Fox Factory Holding Corp. reported sales grew 19.4 percent in the fourth quarter ended December 30 as a gain of a 38.5 percent increase in its Powered Vehicles Group segment offset a 1.9 percent decrease in sales in Specialty Sports Group bicycle components segment.
Overall sales in the quarter of $408.6 million exceeded company guidance in the range of $370 million to $390 million. Adjusted EPS of $1.43 topped guidance in the range of $1.10 to $1.30.
Fourth Quarter Fiscal 2022 Highlights
Sales increased 19.4 percent to $408.6 million, compared to $342.3 million in the same period last fiscal year
Gross profit increased 22.0 percent to $130.9 million, compared to $107.3 million in the same period last fiscal year. Gross margin percentage increased 70 basis points to 32.0 percent, compared to 31.3 percent in the same period last fiscal year; non-GAAP adjusted gross margin percentage increased 40 basis points to 32.0 percent, compared to 31.6 percent in the same period last fiscal year
Net income was $53.0 million, or 13.0 percent of sales and $1.25 of earnings per diluted share, compared to $37.7 million, or 11.0 percent of sales and $0.89 of earnings per diluted share in the same period last fiscal year
Non-GAAP adjusted net income was $60.8 million, or $1.43 of non-GAAP adjusted earnings per diluted share, compared to $44.8 million, or $1.06 of non-GAAP adjusted earnings per diluted share in the same period last fiscal year
Adjusted EBITDA was $76.8 million, or 18.8 percent of sales, compared to $61.1 million, or 17.8 percent of sales in the same period last fiscal year
“Thanks to a strong finish in the fourth quarter, FOX had another record year for both revenue and earnings in 2022. Our team stayed focused on our mission, leveraging our diverse portfolio to combat supply chain and labor constraints, as well as threats from inflation. In the fourth quarter, we also saw continued improvement in our Gainesville, Georgia facility, which provides a solid foundation for continued improvement in 2023. To further diversify our business and to continue building on our vertical integration strategy, we recently announced the acquisition of Custom Wheel House, LLC. Custom Wheel House, based out of Rancho Dominguez, California, designs, markets, and distributes high-performance wheels, performance off-road tires, and accessories including the premier flagship brand Method Race Wheels. This acquisition provides us with additional market diversification, as well as significant vertical integration for our lift kit and up-fitted truck business,” said Mike Dennison, FOX’s Chief Executive Officer. “As we enter 2023, we are aware that the global economy will continue to experience some challenges under the weight of inflationary pressures and tightening monetary conditions. As we navigate these challenges we will continue to fine-tune our product lines, while exploring investments to ensure our future success. Our achievements in 2022 provide us with confidence in our ability to execute our tactical objectives as well as deliver on our long-term strategic vision.”
Sales for the fourth quarter of fiscal 2022 were $408.6 million, an increase of 19.4 percent, as compared to sales of $342.3 million in the fourth quarter of fiscal 2021. This increase reflects a 38.5 percent increase in Powered Vehicles Group sales and a 1.9 percent decrease in Specialty Sports Group sales. The increase in Powered Vehicles Group sales is primarily due to increased demand in the Original Equipment Manufacturer (OEM) channel and strong performance in its upfitting product lines. The decrease in Specialty Sports Group sales is driven by a return to seasonality.
Gross margin was 32.0 percent for the fourth quarter of fiscal 2022, a 70 basis point increase from gross margin of 31.3 percent in the fourth quarter of fiscal 2021. Non-GAAP adjusted gross margin increased 40 basis points to 32.0 percent from the same prior fiscal year period, excluding the effects of strategic transformation costs and other non-recurring items. The increase in gross margin was primarily driven by efficiencies gained at our Gainesville, Georgia facility and strong performance in its upfitting product lines. 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 $74.2 million for the fourth quarter of fiscal 2022, compared to $64.2 million in the fourth quarter of fiscal 2021. Operating expenses increased by $10.0 million primarily due to higher employee headcount and benefit-related costs, higher insurance and facility-related expenses, and higher commission costs. As a percentage of sales, operating expenses for the fourth quarter of fiscal 2022 were 18.1 percent, compared to 18.8 percent in the fourth quarter of fiscal 2021. Non-GAAP operating expenses were $66.1 million, or 16.2 percent of sales in the fourth quarter of fiscal 2022, compared to $57.2 million, or 16.7 percent of sales, in the fourth quarter of the prior fiscal year. Reconciliations of operating expenses to non-GAAP operating expenses are provided at the end of this press release.
The company’s effective tax rate was 0.4 percent in the fourth quarter of fiscal 2022, compared to 9.6 percent in the fourth quarter of fiscal 2021. The decrease in the company’s effective tax rate was primarily due to U.S. tax regulations proposed in November 2022 that the company early adopted and resulted in the ability to use certain foreign tax credits. This was partially offset by decreased benefits from stock compensation deductions.
Net income in the fourth quarter of fiscal 2022 was $53.0 million, compared to $37.7 million in the fourth quarter of the prior fiscal year. Earnings per diluted share for the fourth quarter of fiscal 2022 were $1.25, compared to earnings per diluted share of $0.89 for the fourth quarter of fiscal 2021.
