Fox Factory Holding Corp. on Wednesday raised its guidance for the fiscal year of 2019 after reporting sales for the second quarter ended June 28 of $192.1 million, up 22.5 percent from $156.8 million in the same period last fiscal year.

Other highlights include:

  • Gross margin decreased 100 basis points to 32.4 percent compared to 33.4 percent in the same period last fiscal year; Non-GAAP adjusted gross margin decreased 70 basis points compared to the same period last fiscal year.
  • Net income attributable to FOX stockholders was $22.9 million, or 12.0 percent of sales and $0.59 of earnings per diluted share, compared to $18.4 million, or 11.7 percent of sales and $0.47 of earnings per diluted share in the same period last fiscal year.
  • Non-GAAP adjusted net income was $26.6 million, or $0.68 of adjusted earnings per diluted share, compared to $21.9 million, or $0.56 of adjusted earnings per diluted share in the same period last fiscal year.
  • Adjusted EBITDA was $38.2 million, or 19.9 percent of sales, compared to $32.4 million, or 20.7 percent of sales in the same period last fiscal year

“Our broad-based growth continued in the second quarter as we benefited from solid execution across the business that fueled record sales and profitability above our expectations,” said Mike Dennison, FOX’s CEO. “FOX’s diversified product offerings continued to resonate with our customers, demonstrating our commitment to product innovation and growth of our brands in both existing and new categories. We appreciate the outstanding efforts of our entire global team as we continue to deliver differentiated products to our passionate customer base, reinforcing the value of the FOX brand.”

Sales for the second quarter of fiscal 2019 were $192.1 million, an increase of 22.5 percent as compared to sales of $156.8 million in the second quarter of fiscal 2018. This increase reflects a 40.1 percent increase in Powered Vehicles Group sales and a 3.1 percent increase in Specialty Sports Group sales. The increase in sales across the Company’s businesses was primarily due to the continued success of its product lineup, particularly in the Powered Vehicle OEM channel.

Gross margin was 32.4 percent for the second quarter of fiscal 2019, a 100 basis point decrease from gross margin of 33.4 percent in the second quarter of fiscal 2018. On a non-GAAP basis, adjusted gross margin decreased 70 basis points, excluding the effects of strategic transformation and acquisition related costs. The decrease in non-GAAP gross margin was primarily due to a change in customer and product mix as the Company’s larger North American OEMs represented a higher proportion of sales. Additionally, we continued to experience manufacturing and supply chain inefficiencies as a result of the increase in demand which negatively impacted gross margins at levels similar to the prior quarter. 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 $32.7 million for the second quarter of fiscal 2019 compared to $28.1 million in the second quarter of fiscal 2018. The increase in operating expenses is primarily due to personnel costs as the Company continued to invest in product innovation, acquisition expenses and operating costs relating to its recently acquired RideTech subsidiary and increases in various other administrative expenses to support FOX’s growing business, partially offset by lower patent litigation-related expenses.

As a percentage of sales, operating expenses were 17.0 percent for the second quarter of fiscal 2019 compared to 17.9 percent in the second quarter of fiscal 2018. Non-GAAP operating expenses were $29.0 million, or 15.1 percent of sales in the second quarter of fiscal 2019 compared to $23.7 million, or 15.1 percent of sales, in the second 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 Company’s effective tax rate was 16.2 percent in the second quarter of fiscal 2019, compared to a tax rate of 20.0 percent in the second quarter of fiscal 2018.

Net income attributable to FOX stockholders in the second quarter of fiscal 2019 was $22.9 million, compared to $18.4 million in the second quarter of the prior fiscal year. Earnings per diluted share for the second quarter of fiscal 2019 was $0.59, compared to earnings per diluted share of $0.47 for the second quarter of fiscal 2018.

