Fox Factory Holding Corp. (NASDAQ: FOXF) (“FOX” or the “Company”)
today reported financial results for the third quarter ended
September 29, 2023 and announced the signing of a definitive
agreement to acquire Wheelhouse Holdings, Inc., the parent company
of Marucci Sports, LLC (“Marucci”) from Compass Diversified (NYSE:
CODI) and certain other sellers.
“We delivered adjusted EBITDA margin of 19.2%
even with a 17.4% sequential decline in sales as the business was
impacted by the UAW strike and a slower bicycle channel inventory
destock. At the onset of the strike, we took decisive action to
reduce costs and improve cash flows. Our laser focus on cost
control and swift execution of cost reduction initiatives allowed
us to sequentially maintain EBITDA margins, protect our balance
sheet and cash flows and operate from a position of strength to
further our capital allocation priorities,” commented Mike
Dennison, FOX’s Chief Executive Officer. “Not only did our Board of
Directors authorize a share repurchase plan of up to 8% of our
outstanding shares, but we also signed a definitive agreement to
acquire Marucci, an industry-leading manufacturer and distributor
of premium performance baseball, softball, and other sports
equipment.” The acquisition of Marucci combines two high
performance cultures, industry-leading brands and product
portfolios that expand FOX’s enthusiast offering. The purchase
price for the transaction, which is subject to customary
adjustments, is based on an enterprise value of $572.0 million and
will be financed through an additional term loan under FOX’s
existing credit facility. We expect Marucci to be accretive to both
growth and EBITDA Margins helping us to achieve our 2025 target of
$2.0 billion sales and 25% adjusted EBITDA margin. The transaction
is expected to close in November of 2023, subject to customary
closing conditions.
Marucci, based in Baton Rouge, Louisiana, is a
leading designer, manufacturer, and marketer of highly engineered
premium wood, aluminum and composite baseball bats as well as other
diamond sports products. Marucci is passionate about challenging
the impossible and leveraging technology to push performance across
its renowned brands Marucci, Victus, Baum, and Lizard Skins. Much
like FOX, Marucci leads by winning the professional athlete which
drives their next level performance products across the player and
enthusiast market. Together, we expect to leverage technology and
innovation to extend the value of our brands and further solidify
our top and bottom-line growth story. We expect product, market,
and total addressable market growth opportunities, including
continued international expansion and our combined ability to
leverage scale, technology, innovation, and operational
efficiencies to provide an enhanced platform for our brands to grow
further together.
Net sales for the third quarter of fiscal 2023
were $331.1 million, a decrease of 19.1%, as compared to net sales
of $409.2 million in the third quarter of fiscal 2022. This
decrease reflects a $102.0 million or 58.6% decrease in Specialty
Sports Group (“SSG”) net sales, partially offset by a $13.6 million
or 12.4% and a $10.3 million or 8.2% increase in Powered Vehicles
Group (“PVG”) and Aftermarket Applications Group (“AAG”) net sales,
respectively. The decrease in SSG net sales from $174.0 million to
$72.0 million is driven by higher levels of inventory across
various channels. The increase in PVG net sales from $109.5 million
to $123.1 million is primarily due to strong demand in the original
equipment manufacturer (“OEM”) channel, partially offset by the
impact of the United Auto Workers (“UAW”) strike. The increase in
AAG net sales from $125.7 million to $136.0 million is primarily
due to the inclusion of revenue from our Custom Wheel House
subsidiary, which was acquired in March 2023, partially offset by
the impact of the UAW strike.
Gross margin was 32.4% for the third quarter of
fiscal 2023, a 110 basis point decrease from gross margin of 33.5%
in the third quarter of fiscal 2022. The decrease in gross margin
was primarily driven by a shift in our product line mix and costs
associated with keeping our skilled workforce as production slowed
due to the UAW strike, offset by increased efficiencies at our
North American facilities. Adjusted gross margin, which excludes
the effects of amortization of acquired inventory valuation markup,
organizational restructuring expenses, and strategic transformation
costs, decreased 70 basis points to 33.2% from the same prior
fiscal year period.
