Fox Factory Holding Corp. reported earnings rose 50.9 percent in the third quarter as sales vaulted 38.0 percent.

Third Quarter Fiscal 2018 Highlights

  • Sales increased 38.0 percent to $175.8 million compared to $127.4 million in the same period last fiscal year
  • Gross margin increased 100 basis points to 34.4 percent compared to 33.4 percent in the same period last fiscal year
  • Net income attributable to Fox stockholders was $24.3 million, or 13.8 percent of sales and $0.62 of earnings per diluted share, compared to $16.1 million, or 12.6 percent of sales and $0.41 of earnings per diluted share, in the same period last fiscal year
  • Non-GAAP adjusted net income was $28.1 million, or $0.72 of adjusted earnings per diluted share, compared to $18.0 million, or $0.46 of adjusted earnings per diluted share, in the same period last fiscal year
  • Adjusted EBITDA was $39.3 million, or 22.4 percent of sales, compared to $27.0 million, or 21.2 percent of sales, in the same period last fiscal year

“Our differentiated powered vehicle and bike market positions fueled broad-based strength across our product portfolio resulting in record sales and profitability,” commented Larry L. Enterline, Fox’s chief executive officer. “We are pleased with our team’s continued execution as we further expand into new and existing end markets building upon our powered vehicle and core bike category capabilities with compelling product innovation. We believe we remain well-positioned for future growth and based on these strong operational and financial results as well as our outlook for the remainder of the year, we are raising our annual guidance.”

Sales for the third quarter of fiscal 2018 were $175.8 million, an increase of 38.0 percent as compared to sales of $127.4 million in the third quarter of fiscal 2017. This increase reflects a 56.6 percent increase in Powered Vehicle Group sales and a 21.1 percent increase in sales in our Specialty Sports Group formerly referred to as the Bike Group. The increase in sales across the company’s markets was primarily due to the continued success of the company’s product line up, particularly in the OEM channel, as well as the inclusion of sales from its Tuscany acquisition.

Gross margin was 34.4 percent for the third quarter of fiscal 2018, a 100 basis point increase from gross margin of 33.4 percent in the third quarter of fiscal 2017. The improvement in gross margin was primarily due to increased operating leverage on higher volume and improved manufacturing efficiencies.

Total operating expenses were $29.1 million for the third quarter of fiscal 2018 compared to $22.2 million in the third quarter of fiscal 2017. The increase in operating expenses is primarily a result of inclusion of the company’s Tuscany subsidiary, higher amortization expense on acquired intangible assets, higher patent litigation-related expenses and investments in research and development to support future growth.

As a percentage of sales, operating expenses were 16.6 percent for the third quarter of fiscal 2018 compared to 17.4 percent in the third quarter of fiscal 2017. Non-GAAP operating expenses were $25.1 million, or 14.3 percent of sales, in the third quarter of fiscal 2018 compared to $19.8 million, or 15.5 percent of sales, in the third quarter of the prior fiscal year.

The company’s effective tax rate was 19.0 percent in the third quarter of fiscal 2018 compared to 19.5 percent in the third quarter of fiscal 2017 resulting in $5.8 million and $3.9 million of tax expense in the respective quarters. The decrease in the effective tax rate was primarily due to the reduction in the U.S. tax rate and an increase of $0.9 million in excess benefits related to the vesting of RSUs and the exercising of stock options partially offset by $1.4 million related to the loss of deductibility of certain elements of executive compensation as a result of recent IRS guidance on the implementation of US tax reform and foreign withholding taxes.

Net income attributable to Fox stockholders in the third quarter of fiscal 2018 was $24.3 million compared to $16.1 million in the third quarter of the prior fiscal year. Earnings per diluted share for the third quarter of fiscal 2018 was $0.62, compared to earnings per diluted share of $0.41 for the third quarter of fiscal 2017.

Adjusted EBITDA in the third quarter of fiscal 2018 was $39.3 million, compared to $27.0 million in the third quarter of fiscal 2017.  Adjusted EBITDA margin in the third quarter of fiscal 2018 was 22.4 percent, compared to 21.2 percent in the third quarter of fiscal 2017.

Non-GAAP adjusted net income was $28.1 million, or $0.72 of adjusted earnings per diluted share, compared to adjusted net income of $18.0 million, or $0.46 of adjusted earnings per diluted share, in the same period of last fiscal year.

In a separate release, Fox Factory announced that it has agreed to purchase a 23-acre site in Hall County, GA, to diversify its manufacturing platform and provide additional long-term capacity to support growth in its Powered Vehicles Group. Fox also plans to relocate its corporate headquarters from Scotts Valley, CA, to its existing offices in Georgia by the end of the year. Additionally, Fox plans to relocate its aftermarket bike products distribution, sales and service operations from Watsonville and Scotts Valley, CA, to Reno, NV, to better serve its customers.

The first phase of the Hall County, GA, project is expected to be completed in early 2020 and will be used for manufacturing, warehousing, distribution and office space. The company’s Scotts Valley, CA, location will remain an essential shared services facility housing certain corporate functions.

Fox believes the creation of a campus environment in Hall County, GA, will allow its Powered Vehicle Group to continue to grow efficiently and foster increased innovation and collaboration between its teams and customers. Fox plans to invest up to $50 million in capital expenditures and employ up to 800 personnel over the next five years dependent on market and general economic conditions in Georgia. This planned capital investment is consistent with the company’s previously announced capital expenditure expectations in the range of 5 percent to 6 percent of sales for 2018 and 2019 to support the demand and strength of its business.

“Georgia provides the business environment and skilled workforce for innovative companies like Fox Factory Holding Corp. to enjoy long-term success and compete worldwide,” said Georgia’s Governor Nathan Deal. “By relocating its headquarters to Georgia and expanding its facilities in Hall County, the company will continue to enjoy the benefits of the number-one state for business including our expansive logistics infrastructure and a low-tax climate conducive to manufacturing. I am encouraged to see yet another industry leader choose to expand operations here, as Fox Factory Holding Corp.’s investment will produce meaningful results and create even more opportunities in the Hall County community. I congratulate Fox Factory Holding Corp. on its growth and we look forward to many more years of this successful partnership.”

“Fox Factory Holding Corp. is the leader in innovation and performance brands where they compete, and we are excited to welcome the company to Gainesville-Hall County, Georgia,” stated Tim Evans, GHCC vice president of economic development.

“We are pleased to announce the plans for a new, state-of-the-art campus in Hall County, GA,” stated Enterline. “This new site will allow us to add an additional, world-class manufacturing operation for our Powered Vehicles Group that we intend to be ISO9001 and IATF 16949 certified and will increase our ability to better serve our OEM customers and on-road aftermarket business.”

“The decision to expand our manufacturing and operations, relocate our headquarters and move our aftermarket bike operations was the result of extensive research by our team and will better support the needs of our growing business over the next several years,” Enterline continued.