Third Quarter 2018 Sales Increased 38.0% to a
Record $175.8 MillionGross Margin Increased 100 Basis Points to
34.4%Achieves Record Earnings per Diluted Share of $0.62 and Record
Adjusted Earnings per Diluted Share of $0.72Company Raises Fiscal
2018 Guidance
Fox Factory Holding Corp. (NASDAQ: FOXF) (“FOX” or the “Company”)
today reported financial results for the third quarter ended
September 28, 2018.
Third Quarter Fiscal 2018 Highlights
- Sales increased 38.0% to $175.8 million compared to $127.4
million in the same period last fiscal year
- Gross margin increased 100 basis points to 34.4% compared to
33.4% in the same period last fiscal year
- Net income attributable to FOX stockholders was $24.3 million,
or 13.8% of sales and $0.62 of earnings per diluted share, compared
to $16.1 million, or 12.6% of sales and $0.41 of earnings per
diluted share in the same period last fiscal year
- Non-GAAP adjusted net income was $28.1 million, or $0.72 of
adjusted earnings per diluted share, compared to $18.0 million, or
$0.46 of adjusted earnings per diluted share in the same period
last fiscal year
- Adjusted EBITDA was $39.3 million, or 22.4% of sales, compared
to $27.0 million, or 21.2% of sales in the same period last fiscal
year
“Our differentiated powered vehicle and bike
market positions fueled broad-based strength across our product
portfolio, resulting in record sales and profitability,” commented
Larry L. Enterline, FOX's Chief Executive Officer. “We are pleased
with our team’s continued execution as we further expand into new
and existing end markets building upon our powered vehicle and core
bike category capabilities with compelling product innovation. We
believe we remain well positioned for future growth and based on
these strong operational and financial results as well as our
outlook for the remainder of the year, we are raising our annual
guidance.”
Sales for the third quarter of fiscal 2018 were
$175.8 million, an increase of 38.0% as compared to sales of $127.4
million in the third quarter of fiscal 2017. This increase reflects
a 56.6% increase in Powered Vehicle Group sales and a 21.1%
increase in sales in our Specialty Sports Group, formerly referred
to as the Bike Group. The increase in sales across our
markets was primarily due to the continued success of the Company’s
product line up, particularly in the OEM channel, as well as the
inclusion of sales from our Tuscany acquisition.
Gross margin was 34.4% for the third quarter of
fiscal 2018, a 100 basis point increase from gross margin of 33.4%
in the third quarter of fiscal 2017. The improvement in gross
margin was primarily due to increased operating leverage on higher
volume and improved manufacturing efficiencies.
Total operating expenses were $29.1 million for
the third quarter of fiscal 2018 compared to $22.2 million in the
third quarter of fiscal 2017. The increase in operating expenses is
primarily a result of inclusion of the Company’s Tuscany
subsidiary, higher amortization expense on acquired intangible
assets, higher patent litigation-related expenses, and investments
in research and development to support future growth.
As a percentage of sales, operating expenses
were 16.6% for the third quarter of fiscal 2018 compared to 17.4%
in the third quarter of fiscal 2017. Non-GAAP operating expenses
were $25.1 million, or 14.3% of sales in the third quarter of
fiscal 2018 compared to $19.8 million, or 15.5% of sales, in the
third 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 Company’s effective tax rate was 19.0% in
the third quarter of fiscal 2018, compared to 19.5% in the third
quarter of fiscal 2017, resulting in $5.8 million and $3.9 million
of tax expense in the respective quarters. The decrease in the
effective tax rate was primarily due to the reduction in the US tax
rate and an increase of $0.9 million in excess benefits related to
the vesting of RSUs and the exercising of stock options, partially
offset by $1.4 million related to the loss of deductibility of
certain elements of executive compensation as a result of recent
IRS guidance on the implementation of US tax reform and foreign
withholding taxes.
Net income attributable to FOX stockholders in
the third quarter of fiscal 2018 was $24.3 million, compared to
$16.1 million in the third quarter of the prior fiscal year.
Earnings per diluted share for the third quarter of fiscal 2018 was
$0.62, compared to earnings per diluted share of $0.41 for the
third quarter of fiscal 2017.
