Fox Factory Holding Corp. reported financial sales in the second quarter increased 18.1 percent to $120.8 million compared to $102.3 million in the same period last fiscal year

Gross margin increased 70 basis points to 32.3 percent compared to 31.6 percent in the same period last fiscal year. Non-GAAP adjusted gross margin increased 60 basis points to 32.3 percent compared to the same period last fiscal year

Pre-tax income was $17.8 million, or 14.8 percent of sales, compared to $10.7 million, or 10.4 percent of sales in the same period last fiscal year; Adjusted EBITDA was $24 million, or 19.9 percent of sales, compared to $18.6 million, or 18.2 percent of sales in the same period last fiscal year

Net income was $13.7 million, or 35 cents per diluted share, compared to $8.9 million, or 24 cents per diluted share, in the same period last fiscal year

Non-GAAP adjusted net income was $15 million, or 39 cents adjusted earnings per diluted share, compared to $11.8 million, or 32 cents adjusted earnings per diluted share in the same period last fiscal year

“We were pleased to continue to grow our business across both our powered vehicle and bike product offerings to generate record sales and adjusted EBITDA in the second quarter. Our business benefited from positive demand for on and off-road suspension products, new bike product introductions and favorable model year spec positions in the quarter,” stated Larry L. Enterline, FOX’s chief executive officer. “As a result of year-to-date financial results and our current view of our business, we are pleased to be able to raise our outlook for fiscal year 2017.”

Sales for the second quarter of fiscal 2017 were $120.8 million, an increase of 18.1 percent as compared to sales of $102.3 million in the second quarter of fiscal 2016. This increase reflects a 42.7 percent increase in sales of powered vehicle products and a 2.9 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 spec positions with certain higher growth OEMs.

Gross margin was 32.3 percent for the second quarter of fiscal 2017, a 70 basis point improvement from gross margin of 31.6 percent in the second quarter of fiscal 2016. The improvement in gross margin was primarily due to favorable product and customer mix and improved manufacturing efficiencies. On a non-GAAP basis, adjusted gross margin increased 60 basis points, excluding the effects of acquisition related costs in the second quarter of last year.

Total operating expenses were $20.9 million for the second quarter of fiscal 2017 compared to $21 million in the second quarter of the prior fiscal year. The decrease in operating expenses is primarily a result of the conclusion of the company’s acquisition-related compensation arrangements, partially offset by strategic investments to support future business growth and increased incentive and stock-based compensation expense. Non-GAAP operating expenses were 15.7 percent of sales in the second quarter of fiscal 2017 compared to 16.3 percent of sales in the second quarter of the prior fiscal year. The effective tax rate was 22.7 percent in the second quarter of 2017, compared to 16.9 percent in the second quarter of 2016. The increase in the effective tax rate was primarily due to the impact of the increase in pre-tax income and resulting tax expense while benefits from various credits and deductions remain relatively constant.

Pre-tax income in the second quarter of fiscal 2017 was $17.8 million, compared to $10.7 million in the same period last fiscal year. Adjusted EBITDA in the second quarter of fiscal 2017 was $24 million, compared to $18.6 million in the second quarter of fiscal 2016. Adjusted EBITDA margin in the second quarter of fiscal 2017 was 19.9 percent, compared to 18.2 percent in the second quarter of fiscal 2016.

Net income in the second quarter of fiscal 2017 was $13.7 million, compared to $8.9 million in the second quarter of the prior fiscal year. Earnings per diluted share for the second quarter of fiscal 2017 were 35 cents, compared to 24 cents in the second quarter of fiscal 2016.

Non-GAAP adjusted net income was $15 million, or 39 cents adjusted earnings per diluted share, compared to $11.8 million, or 32 cents adjusted earnings per diluted share in the same period last fiscal year.

First Six Months Fiscal Year 2017 Results
Sales for the six months ended June 30, 2017, were $227.1 million, an increase of 24.4 percent compared to the same period in 2016. Sales of bike and powered vehicle products increased 8.2 percent and 48 percent, respectively, for the first six months of 2017 compared to the prior-year period.

Gross margin was 32 percent in the first six months of fiscal 2017, a 50 basis point increase, compared to gross margin of 31.5 percent in the first six months of fiscal 2016. The year-to-date gross margin improved primarily due to product and customer mix and manufacturing efficiencies.

Pre-tax income in the first six months of fiscal 2017 was $29 million, compared to $15.1 million in the first six months of fiscal 2016. Adjusted EBITDA increased to $43.3 million in the first six months of fiscal 2017, compared to $30.1 million in the first six months of fiscal 2016. Adjusted EBITDA margin in the first six months of fiscal 2017 was 19 percent, compared to 16.5 percent in the first six months of fiscal 2016.

Net income in the first six months of fiscal 2017 was $24.3 million, compared to $12.2 million in the first six months of the prior year. Earnings per diluted share for the first six months of fiscal 2017 was 63 cents, compared to 32 cents in the same period of fiscal 2016. Non-GAAP adjusted net income was $28.6 million, or 74 cents adjusted earnings per diluted share, compared to $17.8 million, or 47 cents adjusted earnings per diluted share in the same period of the prior fiscal year.

Balance Sheet Highlights
As of June 30, 2017, the company had cash and cash equivalents of $43.3 million compared to $35.3 million at December 30, 2016. Total debt was $64.9 million, compared to $66.7 million as of December 30, 2016. Inventory was $89.4 million as of June 30, 2017, compared to $71.2 million as of December 30, 2016. As of June 30, 2017, accounts receivable and accounts payable were $63 million and $51.1 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 $29.9 million as of June 30, 2017, from $34.4 million as of December 30, 2016, primarily due to the final earn-out payment related to one of the company’s 2014 acquisitions, partially offset by the result of the company’s normal business seasonality.

Fiscal 2017 Guidance
For the third quarter of fiscal 2017, the company expects sales in the range of $119 million to $125 million and non-GAAP adjusted earnings per diluted share in the range of $0.40 to 44 cents.

For the full fiscal year 2017, the company raises its previous guidance and now expects sales in the range of $458 million to $470 million and non-GAAP adjusted earnings per diluted share in the range of $1.43 to $1.51.

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 including related foreign currency transaction gains and losses, certain acquisition-related adjustments and expenses, litigation-related expenses and offering expenses. 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 third quarter and full fiscal year 2017 is not available without unreasonable efforts because management cannot predict, with sufficient certainty, all of the elements necessary to provide such a reconciliation.

Photo courtesy Fox Factory