarter Fiscal 2021 Highlights

  • Sales increased 33.3 percent to $347.4 million, compared to $260.7 million in the same period last fiscal year;
  • Gross margin decreased 90 basis points to 33.4 percent, compared to 34.3 percent in the same period last fiscal year; non-GAAP adjusted gross margin decreased 70 basis points to 33.8 percent compared to 34.5 percent in the same period last fiscal year;
  • Net income attributable to Fox stockholders was $43.8 million, or 12.6 percent of sales and $1.03 of earnings per diluted share, compared to $38.0 million, or 14.6 percent of sales and $0.90 of earnings per diluted share in the same period last fiscal year;
  • Non-GAAP adjusted net income was $50.5 million, or $1.19 of non-GAAP adjusted earnings per diluted share, compared to $45.4 million, or $1.07 of non-GAAP adjusted earnings per diluted share in the same period last fiscal year; and
  • Adjusted EBITDA was $72.8 million, or 21.0 percent of sales, compared to $60.1 million, or 23.1 percent of sales in the same period last fiscal year.

“Through sheer perseverance, Fox’s global team has delivered a fifth consecutive record revenue quarter, despite the disruptive impact of the pandemic on global supply chains, inflation, and labor availability,” commented Mike Dennison, Fox CEO. “I am very proud of our team members who continue to exemplify dedication and commitment to our customers by exceeding expectations and strengthening our brand during this unprecedented operating environment.”

Sales for the third quarter of fiscal 2021 were $347.4 million, an increase of 33.3 percent as compared to sales of $260.7 million in the third quarter of fiscal 2020. This increase reflects a 48.1 percent increase in Specialty Sports Group sales and a 22.8 percent increase in Powered Vehicles Group sales. The increase in Specialty Sports Group sales is driven by continued strong demand in the original equipment manufacturer (“OEM”) channel along with excellent execution by its team in meeting such demand. The increase in Powered Vehicles Group sales is primarily due to strong performance in its upfitting product lines, as well as increased demand in both the OEM and aftermarket channels.

Gross margin was 33.4 percent for the third quarter of fiscal 2021, a 90 basis point decrease from gross margin of 34.3 percent in the third quarter of fiscal 2020. Non-GAAP adjusted gross margin decreased 70 basis points to 33.8 percent from the same prior fiscal year period, excluding the effects of strategic transformation and the amortization of acquired inventory valuation markup. The decrease in gross margin was primarily driven by supply chain-related costs, including increased prices for raw materials and higher freight costs. 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 $60.8 million for the third quarter of fiscal 2021, compared to $43.9 million in the third quarter of fiscal 2020. Operating expenses increased by $16.8 million primarily due to higher employee related costs, higher commission costs and higher investments to right-size ITS administrative support functions. As a percentage of sales, operating expenses were 17.5 percent for the third quarter of fiscal 2021, compared to 16.8 percent in the third quarter of fiscal 2020. Non-GAAP operating expenses were $53.8 million, or 15.5 percent of sales, in the third quarter of fiscal 2021, compared to $36.4 million, or 14.0 percent of sales, in the third quarter of the prior fiscal year.

The company’s effective tax rate was 18.2 percent in the third quarter of fiscal 2021, compared to an effective tax rate of 12.5 percent in the third quarter of fiscal 2020 primarily due to lower tax benefits on stock-based compensation.

Net income attributable to FOX stockholders in the third quarter of fiscal 2021 was $43.8 million, compared to $38.0 million in the third quarter of the prior fiscal year. Earnings per diluted share for the third quarter of fiscal 2021 were $1.03, compared to earnings per diluted share of $0.90 for the third quarter of fiscal 2020.

Non-GAAP adjusted net income was $50.5 million, or $1.19 of adjusted earnings per diluted share, compared to adjusted net income of $45.4 million, or $1.07 of adjusted earnings per diluted share, in the same period of the prior fiscal year.