Adjusted EBITDA in the third quarter of fiscal
2018 was $39.3 million, compared to $27.0 million in the third
quarter of fiscal 2017. Adjusted EBITDA margin in the third
quarter of fiscal 2018 was 22.4%, compared to 21.2% in the third
quarter of fiscal 2017. Reconciliations of net income to adjusted
EBITDA and the calculation of adjusted EBITDA margin are provided
at the end of this press release.
Non-GAAP adjusted net income was $28.1 million,
or $0.72 of adjusted earnings per diluted share, compared to
adjusted net income of $18.0 million, or $0.46 of adjusted earnings
per diluted share in the same period of last 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.
First Nine Months Fiscal Year 2018
Results
Sales for the nine months ended
September 28, 2018, were $462.4 million, an increase of 30.4%
compared to the same period in 2017. Sales in our Power Vehicle
Group and Specialty Sports Group increased 46.0% and 15.9%,
respectively, for the first nine months of 2018 compared to the
prior year period.
Gross margin was 33.4% in the first nine months
of fiscal 2018, a 90 basis point increase, compared to gross margin
of 32.5% in the first nine months of fiscal 2017. The year-to-date
gross margin improved primarily due to increased operating leverage
on higher volume and improved manufacturing efficiencies.
Pre-tax income in the first nine months of
fiscal 2018 was $68.9 million, compared to $49.0 million in the
first nine months of fiscal 2017. Adjusted EBITDA increased to
$94.8 million in the first nine months of fiscal 2018, compared to
$70.2 million in the first nine months of fiscal 2017. Adjusted
EBITDA margin in the first nine months of fiscal 2018 was 20.5%,
compared to 19.8% in the first nine months of fiscal 2017.
Reconciliations of pre-tax income to adjusted EBITDA and the
calculation of non-GAAP adjusted EBITDA margin are provided at the
end of this press release.
Net income attributable to FOX stockholders in
the first nine months of fiscal 2018 was $63.9 million, compared to
$40.3 million in the first nine months of the prior year. Earnings
per diluted share for the first nine months of fiscal 2018 was
$1.64, compared to $1.04 in the same period of fiscal 2017.
Non-GAAP adjusted net income was $64.2 million, or $1.65 of
adjusted earnings per diluted share, compared to $46.6 million, or
$1.20 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.
Balance Sheet Highlights
As of September 28, 2018, the Company had
cash and cash equivalents of $32.8 million compared to $35.9
million as of December 29, 2017. Total debt was $59.4 million,
compared to $98.6 million as of December 29, 2017, reflecting
pay down of debt incurred in connection with the Company’s 2017
acquisition of Tuscany. Inventory was $104.8 million as of
September 28, 2018, compared to $84.8 million as of
December 29, 2017. As of September 28, 2018,
accounts receivable and accounts payable were $84.9 million and
$75.8 million, respectively, compared to December 29, 2017
balances of $61.1 million and $40.8 million, respectively.
The changes in inventory, accounts receivable, and accounts payable
are primarily attributable to business growth and the Company’s
normal seasonality.
Fiscal 2018 Guidance
For the fourth quarter of fiscal 2018, the
Company expects sales in the range of $148 million to $158 million
and non-GAAP adjusted earnings per diluted share in the range of
$0.50 to $0.56.
For the full fiscal year 2018, the Company
expects sales in the range of $610 million to $620 million and
non-GAAP adjusted earnings per diluted share in the range of $2.15
to $2.21. The Company’s full year 2018 guidance assumes a non-GAAP
tax rate between 17% and 18%.
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, offering expenses, and costs related to tax restructuring
initiatives. Additionally, non-GAAP adjusted earnings per diluted
share excludes the 2018 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 2018 is not available without unreasonable
efforts because management cannot predict, with sufficient
certainty, all of the elements necessary to provide such a
reconciliation.
Announces Operations Expansion
FOX also announced today in a separate press
release that it has agreed to purchase a 23-acre site in Hall
County, Georgia to diversify its manufacturing platform and provide
additional long-term capacity to support growth in its Powered
Vehicles Group. FOX also plans to relocate its corporate
headquarters from Scotts Valley, California to its existing offices
in Georgia by the end of the year. Additionally, FOX plans to
relocate its aftermarket bike products distribution, sales, and
service operations from Watsonville and Scotts Valley, California
to Reno, Nevada to better serve its customers.
