Fox Factory’s Q4 Sales Climb 31 Percent

Fox Factory Holding Corp. reported adjusted earnings rose 17.3 percent in the fourth quarter on a 30.5 percent revenue gain.

Fourth Quarter Fiscal 2021 Highlights

• Sales increased 30.5 percent to $342.3 million, compared to $262.4 million in the same period last fiscal year.
• Gross profit increased 28.5 percent to $107.3 million, compared to $83.5 million in the same period last fiscal year. Gross margin percentage decreased 50 basis points to 31.3 percent, compared to 31.8 percent in the same period last fiscal year. Non-GAAP adjusted gross margin percentage decreased 40 basis points to 31.6 percent compared to 32.0 percent in the same period last fiscal year.
• Net income attributable to Fox stockholders was $37.7 million, or 11.0 percent of sales and $0.89 of earnings per diluted share, compared to $31.8 million, or 12.1 percent of sales and $0.75 of earnings per diluted share in the same period last fiscal year.
• Non-GAAP adjusted net income was $44.8 million, or $1.06 of non-GAAP adjusted earnings per diluted share, compared to $38.2 million, or $0.90 of non-GAAP adjusted earnings per diluted share in the same period last fiscal year.
• Adjusted EBITDA was $61.1 million, or 17.8 percent of sales, compared to $51.2 million, or 19.5 percent of sales in the same period last fiscal year.

“I am pleased to report yet another year of record revenue and profitability in 2021, despite an incredibly volatile operating environment filled with numerous inflationary, labor, and supply chain challenges, which were only further exacerbated by the ongoing COVID-19 pandemic,” commented Mike Dennison, FOX’s Chief Executive Officer. “This year’s performance continues to demonstrate our team’s ability to overcome obstacles while laying the foundation for our future success. We recently completed the acquisition of Shock Therapy, a high-performance suspension tuning services company located in Phoenix, Arizona. The addition of Shock Therapy fits seamlessly with our growth strategy by super-charging our services and off-road aftermarket businesses while establishing a meaningful ecosystem around our end consumers. We are optimistic about our prospects as we move into 2022 with solid business momentum, expanded customer relationships, and enhanced production capabilities to serve our customers better than ever.”

Sales for the fourth quarter of fiscal 2021 were $342.3 million, an increase of 30.5 percent as compared to sales of $262.4 million in the fourth quarter of fiscal 2020. This increase reflects a 46.7 percent increase in Specialty Sports Group sales and an 18.6 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, increased capacity, and excellent execution by our team in meeting the needs of our customers. The increase in Powered Vehicles Group sales is primarily due to strong performance in our upfitting product lines.

Gross margin was 31.3 percent for the fourth quarter of fiscal 2021, a 50 basis point decrease from the gross margin of 31.8 percent in the fourth quarter of fiscal 2020. Non-GAAP adjusted gross margin decreased 40 basis points to 31.6 percent from the same prior fiscal year period, excluding the effects of strategic transformation costs. 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 $64.2 million for the fourth quarter of fiscal 2021, compared to $45.8 million in the fourth quarter of fiscal 2020. Operating expenses increased by $18.4 million primarily due to higher employee related costs, higher commission costs, and higher investments to right-size our administrative support functions. As a percentage of sales, operating expenses were 18.8 percent for the fourth quarter of fiscal 2021, compared to 17.5 percent in the fourth quarter of fiscal 2020. Non-GAAP operating expenses were $57.2 million, or 16.7 percent of sales, in the fourth quarter of fiscal 2021, compared to $39.4 million, or 15.0 percent of sales, in the fourth 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 9.6 percent in the fourth quarter of fiscal 2021, compared to an effective tax rate of 9.2 percent in the fourth quarter of fiscal 2020. The increase is due to lower tax benefits on stock-based compensation, partially offset by the additional benefit from a lower tax rate on U.S foreign-derived earnings.

Net income attributable to FOX stockholders in the fourth quarter of fiscal 2021 was $37.7 million, compared to $31.8 million in the fourth quarter of the prior fiscal year. Earnings per diluted share for the fourth quarter of fiscal 2021 were $0.89, compared to earnings per diluted share of $0.75 for the fourth quarter of fiscal 2020.

