Fox Factory Holding Corp. reported earnings and sales came in ahead of company guidance and the company raised its sales outlook for the year.  Sales in the second quarter rose 23.9 percent with a 28.1 percent increase in its Specialty Sports Group segment and a 20.9 percent increase in Powered Vehicles Group sales.

Second Quarter Fiscal 2022 Highlights

  • Sales increased 23.9 percent to $406.7 million, compared to $328.2 million in the same period last fiscal year;
  • Gross profit increased 28.7 percent to $142.9 million, compared to $111.1 million in the same period last fiscal year. Gross margin percentage increased 120 basis points to 35.1 percent, compared to 33.9 percent in the same period last fiscal year. Non-GAAP adjusted gross margin percentage increased 120 basis points to 35.3 percent compared to 34.1 percent in the same period last fiscal year;
  • Net income was $53.5 million, or 13.2 percent of sales and $1.26 of earnings per diluted share, compared to $44.3 million, or 13.5 percent of sales and $1.05 of earnings per diluted share in the same period last fiscal year;
  • Non-GAAP adjusted net income was $58.6 million, or $1.38 of non-GAAP adjusted earnings per diluted share, compared to $51.0 million, or $1.20 of non-GAAP adjusted earnings per diluted share in the same period last fiscal year; and
  • Adjusted EBITDA was $88.1 million, or 21.7 percent of sales, compared to $69.7 million, or 21.2 percent of sales in the same period last fiscal year.

Sales of $406.7 million topped company guidance calling for sales in the range of $385 million to $405 million. Non-GAAP adjusted net income of $1.38 was ahead of company guidance in the range of $1.10 to $1.25.

“We are pleased to report another quarter of record revenue and profitability in an increasingly complex and challenging macro business environment. Not only did we surpass the $400.0 million quarterly revenue mark for the first time, but we also delivered record gross margin, EBITDA, and net income,” commented Mike Dennison, Fox’s CEO. “We are still seeing healthy demand across most of our diversified portfolio for the balance of the year. However, the ongoing macroeconomic and geopolitical volatility have caused us to slow both hiring and spending in an effort to stay in front of what will most likely be turbulent months ahead.”

Sales for the second quarter of fiscal 2022 were $406.7 million, an increase of 23.9 percent as compared to sales of $328.2 million in the second quarter of fiscal 2021. This increase reflects a 28.1 percent increase in Specialty Sports Group sales and a 20.9 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 channel. The increase in Powered Vehicles Group sales is primarily due to strong performance in its upfitting product lines.

Gross margin was 35.1 percent for the second quarter of fiscal 2022, a 120 basis point increase from the gross margin of 33.9 percent in the second quarter of fiscal 2021. Non-GAAP adjusted gross margin increased 120 basis points to 35.3 percent from the same prior fiscal year period, excluding the effects of strategic transformation costs. The increase in gross margin was primarily driven by favorable product mix and improved factory efficiencies.

Total operating expenses were $72.5 million for the second quarter of fiscal 2022, compared to $58.4 million in the second quarter of fiscal 2021. Operating expenses increased by $14.1 million primarily due to higher employee-related costs, higher insurance and facility-related expenses, and higher commission costs. As a percentage of sales, operating expenses for the second quarter of fiscal 2022 remained unchanged at 17.8 percent, when compared to the second quarter of fiscal 2021. Non-GAAP operating expenses were $66.5 million, or 16.3 percent of sales in the second quarter of fiscal 2022, compared to $51.4 million, or 15.7 percent of sales, in the second quarter of the prior fiscal year.

The company’s effective tax rate was 18.9 percent in the second quarter of fiscal 2022, compared to 13.3 percent in the second quarter of fiscal 2021. The increase in the company’s effective tax rate was primarily due to the impact of recently finalized U.S. tax regulations which limit the amount of newly generated foreign taxes that are creditable against U.S. income taxes and resulted in an increase in the impact of foreign withholding taxes, net of foreign tax credits; as well as decreased benefits from the effects of stock-based compensation. These increases were partially offset by a lower tax rate on foreign-derived intangible income.

Net income in the second quarter of fiscal 2022 was $53.5 million, compared to $44.3 million in the second quarter of the prior fiscal year. Earnings per diluted share for the second quarter of fiscal 2022 were $1.26, compared to earnings per diluted share of $1.05 for the second quarter of fiscal 2021.