Conference Call &
Webcast
The Company will hold an investor conference
call today at 1:30 p.m. Pacific time (4:30 p.m. Eastern
Time). The conference call dial-in number for North America
listeners is (877) 425-9470, and international listeners may dial
(201) 389-0878; the conference ID is 13684064. 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.
About Fox Factory Holding Corp. (NASDAQ:
FOXF)
Fox Factory Holding Corp. designs and
manufactures performance-defining ride dynamics 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. The Company is a direct
supplier to leading power vehicle original equipment manufacturers
("OEMs"). Additionally, the Company supplies top bicycle OEMs and
their contract manufacturers, and provides aftermarket products to
retailers and distributors.
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”),
FOX is including in this press release “non-GAAP operating
expense”, “non-GAAP adjusted net income”, “non-GAAP adjusted
earnings per diluted share”, “adjusted EBITDA”, and “adjusted
EBITDA margin”, which are non-GAAP financial measures. FOX
defines non-GAAP operating expense as operating expense adjusted
for amortization of purchased intangibles, contingent consideration
valuation adjustments, acquisition-related compensation expense,
costs of its secondary and shelf offerings, acquisition-related
operating expenses, litigation-related costs, and costs related to
tax restructuring initiatives. FOX defines non-GAAP adjusted
net income as net income attributable to FOX Stockholders adjusted
for amortization of purchased intangibles, contingent consideration
valuation adjustments, acquisition-related compensation expense,
costs of its secondary and shelf offerings, acquisition-related
expenses, litigation-related costs, and costs related to tax
restructuring initiatives, all net of applicable tax, as well as
tax impacts arising from the settlement of audit and the
recognition of related tax positions and tax reform legislation
impacts. These adjustments are more fully described in the
tables included at the end of this press release. Non-GAAP
adjusted earnings per diluted share is defined as non-GAAP 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, amortization of purchased intangibles,
depreciation, stock-based compensation, offering expense,
contingent consideration valuation adjustments, acquisition-related
compensation expense, litigation-related costs, and certain other
acquisition-related 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 sales.
FOX includes these non-GAAP financial measures
because it believes they allow investors to understand and evaluate
the Company’s core operating performance and trends. In
particular, the exclusion of certain items in calculating non-GAAP
operating expense, non-GAAP adjusted net income and adjusted EBITDA
(and accordingly, non-GAAP 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 non-GAAP operating
expense, non-GAAP adjusted net income, non-GAAP 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) |
|
|
|
|
|
As of |
|
As of |
|
September 28, |
|
December 29, |
|
2018 |
|
2017 |
|
(Unaudited) |
|
|
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash
equivalents |
$ |
32,832 |
|
|
$ |
35,947 |
|
Accounts
receivable (net of allowances of $848 and $676 at September 28,
2018 and December 29, 2017, respectively) |
84,867 |
|
|
61,060 |
|
Inventory |
104,831 |
|
|
84,841 |
|
Prepaids
and other current assets |
20,661 |
|
|
21,100 |
|
Total
current assets |
243,191 |
|
|
202,948 |
|
Property, plant and
equipment, net |
57,471 |
|
|
43,636 |
|
Deferred tax
assets |
8,674 |
|
|
2,669 |
|
Goodwill |
88,659 |
|
|
88,438 |
|
Intangibles, net |
85,474 |
|
|
90,044 |
|
Other assets |
405 |
|
|
551 |
|
Total
assets |
$ |
483,874 |
|
|
$ |
428,286 |
|
Liabilities and
stockholders’ equity |
|
|
|
Current
liabilities: |
|
|
|
Accounts
payable |
$ |
75,802 |
|
|
$ |
40,813 |
|
Accrued
expenses |
32,955 |
|
|
32,608 |
|
Reserve
for uncertain tax positions |
1,540 |
|
|
7,787 |
|
Current
portion of long-term debt |
5,514 |
|
|
5,038 |
|
Total
current liabilities |
115,811 |
