Fox Factory Holding Corp. reported earnings more than tripled in the first quarter ended March 31 on a 32.6 percent revenue gain.

First Quarter Fiscal 2017 Highlights

  • Sales increased 32.6 percent to $106.3 million compared to $80.2 million in the same period last fiscal year
  • Gross margin increased 40 basis points to 31.7 percent compared to 31.3 percent in the same period last fiscal year; Non
  • GAAP adjusted gross margin increased 30 basis points to 31.7 percent compared to the same period last fiscal year
    Pre-tax income was $11.3 million, or 10.6 percent of sales, compared to $4.4 million, or 5.5 percent of sales in the same period last fiscal year; Adjusted EBITDA was $19.3 million, or 18.1 percent of sales, compared to $11.5 million, or 14.3 percent of sales in the same period last fiscal year
  • Net income was $10.5 million, or 27 cents per diluted share, compared to $3.3 million, or 9 cents per diluted share in the same period last fiscal year
  • Non-GAAP adjusted net income was $13.6 million, or 35 cents adjusted earnings per diluted share, compared to $6 million, or 16 cents adjusted earnings per diluted share in the same period last fiscal year

“We achieved sales and profitability above our expectations in the first quarter of fiscal 2017, driven by solid momentum across both our bike and powered vehicle product offerings,” stated Larry L. Enterline, Fox’s chief executive officer. “As a result of our strong start to the year, we are raising our guidance for fiscal 2017. We believe the diversification of our product offerings and end markets continue to set us apart in the industry and position us well for future growth.”

Sales for the first quarter of fiscal 2017 were $106.3 million, an increase of 32.6 percent as compared to sales of $80.2 million in the first quarter of fiscal 2016. This increase reflects a 54 percent increase in sales of powered vehicle products and a 15.9 percent increase in sales of bike products. The increase in sales of powered vehicle products was primarily due to continued high demand for on and off-road suspension products including 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 31.7 percent for the first quarter of fiscal 2017, a 40 basis point improvement from gross margin of 31.3 percent in the first quarter of fiscal 2016. The improvement in gross margin was primarily due to manufacturing efficiencies. On a non-GAAP basis, adjusted gross margin, excluding the effects of acquisition related costs, increased 30 basis points as compared to the first quarter of last 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.

Total operating expenses were $21.3 million for the first quarter of fiscal 2017 compared to $19.4 million in the first quarter of the prior fiscal year. The increase in operating expenses is primarily a result of investments to support growth in the business and $0.9 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. Non-GAAP operating expenses were 16.9 percent of sales in the first quarter of fiscal 2017 compared to 20.3 percent of sales in the first 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 effective tax rate was 6.7 percent in the first quarter of 2017, compared to 26 percent in the first quarter of 2016. The improvement in the effective tax rate was primarily due to the impact of excess benefits from the exercise of stock options. Excluding the benefit of stock option exercises, the first quarter 2017 effective tax rate was 28.2 percent. While the company believes such benefits will be recurring in nature, the timing of stock option exercises is not within its control and is difficult to predict.

Pre-tax income in the first quarter of fiscal 2017 was $11.3 million, compared to $4.4 million in the same period last fiscal year. Adjusted EBITDA in the first quarter of fiscal 2017 was $19.3 million, compared to $11.5 million in the first quarter of fiscal 2016. Adjusted EBITDA margin in the first quarter of fiscal 2017 was 18.1 percent, compared to 14.3 percent in the first quarter of fiscal 2016. Reconciliations of pre-tax income to adjusted EBITDA and the calculation of adjusted EBITDA margin are provided at the end of this press release.

Net income in the first quarter of fiscal 2017 was $10.5 million, compared to $3.3 million in the first quarter of the prior fiscal year. Earnings per diluted share for the first quarter of fiscal 2017 were 27 cents, compared to 9 cents in the first quarter of fiscal 2016.

Non-GAAP adjusted net income was $13.6 million, or 35 cents adjusted earnings per diluted share, compared to $6 million, or 16 cents adjusted earnings per diluted share in the same period last fiscal year.

Balance Sheet Highlights
As of March 31, 2017, the company had cash and cash equivalents of $43 million compared to $35.3 million at December 30, 2016. Total debt was $65.8 million, compared to $66.7 million as of December 30, 2016. Inventory was $79.5 million as of March 31, 2017, compared to $71.2 million as of December 30, 2016. As of March 31, 2017, accounts receivable and accounts payable were $50.4 million and $40.7 million, respectively, compared to December 30, 2016 balances of $61.6 million and $36.2 million, respectively. The changes in accounts receivable, inventory and accounts payable are primarily attributable to business growth and the company’s normal seasonality. Accrued expenses decreased to $24.8 million as of March 31, 2017, from $34.4 million as of December 30, 2016, primarily due to the final scheduled earn-out payment related to one of the company’s 2014 acquisitions.

Fiscal 2017 Guidance
For the second quarter of fiscal 2017, the company expects sales in the range of $113 million to $119 million and non-GAAP adjusted earnings per diluted share in the range of 32 cents to 38 cents.

For the full fiscal year 2017, the company raises its previous guidance and now expects sales in the range of $435 million to $455 million and non-GAAP adjusted earnings per diluted share in the range of $1.36 to $1.46.

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 and offering expenses.

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

Photo courtesy Fox Factory