Non-GAAP adjusted net income in the second quarter of fiscal 2022 was $58.6 million, or $1.38 of adjusted earnings per diluted share, compared to adjusted net income of $51.0 million, or $1.20 of adjusted earnings per diluted share, in the same period of the prior fiscal year.

Adjusted EBITDA in the second quarter of fiscal 2022 was $88.1 million, compared to $69.7 million in the second quarter of fiscal 2021. Adjusted EBITDA margin in the second quarter of fiscal 2022 was 21.7 percent, compared to 21.2 percent in the second quarter of fiscal 2021.

First Six Months Fiscal 2022 Results
Sales for the six months ended July 1, 2022 were $784.7 million, an increase of 28.8 percent compared to the first six months in fiscal 2021. Sales of Specialty Sports and Powered Vehicle products increased 35.2 percent and 24.1 percent, respectively, for the first six months of fiscal 2022 compared to the prior year’s fiscal period.

Gross margin was 33.5 percent in the first six months of fiscal 2022, an 80 basis point decrease, compared to a gross margin of 34.3 percent in the first six months of fiscal 2021. On a non-GAAP basis, the adjusted gross margin was 33.8 percent in the first six months of fiscal 2022, a 70 basis point decrease, compared to 34.5 percent in the first six months of fiscal 2021, excluding the effects of strategic transformation costs. The decrease in gross margin for the first six months of fiscal 2022 was primarily driven by continued increases in supply chain-related costs, including increased prices for raw materials and freight. Additionally, the completion of the planned shutdown of our Watsonville, CA facility and transition of those production lines resulted in inefficiencies as we ramp up our Gainesville, GA facility.

Net income attributable to FOX stockholders in the first six months of fiscal 2022 was $101.5 million, compared to $82.3 million in the first six months of the prior fiscal year. Earnings per diluted share for the first six months of fiscal 2022 was $2.40, compared to $1.94 in the same period of fiscal 2021.

Non-GAAP adjusted net income in the first six months of fiscal 2022 was $114.4 million, or $2.70 of adjusted earnings per diluted share, compared to $95.5 million, or $2.25 of adjusted earnings per diluted share in the same period of the prior fiscal year.

Adjusted EBITDA increased to $159.9 million in the first six months of fiscal 2022, compared to $130.1 million in the first six months of fiscal 2021. Adjusted EBITDA margin decreased to 20.4 percent in the first six months of fiscal 2022, compared to 21.3 percent in the first six months of fiscal 2021.

Balance Sheet Highlights
As of July 1, 2022, the company had cash and cash equivalents of $108.6 million compared to $179.7 million as of December 31, 2021. Inventory was $349.1 million as of July 1, 2022, compared to $279.8 million as of December 31, 2021. As of July 1, 2022, accounts receivable and accounts payable were $195.4 million and $161.6 million, respectively, compared to $142.0 million and $100.0 million, respectively, as of December 31, 2021. Prepaids and other current assets were $267.7 million as of July 1, 2022, compared to $123.1 million as of December 31, 2021. The decrease in cash and cash equivalents and increase in prepaid and other assets is primarily due to increased chassis deposits as we work to secure supply for the remainder of the year for our fitting business. The increase in inventory is due to several factors, including receipt of long lead time items that had been delayed, higher levels of safety stock to mitigate uncertainty, and natural growth to meet anticipated demand. The increases in accounts receivable and accounts payable reflect business growth as well as the timing of vendor payments. Total debt was $410.0 million as of July 1, 2022, compared to $378.5 million as of December 31, 2021, due to increases in working capital.

Fiscal 2022 Guidance
For the third quarter of fiscal 2022, the company expects sales in the range of $385 million to $405 million and non-GAAP adjusted earnings per diluted share in the range of $1.15 to $1.35.

For the fiscal year 2022, the company expects sales in the range of $1,535 million to $1,565 million. Previously, guidance called for sales in the range of $1,500 million to $1,530 million. Non-GAAP adjusted EPS is still expected in the range of $5.00 to $5.30. For purposes of our fiscal 2022 guidance, the full-year effective tax rate is expected to be within the range of 11 percent to 15 percent.

Photo courtesy Fox Factory