|
|
86,246 |
|
Line of credit |
— |
|
|
35,585 |
|
Long-term debt, less
current portion |
53,883 |
|
|
58,020 |
|
Deferred rent |
514 |
|
|
645 |
|
Total
liabilities |
170,208 |
|
|
180,496 |
|
Redeemable
non-controlling interest |
14,852 |
|
|
12,955 |
|
Stockholders’
equity |
|
|
|
Preferred
stock, $0.001 par value — 10,000 authorized and no shares issued or
outstanding as of September 28, 2018 and December 29, 2017 |
— |
|
|
— |
|
Common
stock, $0.001 par value — 90,000 authorized; 38,878 shares issued
and 37,988 outstanding as of September 28, 2018; 38,497 shares
issued and 37,607 outstanding as of December 29, 2017 |
38 |
|
|
38 |
|
Additional paid-in capital |
113,599 |
|
|
112,793 |
|
Treasury
stock, at cost; 890 common shares as of September 28, 2018 and
December 29, 2017 |
(13,754 |
) |
|
(13,754 |
) |
Accumulated other comprehensive loss |
(620 |
) |
|
(168 |
) |
Retained
earnings |
199,551 |
|
|
135,926 |
|
Total
stockholders’ equity |
298,814 |
|
|
234,835 |
|
Total
liabilities, redeemable non-controlling interest and stockholders’
equity |
$ |
483,874 |
|
|
$ |
428,286 |
|
|
|
|
|
|
|
|
|
|
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 28, |
|
September 29, |
|
September 28, |
|
September 29, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Sales |
|
$ |
175,798 |
|
|
$ |
127,399 |
|
|
$ |
462,415 |
|
|
$ |
354,540 |
|
Cost of
sales |
|
|
115,312 |
|
|
|
84,802 |
|
|
|
307,872 |
|
|
|
239,172 |
|
Gross profit |
|
|
60,486 |
|
|
|
42,597 |
|
|
|
154,543 |
|
|
|
115,368 |
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
9,606 |
|
|
|
6,914 |
|
|
|
28,142 |
|
|
|
20,574 |
|
Research and development |
|
|
6,765 |
|
|
|
5,547 |
|
|
|
19,019 |
|
|
|
15,011 |
|
General and administrative |
|
|
11,164 |
|
|
|
9,061 |
|
|
|
31,137 |
|
|
|
25,263 |
|
Amortization of purchased intangibles |
|
|
1,499 |
|
|
|
697 |
|
|
|
4,567 |
|
|
|
2,089 |
|
Fair value adjustment of contingent consideration and
acquisition-related compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,447 |
|
Total
operating expenses |
|
|
29,034 |
|
|
|
22,219 |
|
|
|
82,865 |
|
|
|
64,384 |
|
Income from
operations |
|
|
31,452 |
|
|
|
20,378 |
|
|
|
71,678 |
|
|
|
50,984 |
|
Other
expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
748 |
|
|
|
602 |
|
|
|
2,379 |
|
|
|
1,696 |
|
Other expense (income) |
|
|
180 |
|
|
|
(181 |
) |
|
|
380 |
|
|
|
285 |
|
Other
expense, net |
|
|
928 |
|
|
|
421 |
|
|
|
2,759 |
|
|
|
1,981 |
|
Income
before income taxes |
|
|
30,524 |
|
|
|
19,957 |
|
|
|
68,919 |
|
|
|
49,003 |
|
Provision
for income taxes |
|
|
5,788 |
|
|
|
3,885 |
|
|
|
3,919 |
|
|
|
8,677 |
|
Net
income |
|
|
24,736 |
|
|
|
16,072 |
|
|
|
65,000 |
|
|
|
40,326 |
|
Less: net
income attributable to non-controlling interest |
|
|
424 |
|
|
|
— |
|
|
|
1,094 |
|
|
|
— |
|
Net income attributable
to FOX stockholders |
|
$ |
24,312 |
|
|
$ |
|
16,072 |
|
|
$ |
|
63,906 |
|
|
$ |
|
40,326 |
|
Earnings
per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.64 |
|
|
$ |
|
0.43 |
|
|
$ |
|
1.69 |
|
|
$ |
|
1.08 |
|
Diluted |
|
$ |
0.62 |
|
|
$ |
|
0.41 |
|
|
$ |
|
1.64 |
|
|
$ |
|
1.04 |
|
Weighted
average shares used to compute earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
37,886 |
|
|
|
37,474 |
|
|
|
37,743 |
|
|
|
37,312 |
|
Diluted |
|
|
39,052 |
|
|
|
38,817 |
|
|
|
38,913 |
|
|
|
38,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOX FACTORY HOLDING
CORP.NET INCOME TO NON-GAAP ADJUSTED NET INCOME
RECONCILIATIONAND CALCULATION OF NON-GAAP ADJUSTED
EARNINGS PER SHARE(In thousands, except per share
data)(Unaudited)
The following table provides a reconciliation of
net income attributable to FOX stockholders, the most directly
comparable financial measure calculated and presented in accordance
with GAAP, to non-GAAP adjusted net income (a non-GAAP measure),
and the calculation of non-GAAP adjusted earnings per share (a
non-GAAP measure) for the three and nine months ended
September 28, 2018 and September 29, 2017. These
non-GAAP financial measures are provided in addition to, and not as
alternatives for, the Company’s reported GAAP results.
