Fox Factory Holding Corp. reported that sales for the first quarter of fiscal 2023 were $399.9 million, an increase of 5.8 percent, as compared to sales of $378.0 million in the first quarter of fiscal 2022. The increase reflects a 35.0 percent increase in Powered Vehicles Group sales and a 30.0 percent decrease in Specialty Sports Group sales. The increase in Powered Vehicles Group sales is primarily due to increased demand in the original equipment manufacturer (“OEM”) channel and strong performance in upfitting product lines. The decrease in Specialty Sports Group sales is driven by a return to seasonality and the impacts of higher levels of inventory across various channels.
Gross margin was 33.3 percent of sales in the first quarter, a 150 basis point increase from gross margin of 31.8 percent in the first quarter of fiscal 2022. Non-GAAP adjusted gross margin increased 180 basis points to 34.1 percent from the year-ago period, excluding the effects of strategic transformation costs and the amortization of an acquired inventory valuation markup. The increase in gross margin was primarily driven by lower materials and other related costs, increased efficiencies at the company’s North American facilities and strong performance in upfitting product lines.
Total operating expenses were $78.6 million for the first quarter, compared to $66.1 million in the first quarter of fiscal 2022. Operating expenses increased by $12.5 million primarily due to higher employee headcount and benefit-related costs, higher legal and professional fees, and higher insurance and facility-related expenses, partially offset by lower acquisition-related compensation and various others. As a percentage of sales, operating expenses for the first quarter of fiscal 2023 were 19.7 percent, compared to 17.5 percent in the first quarter of fiscal 2022. Non-GAAP operating expenses were $70.3 million, or 17.6 percent of sales in the first quarter of fiscal 2023, compared to $59.6 million, or 15.8 percent of sales, in the first quarter last year.
The company’s effective tax rate was 18.3 percent in the first quarter of fiscal 2023, compared to 4.8 percent in the first quarter of fiscal 2022. The change in the effective tax rate was primarily due to the release of the company’s valuation allowance against foreign tax credit carryforwards in the first quarter of fiscal 2022 upon enactment of U.S. tax regulations, partially offset by a decrease in foreign withholding taxes, net of foreign tax credits in the first quarter of fiscal 2023.
Net income in the first quarter was $41.8 million, compared to $48.1 million in the year-ago quarter. Earnings per diluted share for the quarter were 98 cents a share, compared to earnings per diluted share of $1.13 for the first quarter of fiscal 2022.
Non-GAAP adjusted net income in the first quarter was $51.0 million, or $1.20 of adjusted earnings per diluted share, compared to adjusted net income of $55.8 million, or $1.32 of adjusted earnings per diluted share, in the year-ago period.
Adjusted EBITDA in the first quarter of fiscal 2023 was $79.2 million, compared to $71.8 million in the first quarter of fiscal 2022. Adjusted EBITDA margin in the first quarter of fiscal 2023 was 19.8 percent, compared to 19.0 percent in the first quarter of fiscal 2022.
“Thanks to our diversified product offerings and differentiated market position, we are pleased with our strong start to fiscal 2023 in a bumpy economic and demand environment. Our strong results were achieved despite shifting demand and changing product mix,” commented Mike Dennison, CEO, Fox Factory. “We also closed the acquisition of Custom Wheel House on March 3, 2023, which showcases our commitment to acquiring companies that enable our vertical integration strategy.”
At quarter-end, the company had cash and cash equivalents of $91.9 million, compared to $145.3 million as of December 30, 2022. Inventory was $379.9 million as of March 31, compared to $350.6 million as of December 30, 2022. As of March 31, accounts receivable and accounts payable were $195.3 million and $135.3 million, respectively, compared to $200.4 million and $131.2 million, respectively, as of December 30, 2022. Prepaids and other current assets were $214.6 million at quarter-end, compared to $101.4 million as of December 30, 2022. The increase in inventory is primarily due to inventory that we obtained in connection with our recent acquisition of Custom Wheel House, LLC. The changes in accounts receivable and accounts payable reflect the timing of customer collections and vendor payments. The increase in prepaids and other current assets is primarily due to higher chassis deposits as Fox ramps up to meet current year production needs. Total debt was $360.0 million as of March 31, 2023, compared to $200.0 million as of December 30, 2022, due to the recent acquisition of Custom Wheel House.
Fiscal 2023 Guidance
For the second quarter of fiscal 2023, the company expects sales in the range of $390 million to $410 million and non-GAAP adjusted earnings per diluted share in the range of $1.00 to $1.20 a share.
For the full fiscal year 2023, the company expects sales in the range of $167 billion to $1.70 billion and non-GAAP adjusted earnings per diluted share in the range of $5.00 to $5.30. For purposes of fiscal 2023 guidance, Fox expects the full-year effective tax rate to be within the range of 15 percent to 18 percent.
Non-GAAP adjusted earnings per diluted share exclude the following items net of applicable tax: amortization of purchased intangibles, litigation and settlement-related expenses, acquisition and integration-related expenses and strategic transformation costs.