Total operating expenses were $65.9 million, or
19.9% of net sales, for the third quarter of fiscal 2023, compared
to $71.9 million, or 17.6% of net sales in the third quarter of
fiscal 2022. Operating expenses decreased by $6.0 million primarily
due to strong cost controls, partially offset by the inclusion of
Custom Wheel House operating expenses of $4.7 million, amortization
of acquired intangibles and operating expenses associated with
facility expansion. Adjusted operating expenses were $58.3 million,
or 17.6% of net sales in the third quarter of fiscal 2023, compared
to $64.8 million, or 15.8% of net sales, in the third quarter of
the prior fiscal year.
The Company’s effective tax rate was 9.0% in the
third quarter of fiscal 2023, compared to 20.8% in the third
quarter of fiscal 2022. The decrease in the Company’s effective tax
rate was primarily due to the U.S. research and development tax
credit for multiple periods.
Net income and net income margin in the third
quarter of fiscal 2023 were $35.3 million and 10.7%, respectively,
compared to $50.8 million and 12.4%, respectively, in the third
quarter of the prior fiscal year. Earnings per diluted share for
the third quarter of fiscal 2023 was $0.83, compared to earnings
per diluted share of $1.20 for the third quarter of fiscal 2022.
Adjusted net income in the third quarter of fiscal 2023 was $44.8
million, or $1.05 of adjusted earnings per diluted share, compared
to adjusted net income of $57.4 million, or $1.35 of adjusted
earnings per diluted share, in the same period of the prior fiscal
year.
Adjusted EBITDA in the third quarter of fiscal
2023 was $63.7 million, compared to $85.1 million in the third
quarter of fiscal 2022. Adjusted EBITDA margin in the third quarter
of fiscal 2023 was 19.2%, compared to 20.8% in the third quarter of
fiscal 2022. “Maintaining strong double digit adjusted EBITDA
margins demonstrates the strength of our brands, product
diversification and commitment to continuous improvement.” Mr.
Dennison commented.
The Board of Directors authorized a share
repurchase plan for up to $300.0 million in shares of the Company’s
common stock, par value $0.001 per share. “The primary objective of
the plan is to manage the impact of dilution from future employee
equity grants and to allow for opportunistic share repurchases. We
are a growth company at heart, and we continue to see significant
runway to drive both organic and inorganic growth in a thoughtful
and disciplined manner. Given the current macro environment and our
strong cash flow generation, we believe that using a portion of our
free cash flow to repurchase our shares is a strategic use of
capital.” Mr. Dennison remarked. Repurchases of shares of common
stock under the stock repurchase plan will be made in accordance
with applicable securities laws and may be made under a variety of
methods, which may include open market purchases. The stock
repurchase program does not obligate the Company to acquire any
particular amount of common stock, and it is scheduled to expire on
November 1, 2028 and may be suspended or terminated at any time at
the Company’s discretion.
To support its capital allocation strategy,
including the Marucci transaction, the Company entered into a
commitment letter to secure a term loan in an amount not to exceed
$400.0 million and a delayed draw term loan in an amount not to
exceed $200.0 million through its existing credit facility, and the
interest rate is expected to be 0.5% higher than the current rate
of the revolver. The additional debt will provide the liquidity
needed to pursue capital allocation priorities including future
organic and inorganic growth opportunities and the cushion to
withstand macroeconomic or geopolitical shocks.
“We are executing on our organic and inorganic
growth opportunities at a very high level in a disciplined approach
which is reflected in our strong EBITDA margins. Our ability to
perform at this level given the challenging macro environment gives
me confidence to reaffirm our 2025 targets which we expect to
achieve by continuing to be the industry leader focused on
innovation of performance defining products,” Mr. Dennison
concluded.