|
|
|
|
|
|
|
For the three months ended |
|
For the nine months ended |
|
|
September 28, |
|
September 29, |
|
September 28, |
|
September 29, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Net income
attributable to FOX stockholders |
|
$ |
24,312 |
|
|
$ |
16,072 |
|
|
$ |
63,906 |
|
|
$ |
40,326 |
|
Amortization of purchased intangibles |
|
|
1,499 |
|
|
|
697 |
|
|
|
4,567 |
|
|
|
2,089 |
|
Fair value
adjustment of contingent consideration and acquisition-related
compensation (1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,447 |
|
Patent
litigation-related expenses |
|
|
1,979 |
|
|
|
1,333 |
|
|
|
5,923 |
|
|
|
3,170 |
|
Other
acquisition and integration-related expenses (2) |
|
|
329 |
|
|
|
403 |
|
|
|
791 |
|
|
|
821 |
|
Offering
expense (3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
113 |
|
Tax reform
implementation costs (4) |
|
|
84 |
|
|
|
— |
|
|
|
299 |
|
|
|
— |
|
Settlement
of audit and recognition of tax position (5) |
|
|
— |
|
|
|
— |
|
|
|
(9,838 |
) |
|
|
— |
|
Tax reform
legislation impacts (6) |
|
|
552 |
|
|
|
— |
|
|
|
708 |
|
|
|
— |
|
Tax impacts
of reconciling items above (7) |
|
|
(628 |
) |
|
|
(541 |
) |
|
|
(2,194 |
) |
|
|
(1,352 |
) |
Non-GAAP
adjusted net income |
|
$ |
28,127 |
|
|
$ |
|
17,964 |
|
|
$ |
|
64,162 |
|
|
$ |
|
46,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjusted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.74 |
|
|
$ |
|
0.48 |
|
|
$ |
|
1.70 |
|
|
$ |
|
1.25 |
|
Diluted |
|
$ |
0.72 |
|
|
$ |
|
0.46 |
|
|
$ |
|
1.65 |
|
|
$ |
|
1.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to compute non-GAAP adjusted
EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
37,886 |
|
|
|
37,474 |
|
|
|
37,743 |
|
|
|
37,312 |
|
Diluted |
|
|
39,052 |
|
|
|
38,817 |
|
|
|
38,913 |
|
|
|
38,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Represents a portion of the acquisitions’
purchase price classified as compensation expense and the periodic
revaluation of the Company’s contingent consideration associated
with the acquisition of Sport Truck based on actual and projected
performance, as applicable, per period as follows:
|
|
|
|
|
|
|
|
|
For the three months ended |
|
For the nine months ended |
|
September 28, |
|
September 29, |
|
September 28, |
|
September 29, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Amortization or accrual
of purchase price classified as compensation expense |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,597 |
|
Periodic
revaluation of Sport Truck contingent consideration |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(150 |
) |
Fair value adjustment of contingent consideration and
acquisition-related compensation |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,447 |
|
|
|
|
|
|
|
|
|
|
|
(2) Represents various other acquisition-related
costs and expenses incurred to integrate acquired entities into the
Company’s operations of $329 and $403, and $791 and $821, for the
three and nine months ended September 28, 2018 and
September 29, 2017, respectively.
