Fox Factory Cycling Sales Up 5.7 Percent in First Quarter

Fox Factory Holding Corp. reported its sales of suspension products and other bicycling components grew 5.7 percent in the fiscal first quarter ended March 31 compared with a year earlier.

The California company said total sales grew 20.8 percent to $67.8 million thanks to primarily to a 43.5 percent increase in sales at its powered vehicle business, which provides suspension and other products for motorcycles, snow mobiles, ATVs, trucks and other off-road vehicles.

Gross margin was 27.7 percent for the first quarter of fiscal 2015, a 260 basis point decrease from gross margin of 30.3 percent in the first quarter of fiscal 2014. Gross margin was negatively impacted by amortization of the inventory adjustment related to the RaceFace/Easton Cycling acquisition as well as anticipated inefficiencies caused by the West Coast ports slowdown.

Total operating expenses were $17.2 million, or 25.4 percent of sales, for the first quarter of fiscal 2015, compared to $12.3 million, or 21.9 percent of sales, in the first quarter of the prior fiscal year. The increase in operating expenses was primarily due to the inclusion of Sport Truck's and RaceFace/Easton Cycling's operating expenses, including fair value adjustments and acquisition related compensation of $2.1 million in the first quarter of fiscal 2015, with no corresponding charges in the first quarter of fiscal 2014.

Operating income was $1.5 million for the first quarter of fiscal 2015, compared to operating income of $4.7 million in the first quarter of fiscal 2014.

Net income in the first quarter of fiscal 2015 was $0.8 million, compared to $2.9 million in the first quarter of the prior fiscal year. Earnings per diluted share for the first quarter of fiscal 2015 was $0.02, compared to $0.08 in the first quarter of fiscal 2014.

Operating income and net income were both negatively impacted in the first quarter of fiscal 2015 by the aforementioned acquisition related expenses, adjustment of contingent consideration liability, and the West Coast ports slowdown.

Non-GAAP adjusted net income in the first quarter of fiscal 2015 was unchanged as compared to the first quarter of the prior fiscal year. Non-GAAP adjusted earnings per diluted share for the first quarter of fiscal 2015 was $0.12 compared to $0.12 in the first quarter of fiscal 2014 on 0.4 million higher diluted shares outstanding. Reconciliations of net income 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 2015 was $9.4 million, compared to $8.6 million in the first quarter of fiscal 2014. Adjusted EBITDA margin in the first quarter of fiscal 2015 was 13.8 percent, compared to 15.4 percent in the first quarter of fiscal 2014. 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 31, 2015, the company had cash and cash equivalents of $7.2 million. Total debt was $49.3 million, compared to $50.0 million as of Dec. 31, 2014. Inventory was $70.6 million as of March 31, 2015, compared to $59.2 million as of Dec. 31, 2014. As of March 31, 2015, accounts receivable and accounts payable were $31.4 million and $40.7 million, respectively, compared to Dec. 31, 2014 balances of $39.2 million and $30.4 million, respectively. The increase in inventory and corresponding increase in accounts payable are due to seasonality in the company's business as it prepares for the spring selling season. The reduction in accounts receivable is also attributable to seasonality in the company's business as sales in the first quarter of each year are typically the company's lowest of the year.

Fiscal 2015 guidance

For the second quarter of fiscal 2015, the company expects sales in the range of $90 million to $94 million and non-GAAP adjusted earnings per diluted share in the range of $0.23 to $0.27.

For the fiscal year 2015, the company reiterates that it expects sales in the range of $333 million to $357 million and non-GAAP adjusted earnings per diluted share in the range of $0.88 to $1.00 based on approximately 38 million weighted average diluted shares outstanding.

Non-GAAP adjusted earnings per diluted share exclude the following items net of applicable tax: amortization of purchased intangibles, certain acquisition related adjustments and expenses, contingent consideration valuation adjustment, and offering expenses.