First Nine
Months Fiscal 2023
Results
Net sales for the nine months ended
September 29, 2023 were $1,131.7 million, a decrease of 5.2%
compared to the first nine months in fiscal 2022. Net sales of SSG
decreased $225.7 million or 43.3% and net sales of PVG and AAG
increased $105.7 million or 35.2% and $57.9 million or 15.5%,
respectively, for the first nine months of fiscal 2023 compared to
the prior year fiscal period. The decrease in SSG net sales from
$521.5 million to $295.8 million is driven by higher levels of
inventory across various channels. The increase in PVG net sales
from $299.8 million to $405.5 million is primarily due to strong
demand in the OEM channel, partially offset by the impact of the
UAW strike. The increase in AAG net sales from $372.5 million to
$430.4 million is primarily due to the inclusion of revenue from
our Custom Wheel House subsidiary, which was acquired in March
2023, and strong performance in our upfitting product lines.
Gross margin was 32.9% in the first nine months
of fiscal 2023, a 60 basis point decrease, compared to gross margin
of 33.5% in the first nine months of fiscal 2022. The decrease in
gross margin for the first nine months of fiscal 2023 was primarily
driven by a shift in our product line mix and amortization of an
acquired inventory valuation markup, offset by increased
efficiencies at our North American facilities. Adjusted gross
margin, excluding the effects of amortization of acquired inventory
valuation markup, organizational restructuring expenses, and
strategic transformation costs, increased 20 basis points to 34.0%
from the same prior fiscal year period.
Total operating expenses were $223.7 million, or
19.8% of net sales, for the first nine months of fiscal 2023,
compared to $210.5 million, or 17.6% of net sales in the first nine
months of fiscal 2022. Operating expenses increased by $13.2
million primarily due to the inclusion of Custom Wheel House
operating expenses of $10.9 million, amortization of additional
acquired intangibles and operating expenses associated with
facility expansion, partially offset by strong cost controls.
Adjusted operating expenses were $199.6 million, or 17.6% of net
sales in the first nine months of fiscal 2023, compared to $191.0
million, or 16.0% of net sales, in the first nine months of the
prior fiscal year.
Net income and net income margin in the first
nine months of fiscal 2023 were $116.8 million and 10.3%,
respectively, compared to $152.3 million and 12.8%, respectively,
in the first nine months of the prior fiscal year. Earnings per
diluted share for the first nine months of fiscal 2023 was $2.75,
compared to $3.59 in the same period of fiscal 2022. Adjusted net
income in the first nine months of fiscal 2023 was $147.2 million,
or $3.46 of adjusted earnings per diluted share, compared to $171.8
million, or $4.06 of adjusted earnings per diluted share in the
same period of the prior fiscal year.
Adjusted EBITDA decreased to $222.3 million in
the first nine months of fiscal 2023, compared to $245.0 million in
the first nine months of fiscal 2022. Adjusted EBITDA margin
decreased to 19.6% in the first nine months of fiscal 2023,
compared to 20.5% in the first nine months of fiscal 2022.
Balance Sheet Highlights
As of September 29, 2023, the Company had
cash and cash equivalents of $90.6 million, compared to $145.3
million as of December 30, 2022. Inventory was $341.2 million
as of September 29, 2023, compared to $350.6 million as of
December 30, 2022. As of September 29, 2023, accounts
receivable and accounts payable were $150.0 million and $88.5
million, respectively, compared to $200.4 million and $131.2
million, respectively, as of December 30, 2022. Prepaids and
other current assets were $155.4 million as of September 29,
2023, compared to $101.4 million as of December 30, 2022. The
decrease in cash and cash equivalents was primarily due to
repayments on the revolver borrowings and an increase in prepaids
and other current assets driven by higher chassis deposits as we
ramp up to meet current year demand, which is in line with our
upfitting business cycle. Inventory decreased by $9.4 million
driven by the continuous improvement efforts to optimize inventory
levels throughout the organization, partially offset by the
inclusion of $14.6 million of inventory from Custom Wheel House.
The change in accounts receivable reflects a decrease in net sales
and the timing of customer collections. The change in accounts
payable reflects the timing of vendor payments. Total debt was
$190.0 million as of September 29, 2023, compared to $200.0
million as of December 30, 2022. During the first quarter of
fiscal 2023, the Company incurred additional debt to support its
working capital and the acquisition of Custom Wheel House, and
subsequently, was able to pay down $170.0 million of the revolver
borrowings.
Fiscal 2023 Guidance
For the fourth quarter of fiscal 2023, the
Company expects net sales in the range of $300 million to $340
million and adjusted earnings per diluted share in the range of
$0.75 to $1.00.
