Fox Factory Delivers Double-Digit Revenue Growth In Q3

Fox Factory Holding Corp. reported earnings in the third quarter rose 17.5 percent on a 16.9 percent sales gain.

Sales rose to $127.4 million compared to $109 million in the same period last fiscal year.

The increase reflects a 27.3 percent increase in sales of powered vehicle products and an 8.8 percent increase in sales of bike products. The increase in sales of powered vehicle products was primarily due to continued high demand for on and off-road suspension products including increased original equipment manufacturer (“OEM”) sales. The increase in sales of bike products primarily reflects new product introductions, favorable spec positions, and strong sell through with certain higher growth OEMs.

Gross margin was 33.4 percent for the third quarter of fiscal 2017, a 140 basis point improvement from gross margin of 32 percent in the third quarter of fiscal 2016. The improvement in gross margin was primarily due to favorable product and customer mix and improved manufacturing efficiencies. On a non-GAAP basis, adjusted gross margin increased 130 basis points, excluding the effects of acquisition related costs in the third quarter of last year. 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 $22.2 million for the third quarter of fiscal 2017 compared to $19.8 million in the third quarter of the prior fiscal year. The increase in operating expenses is primarily a result of strategic investments to support future business growth, increased incentive and stock-based compensation expense, and higher ongoing patent litigation-related expenses, partially offset by the conclusion of the company’s acquisition-related compensation arrangements. Non-GAAP operating expenses were $19.8 million, or 15.5 percent of sales in the third quarter of fiscal 2017 compared to $17.1 million, or 15.7 percent of sales in the third 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 effective tax rate was 19.5 percent in the third quarter of 2017, compared to 9 percent in the third quarter of 2016. The increase in the effective tax rate was primarily due to an increase in pre-tax income and resulting tax expense while benefits from various credits and deductions remain relatively constant, and an increase in non-creditable foreign withholding tax.

Net income in the third quarter of fiscal 2017 was $16.1 million, compared to $13.7 million in the third quarter of the prior fiscal year. Earnings per diluted share for the third quarter of fiscal 2017 were 41 cents, compared to 36 cents in the third quarter of fiscal 2016.

Adjusted EBITDA in the third quarter of fiscal 2017 was $27 million, compared to $20.9 million in the third quarter of fiscal 2016. Adjusted EBITDA margin in the third quarter of fiscal 2017 was 21.2 percent, compared to 19.2 percent in the third quarter of fiscal 2016. Reconciliations of net income to adjusted EBITDA and the calculation of adjusted EBITDA margin are provided at the end of this press release.

Non-GAAP adjusted net income was $18 million, or 46 cents adjusted earnings per diluted share, compared to $16.6 million, or 44 cents adjusted earnings per diluted share in the same period last fiscal year.

“We are pleased to report another quarter of record sales and earnings results which exceeded our expectations. Our third quarter results reflect continued broad success across both our powered vehicle and bike businesses,” stated Larry L. Enterline, FOX’s Chief Executive Officer. “Looking ahead, our team remains committed to further building the FOX brand presence in our existing product categories and consistently pursuing new market opportunities.”

First Nine Months Fiscal Year 2017 Results

Sales for the nine months ended September 29, 2017, were $354.5 million, an increase of 21.6 percent compared to the same period in 2016. Sales of powered vehicle and bike products increased 39.9 percent and 8.5 percent, respectively, for the first nine months of 2017 compared to the prior year period.

Gross margin was 32.5 percent in the first nine months of fiscal 2017, an 80 basis point increase, compared to gross margin of 31.7 percent in the first nine months of fiscal 2016. The year-to-date gross margin improved primarily due to product and customer mix and manufacturing efficiencies.

Net income in the first nine months of fiscal 2017 was $40.3 million, compared to $25.9 million in the first nine months of fiscal 2016. Earnings per diluted share for the first nine months of fiscal 2017 was $1.04, compared to 69 cents in the same period of fiscal 2016.

Adjusted EBITDA increased to $70.2 million in the first nine months of fiscal 2017, compared to $51 million in the first nine months of fiscal 2016. Adjusted EBITDA margin in the first nine months of fiscal 2017 was 19.8 percent, compared to 17.5 percent in the first nine months of fiscal 2016. 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.

Non-GAAP adjusted net income was $46.6 million, or $1.20 adjusted earnings per diluted share, compared to $34.4 million, or 91 cents adjusted earnings per diluted share in the same period of the prior fiscal year. 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.

Balance Sheet Highlights

As of September 29, 2017, the company had cash and cash equivalents of $36.8 million compared to $35.3 million at December 30, 2016. Total debt was $64 million, compared to $66.7 million as of December 30, 2016. Inventory was $92 million as of September 29, 2017, compared to $71.2 million as of December 30, 2016. As of September 29, 2017, accounts receivable and accounts payable were $69.3 million and $47.3 million, respectively, compared to December 30, 2016 balances of $61.6 million and $36.2 million, respectively. The changes in accounts receivable, inventory and accounts payable are primarily attributable to business growth and the company’s normal seasonality. Accrued expenses decreased to $27.3 million as of September 29, 2017, from $34.4 million as of December 30, 2016, primarily due to the final earn-out payment related to one of the company’s 2014 acquisitions, partially offset by the result of the company’s normal business seasonality.

Fiscal 2017 Guidance

For the fourth quarter of fiscal 2017, the company expects sales in the range of $114 million to $119 million and non-GAAP adjusted earnings per diluted share in the range of 30 cents to 34 cents.

For the full fiscal year 2017, the company raises its previous guidance and now expects sales in the range of $468.5 million to $473.5 million and non-GAAP adjusted earnings per diluted share in the range of $1.50 to $1.54.

Non-GAAP adjusted earnings per diluted share exclude the following items net of applicable tax: amortization of purchased intangibles, contingent consideration valuation adjustment, acquisition-related compensation expense including related foreign currency transaction gains and losses, certain acquisition-related adjustments and expenses, litigation-related expenses and offering expenses. 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 fourth quarter and full fiscal year 2017 is not available without unreasonable efforts because management cannot predict, with sufficient certainty, all of the elements necessary to provide such a reconciliation.