(3) Represents costs and expenses of $113
incurred related to the secondary offering of common stock
completed in March 2017.
(4) Represents costs and expenses of $84 and
$299 incurred during the three and nine month period ended
September 28, 2018 in connection with the Company’s
implementation of tax reform legislation and related tax
restructuring initiatives.
(5) Recognition of tax positions related to the
deductibility of depreciation and amortization as a result of
favorable closure of the 2015 IRS audit. Depreciation and
amortization arose from Compass’ 2008 acquisition of the
Company.
(6) Reflects adjustments related to refinement
of calculations related to implementation of tax reform
legislation.
(7) Tax impact calculated based on the
respective year to date effective tax rates, excluding the impact
of the settlement of audit and recognition of related tax position,
and certain tax reform legislation impacts.
FOX FACTORY HOLDING
CORP.NET INCOME TO ADJUSTED EBITDA RECONCILIATION
ANDCALCULATION OF NET INCOME MARGIN AND ADJUSTED
EBITDA MARGIN (In
thousands)(Unaudited)
The following tables provide a reconciliation of
net income, the most directly comparable financial measure
calculated and presented in accordance with GAAP, to adjusted
EBITDA (a non-GAAP measure), and the calculations of net income
margin and adjusted EBITDA margin (a non-GAAP measure) for the
three and nine months ended September 28, 2018 and
September 29, 2017. These non-GAAP financial measures
are provided in addition to, and not as alternatives for, the
Company’s reported GAAP results.
|
|
|
|
|
|
|
For the three months ended |
|
For the nine months ended |
|
|
September 28, |
|
September 29, |
|
September 28, |
|
September 29, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Net
income |
|
$ |
24,736 |
|
|
$ |
16,072 |
|
|
$ |
65,000 |
|
|
$ |
40,326 |
|
Provision
for income taxes |
|
|
5,788 |
|
|
|
3,885 |
|
|
|
3,919 |
|
|
|
8,677 |
|
Depreciation and amortization |
|
|
3,682 |
|
|
|
2,545 |
|
|
|
10,461 |
|
|
|
7,098 |
|
Non-cash
stock based compensation |
|
|
1,818 |
|
|
|
2,311 |
|
|
|
5,649 |
|
|
|
6,600 |
|
Fair value
adjustment of contingent consideration and acquisition-related
compensation (1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,447 |
|
Patent
litigation-related expenses |
|
|
1,979 |
|
|
|
1,333 |
|
|
|
5,923 |
|
|
|
3,170 |
|
Other
acquisition and integration-related expenses (2) |
|
|
329 |
|
|
|
403 |
|
|
|
791 |
|
|
|
821 |
|
Offering
expense (3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
113 |
|
Tax reform
implementation costs (4) |
|
|
84 |
|
|
|
— |
|
|
|
299 |
|
|
|
— |
|
Other
expense, net |
|
|
928 |
|
|
|
421 |
|
|
|
2,759 |
|
|
|
1,981 |
|
Adjusted
EBITDA |
|
$ |
39,344 |
|
|
$ |
|
26,970 |
|
|
$ |
|
94,801 |
|
|
$ |
|
70,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Margin |
|
|
14.1 |
% |
|
|
|
12.6 |
% |
|
|
|
14.1 |
% |
|
|
|
11.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA Margin |
|
|
22.4 |
% |
|
|
|
21.2 |
% |
|
|
|
20.5 |
% |
|
|
|
19.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Represents amortization or accrual of a
portion of the acquisitions’ purchase price classified as
compensation expense partially offset by the periodic revaluation
of the Company’s contingent consideration associated with the
acquisition of Sport Truck based on actual and project performance,
as applicable, per period as follows:
|
|
|
|
|
|
|
|
|
For the three months ended |
|
For the nine months ended |
|
September 28, |
|
September 29, |
|
September 28, |
|
September 29, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Purchase price
classified as compensation expense |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,597 |
|
Revaluation
of Sport Truck contingent consideration |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
(150 |
) |
Fair value adjustment of contingent consideration and
acquisition-related compensation |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,447 |
|
|
|
|
|
|
|
|
|
|
|
(2) Represents various other acquisition-related
costs and expenses incurred to integrate acquired entities into the
Company’s operations of $329 and $403, and $791 and $821, for the
three and nine months ended September 28, 2018 and
September 29, 2017, respectively.
