Fox Factory Holding Corp. on Tuesday reported sales for the fourth quarter increased 29.5 percent to $156.8 million compared to $121.1 million in the same period last fiscal year.

Net income attributable to Fox stockholders was $20.1 million, or 12.8 percent of sales and 52 cents of earnings per diluted share, compared to $2.8 million, or 2.3 percent of sales and 7 cents of earnings per diluted share in the same period last fiscal year.

Other highlights include:

  • Gross margin increased 20 basis points to 32.5 percent compared to 32.3 percent in the same period last fiscal year; Non-GAAP adjusted gross margin remained unchanged compared to the same period last fiscal year
  • Non-GAAP adjusted net income was $22.5 million, or $0.58 of adjusted earnings per diluted share, compared to $14.9 million, or $0.38 of adjusted earnings per diluted share in the same period last fiscal year
  • Adjusted EBITDA was $29.8 million, or 19 percent of sales, compared to $23.6 million, or 19.5 percent of sales in the same period last fiscal year

“We are pleased with our record results in 2018,” said Larry Enterline, Fox’s CEO. “Our net sales approached the high-end of our expectations and profitability exceeded our guidance for the fourth quarter and fiscal year. We experienced favorable business fundamentals with continued growth across our Powered Vehicles Group and our Specialty Sports Group. For fiscal 2019, we believe Fox is well positioned for future growth in new and existing categories with our compelling performance-defining offerings.”

Enterline continued, “Based on our strong operational and financial results as well as our outlook for 2019, we continue to opportunistically make strategic investments to expand our manufacturing capacity primarily in our U.S. operations to better support the needs of Fox’s growing business over the next several years.”

Sales for the fourth quarter of fiscal 2018 were $156.8 million, an increase of 29.5 percent as compared to sales of $121.1 million in the fourth quarter of fiscal 2017. This increase reflects a 47.7 percent increase in Powered Vehicle Group sales and an 11.9 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 OEM channel, as well as the inclusion of a full quarter of sales from Tuscany.

Gross margin was 32.5 percent for the fourth quarter of fiscal 2018, a 20 basis point increase from gross margin of 32.3 percent in the fourth quarter of fiscal 2017. On a non-GAAP basis, adjusted gross margin which excludes the effects of acquisition-related costs incurred in the fourth quarter of 2017, remained unchanged when compared with the current 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 $28.1 million for the fourth quarter of fiscal 2018 compared to $23.1 million in the fourth quarter of fiscal 2017. The increase in operating expenses is primarily a result of inclusion of a full quarter of expenses from the company’s Tuscany subsidiary, higher amortization expense on acquired intangible assets, and investments in research and development to support future growth, offset by lower acquisition-related expenses.

As a percentage of sales, operating expenses were 18 percent for the fourth quarter of fiscal 2018 compared to 19.1 percent in the fourth quarter of fiscal 2017. Non-GAAP operating expenses were $25 million, or 16 percent of sales in the fourth quarter of fiscal 2018 compared to $19.8 million, or 16.4 percent of sales, in the fourth 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 7.3 percent in the fourth quarter of fiscal 2018, compared to 81.3 percent in the fourth quarter of fiscal 2017. The fourth quarter of fiscal 2017 includes tax expenses from the one-time impact of the Tax Cuts and Jobs Act (“the Act”) of $9.3 million or $0.24 per diluted share. Excluding the impact of the Act, the company’s adjusted effective tax rate was 20.4 percent in the fourth quarter of 2017. The reduction in rate from 20.4 percent to 7.3 percent is primarily due to benefits associated with our international restructuring efforts, as well as lower US corporate tax rates resulting from the Act.

Net income attributable to Fox stockholders in the fourth quarter of fiscal 2018 was $20.1 million, compared to $2.8 million in the fourth quarter of the prior fiscal year. Earnings per diluted share for the fourth quarter of fiscal 2018 was $0.52, compared to earnings per diluted share of $0.07 for the fourth quarter of fiscal 2017.

