Fox Factory Holding Corp. reported earnings on an adjusted basis rose 12.9 percent on an 18.5 percent revenue gain.

Fourth Quarter Fiscal 2019 Highlights

  • Sales increased 18.5 percent to $185.9 million compared to $156.8 million in the same period last fiscal year;
  • Gross margin decreased 40 basis points to 32.1 percent compared to 32.5 percent in the same period last fiscal year;
  • Net income attributable to FOX stockholders was $22.5 million, or 12.1 percent of sales and $0.58 of earnings per diluted share, compared to $20.1 million, or 12.8 percent of sales and $0.52 of earnings per diluted share in the same period last fiscal year;
  • Non-GAAP adjusted net income was $25.4 million, or $0.65 of adjusted earnings per diluted share, compared to $22.5 million, or $0.58 of adjusted earnings per diluted share in the same period last fiscal year; and
  • Adjusted EBITDA was $34.4 million, or 18.5 percent of sales, compared to $29.8 million, or 19.0 percent of sales in the same period last fiscal year.

“We are pleased with our strong finish to fiscal 2019 from both our Powered Vehicles and Specialty Sports Groups. Our solid growth enabled us to generate record annual sales and profitability above our expectations,” commented Mike Dennison, FOX’s Chief Executive Officer. “We believe we are entering fiscal 2020 with solid business momentum and are excited about the growth opportunities ahead of us with our diversified product offerings and differentiated market position. We remain on track to complete our previously announced acquisition of SCA late in the first quarter of fiscal 2020.”

Sales for the fourth quarter of fiscal 2019 were $185.9 million, an increase of 18.5 percent as compared to sales of $156.8 million in the fourth quarter of fiscal 2018. This increase in sales reflects a 24.2 percent increase in Powered Vehicles Group sales and an 11.3 percent increase in the sales of Specialty Sports Group products. The increase in Powered Vehicles Group products is primarily due to the continued success of its product lineup, particularly in the OEM channel. The increase in sales of Specialty Sports Group products reflects new product introductions and strong sell-through with certain higher growth OEMs.

Gross margin was 32.1 percent for the fourth quarter of fiscal 2019, a 40 basis point decrease from gross margin of 32.5 percent in the fourth quarter of fiscal 2018. The decrease in 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.

Total operating expenses were $33.5 million for the fourth quarter of fiscal 2019 compared to $28.1 million in the fourth 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 Ridetech subsidiary, as well as increases in facility and various other administrative expenses to support FOX’s growing business.

As a percentage of sales, operating expenses were 18.0 percent for the fourth quarter of fiscal 2019 compared to 17.9 percent in the fourth quarter of fiscal 2018. Non-GAAP operating expenses were $30.3 million, or 16.3 percent of sales in the fourth quarter of fiscal 2019 compared to $25.0 million, or 16.0 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 10.0 percent in the fourth quarter of fiscal 2019, compared to an effective tax rate of 7.3 percent in the fourth quarter of fiscal 2018.

Net income attributable to FOX stockholders in the fourth quarter of fiscal 2019 was $22.5 million, compared to $20.1 million in the fourth quarter of the prior fiscal year. Earnings per diluted share for the fourth quarter of fiscal 2019 was $0.58, compared to earnings per diluted share of $0.52 for the fourth quarter of fiscal 2018.

Non-GAAP adjusted net income was $25.4 million, or $0.65 of adjusted earnings per diluted share, compared to adjusted net income of $22.5 million, or $0.58 of adjusted earnings per diluted share in the same period of the prior 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 fourth quarter of fiscal 2019 was $34.4 million, compared to $29.8 million in the fourth quarter of fiscal 2018. Adjusted EBITDA margin in the fourth quarter of fiscal 2019 was 18.5 percent, compared to 19.0 percent in the fourth 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.

Fiscal Year 2019 Results
Sales for the fiscal year ended January 3, 2020, were $751.0 million, an increase of 21.3 percent compared to fiscal 2018. Sales of powered vehicle and bike products increased 33.8 percent and 6.3 percent, respectively, for the fiscal year 2019 compared to the prior-year period.

Gross margin for the fiscal year ended January 3, 2020, was 32.3 percent, a 90 basis point decrease, compared to 33.2 percent in the prior year. 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 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 a 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 fiscal year ended January 3, 2020, was $93.0 million, compared to $84.0 million in the prior year. Earnings per diluted share for fiscal 2019 was $2.38, compared to $2.16 in fiscal 2018.

Non-GAAP adjusted net income in fiscal 2019 was $106.3 million, or $2.72 of adjusted earnings per dilutedcompared to $86.7 million, or $2.22 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 $146.2 million in fiscal 2019, compared to $124.6 million in fiscal 2018. Adjusted EBITDA margin in fiscal 2019 was 19.5 percent, compared to 20.1 percent in 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.

Balance Sheet Highlights
As of January 3, 2020, the company had cash and cash equivalents of $43.7 million compared to $28.0 million as of December 28, 2018. Total debt was $68.0 million, compared to $59.4 million as of December 28, 2018. Property, plant and equipment, net were $108.4 million as of January 3, 2020, compared to $64.8 million as of December 28, 2018. Inventory was $128.5 million as of January 3, 2020, compared to $107.1 million as of December 28, 2018. As of January 3, 2020, accounts receivable and accounts payable were $91.6 million and $55.1 million, respectively, compared to $78.9 million and $55.1 million, respectively, as of December 28, 2018. The changes in inventory and accounts receivable are primarily attributable to business growth and the impact of the Ridetech acquisition.

Acquisition Of SCA Performance Holdings, Inc. (“SCA”)
As previously announced on February 12, 2020, the company’s subsidiary, Fox Factory, Inc., has signed a definitive agreement to acquire 100 percent of the issued and outstanding capital stock of Southern Rocky Holdings, LLC. The $328 million transactions, exclusive of vehicle inventory, will be financed through an expanded and syndicated credit facility led by Bank of America. The company also agreed to an additional $13 million of contingent, performance-based retention incentives for key SCA management payable over the next two years. The transaction is expected to close late in the first quarter of fiscal 2020, subject to customary closing conditions, and to be accretive to FOX’s fiscal 2020 financial results.

Fiscal 2020 Guidance
For the first quarter of fiscal 2020, the company expects sales in the range of $182 million to $190 million and non-GAAP adjusted earnings per diluted share in the range of $0.55 to $0.60.

For the fiscal year 2020, the company expects sales in the range of $881 million to $906 million and non-GAAP adjusted earnings per diluted share in the range of $3.00 to $3.10. The company’s full-year 2020 guidance assumes a tax rate range of 15 percent to 19 percent.

Photo courtesy Fox Factory Holding Corp.