(3) Represents costs and expenses of $113
incurred related to the secondary offering of common stock
completed in March 2017.
(4) Represents costs and expenses of $84 and
$299 incurred during the three and nine month period ended
September 28, 2018 in connection with the Company’s
implementation of tax reform legislation and related tax
restructuring initiatives.
FOX FACTORY HOLDING
CORP.OPERATING EXPENSE TO NON-GAAP OPERATING
EXPENSE RECONCILIATION ANDCALCULATION OF OPERATING
EXPENSE AND NON-GAAP OPERATING EXPENSE AS A PERCENTAGE OF
SALES(In
thousands)(Unaudited)
The following tables provide a reconciliation of
operating expense to non-GAAP operating expense (a non-GAAP
measure) and the calculations of operating expense as a percentage
of sales and non-GAAP operating expense as a percentage of sales (a
non-GAAP measure), for the three and nine months ended
September 28, 2018 and September 29, 2017. These
non-GAAP financial measures are provided in addition to, and not as
an alternative for, the Company’s reported GAAP results.
|
|
|
|
|
|
|
For the three months ended |
|
For the nine months ended |
|
|
September 28, |
|
September 29, |
|
September 28, |
|
September 29, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Sales |
|
$ |
175,798 |
|
|
$ |
127,399 |
|
|
$ |
462,415 |
|
|
$ |
354,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expense |
|
$ |
29,034 |
|
|
$ |
22,219 |
|
|
$ |
82,865 |
|
|
$ |
64,384 |
|
Amortization of purchased intangibles |
|
|
(1,499 |
) |
|
|
(697 |
) |
|
|
(4,567 |
) |
|
|
(2,089 |
) |
Fair value
adjustment of contingent consideration and acquisition-related
compensation (1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,447 |
) |
Patent
litigation-related expenses |
|
|
(1,979 |
) |
|
|
(1,333 |
) |
|
|
(5,923 |
) |
|
|
(3,170 |
) |
Tax reform
implementation costs (2) |
|
|
(84 |
) |
|
|
— |
|
|
|
(299 |
) |
|
|
— |
|
Other
acquisition and integration-related expenses (3) |
|
|
(329 |
) |
|
|
(403 |
) |
|
|
(791 |
) |
|
|
(821 |
) |
Offering
expense (4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(113 |
) |
Non-GAAP operating expense |
|
$ |
25,143 |
|
|
$ |
19,786 |
|
|
$ |
71,285 |
|
|
$ |
56,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense as a percentage of sales |
|
|
16.5 |
% |
|
|
17.4 |
% |
|
|
17.9 |
% |
|
|
18.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
operating expense as a percentage of sales |
|
|
14.3 |
% |
|
|
|
15.5 |
% |
|
|
|
15.4 |
% |
|
|
|
16.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Represents amortization or accrual of a
portion of the acquisitions’ purchase price classified as
compensation expense partially offset by the periodic revaluation
of the Company’s contingent consideration associated with the
acquisition of Sport Truck based on actual and project performance,
as applicable, per period as follows:
|
|
|
|
|
|
|
|
|
For the three months ended |
|
For the nine months ended |
|
September 28, |
|
September 29, |
|
September 28, |
|
September 29, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Purchase price
classified as compensation expense |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(1,597 |
) |
Revaluation
of Sport Truck contingent consideration |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
150 |
|
Fair value adjustment of contingent consideration and
acquisition-related compensation |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(1,447 |
) |
|
|
|
|
|
|
|
|
|
|
(2) Represents costs and expenses of $84 and
$299 incurred during the three and nine month period ended
September 28, 2018 in connection with the Company’s
implementation of tax reform legislation and related tax
restructuring initiatives.
(3) Represents various other acquisition-related
costs and expenses incurred to integrate acquired entities into the
Company’s operations of $329 and $403, and $791 and $821, for the
three and nine months ended September 28, 2018 and
September 29, 2017, respectively.
