Fox Factory Holding Corp. Reports Third Quarter Fiscal 2024 Financial Results
DULUTH, Ga., Oct. 31, 2024 (GLOBE NEWSWIRE) -- Fox Factory Holding Corp. (NASDAQ:FOXF) ("FOX" or the "Company"), a premium brand and a global leader in the design, engineering and manufacturing of performance-defining products and systems for customers worldwide, today reported financial results for the third fiscal quarter ended September 27, 2024.
Third Quarter Fiscal 2024 Highlights
Net sales for the third quarter of fiscal 2024 were $359.1 million, a sequential increase of 3.1% and an 8.5% increase over the prior year
Revenue and earnings per diluted share within the low end of our guidance range
Bike revenues grew 21.9% sequentially, and 38.7% over the prior year
Executed $400 million in interest rate swap hedges to reduce interest expense and provide greater predictability
Initiated strategic actions in AAG segment in third quarter aimed at improving inventory position
Announced expanded cost optimization efforts targeting more than $25 million across enterprise to recapture margin amid challenged macroeconomic backdrop
Management Commentary
"Although we delivered sequential and year-over-year revenue growth in the third quarter, our OEM customers remained challenged due to broader market conditions impacting consumer discretionary spending, which pushed results towards the lower end of our expectations," commented Mike Dennison, FOX's Chief Executive Officer. "We've responded decisively to these challenges by implementing both immediate and longer-term actions to strengthen our business, including aggressive cost management and strategic operational improvements. Importantly, underlying demand for FOX's innovative products remains strong across our segments, particularly evident in our aftermarket channels where we continue to see growth."
Mr. Dennison continued, "During the third quarter, we began developing and implementing plans across a series of key priorities, reflecting a commitment to adjust our business structure to operate efficiently in a number of demand environments so that we can protect margins and drive significant, and consistent, free cash flow to de-lever our balance sheet. We have initiated this strategy through swift actions in our AAG segment that we expect to improve margins in the fourth quarter, and are extending these efforts across our other business segments as well. We expect our combined efforts to result in more than $25 million of annualized cost reductions to strategically position ourselves to capitalize on opportunities as consumer demand accelerates in the future."
Third Quarter 2024 Results
Net sales for the third quarter of fiscal 2024 were $359.1 million, an increase of 8.5%, as compared to net sales of $331.1 million in the third quarter of fiscal 2023. This increase reflects a $77.5 million or 107.6% increase in Specialty Sports Group ("SSG"), partially offset by a $35.8 million or 26.3% decrease in Aftermarket Applications Group ("AAG") and a $13.7 million or 11.2% decrease in Powered Vehicles Group ("PVG"). The increase in SSG net sales from $72.0 million to $149.5 million is primarily related to the inclusion of $49.6 million in net sales from Marucci, which we acquired in November 2023, and a $27.9 million increase in bike sales. Sequentially, bike revenues grew by 21.9%. Although bike sales improved compared to prior year, the ongoing channel inventory recalibration and, to a lesser extent, lower end consumer demand remain headwinds. The decrease in AAG net sales from $136.0 million to $100.3 million is driven by lower upfitting sales due to product mix, higher interest rates impacting dealers and consumers, and higher inventory levels at dealerships. The decrease in PVG net sales from $123.1 million to $109.3 million is primarily due to lower industry demand in power sports and automotive because of higher interest rates.
Gross margin was 29.9% for the third quarter of fiscal 2024, a 250-basis point decrease from gross margin of 32.4% in the third quarter of fiscal 2023. The decrease in gross margin was primarily driven by shifts in our product line mix and reduced operating leverage on lower volume. Adjusted gross margin, which excludes the effects of organizational restructuring expenses in the prior year, decreased 330 basis points to 29.9% from the same prior fiscal year period.
Total operating expenses were $88.7 million, or 24.7% of net sales, for the third quarter of fiscal 2024, compared to $65.9 million, or 19.9% of net sales in the third quarter of fiscal 2023. Operating expenses increased by $22.8 million primarily driven by the inclusion of Marucci operating expenses of $19.7 million. Adjusted operating expenses were $75.8 million, or 21.1% of net sales in the third quarter of fiscal 2024, compared to $58.3 million, or 17.6% of net sales, in the third quarter of the prior fiscal year.
Tax expense was $0.3 million in the third quarter of fiscal 2024, compared to tax expense of $3.5 million in the third quarter of fiscal 2023. The decrease in the Company's income tax expense was primarily due to a decrease in pre-tax income.