For the fiscal year 2023, the Company expects
net sales at the low end of $1,430 million to $1,470 million,
adjusted earnings per diluted share at the low end of the range of
$4.20 to $4.45, and a full year effective tax rate in the range of
15%.
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 2023 is not available
without unreasonable efforts because management cannot predict,
with sufficient certainty, all of the elements necessary to provide
such a reconciliation.
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)
343-4136, and international listeners may dial (203) 518-9843; the
conference ID is FOXFQ323 or 36937223. 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, motorcycles, and commercial trucks. The
Company is a direct supplier to leading powered vehicle 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.
Squire Patton Boggs (US) LLP acted as legal
counsel to Fox Factory Holding Corp. in connection with the
acquisition of Marucci. Jefferies LLC acted as exclusive financial
advisor and Ropes & Gray LLP and Jones Walker LLP acted as
legal counsel to Compass Diversified.
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 certain non-GAAP financial
measures consisting of “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,” all of which are
non-GAAP financial measures. FOX defines adjusted gross profit as
gross profit adjusted for certain strategic transformation costs,
non-recurring property tax assessment, and 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, and acquisition and
integration-related expenses. 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. These adjustments are more fully described in
the tables included at the end of this press release. 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, amortization of purchased intangibles, depreciation,
stock-based compensation, litigation and settlement related
expenses, organizational restructuring expenses, non-recurring
property tax assessments, 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.
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 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 29, 2023 |
|
December 30, 2022 |
|
|
|
|
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
90,631 |
|
|
$ |
145,250 |
|
Accounts receivable (net of
allowances of $1,374 and $443 at September 29, 2023 and
December 30, 2022, respectively) |
|
149,989 |
|
|
|
200,440 |
|
Inventory |
|
341,209 |
|
|
|
350,620 |
|
Prepaids and other current assets |
|
155,394 |
|
|
|
101,364 |
|
Total current assets |
|
737,223 |
|
|
|
797,674 |
|
Property, plant and equipment,
net |
|
211,142 |
|
|
|
202,215 |
|
Lease right-of-use assets |
|
64,133 |
|
|
|
48,096 |
|
Deferred tax assets |
|
57,256 |
|
|
|
57,339 |
|
Goodwill |
|
386,139 |
|
|
|
323,978 |
|
Intangibles, net |
|
207,659 |
|
|
|
178,980 |
|
Other assets |
|
10,806 |
|
|
|
10,054 |
|
Total assets |
$ |
1,674,358 |
|
|
$ |
1,618,336 |
|
Liabilities and
stockholders’ equity |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
$ |
88,476 |
|
|
$ |
131,160 |
|
Accrued expenses |
|
103,201 |
|
|
|
127,729 |
|
Total current liabilities |
|
191,677 |
|
|
|
258,889 |
|
Line of credit |
|
190,000 |
|
|
|
200,000 |
|
Other liabilities |
|
51,378 |
|
|
|
38,061 |
|
Total liabilities |
|
433,055 |
|
|
|