Non-GAAP adjusted net income was $22.5 million, or $0.58 of adjusted earnings per diluted share, compared to adjusted net income of $14.9 million, or $0.38 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 fourth quarter of fiscal 2018 was $29.8 million, compared to $23.6 million in the fourth quarter of fiscal 2017. Adjusted EBITDA margin in the fourth quarter of fiscal 2018 was 19 percent, compared to 19.5 percent in the fourth quarter of fiscal 2017. Reconciliations of net income to adjusted EBITDA and the calculation of adjusted EBITDA margin are provided at the end of this press release.

Fiscal Year 2018 Results

Sales for the fiscal year ended December 28, 2018, were $619.2 million, an increase of 30.2 percent compared to fiscal 2017. Sales in the Power Vehicle Group and Specialty Sports Group increased 46.5 percent and 14.9 percent, respectively, for fiscal 2018 compared to the prior year.

Gross margin was 33.2 percent for the fiscal year ended December 28, 2018, a 70 basis point increase, compared to gross margin of 32.5 percent in fiscal 2017. Gross margin improved primarily due to increased operating leverage on higher volume and improved manufacturing efficiencies.

Net income attributable to Fox stockholders in the fiscal year ended December 28, 2018 was $84 million, compared to $43.1 million in the prior year. Earnings per diluted share for fiscal 2018 was $2.16, compared to $1.11 in fiscal 2017.

Non-GAAP adjusted net income was $86.7 million, or $2.22 of adjusted earnings per diluted share, compared to $61.5 million, or $1.59 of adjusted earnings per diluted share in the same period of the prior 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 increased to $124.6 million in fiscal 2018, compared to $93.8 million in fiscal 2017. Adjusted EBITDA margin in fiscal 2018 was 20.1 percent, compared to 19.7 percent in fiscal 2017. Reconciliations of net income to adjusted EBITDA and the calculation of adjusted EBITDA margin are provided at the end of this press release.

Balance Sheet Highlights

As of December 28, 2018, the company had cash and cash equivalents of $28 million compared to $35.9 million as of December 29, 2017. Total debt was $59.4 million, compared to $98.6 million as of December 29, 2017, reflecting pay down of debt incurred in connection with the company’s 2017 acquisition of Tuscany. Inventory was $107.1 million as of December 28, 2018, compared to $84.8 million as of December 29, 2017. As of December 28, 2018, accounts receivable and accounts payable were $78.9 million and $55.1 million, respectively, compared to December 29, 2017 balances of $61.1 million and $40.8 million, respectively. The changes in inventory, accounts receivable, and accounts payable are primarily attributable to business growth.

Fiscal 2019 Guidance

For the first quarter of fiscal 2019, the company expects sales in the range of $150 million to $158 million and non-GAAP adjusted earnings per diluted share in the range of $0.44 to $0.49.

For the fiscal year 2019, the company expects sales in the range of $695 million to $715 million and non-GAAP adjusted earnings per diluted share in the range of $2.45 to $2.55. The company’s full year 2019 guidance assumes a non-GAAP tax rate range of 15 percent to 19 percent.

Non-GAAP adjusted earnings per diluted share exclude the following items net of applicable tax: amortization of purchased intangibles, contingent consideration valuation adjustment, acquisition-related compensation expense, certain acquisition-related adjustments and expenses, litigation-related expenses, offering expenses, 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 first 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.

CEO Succession Plan

In a separate press release today, Fox also announced Enterline will retire from the role of CEO after eight years with the company, and become Executive Chairman of the Board, on June 29, 2019. Concurrently, Mike Dennison, Fox’s President, Powered Vehicles Group, will become CEO and remain a director on the Board of Directors. With the appointment of Enterline to Executive Chairman, Dudley Mendenhall will transition from Chairman of the Board of Directors to Lead Independent Director.