Fox Factory Sees Q3 Revenues Climb 20 Percent

Fox Factory Holding Corp. reported sales increased 20.2 percent in the third quarter to a record $211.3 million compared to $175.8 million in the same period last fiscal year

Gross margin decreased 140 basis points to 33.0 percent compared to 34.4 percent in the same period last fiscal year; Non-GAAP adjusted gross margin decreased 100 basis points compared to the same period last fiscal year

Net income attributable to Fox stockholders was a record $29.5 million, or 14.0 percent of sales and $0.75 of earnings per diluted share, compared to $24.3 million, or 13.8 percent of sales and $0.62 of earnings per diluted share in the same period last fiscal year

Non-GAAP adjusted net income was a record $32.7 million, or $0.83 of adjusted earnings per diluted share, compared to $28.1 million, or $0.72 of adjusted earnings per diluted share in the same period last fiscal year

Adjusted EBITDA was $43.6 million, or 20.6 percent of sales, compared to $39.3 million, or 22.4 percent of sales in the same period last fiscal year

“Our record third quarter results exceeded our expectations reflecting the strength of FOX’s differentiated market position and diversified product offerings,” commented Mike Dennison, FOX’s chief executive Officer. “Our team continues to execute at a high-level across both our Powered Vehicles and Specialty Sports Groups and we expect our solid growth to continue in the fourth quarter. Based on these results and our outlook for the remainder of the fiscal year, we are very pleased to be able to raise our annual guidance.”

Sales for the third quarter of fiscal 2019 were $211.3 million, an increase of 20.2 percent as compared to sales of $175.8 million in the third quarter of fiscal 2018. This increase in sales reflects a 37.0 percent increase in Powered Vehicles Group sales primarily due to the continued success of its product lineup, particularly in the OEM channel. Additionally, sales of Specialty Sports Group products increased 0.5 percent in the third quarter of fiscal 2019 as compared to the third quarter of the prior fiscal year.

Gross margin was 33.0 percent for the third quarter of fiscal 2019, a 140 basis point decrease from gross margin of 34.4 percent in the third quarter of fiscal 2018. On a non-GAAP basis, adjusted gross margin decreased 100 basis points, excluding the effects of acquisition related costs. The decrease in non-GAAP gross margin was primarily due to a shift in customer and product mix as the company’s larger North American OEMs represented a higher proportion of sales. Additionally, FOX continued to experience manufacturing and supply chain inefficiencies as a result of the increase in demand which negatively impacted gross margin. 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 $34.5 million for the third quarter of fiscal 2019 compared to $29.1 million in the third quarter of fiscal 2018. The increase in operating expenses is primarily due to personnel costs as the company continues to invest in product innovation, operating costs relating to the company’s recently acquired Ridetech subsidiary, as well as increases in facility and 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 16.3 percent for the third quarter of fiscal 2019 compared to 16.5 percent in the third quarter of fiscal 2018. Non-GAAP operating expenses were $31.5 million, or 14.9 percent of sales in the third quarter of fiscal 2019 compared to $25.1 million, or 14.3 percent of sales, in the third 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 12.9 percent in the third quarter of fiscal 2019, compared to a tax rate of 19.0 percent in the third quarter of fiscal 2018.

Net income attributable to FOX stockholders in the third quarter of fiscal 2019 was $29.5 million, compared to $24.3 million in the third quarter of the prior fiscal year. Earnings per diluted share for the third quarter of fiscal 2019 was $0.75, compared to earnings per diluted share of $0.62 for the third quarter of fiscal 2018.

Non-GAAP adjusted net income was $32.7 million, or $0.83 of adjusted earnings per diluted share, compared to adjusted net income of $28.1 million, or $0.72 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 third quarter of fiscal 2019 was $43.6 million, compared to $39.3 million in the third quarter of fiscal 2018. Adjusted EBITDA margin in the third quarter of fiscal 2019 was 20.6 percent, compared to 22.4 percent in the third 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 Nine Months Fiscal Year 2019 Results

Sales for the nine months ended September 27, 2019, were $565.1 million, an increase of 22.2 percent compared to the same period in 2018. Sales of powered vehicle and bike products increased 37.2 percent and 4.7 percent, respectively, for the first nine months of 2019 compared to the prior year period.

Gross margin was 32.4 percent for the first nine months of fiscal 2019, a 100 basis point decrease, compared to gross margin of 33.4 percent in the first nine months 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 year-to-date gross margin was primarily due to a shift in customer and product mix as the company’s larger North American OEMs represented a higher proportion of sales. Additionally, FOX incurred manufacturing and supply chain inefficiencies 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 nine months of fiscal 2019 was $70.5 million, compared to $63.9 million in the first nine months of the prior year. Earnings per diluted share for the first nine months of fiscal 2019 was $1.80, compared to $1.64 in the same period of fiscal 2018.

Non-GAAP adjusted net income in the first nine months of fiscal 2019 was $80.9 million, or $2.07 of adjusted earnings per diluted share, compared to $64.2 million, or $1.65 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 $111.8 million in the first nine months of fiscal 2019, compared to $94.8 million in the first nine months of fiscal 2018. Adjusted EBITDA margin in the first nine months of fiscal 2019 was 19.8 percent, compared to 20.5 percent in the first nine 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.

As of September 27, 2019, the company had cash and cash equivalents of $32.0 million compared to $28.0 million as of December 28, 2018. Total debt was $73.0 million, compared to $59.4 million as of December 28, 2018. Property, plant and equipment, net was $102.6 million as of September 27, 2019, compared to $64.8 million as of December 28, 2018. The change in property, plant and equipment, includes $18.6 million in lease right of use assets related to new lease accounting standards adopted in the first quarter of 2019. Inventory was $131.2 million as of September 27, 2019, compared to $107.1 million as of December 28, 2018. As of September 27, 2019, accounts receivable and accounts payable were $106.8 million and $64.9 million, respectively, compared to $78.9 million and $55.1 million, respectively, as of December 28, 2018. The changes in inventory, accounts receivable, and accounts payable are primarily attributable to business growth, the company’s normal seasonality, and the impact of the Ridetech acquisition.

Fiscal 2019 Guidance

For the fourth quarter of fiscal 2019, the company expects sales in the range of $175 million to $181 million and non-GAAP adjusted earnings per diluted share in the range of $0.57 to $0.62.

For the fiscal year 2019, the company is raising its outlook and now expects sales in the range of $740 million to $746 million and non-GAAP adjusted earnings per diluted share in the range of $2.64 to $2.69. The company’s full year 2019 guidance now assumes a non-GAAP tax rate range of 12 percent to 14 percent.