496,950 |
|
Stockholders’ equity |
|
|
|
Preferred stock, $0.001 par value — 10,000 authorized and no shares
issued or outstanding as of September 29, 2023 and
December 30, 2022 |
|
— |
|
|
|
— |
|
Common stock, $0.001 par value — 90,000 authorized; 43,270 shares
issued and 42,380 outstanding as of September 29, 2023; 43,160
shares issued and 42,270 outstanding as of December 30,
2022 |
|
42 |
|
|
|
42 |
|
Additional paid-in capital |
|
364,118 |
|
|
|
356,239 |
|
Treasury stock, at cost; 890
common shares as of September 29, 2023 and December 30,
2022 |
|
(13,754 |
) |
|
|
(13,754 |
) |
Accumulated other comprehensive income |
|
10,025 |
|
|
|
14,782 |
|
Retained earnings |
|
880,872 |
|
|
|
764,077 |
|
Total stockholders’ equity |
|
1,241,303 |
|
|
|
1,121,386 |
|
Total liabilities and stockholders’ equity |
$ |
1,674,358 |
|
|
$ |
1,618,336 |
|
|
|
|
|
|
|
|
|
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 29, 2023 |
|
September 30, 2022 |
|
September 29, 2023 |
|
September 30, 2022 |
Net sales |
$ |
331,117 |
|
|
$ |
409,168 |
|
|
$ |
1,131,683 |
|
|
$ |
1,193,850 |
Cost of sales |
|
223,890 |
|
|
|
271,901 |
|
|
|
759,132 |
|
|
|
793,379 |
Gross profit |
|
107,227 |
|
|
|
137,267 |
|
|
|
372,551 |
|
|
|
400,471 |
Operating expenses: |
|
|
|
|
|
|
|
General and administrative |
|
25,710 |
|
|
|
29,171 |
|
|
|
89,692 |
|
|
|
83,182 |
Sales and marketing |
|
24,439 |
|
|
|
23,508 |
|
|
|
74,664 |
|
|
|
70,272 |
Research and development |
|
8,904 |
|
|
|
13,955 |
|
|
|
39,374 |
|
|
|
40,811 |
Amortization of purchased intangibles |
|
6,809 |
|
|
|
5,271 |
|
|
|
19,982 |
|
|
|
16,214 |
Total operating expenses |
|
65,862 |
|
|
|
71,905 |
|
|
|
223,712 |
|
|
|
210,479 |
Income from operations |
|
41,365 |
|
|
|
65,362 |
|
|
|
148,839 |
|
|
|
189,992 |
Interest expense |
|
3,466 |
|
|
|
2,667 |
|
|
|
11,405 |
|
|
|
6,341 |
Other (income) expense, net |
|
(878 |
) |
|
|
(1,441 |
) |
|
|
(318 |
) |
|
|
3,067 |
Income before income taxes |
|
38,777 |
|
|
|
64,136 |
|
|
|
137,752 |
|
|
|
180,584 |
Provision for income taxes |
|
3,484 |
|
|
|
13,365 |
|
|
|
20,957 |
|
|
|
28,265 |
Net income |
$ |
35,293 |
|
|
$ |
50,771 |
|
|
$ |
116,795 |
|
|
$ |
152,319 |
Earnings per share: |
|
|
|
|
|
|
|
Basic |
$ |
0.83 |
|
|
$ |
1.20 |
|
|
$ |
2.76 |
|
|
$ |
3.61 |
Diluted |
$ |
0.83 |
|
|
$ |
1.20 |
|
|
$ |
2.75 |
|
|
$ |
3.59 |
Weighted-average shares used to
compute earnings per share: |
|
|
|
|
|
|
|
Basic |
|
42,395 |
|
|
|
42,281 |
|
|
|
42,350 |
|
|
|
42,215 |
Diluted |
|
42,510 |
|
|
|
42,387 |
|
|
|
42,497 |
|
|
|
42,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOX FACTORY HOLDING
CORP.Condensed Consolidated Statements of Cash
Flows(in
thousands)(unaudited)
|
For the nine months ended |
|
September 29, 2023 |
|
September 30, 2022 |
OPERATING ACTIVITIES: |
|
|
|
Net income |
$ |
116,795 |
|
|
$ |
152,319 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
Depreciation and amortization |
|
43,519 |
|
|
|
36,813 |
|
Stock-based compensation |
|
14,042 |
|
|
|
11,379 |
|
Amortization of loan fees |
|
679 |
|
|
|
860 |
|
Write off of unamortized loan origination fees |
|
— |
|
|
|
1,927 |
|
Amortization of deferred gains on prior swap settlements |
|
(3,189 |
) |
|
|
(2,113 |
) |
Amortization of inventory fair value step-up |
|
9,903 |
|
|
