Fox Factory Holding Corp. on Wednesday reported that sales for the fiscal first quarter increased 24.6 percent to $161.7 million from $129.8 million in the same period last fiscal year, beating Wall Street’s estimates by $5.4 million.
Net income attributable to Fox stockholders was $18.1 million, or 11.3 percent of sales, and 46 cents of earnings per diluted share, compared to $21.2 million, or 16.4 percent of sales, and 55 cents of earnings per diluted share in the same period last fiscal year.
Non-GAAP adjusted net income was $21.6 million, or 55 cents of adjusted earnings per diluted share, compared to $14.1 million, or 36 cents of adjusted earnings per diluted share in the same period last fiscal year. EPS was ahead of analysts’ estimates by 7 cents a share.
Other First Quarter Fiscal 2019 Highlights
- Gross margin decreased 50 basis points to 31.6 percent compared to 32.1 percent in the same period last fiscal year; Non-GAAP adjusted gross margin decreased 40 basis points compared to the same period last fiscal year
- Adjusted EBITDA was $30.1 million, or 18.6 percent of sales, compared to $23.0 million, or 17.7 percent of sales in the same period last fiscal year
“We started the year with record quarterly sales driven by strength in both our powered vehicle and bike offerings resulting in sales and profitability above our expectations,” commented Larry L. Enterline, Fox’s CEO. “Looking ahead, our team remains committed to further building Fox’s brand presence in our existing business and expanding into new categories. We believe Fox’s differentiated market position will continue to fuel our expansion in the diverse end markets we serve.”
Sales for the first quarter of fiscal 2019 were $161.7 million, an increase of 24.6 percent as compared to sales of $129.8 million in the first quarter of fiscal 2018. This increase reflects a 34.1 percent increase in Powered Vehicle Group sales and a 12.7 percent increase in Specialty Sports Group sales. The increase in sales across the Company’s businesses was primarily due to the continued success of its product lineup, particularly in the OEM channel.
Gross margin was 31.6 percent for the first quarter of fiscal 2019, a 50 basis point decrease from gross margin of 32.1 percent in the first quarter of fiscal 2018. On a non-GAAP basis, adjusted gross margin decreased 40 basis points, excluding the effects of strategic transformation related costs. The decrease in gross margin is due to a number of factors including a change in customer and product mix as our larger North American OEMs represented a higher proportion of sales. Additionally, we incurred inefficiencies in the supply chain and manufacturing associated with higher than anticipated increase in customer demand. 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 $29.2 million for the first quarter of fiscal 2019 compared to $25.7 million in the first quarter of fiscal 2018. The increase in operating expenses is primarily due to personnel costs as we continue to invest in product innovation, higher patent litigation-related expenses, and increases in various other administrative expenses to support Fox’s growing business.
As a percentage of sales, operating expenses were 18.0 percent for the first quarter of fiscal 2019 compared to 19.8 percent in the first quarter of fiscal 2018. Non-GAAP operating expenses were $25.5 million, or 15.7 percent of sales in the first quarter of fiscal 2019 compared to $22.4 million, or 17.3 percent of sales, in the first 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 12.4 percent in the first quarter of fiscal 2019, compared to a tax rate benefit of 44.2 percent in the first quarter of fiscal 2018. The first quarter of fiscal 2018 included a one-time benefit of $9.8 million, or $0.25 per diluted share, due to the release of tax related liabilities related to the favorable resolution of the Company’s 2015 IRS audit. Exclusive of the benefit, the Company’s effective tax rate was 20.9 percent in the first quarter of fiscal 2018.
Net income attributable to Fox stockholders in the first quarter of fiscal 2019 was $18.1 million, compared to $21.2 million in the first quarter of the prior fiscal year. Earnings per diluted share for the first quarter of fiscal 2019 was $0.46, compared to earnings per diluted share of $0.55 for the first quarter of fiscal 2018.
Non-GAAP adjusted net income was $21.6 million, or $0.55 of adjusted earnings per diluted share, compared to adjusted net income of $14.1 million, or $0.36 of adjusted earnings per diluted share in the same period of last 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 share are provided at the end of this press release.
Adjusted EBITDA in the first quarter of fiscal 2019 was $30.1 million, compared to $23.0 million in the first quarter of fiscal 2018. Adjusted EBITDA margin in the first quarter of fiscal 2019 was 18.6 percent, compared to 17.7 percent in the first quarter of fiscal 2018. Reconciliations of net income to adjusted EBITDA and the calculation of adjusted EBITDA margin are provided at the end of this press release.
Balance Sheet Highlights
As of March 29, 2019, the Company had cash and cash equivalents of $38.3 million compared to $28.0 million as of December 28, 2018. Total debt was $69.6 million, compared to $59.4 million as of December 28, 2018. Property, plant and equipment, net was $85.0 million as of March 29, 2019, compared to $64.8 million as of December 28, 2018. The change in property, plant and equipment, includes $15.4 million due to the impact of new lease accounting standards in the first quarter of 2019. Inventory was $124.1 million as of March 29, 2019, compared to $107.1 millionas of December 28, 2018. As of March 29, 2019, accounts receivable and accounts payable were $83.6 million and $75.6 million, respectively, compared to December 28, 2018 balances of $78.9 million and $55.1 million, respectively. The changes in inventory, accounts receivable, and accounts payable are primarily attributable to business growth and the Company’s normal seasonality.
Fiscal 2019 Guidance
For the second quarter of fiscal 2019, the Company expects sales in the range of $182 million to $190 million and non-GAAP adjusted earnings per diluted share in the range of $0.62 to $0.67.
For the fiscal year 2019, the Company is raising its outlook and now expects sales in the range of $717 million to $733 million and non-GAAP adjusted earnings per diluted share in the range of $2.52 to $2.62. The Company’s full year 2019 guidance continues to assume a non-GAAP tax rate range of 15 percent to 19 percent.
Non-GAAP adjusted earnings per diluted share exclude the following items net of applicable tax: amortization of purchased intangibles, patent litigation-related expenses, acquisition and integration-related expenses, strategic transformation costs, and costs related to tax restructuring initiatives. Additionally, non-GAAP adjusted earnings per diluted share excludes the tax benefit related to the resolution of audits by taxing authorities. A quantitative reconciliation of non-GAAP adjusted earnings per diluted share for the first quarter and full fiscal year 2019 is not available without unreasonable efforts because management cannot predict, with sufficient certainty, all of the elements necessary to provide such a reconciliation.
Fox to Acquire Substantially All Assets of Ridetech
In a separate press release today, Fox also announced it has entered into a definitive agreement to acquire substantially all assets of Air Ride Technologies, Inc. dba Ridetech, a leading manufacturer of suspension systems that enhance the handling and ride quality of muscle cars, trucks, sports cars and hot rods. The transaction is anticipated to close in May 2019.