Net income in the third quarter of fiscal 2024 was $4.8 million, compared to net income of $35.3 million in the third quarter of the prior fiscal year. Earnings per diluted share for the third quarter of fiscal 2024 was $0.11, compared to earnings per diluted share of $0.83 for the third quarter of fiscal 2023. Adjusted net income in the third quarter of fiscal 2024 was $14.8 million, or $0.35 of adjusted earnings per diluted share, compared to adjusted net income of $44.8 million, or $1.05 of adjusted earnings per diluted share, in the same period of the prior fiscal year.
Adjusted EBITDA in the third quarter of fiscal 2024 was $42.0 million, compared to $63.7 million in the third quarter of fiscal 2023. Adjusted EBITDA margin in the third quarter of fiscal 2024 was 11.7%, compared to 19.2% in the third quarter of fiscal 2023.
First Nine Months Fiscal 2024 Results
Net sales for the nine months ended September 27, 2024, were $1,041.1 million, a decrease of 8.0% compared to the first nine months in fiscal 2023. This decrease reflects a $121.1 million or 28.1% decrease in AAG net sales and a $60.3 million or 14.9% decrease in PVG net sales, partially offset by a $90.8 million or 30.7% increase in SSG net sales. The decrease in AAG net sales from $430.4 million to $309.3 million is driven by lower upfitting sales due to product mix, higher interest rates impacting dealers and consumers, and higher inventory level at dealerships. The decrease in PVG net sales from $405.5 million to $345.2 million is primarily due to lower industry demand in power sports and automotive because of higher interest rates. The increase in SSG sales from $295.8 million to $386.6 million is related to the inclusion of $150.8 million in net sales from Marucci, partially offset by a reduction in bike sales of $60.0 million because of the ongoing channel inventory recalibration and, to a lesser extent, lower end consumer demand.
Gross margin was 30.9% in the first nine months of fiscal 2024, a 200-basis point decrease, compared to gross margin of 32.9% in the first nine months of fiscal 2023. The decrease in gross margin for the first nine months of fiscal 2024 was primarily driven by shifts in our product line mix and operating leverage on lower volume. Adjusted gross margin, excluding the effects of the amortization of an acquired inventory valuation markup and organizational restructuring expenses, was 31.3% in the first nine months of fiscal 2024, a 270-basis point decrease, compared to 34.0% in the first nine months of fiscal 2023.
Total operating expenses were $275.3 million, or 26.4% of net sales, for the first nine months of fiscal 2024, compared to $223.7 million, or 19.8% of net sales in the first nine months of fiscal 2023. Operating expenses increased by $51.6 million primarily due to the inclusion of Marucci operating expenses of $59.9 million, partially offset by cost controls. Adjusted operating expenses were $234.5 million, or 22.5% of net sales in the first nine months of fiscal 2024, compared to $199.6 million, or 17.6% of net sales, in the first nine months of the prior fiscal year.
Net income in the first nine months of fiscal 2024 was $6.7 million, compared to $116.8 million in the first nine months of the prior fiscal year. Earnings per diluted share for the first nine months of fiscal 2024 was $0.16, compared to $2.75 in the same period of fiscal 2023. Adjusted net income in the first nine months of fiscal 2024 was $42.6 million, or $1.02 of adjusted earnings per diluted share, compared to $147.2 million, or $3.46 of adjusted earnings per diluted share in the same period of the prior fiscal year.
Adjusted EBITDA decreased to $126.6 million in the first nine months of fiscal 2024, compared to $222.3 million in the first nine months of fiscal 2023. Adjusted EBITDA margin decrease to 12.2% in the first nine months of fiscal 2024, compared to 19.6% in the first nine months of fiscal 2023.
Reconciliations to non-GAAP measures are provided at the end of this press release.
Balance Sheet Summary
As of September 27, 2024, the Company had cash and cash equivalents of $89.2 million, compared to $83.6 million as of December 29, 2023. Inventory was $401.4 million as of September 27, 2024, compared to $371.8 million as of December 29, 2023. As of September 27, 2024, accounts receivable and accounts payable were $192.5 million and $134.6 million, respectively, compared to $171.1 million and $104.2 million, respectively, as of December 29, 2023. Prepaids and other current assets were $128.0 million as of September 27, 2024, compared to $141.5 million as of December 29, 2023. The increase in cash and cash equivalents was primarily due to a decrease in prepaids and other current assets driven by lower chassis deposits as we worked to sell through model year 2024. Inventory increased by $29.5 million driven by timing and some seasonal inventory. The change in accounts receivable is due to higher sales in fiscal quarter ended September 27, 2024 compared to fiscal quarter ended December 29, 2023. The change in accounts payable reflects the timing of vendor payments. Total debt was $768.4 million as of September 27, 2024, compared to $743.5 million as of December 29, 2023.