Non-GAAP adjusted net income was $26.6 million, or $0.68 of adjusted earnings per diluted share, compared to adjusted net income of $21.9 million, or $0.56 of adjusted earnings per diluted share in the same period of last fiscal year. Reconciliations of net income attributable to FOX stockholders as compared 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 second quarter of fiscal 2019 was $38.2 million, compared to $32.4 million in the second quarter of fiscal 2018. Adjusted EBITDA margin in the second quarter of fiscal 2019 was 19.9 percent, compared to 20.7 percent in the second quarter of fiscal 2018. Reconciliations of net income to adjusted EBITDA and the calculation of adjusted EBITDA margin are provided at the end of this press release.

First Six Months Fiscal Year 2019 Results

Sales for the six months ended June 28, 2019, were $353.8 million, an increase of 23.4 percent compared to the same period in 2018. Sales of powered vehicle and bike products increased 37.3 percent and 7.3 percent, respectively, for the first six months of 2019 compared to the prior year period.

Gross margin was 32.0 percent in the first six months of fiscal 2019, an 80 basis point decrease, compared to gross margin of 32.8 percent in the first six months of fiscal 2018. On a non-GAAP basis, adjusted gross margin decreased 50 basis points, excluding the effects of strategic transformation and acquisition related costs. The decrease in year-to-date gross margin was primarily due to a change in customer and product mix as the Company’s larger North American OEMs represented a higher proportion of sales. Additionally, FOX incurred inefficiencies in the supply chain and manufacturing associated with higher than anticipated increase in customer demand. 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.

Net income attributable to FOX stockholders in the first six months of fiscal 2019 was $41.0 million, compared to $39.6 million in the first six months of the prior year. Earnings per diluted share for the first six months of fiscal 2019 was $1.05, compared to $1.02 in the same period of fiscal 2018.

Non-GAAP adjusted net income in the first six months of fiscal 2019 was $48.3 million, or $1.23 of adjusted earnings per diluted share, compared to $36.0 million, or $0.93 of adjusted earnings per diluted share in the same period of the prior fiscal year. Reconciliations of net income attributable to FOX stockholders 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 increased to $68.2 million in the first six months of fiscal 2019, compared to $55.5 million in the first six months of fiscal 2018. Adjusted EBITDA margin of 19.3 percent in the first six months of fiscal 2019 was unchanged as compared to the first six months of fiscal 2018. 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.

Balance Sheet Highlights

As of June 28, 2019, the Company had cash and cash equivalents of $39.0 million compared to $28.0 million as of December 28, 2018. Total debt was $77.6 million, compared to $59.4 million as of December 28, 2018. Property, plant and equipment, net was $95.1 million as of June 28, 2019, compared to $64.8 million as of December 28, 2018. The change in property, plant and equipment, includes $17.7 million in lease right of use assets due to the impact of adopting the new lease accounting standards in the first quarter of 2019. Inventory was $136.0 million as of June 28, 2019, compared to $107.1 million as of December 28, 2018. As of June 28, 2019, accounts receivable and accounts payable were $95.7 million and $70.6 million, respectively, compared to December 28, 2018 balances of $78.9 million and $55.1 million, respectively. The changes in inventory, accounts receivable, and accounts payable are primarily attributable to business growth and the Company’s normal seasonality.

Fiscal 2019 Guidance

For the third quarter of fiscal 2019, the Company expects sales in the range of $200 million to $208 million and non-GAAP adjusted earnings per diluted share in the range of $0.75 to $0.80.

For the fiscal year 2019, the Company is raising its outlook and now expects sales in the range of $728 million to $743 million and non-GAAP adjusted earnings per diluted share in the range of $2.56 to $2.64. The Company’s full year 2019 guidance continues to assume a non-GAAP tax rate 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, patent litigation-related expenses, acquisition and integration-related expenses, strategic transformation costs, and costs related to tax restructuring initiatives. 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 third quarter and full fiscal year 2019 is not available without unreasonable efforts because management cannot predict, with sufficient certainty, all of the elements necessary to provide such a reconciliation.