Fox Factory Holding Corp. reported sales increased 8.6 percent in the fourth quarter to $121.1 million compared to $111.6 million in the same period last fiscal year.

Gross margin increased 180 basis points to 32.3 percent compared to 30.5 percent in the same period last fiscal year; Non-GAAP adjusted gross margin increased 190 basis points to 32.5 percent compared to the same period last fiscal year

The provision for income taxes of $12.4 million included a one-time charge of $9.3 million related to the Tax Cuts and Jobs Act (“the Act”), or an impact of $0.24 per diluted share, which resulted in an effective tax rate of 81.3 percent for the fourth quarter of fiscal 2017.  Exclusive of the impact of the Act, the effective tax rate was 20.4 percent

Net income was $2.9 million, or 2.4 percent of sales and $0.07 per diluted share, compared to net income of $9.8 million, or 8.8 percent of sales and $0.26 per diluted share in the same period last fiscal year

Non-GAAP adjusted net income was $14.9 million, or $0.38 adjusted earnings per diluted share, compared to $12.0 million, or $0.32 adjusted earnings per diluted share in the same period last fiscal year

Adjusted EBITDA was $23.6 million, or 19.5 percent of sales, compared to $19.8 million, or 17.7 percent of sales in the same period last fiscal year

“We are pleased with our finish to fiscal 2017. The strength of our product line-ups for both bike and powered vehicles fueled our financial results for the year,” commented Larry L. Enterline, FOX’s chief executive officer. “As we enter fiscal 2018, product innovation remains a key cornerstone of the FOX brand and our success in both bike and powered vehicle products as we continue to deliver differentiated products to our passionate customer base. Our team remains committed to further building the FOX brand presence in our existing vehicle categories and consistently pursuing potential new markets to generate future growth and enhance shareholder value.”

Sales for the fourth quarter of fiscal 2017 were $121.1 million, an increase of 8.6 percent as compared to sales of $111.6 million in the fourth quarter of fiscal 2016. This increase reflects a 9.6 percent increase in sales of powered vehicle products and a 7.5 percent increase in sales of bike products.  The increase in sales of powered vehicle products was due to high demand for on and off-road suspension products, including aftermarket accessory packages. The increase in sales of bike products primarily reflects new product introductions, favorable model year spec placements and strong sell through with certain higher growth OEMs.

Gross margin was 32.3 percent for the fourth quarter of fiscal 2017, an 180 basis point increase from gross margin of 30.5 percent in the fourth quarter of fiscal 2016.  The improvement in gross margin was primarily due to improved manufacturing efficiencies in addition to favorable product and customer mix. On a non-GAAP basis, adjusted gross margin increased 190 basis points, excluding the effects of acquisition related costs. 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 article.

Total operating expenses were $23.1 million for the fourth quarter of fiscal 2017 compared to $20.6 million in the fourth quarter of fiscal 2016.  The increase in operating expenses is primarily a result of acquisition and operating costs relating to Tuscany, strategic investments to support future business growth and increased patent litigation costs, partially offset by the decrease in acquisition-related compensation due to the conclusion of the Company’s acquisition-related compensation arrangements.

As a percentage of sales, operating expenses were 19.1 percent for the fourth quarter of fiscal 2017 compared to 18.4 percent in the fourth quarter of fiscal 2016.  Non-GAAP operating expense was $19.8 million, or 16.4 percent of sales in the fourth quarter of fiscal 2017, compared to $17.6 million, or 15.8 percent of sales, in the fourth quarter of the prior fiscal year.  Reconciliations of operating expense to non-GAAP operating expense are provided at the end of this article.

The Company’s provision for income taxes was $12.4 million, or 81.3 percent of pre-tax income for the fourth quarter of fiscal 2017. This includes a one-time impact of the Act of $9.3 million, or $0.24 per diluted share. Excluding the impact of the Act, the Company’s effective tax rate was 20.4 percent in the fourth quarter of fiscal 2017. The cash outlay in 2018 related to the $9.3 million charge is expected to be limited to $2.0 million in withholding taxes as the Company expects to utilize foreign tax credits to satisfy a portion of the impact of the Act.