Non-GAAP adjusted net income in the fourth quarter of fiscal 2021 was $44.8 million, or $1.06 of adjusted earnings per diluted share, compared to adjusted net income of $38.2 million, or $0.90 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 fourth quarter of fiscal 2021 was $61.1 million, compared to $51.2 million in the fourth quarter of fiscal 2020. Adjusted EBITDA margin in the fourth quarter of fiscal 2021 was 17.8 percent, compared to 19.5 percent in the fourth quarter of fiscal 2020. Reconciliations of net income to adjusted EBITDA and the calculation of adjusted EBITDA margin are provided at the end of this press release.

Fiscal Year 2021 Results
Sales for the year ended December 31, 2021 were $1,299.1 million, an increase of 45.9 percent compared to fiscal year 2020. Sales of Specialty Sports products and Powered Vehicle products increased 57.8 percent and 37.5 percent, respectively, in fiscal year 2021 compared to the prior fiscal year period. The increase in Specialty Sports Group sales is driven by increased demand, primarily in the OEM channel. The increase in Powered Vehicle Group sales is primarily due to increased demand in the aftermarket channel, including strong performance from our upfitting product lines, and the inclusion of a full twelve months of revenues from our SCA Performance Holdings, inc. subsidiary. Additionally, our prior fiscal year period includes the impact of shutdowns at a majority of our OEM partners due to the pandemic.

Gross margin was 33.3 percent in fiscal year 2021, an 80 basis point increase, compared to a gross margin of 32.5 percent in fiscal year 2020. On a non-GAAP basis, adjusted gross margin increased 80 basis points, excluding the effects of strategic transformation costs and the amortization of acquired inventory valuation markup. The increase in gross margin for fiscal year 2021 was primarily due to higher volume sales in our Specialty Sports Group and the strong performance of our upfitting product lines, as well as favorable product and channel mix. Additionally, our gross margin for 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 fiscal 2021 was $163.8 million, compared to $90.7 million in the prior fiscal year. Earnings per diluted share for the fiscal year 2021 were $3.87, compared to $2.22 in fiscal 2020.

Non-GAAP adjusted net income in fiscal 2021 was $190.8 million, or $4.50 of adjusted earnings per diluted share, compared to $123.8 million, or $3.03 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 increased to $263.9 million in fiscal 2021, compared to $176.3 million in fiscal 2020. Adjusted EBITDA margin increased to 20.3 percent in fiscal 2021, compared to 19.8 percent in fiscal 2020. 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 December 31, 2021, the company had cash and cash equivalents of $179.7 million compared to $245.8 million as of January 1, 2021. Inventory was $279.8 million as of December 31, 2021, compared to $127.1 million as of January 1, 2021. As of December 31, 2021, accounts receivable and accounts payable were $142.0 million and $100.0 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 $123.1 million as of December 31, 2021, compared to $87.9 million as of January 1, 2021, primarily due to increased chassis deposits. Accrued expenses were $112.4 million as of December 31, 2021, compared to $59.4 million as of January 1, 2021, primarily due to income taxes payable. Property, plant and equipment, net increased to $192.0 million as of December 31, 2021, compared to $163.3 million as of January 1, 2021, reflecting capital expenditures of $54.8 million for the year ended December 31, 2021. Goodwill increased to $323.3 million as of December 31, 2021, compared to $289.3 million as of January 1, 2021, primarily due to our acquisitions of Manifest Joy LLC, d/b/a Outside Van, in May 2021 and Shock Therapy in December 2021.

Fiscal 2022 Guidance
For the first quarter of fiscal 2022, the company expects sales in the range of $325 million to $340 million and non-GAAP adjusted earnings per diluted share in the range of $1.00 to $1.20.

For the fiscal year 2022, the company expects sales in the range of $1,435 million to $1,465 million and non-GAAP adjusted earnings per diluted share in the range of $4.90 to $5.20. For purposes of its fiscal 2022 guidance, the company expects its full-year effective tax rate to be within the range of 11 percent to 15 percent. The company is currently evaluating the impact of changes in international tax law which may have a favorable impact on its 2022 effective tax rate.

Non-GAAP adjusted earnings per diluted share exclude the following items net of applicable tax: amortization of purchased intangibles, patent litigation-related expenses, acquisition, integration-related expenses, and strategic transformation costs. A quantitative reconciliation of non-GAAP adjusted earnings per diluted share for the first quarter and full fiscal year 2022 is not available without unreasonable efforts because management cannot predict, with sufficient certainty, all of the elements necessary to provide such a reconciliation.

Photo courtesy Fox Factory