Fox Factory Sees Double-Digit Q4 Revenue Gain

Fox Factory Holding Corp. reported fourth-quarter earnings rose 25.0 percent on an adjusted basis on a 16.6 percent gain in sales.

Fourth Quarter Fiscal 2016 Highlights

Sales increased 16.6 percent to $111.6 million compared to $95.7 million in the same period last fiscal year

Gross margin increased 60 basis points to 30.5 percent compared to 29.9 percent in the same period last fiscal year; Non-GAAP adjusted gross margin decreased 10 basis points to 30.6 percent compared to the same period last fiscal year

Net income was $9.8 million, or 8.8 percent of sales and $0.26 per diluted share, compared to $6.8 million, or 7.1 percent of sales and $0.18 per diluted share in the same period last fiscal year

Non-GAAP adjusted net income was $12.0 million, or $0.32 adjusted earnings per diluted share, compared to $9.6 million, or $0.25 adjusted earnings per diluted share in the same period last fiscal year

Adjusted EBITDA was $19.8 million, or 17.7 percent of sales, compared to $16.1 million, or 16.9 percent of sales in the same period last fiscal year
“We were pleased to end the year with continued business momentum. Our global team continued to execute at a high-level and our innovation has helped fuel the consistent success of product lineups across bike and powered vehicles,” commented Larry L. Enterline, FOX’s Chief Executive Officer. “This positive momentum in our business has continued into fiscal 2017, and we believe we are well positioned to generate future growth and enhance shareholder value.”

Sales for the fourth quarter of fiscal 2016 were $111.6 million, an increase of 16.6 percent as compared to sales of $95.7 million in the fourth quarter of fiscal 2015. This increase reflects a 27.5 percent and 7.8 percent increase in sales of powered vehicle products and bike products, respectively. The increase in sales of powered vehicle products was primarily due to continued high demand for on and off-road suspension products and increased original equipment manufacturer (“OEM”) sales. The increase in sales of bike products primarily reflects new product introductions and favorable model year spec placements with OEMs.

Gross margin was 30.5 percent for the fourth quarter of fiscal 2016, a 60 basis point increase from gross margin of 29.9 percent in the fourth quarter of fiscal 2015. The increase in gross margin was primarily due to lower acquisition related inventory costs as compared to the prior fiscal year period. On a non-GAAP adjusted basis, excluding acquisition related costs, gross margin decreased 10 basis points as compared to the fourth quarter of fiscal 2015. 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 $20.6 million for the fourth quarter of fiscal 2016 compared to $19.2 million in the fourth quarter of fiscal 2015. The increase in operating expenses is primarily a result of investments to support growth in the business and $0.8 million of expense associated with the previously disclosed ongoing patent litigation activities involving a bike industry competitor. The company remains confident in its position in these litigation matters. The operating expense increases were partially offset by a reduction in amortization of certain purchased intangibles. As a percentage of sales, operating expenses were 18.4 percent for the fourth quarter of fiscal 2016 compared to 20.0 percent in the fourth quarter of fiscal 2015. Non-GAAP operating expense was $17.6 million in the fourth quarter of fiscal 2016 compared to $15.8 million 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.

Operating income was $13.5 million for the fourth quarter of fiscal 2016, compared to operating income of $9.4 million in the fourth quarter of fiscal 2015.

The effective tax rate was approximately 24.0 percent in the fourth quarter of 2016, compared to 26.7 percent in the fourth quarter of 2015. The improvement in the effective tax rate was primarily due to the reorganization of the company’s foreign entities and indefinite reinvestment of foreign earnings in jurisdictions with lower tax rates.

Net income in the fourth quarter of fiscal 2016 was $9.8 million, compared to $6.8 million in the fourth quarter of the prior fiscal year. Earnings per diluted share for the fourth quarter of fiscal 2016 was $0.26, compared to $0.18 in the fourth quarter of fiscal 2015.

Non-GAAP adjusted net income was $12.0 million, or $0.32 adjusted earnings per diluted share, compared to $9.6 million, or $0.25 adjusted earnings per diluted share in the same period of last fiscal year. 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 fourth quarter of fiscal 2016 was $19.8 million, compared to $16.1 million in the fourth quarter of fiscal 2015. Adjusted EBITDA margin in the fourth quarter of fiscal 2016 was 17.7 percent, compared to 16.9 percent in the fourth quarter of fiscal 2015. 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 2016 Results

Sales for the year ended December 30, 2016 were $403.1 million, an increase of 9.9 percent compared to the same period in 2015. Sales of powered vehicle and bike products increased 13.7 percent and 7.1 percent, respectively, for 2016 compared to the prior year period.

Gross margin was 31.4 percent for the fiscal year ended December 30, 2016, a 90 basis point increase compared to gross margin of 30.5 percent in fiscal year 2015. The gross margin improvement was primarily due to manufacturing efficiencies along with the non-recurrence of ramp up, reconfiguration and logistics costs associated with the company’s global production transition, the West Coast port slowdown during 2015, and lower acquisition related inventory costs. On a non-GAAP adjusted basis, excluding acquisition related costs, gross margin increased 40 basis points as compared to the prior fiscal year. 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 in fiscal year 2016 was $35.7 million, compared to $25.0 million in fiscal 2015. Earnings per diluted share for fiscal year 2016 was $0.94, compared to $0.66 in fiscal 2015. Non-GAAP adjusted net income was $46.4 million, or $1.23 adjusted earnings per diluted share in fiscal 2016, compared to $38.3 million, or $1.01 adjusted earnings per diluted share, in fiscal 2015. 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 increased to $70.8 million in the fiscal year ended December 30, 2016, compared to $63.5 million in fiscal 2015. Adjusted EBITDA margin was 17.6 percent in fiscal 2016, compared to 17.3 percent in fiscal 2015. 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 December 30, 2016, the company had cash and cash equivalents of $35.3 million compared to $6.9 million as of December 31, 2015. Total debt was $66.7 million, compared to $47.9 million as of December 31, 2015. Inventory was $71.2 million as of December 30, 2016, compared to $68.2 million as of December 31, 2015. As of December 30, 2016, accounts receivable and accounts payable were $61.6 million and $42.1 million, respectively, compared to December 31, 2015 balances of $43.7 million and $32.1 million, respectively. The changes in accounts receivable, inventory and accounts payable are primarily attributable to business growth.

Fiscal 2017 Guidance

For the first quarter of fiscal 2017, the company expects sales in the range of $96 million to $100 million and non-GAAP adjusted earnings per diluted share in the range of $0.24 to $0.28.

For the fiscal year 2017, the company expects sales in the range of $430 million to $450 million and non-GAAP adjusted earnings per diluted share in the range of $1.31 to $1.41.

Headquartered in Scotts Valley, CA, Fox designs and manufactures high-performance ride dynamics products primarily for bicycles, side-by-side vehicles, on-road and off-road vehicles and trucks, all-terrain vehicles, snowmobiles, specialty vehicles and applications, and motorcycles.

Photo courtesy Fox Factory