Non-GAAP adjusted net income in the fourth quarter of fiscal 2022 was $60.8 million, or $1.43 of adjusted earnings per diluted share, compared to adjusted net income of $44.8 million, or $1.06 of adjusted earnings per diluted share, in the same period of the prior fiscal year. Reconciliations of net income as compared to non-GAAP adjusted net income and the calculation of non-GAAP adjusted earnings per diluted share are provided at the end of this press release.
Adjusted EBITDA in the fourth quarter of fiscal 2022 was $76.8 million, compared to $61.1 million in the fourth quarter of fiscal 2021. Adjusted EBITDA margin in the fourth quarter of fiscal 2022 was 18.8 percent, compared to 17.8 percent in the fourth quarter of fiscal 2021. 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 2022 Results
Sales for the twelve months ended December 30, 2022 were $1,602.5 million, an increase of 23.4 percent, compared to sales of $1,299.1 million in fiscal year 2021. Sales of Powered Vehicle and Specialty Sports products increased 28.0 percent and 17.6 percent, respectively, for fiscal year 2022 compared to the prior fiscal year period.
Gross margin was 33.2 percent in fiscal year 2022, a 10 basis point decrease, compared to gross margin of 33.3 percent in fiscal year 2021. On a non-GAAP basis, adjusted gross margin was 33.4 percent in fiscal year 2022, a 10 basis point decrease, compared to 33.5 percent in fiscal year 2021, excluding the effects of strategic transformation costs and other non-recurring items. The decrease in gross margin for fiscal year 2022 was primarily due to increases in factory overhead and materials costs, each of which was driven higher by inflation. Additionally, the completion of the planned shutdown of our Watsonville, California facility and the transition of those production lines resulted in inefficiencies in the first half of fiscal year 2022, as we ramped up our Gainesville, Georgia facility. 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 2022 was $205.3 million, compared to $163.8 million in the prior fiscal year. Earnings per diluted share for fiscal year 2022 was $4.84, compared to $3.87 in fiscal year 2021.
Non-GAAP adjusted net income in fiscal year 2022 was $232.7 million, or $5.49 of adjusted earnings per diluted share, compared to $190.8 million, or $4.50 of adjusted earnings per diluted share in the prior fiscal year. Reconciliations of net income to non-GAAP adjusted net income and the calculation of non-GAAP adjusted earnings per diluted share are provided at the end of this press release.
Adjusted EBITDA increased to $321.8 million in fiscal year 2022, compared to $263.9 million in fiscal year 2021. Adjusted EBITDA margin decreased to 20.1 percent in fiscal year 2022, compared to 20.3 percent in fiscal year 2021. 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 30, 2022, the company had cash and cash equivalents of $145.3 million, compared to $179.7 million as of December 31, 2021. Inventory was $350.6 million as of December 30, 2022, compared to $279.8 million as of December 31, 2021. As of December 30, 2022, accounts receivable and accounts payable were $200.4 million and $131.2 million, respectively, compared to $142.0 million and $100.0 million, respectively, as of December 31, 2021. Prepaids and other current assets were $101.4 million as of December 30, 2022, compared to $123.1 million as of December 31, 2021. The increase in inventory is due to several factors, including natural growth to meet anticipated demand, receipt of long lead time items that had been delayed, and higher levels of safety stock to mitigate supply chain uncertainty. The increases in accounts receivable and accounts payable reflect normal business growth, as well as the timing of customer collections and vendor payments. The decrease in prepaids and other current assets is primarily due to a lower supply of chassis as we worked through the safety stock that we had stored since early 2022, partially offset by an increase in various tax credits. Deferred tax assets were $57.3 million as of December 30, 2022, compared to $35.0 million as of December 31, 2021. The increase in deferred tax assets was primarily due to recently finalized tax regulations that require the capitalization of research and development expenses. Total debt was $200.0 million as of December 30, 2022, compared to $378.5 million as of December 31, 2021, due to additional payments made on our line of credit.
Acquisition of Custom Wheel House, LLC
As previously announced on February 21, 2023, the company’s subsidiary, Fox Factory, Inc., has signed a definitive agreement to acquire all of the outstanding equity interest of Custom Wheel House for $131.6 million. Custom Wheel House is a designer, marketer and distributor of automotive aftermarket wheels, performance tires and accessories, including the premier flagship brand Method Race Wheels. The transaction will be financed through a combination of cash on hand and borrowings under our existing 2022 Credit Facility. This transaction is expected to close in the first quarter of 2023, subject to customary closing conditions, and to be accretive to FOX’s fiscal 2023 financial results.
Fiscal 2023 Guidance
For the first quarter of fiscal 2023, the company expects sales in the range of $380 million to $400 million and non-GAAP adjusted earnings per diluted share in the range of $1.10 to $1.30.
For the fiscal year 2023, the company expects sales in the range of $1,670 million to $1,700 million and non-GAAP adjusted earnings per diluted share in the range of $5.15 to $5.45. For purposes of its fiscal 2023 guidance, the company expects its full year effective tax rate to be within the 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, litigation and settlement-related expenses, acquisition and integration-related expenses, strategic transformation costs and other non-recurring items. A quantitative reconciliation of non-GAAP adjusted earnings per diluted share for the first quarter and full fiscal year 2023 is not available without unreasonable efforts because management cannot predict, with sufficient certainty, all of the elements necessary to provide such a reconciliation.