Fourth Quarter and Fiscal 2024 Guidance
For the fourth quarter of fiscal 2024, the Company expects net sales in the range of $300 million to $340 million and adjusted earnings per diluted share in the range of $0.25 to $0.40.
For the fiscal year 2024, the Company now expects net sales in the range of $1.341 billion to $1.381 billion, adjusted earnings per diluted share in the range of $1.27 to $1.42, and a full year adjusted tax rate in the range of 15% to 18%.
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, organizational restructuring expenses, and strategic transformation costs. A quantitative reconciliation of adjusted earnings per diluted share for the fourth quarter and full fiscal year 2024 is not available without unreasonable efforts because management cannot predict, with sufficient certainty, all of the elements necessary to provide such a reconciliation. For the same reasons, the Company is unable to address the probable significance of the unavailable information, which could be material to future results.
Conference Call & Webcast
The Company will hold an investor conference call today at 4:30 p.m. Eastern Time (1:30 p.m. Pacific Time). The conference call dial-in number for North America listeners is (800) 225-9448, and international listeners may dial (203) 518-9708; the conference ID is FOXFQ324 or 36937324. Live audio of the conference call will be simultaneously webcast in the Investor Relations section of the Company's website at http://www.ridefox.com. The webcast of the teleconference will be archived and available on the Company's website.
Available Information
Fox Factory Holding Corp. announces material information to the public about the Company through a variety of means, including filings with the Securities and Exchange Commission, press releases, public conference calls, webcasts, and the investor relations section of its website (https://investor.ridefox.com/investor-relations/default.aspx) in order to achieve broad, non-exclusionary distribution of information to the public and for complying with its disclosure obligations under Regulation FD.
About Fox Factory Holding Corp. (NASDAQ:FOXF)
Fox Factory Holding Corp. is a global leader in the design engineering and manufacturing of premium products that deliver championship-level performance for specialty sports and on and off-road vehicles. Its portfolio of brands, like FOX, Marucci, Method Race Wheels and more, are fueled by unparalleled innovation that continuously earns the trust of professional athletes and passionate enthusiasts all around the world. The Company is a direct supplier of shocks, suspension, and components to leading powered vehicle and bicycle original equipment manufacturers and offers premium baseball and softball gear and equipment. The Company acquires complementary businesses to integrate engineering and manufacturing expertise to reach beyond its core shock and suspension segment, diversifying its product offerings and increasing its market potential. It also provides products in the aftermarket through its global network of retailers and distributors and through direct-to-consumer channels.
FOX is a registered trademark of Fox Factory, Inc. NASDAQ Global Select Market is a registered trademark of The NASDAQ OMX Group, Inc. All rights reserved.
Non-GAAP Financial Measures
In addition to reporting financial measures in accordance with generally accepted accounting principles ("GAAP") in the United States ("U.S."), FOX is including in this press release certain non-GAAP financial measures consisting of "adjusted gross profit," "adjusted gross margin," "adjusted operating expense," "adjusted operating expense as a percentage of net sales", "adjusted net income," "adjusted earnings per diluted share," "adjusted EBITDA," and "adjusted EBITDA margin," all of which are non-GAAP financial measures. FOX defines adjusted gross profit as gross profit adjusted for the amortization of acquired inventory valuation markups. Adjusted gross margin is defined as adjusted gross profit divided by net sales. FOX defines adjusted operating expense as operating expense adjusted for amortization of purchased intangibles, litigation and settlement-related expenses, acquisition and integration-related expenses, organizational restructuring expenses, and certain strategic transformation costs. FOX defines adjusted operating margin as adjusted operating expense divided by net sales. FOX defines adjusted net income as net income adjusted for amortization of purchased intangibles, litigation and settlement-related expenses, acquisition and integration-related expenses, organizational restructuring expenses, and strategic transformation costs, all net of applicable tax. Adjusted earnings per diluted share is defined as adjusted net income divided by the weighted average number of diluted shares of common stock outstanding during the period. FOX defines adjusted EBITDA as net income adjusted for interest expense, net other expense, income taxes or tax benefits, amortization of purchased intangibles, depreciation, stock-based compensation, litigation and settlement related expenses, organizational restructuring expenses, acquisition and integration-related expenses and strategic transformation costs that are more fully described in the tables included at the end of this press release. Adjusted EBITDA margin is defined as adjusted EBITDA divided by net sales. These adjustments are more fully described in the tables included at the end of this press release.
