Fox Factory Reports 7.4 Percent Increase in MTB Products Sales

 

The California-based maker of high-performance suspension systems for mountain bikes and off-road vehicles reported gross margin improved 220 basis points to 31.2 percent compared to 29.0 percent in the same period last fiscal year. Net income was $11.6 million, or $0.31 per diluted share and non-GAAP adjusted net income was $9.8 million compared to $6.7 million in the same period last fiscal year. Adjusted EBITDA was $16.6 million compared to $12.6 million in the same period last fiscal year

 

“We are pleased to report a strong quarter operationally, as we continued to execute on our ongoing strategic initiatives in the second quarter,” stated Fox CEO Larry L. Enterline. “Sales for our powered vehicle and mountain bike products performed well, enabling us to exceed the high end of our revenue guidance for the quarter. We also continued to make progress on our operational and supply chain efficiency initiatives, resulting in a 220 basis point increase in gross margins and a 120 basis point increase in adjusted EBITDA margin. Our team is diligently working on moving our bike production to Taiwan, and we remain on track to complete the move by the end of next year, which will facilitate further operating efficiencies once completed.”

 

Enterline continued, “Following the launch of our model year 2015 mountain bike products, we are encouraged by the positive response and enthusiasm for our new lineup and remain confident in this category's ability to contribute to our long-term growth.”

 

Sales for the second quarter of fiscal 2014 were $86.4 million, an increase of 22.8 percent from sales of $70.3 million in the second quarter of fiscal 2013. The increase reflects 52.6 percent and 7.4 percent growth in sales of powered vehicle and mountain bike products, respectively.

 

Gross margin was 31.2 percent for the second quarter of fiscal 2014, a 220 basis point increase from gross margin of 29.0 percent in the second quarter of fiscal 2013. The improvement in gross margin reflects the company's successful execution of its operational initiatives targeted at improving factory and supply chain efficiencies, as well as continued

execution of its product design for manufacturability program.

 

Total operating expenses were $15.2 million, or 17.6 percent of sales, for the second quarter of fiscal 2014, compared to $10.2 million, or 14.5 percent of sales, in the second quarter of the prior fiscal year. The increase in operating expenses was primarily due to the inclusion of Sport Truck's operating expenses in the company's consolidated results and higher stock-based compensation expense, as well as expenses associated with significant corporate transactions, including the recently completed secondary offering of the company's common stock and the acquisition and integration of Sport Truck. Operating income was $11.7 million for the second quarter of fiscal 2014, compared to operating income of $10.1 million in the second quarter of fiscal 2013.

 

In the second quarter of 2014 the company recorded an income tax benefit of $0.04 million compared to tax expense of $3.4 million for the second quarter of 2013. The $3.4 million decrease resulted primarily from a non-recurring tax benefit of $3.8 million.

 

Net income in the second quarter of fiscal 2014 was $11.6 million, an increase of 102.4 percent compared to $5.7 million in the second quarter of the prior fiscal year. Earnings per diluted share for the second quarter of fiscal 2014 was $0.31 compared to $0.17 in the second quarter of fiscal 2013.

 

Non-GAAP adjusted net income in the second quarter of fiscal 2014 was $9.8 million, an increase of 46.5 percent compared to $6.7 million in the second quarter of the prior fiscal year. Non-GAAP adjusted earnings per diluted share for the second quarter of fiscal 2014 was $0.26 compared to $0.19 in the second quarter of fiscal 2013. 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.

 

Adjusted EBITDA in the second quarter of fiscal 2014 was $16.6 million, compared to $12.6 million in the second quarter of fiscal 2013. Adjusted EBITDA margin in the second quarter of fiscal 2014 was 19.2 percent, compared to 18.0 percent in the second quarter of fiscal 2013. 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.

First six months fiscal year 2014 results
Sales for the six months ended June 30, 2014, were $142.5 million, an increase of 13.8 percent compared to the same period in 2013. Sales of powered vehicle and mountain bike products increased 35.2 percent and 2.3 percent, respectively, for the first six months of 2014 compared to the prior year period.

 

Gross margin was 30.9 percent in the first six months of fiscal 2014, a 210 basis point improvement compared to gross margin of 28.8 percent in the first six months of fiscal 2013. Net income in the first six months of fiscal 2014 was $14.5 million, an increase of 56.6 percent compared to $9.3 million in the first six months of the prior year. Earnings per diluted share for the first six months of fiscal 2014 was $0.38 compared to $0.27 in same period of fiscal 2013.

 

Non-GAAP adjusted net income in the first six months of fiscal 2014 was $14.2 million, an increase of 27.2 percent compared to $11.2 million in the first six months of the prior year. Non-GAAP adjusted earnings per diluted share for the first six months of fiscal 2014 was $0.38 compared to $0.32 in the first six months of fiscal 2013.

 

Adjusted EBITDA increased 18.0 percent to $25.3 million in the first six months of fiscal 2014, compared to $21.4 million in the first six months of fiscal 2013. Adjusted EBITDA margin in the first six months of fiscal 2014 improved 60 basis points to 17.7 percent compared to 17.1 percent in the first six months of fiscal 2013.

Balance sheet highlights
As of June 30, 2014, the company had cash and cash equivalents of $1.9 million. Total debt was $45.4 million, compared to $8.0 million as of December 31, 2013. The increase is due to borrowings for the company's acquisition of Sport Truck. Inventory was $63.1 million as of June 30, 2014, compared to $42.8 million as of December 31, 2013. The increase is primarily due to the inclusion of Sport Truck's inventory along with normal growth in preparation for the peak summer selling season. As of June 30, 2014, accounts receivable and accounts payable were $39.3 million and $30.5 million, respectively, compared to December 31, 2013 balances of $33.8 million and $24.3 million, respectively. The changes in both accounts receivable and accounts payable are primarily driven by the normal seasonality of the company's business and the acquisition of Sport Truck.

 

Fiscal 2014 guidance
For the third quarter of fiscal 2014 the company expects sales in the range of $88 million to $94 million and non-GAAP adjusted earnings per diluted share in the range of $0.30 to $0.36.

 

For the fiscal year 2014 the company reaffirmed its fiscal year 2014 guidance provided on April 1, 2014, which includes the impact of the Sport Truck acquisition. The company expects net sales in the range of $300 million to $320 million and non-GAAP adjusted earnings per diluted share in the range of $0.85 to $0.95 based on 38 to 39 million weighted average diluted shares outstanding.

 

Non-GAAP adjusted earnings per diluted share exclude the following items net of applicable tax: amortization of purchased intangibles; secondary offering expense; certain acquisition related adjustments and expenses; and a one-time tax benefit, net of costs.