(4) Represents costs and expenses of $113
incurred related to the secondary offerings of common stock
completed in March 2017.
Cautionary Note Regarding
Forward-Looking Statements
Certain statements in this press release including earnings
guidance may be deemed to be forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended
and Section 21E of the Securities Exchange Act of 1934, as amended.
The Company intends that all such statements be subject to the
“safe-harbor” provisions contained in those sections.
Forward-looking statements generally relate to future events or the
Company’s future financial or operating performance. In some cases,
you can identify forward-looking statements because they contain
words such as “may,” “might,” “will,” “would,” “should,” “expect,”
“plan,” “anticipate,” “could,” “intend,” “target,” “project,”
“contemplate,” “believe,” “estimate,” “predict,” “likely,”
“potential” or “continue” or other similar terms or expressions and
such forward-looking statements include, but are not limited to,
statements about the Company’s continued growing demand for its
products; the Company’s execution on its strategy to improve
operating efficiencies; the Company’s optimism about its operating
results and future growth prospects; the Company’s expected future
sales and future non-GAAP adjusted earnings per diluted share; and
any other statements in this press release that are not of a
historical nature. Many important factors may cause the Company’s
actual results, events or circumstances to differ materially from
those discussed in any such forward-looking statements, including
but not limited to: the Company’s ability to complete any
acquisition and/or incorporate any acquired assets into its
business; the Company’s ability to improve operating and supply
chain efficiencies; the Company’s ability to enforce its
intellectual property rights; the Company’s future financial
performance, including its sales, cost of sales, gross profit or
gross margin, operating expenses, ability to generate positive cash
flow and ability to maintain profitability; the Company’s ability
to adapt its business model to mitigate the impact of certain
changes in tax laws including those enacted in the U.S. in December
2017; changes in tariffs, quotas, trade barriers and other similar
restrictions on sales; changes in the relative proportion of profit
earned in the numerous jurisdictions in which the Company does
business and in tax legislation, case law and other authoritative
guidance in those jurisdictions; factors which impact the
calculation of the weighted average number of diluted shares of
common stock outstanding, including the market price of the
Company’s common stock, grants of equity-based awards and the
vesting schedules of equity-based awards; the Company’s ability to
develop new and innovative products in its current end-markets and
to leverage its technologies and brand to expand into new
categories and end-markets; the Company’s ability to increase its
aftermarket penetration; the Company’s exposure to exchange rate
fluctuations; the loss of key customers; the outcome of pending
litigation; the possibility that the Company could experience a
disruption in connection with the transition of the majority of the
Company’s mountain bike suspension component manufacturing
operations to Taiwan or unexpected difficulties in such operations;
the possibility that the Company may not be able to accelerate its
international growth; the Company’s ability to maintain its premium
brand image and high-performance products; the Company’s ability to
maintain relationships with the professional athletes and race
teams that it sponsors; the possibility that the Company may not be
able to selectively add additional dealers and distributors in
certain geographic markets; the overall growth of the markets in
which the Company competes; the Company’s expectations regarding
consumer preferences and its ability to respond to changes in
consumer preferences; changes in demand for high-end suspension and
ride dynamics products; the Company’s loss of key personnel,
management and skilled engineers; the Company’s ability to
successfully identify, evaluate and manage potential acquisitions
and to benefit from such acquisitions; future economic or market
conditions; and the other risks and uncertainties described in
“Risk Factors” contained in its Annual Report on Form 10-K or
Quarterly Reports on Form 10-Q or otherwise described in the
Company’s other filings with the Securities and Exchange
Commission. New risks and uncertainties emerge from time to time
and it is not possible for the Company to predict all risks and
uncertainties that could have an impact on the forward-looking
statements contained in this press release. In light of the
significant uncertainties inherent in the forward-looking
information included herein, the inclusion of such information
should not be regarded as a representation by the Company or any
other person that the Company’s expectations, objectives or plans
will be achieved in the timeframe anticipated or at all. Investors
are cautioned not to place undue reliance on the Company’s
forward-looking statements and the Company undertakes no obligation
to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise,
except as required by law.
CONTACT:
ICR
Katie Turner
646-277-1228
Katie.Turner@icrinc.com
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