Net income in the fourth quarter of fiscal 2017 was $2.9 million, compared to net income of $9.8 million in the fourth quarter of the prior fiscal year.  Earnings per diluted share for the fourth quarter of fiscal 2017 were $0.07, compared to earnings per diluted share of $0.26 for the fourth quarter of fiscal 2016.

Adjusted EBITDA in the fourth quarter of fiscal 2017 was $23.6 million, compared to $19.8 million in the fourth quarter of fiscal 2016.  Adjusted EBITDA margin in the fourth quarter of fiscal 2017 was 19.5 percent, compared to 17.7 percent in the fourth quarter of fiscal 2016.  Reconciliations of net income to adjusted EBITDA and the calculation of adjusted EBITDA margin are provided at the end of this article.

Non-GAAP adjusted net income was $14.9 million, or $0.38 adjusted earnings per diluted share, compared to adjusted net income of $12.0 million, or $0.32 adjusted earnings per diluted share in the same period of last fiscal year.  Reconciliations of net income to non-GAAP adjusted net income and the calculation of non-GAAP adjusted earnings per share are provided at the end of this article.

Fiscal Year 2017 Results

Sales for the year ended December 29, 2017 were $475.6 million, an increase of 18.0 percent compared to the same period in 2016.  Sales of powered vehicle and bike products increased 30.5 percent and 8.2 percent, respectively, for 2017 compared to the prior year period.

Gross margin was 32.5 percent for the fiscal year ended December 29, 2017, an 110 basis point increase compared to gross margin of 31.4 percent in fiscal year 2016. The improvement in gross margin was primarily due to improved manufacturing efficiencies, as well as favorable product and customer mix.

Adjusted EBITDA increased to $93.8 million in the fiscal year ended December 29, 2017, compared to $70.8 million in fiscal 2016.  Adjusted EBITDA margin was 19.7 percent in fiscal 2017, compared to 17.6 percent in fiscal 2016.  Reconciliations of net income to adjusted EBITDA and the calculation of non-GAAP adjusted EBITDA margin are provided at the end of this article.

The Company’s provision for income taxes of $21.1 million for fiscal 2017, or 32.8 percent of pretax income, includes the impact of the Act, as noted previously. The net charge of $9.3 million, or $0.24 per diluted share, resulted in a 14.5 percent increase in the Company’s effective tax rate for fiscal year 2017.

Net income in fiscal year 2017 was $43.2 million, compared to $35.7 million in fiscal 2016.  Earnings per diluted share for fiscal year 2017 were $1.11, compared to $0.94 in fiscal 2016.

Non-GAAP adjusted net income was $61.5 million, or $1.59 adjusted earnings per diluted share in fiscal 2017, compared to $46.4 million, or $1.23 adjusted earnings per diluted share, in fiscal 2016.  Reconciliations of net income to non-GAAP adjusted net income and the calculation of non-GAAP adjusted earnings per share are provided at the end of this article.

Balance Sheet Highlights

As of December 29, 2017, the Company had cash and cash equivalents of $35.9 million compared to $35.3 million as of December 30, 2016. Total debt was $98.6 million, compared to $66.7 million as of December 30, 2016, reflecting the financing of the Company’s recent acquisition of Tuscany.  Inventory was $84.8 million as of December 29, 2017, compared to $71.2 million as of December 30, 2016.  As of December 29, 2017, accounts receivable and accounts payable were $61.1 million and $40.8 million, respectively, compared to December 30, 2016 balances of $61.6 million and $36.2 million, respectively.  The increase in inventory and accounts payable reflects the growth of the Company’s business, the expansion of its manufacturing facilities and Tuscany.

Fiscal 2018 Guidance

For the first quarter of fiscal 2018, the Company expects sales in the range of $121 million to $127 million and non-GAAP adjusted earnings per diluted share in the range of $0.30 to $0.35.

For the fiscal year 2018, the Company expects sales in the range of $542 million to $570 million and non-GAAP adjusted earnings per diluted share in the range of $1.66 to $1.84. The Company’s full year 2018 guidance assumes a tax rate of 19 percent-21 percent.