Adjusted EBITDA in the third quarter of fiscal 2021 was $72.8 million, compared to $60.1 million in the third quarter of fiscal 2020. Adjusted EBITDA margin in the third quarter of fiscal 2021 was 21.0 percent, compared to 23.1 percent in the third quarter of fiscal 2020.

First Nine Months Fiscal 2021 Results
Sales for the nine months ended October 1, 2021 were $956.7 million, an increase of 52.3 percent compared to the first nine months in fiscal 2020. Sales of Specialty Sports products and Powered Vehicle products increased 62.7 percent and 45.2 percent, respectively, for the first nine months of fiscal 2021 compared to the prior year fiscal period. The increase in Specialty Sports Group sales is driven by increased demand, primarily in OEM channel. The increase in Powered Vehicle Group sales is primarily due to increased demand in the aftermarket channel, including strong performance from its upfitting product lines and the inclusion of a full nine months of revenues from its SCA subsidiary. Also, its prior fiscal year period includes the impact of shutdowns at a majority of its OEM partners due to the pandemic.

Gross margin was 34.0 percent in the first nine months of fiscal 2021, a 120 basis point increase, compared to gross margin of 32.8 percent in the first nine months of fiscal 2020. On a non-GAAP basis, adjusted gross margin increased 120 basis points, excluding the effects of strategic transformation and the amortization of acquired inventory valuation markup. The increase in gross margin for the first nine months of fiscal 2021 was primarily due to higher volume sales in its Specialty Sports Group and the strong performance of its upfitting product lines, as well as favorable product and channel mix. Additionally, its gross margin for the first nine months of the prior fiscal year period was negatively impacted by incremental costs related to the pandemic. 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 nine months of fiscal 2021 was $126.1 million, compared to $58.9 million in the first nine months of the prior fiscal year. Earnings per diluted share for the first nine months of fiscal 2021 was $2.98, compared to $1.46 in the same period of fiscal 2020.

Non-GAAP adjusted net income in the first nine months of fiscal 2021 was $146.0 million, or $3.45 of adjusted earnings per diluted share, compared to $85.6 million, or $2.12 of adjusted earnings per diluted share in the same period of the prior fiscal year.

Adjusted EBITDA increased to $202.9 million in the first nine months of fiscal 2021, compared to $125.1 million in the first nine months of fiscal 2020. Adjusted EBITDA margin increased to 21.2 percent in the first nine months of fiscal 2021, compared to 19.9 percent in the first nine months of fiscal 2020.

Balance Sheet Highlights
As of October 1, 2021, the company had cash and cash equivalents of $319.3 million compared to $245.8 million as of January 1, 2021. Inventory was $246.2 million as of October 1, 2021, compared to $127.1 million as of January 1, 2021. As of October 1, 2021, accounts receivable and accounts payable were $159.5 million and $156.5 million, respectively, compared to $121.2 million and $92.4 million, respectively, as of January 1, 2021. The increase in inventory is primarily due to additional raw materials purchases to mitigate risks associated with supply chain uncertainty. The changes in accounts receivable and accounts payable reflect business growth as well as the timing of vendor payments. Prepaids and other current assets were $54.0 million as of October 1, 2021, compared to $87.9 million as of January 1, 2021. Accrued expenses were $98.4 million as of October 1, 2021, compared to $59.4 million as of January 1, 2021. Property, plant and equipment, net increased to $183.7 million as of October 1, 2021, compared to $163.3 million as of January 1, 2021, reflecting capital expenditures of $40.0 million for the nine months ended October 1, 2021.

Fiscal 2021 Guidance
For the fourth quarter of fiscal 2021, the company expects sales in the range of $315 million to $335 million and non-GAAP adjusted earnings per diluted share in the range of $0.90 to $1.10.

For the fiscal year 2021, the company expects sales in the range of $1,272 million to $1,292 million and non-GAAP adjusted earnings per diluted share in the range of $4.35 to $4.55. The company said it expects its full-year effective tax rate to be on the lower end of its previously guided range of 15.0 percent to 19.0 percent.

Photo courtesy Fox Factory