FOX includes these non-GAAP financial measures because it believes they allow investors to better understand and evaluate the Company's core operating performance and trends. In particular, the exclusion of certain items in calculating the non-GAAP financial measures consisting of adjusted gross profit, adjusted operating expense, adjusted net income and adjusted EBITDA (and accordingly, adjusted gross margin, adjusted operating expense as a percentage of net sales, adjusted earnings per diluted share and adjusted EBITDA margin) can provide a useful measure for period-to-period comparisons of the Company's core business. These non-GAAP financial measures have limitations as analytical tools, including the fact that such non-GAAP financial measures may not be comparable to similarly titled measures presented by other companies because other companies may calculate adjusted gross profit, adjusted gross margin, adjusted operating expense, adjusted operating margin, adjusted net income, adjusted earnings per diluted share, adjusted EBITDA and adjusted EBITDA margin differently than FOX does. For more information regarding these non-GAAP financial measures, see the tables included at the end of this press release.
FOX FACTORY HOLDING CORP.Condensed Consolidated Balance Sheets(in thousands, except per share data)(unaudited)
As of
As of
September 27, 2024
December 29, 2023
Assets
Current assets:
Cash and cash equivalents
$
89,241
$
83,642
Accounts receivable (net of allowances of $1,901 and $1,158, respectively)
192,539
171,060
Inventory
401,363
371,841
Prepaids and other current assets
128,026
141,512
Total current assets
811,169
768,055
Property, plant and equipment, net
243,215
237,192
Lease right-of-use assets
108,054
84,317
Deferred tax assets
21,554
21,297
Goodwill
635,991
636,565
Trademarks and brands, net
265,876
273,293
Customer and distributor relationships, net
165,775
184,269
Core technologies, net
23,904
25,785
Other assets
12,721
11,525
Total assets
$
2,288,259
$
2,242,298
Liabilities and stockholders' equity
Current liabilities:
Accounts payable
$
134,554
$
104,150
Accrued expenses
93,874
103,400
Current portion of long-term debt
24,286
14,286
Total current liabilities
252,714
221,836
Revolver
210,000
370,000
Term Loans, less current portion
534,144
359,242
Other liabilities
94,343
69,459
Total liabilities
1,091,201
1,020,537
Stockholders' equity
Preferred stock, $0.001 par value, 10,000 authorized and no shares issued or outstanding as of September 27, 2024 and December 29, 2023
—
—
Common stock, $0.001 par value, 90,000 authorized; 42,573 shares issued and 41,683 outstanding as of September 27, 2024; 42,844 shares issued and 41,954 outstanding as of December 29, 2023
42
42
Additional paid-in capital
336,231
348,346
Treasury stock, at cost; 890 common shares as of September 27, 2024 and December 29, 2023
(13,754
)
(13,754
)
Accumulated other comprehensive (loss) income
(1,055
)
9,041
Retained earnings
875,594
878,086
Total stockholders' equity
1,197,058
1,221,761
Total liabilities and stockholders' equity
$
2,288,259
$
2,242,298
FOX FACTORY HOLDING CORP.Condensed Consolidated Statements of Income(in thousands, except per share data)(unaudited)
For the three months ended
For the nine months ended
September 27, 2024
September 29, 2023
September 27, 2024
September 29, 2023
Net sales
$
359,121
$
331,117
$
1,041,084
$
1,131,683
Cost of sales
251,642
223,890
719,484
759,132
Gross profit
107,479
107,227
321,600
372,551
Operating expenses:
General and administrative
32,436
25,710
106,819
89,692
Sales and marketing
29,103
24,439
89,828
74,664
Research and development
16,103
8,904
45,331
39,374
Amortization of purchased intangibles
11,035
6,809
33,355
19,982
Total operating expenses
88,677
65,862
275,333
223,712
Income from operations
18,802
41,365
46,267
148,839
Interest expense
14,228
3,466
41,422