|
— |
|
Gain on disposal of property and equipment |
|
— |
|
|
|
(1,845 |
) |
Deferred taxes |
|
(512 |
) |
|
|
(12,515 |
) |
Changes in operating assets and liabilities, net of effects of
acquisitions: |
|
|
|
Accounts receivable |
|
53,299 |
|
|
|
(59,976 |
) |
Inventory |
|
24,317 |
|
|
|
(84,834 |
) |
Income taxes |
|
(20,384 |
) |
|
|
4,171 |
|
Prepaids and other assets |
|
(53,130 |
) |
|
|
(55,000 |
) |
Accounts payable |
|
(51,389 |
) |
|
|
43,439 |
|
Accrued expenses and other liabilities |
|
(7,265 |
) |
|
|
22,410 |
|
Net cash provided by operating activities |
|
126,685 |
|
|
|
57,035 |
|
INVESTING ACTIVITIES: |
|
|
|
Acquisitions of businesses, net of cash acquired |
|
(130,918 |
) |
|
|
— |
|
Acquisition of other assets, net of cash acquired |
|
(2,432 |
) |
|
|
— |
|
Purchases of property and equipment |
|
(32,048 |
) |
|
|
(35,559 |
) |
Proceeds from sale of property and equipment |
|
— |
|
|
|
3,180 |
|
Net cash used in investing activities |
|
(165,398 |
) |
|
|
(32,379 |
) |
FINANCING ACTIVITIES: |
|
|
|
Proceeds from line of credit |
|
210,000 |
|
|
|
582,356 |
|
Payments on line of credit |
|
(220,000 |
) |
|
|
(259,336 |
) |
Repayment of term debt |
|
— |
|
|
|
(382,500 |
) |
Installment on purchase of non-controlling interest |
|
— |
|
|
|
(2,700 |
) |
Repurchases from stock compensation program, net |
|
(6,163 |
) |
|
|
(4,094 |
) |
Proceeds from termination of swap agreement |
|
— |
|
|
|
12,270 |
|
Net cash used in financing activities |
|
(16,163 |
) |
|
|
(54,004 |
) |
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS |
|
257 |
|
|
|
2,799 |
|
CHANGE IN CASH AND CASH
EQUIVALENTS |
|
(54,619 |
) |
|
|
(26,549 |
) |
CASH AND CASH
EQUIVALENTS—Beginning of period |
|
145,250 |
|
|
|
179,686 |
|
CASH AND CASH EQUIVALENTS—End of
period |
$ |
90,631 |
|
|
$ |
153,137 |
|
|
|
|
|
|
|
|
|
FOX FACTORY HOLDING CORP.
NET INCOME TO ADJUSTED NET INCOME
RECONCILIATIONAND CALCULATION OF ADJUSTED EARNINGS
PER SHARE(in thousands, except per share
data) (unaudited)
The following table provides a reconciliation of
net income, the most directly comparable financial measure
calculated and presented in accordance with GAAP, to adjusted net
income (a non-GAAP measure), and the calculation of adjusted
earnings per share (a non-GAAP measure) for the three and nine
months ended September 29, 2023 and September 30, 2022.
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 29, 2023 |
|
September 30, 2022 |
|
September 29, 2023 |
|
September 30, 2022 |
Net income |
$ |
35,293 |
|
|
$ |
50,771 |
|
|
$ |
116,795 |
|
|
$ |
152,319 |
|
Amortization of purchased
intangibles |
|
6,809 |
|
|
|
5,271 |
|
|
|
19,982 |
|
|
|
16,214 |
|
Litigation and
settlement-related expenses |
|
654 |
|
|
|
1,395 |
|
|
|
2,291 |
|
|
|
1,596 |
|
Other acquisition and
integration-related expenses (1) |
|
1,121 |
|
|
|
414 |
|
|
|
11,720 |
|
|
|
1,712 |
|
Organizational restructuring
expenses (2) |
|
1,849 |
|
|
|
— |
|
|
|
1,849 |
|
|
|
— |
|
Strategic transformation costs
(3) |
|
— |
|
|
|
430 |
|
|
|
— |
|
|
|
2,769 |
|
Non-recurring property tax
assessment (4) |
|
— |
|
|
|
841 |
|
|
|
— |
|
|
|
841 |
|
Tax impacts of reconciling
items above (5) |
|
(967 |
) |
|
|
(1,730 |
) |
|
|
(5,453 |
) |
|
|
(3,621 |
) |
Adjusted net
income |
$ |
44,759 |
|
|
$ |
57,392 |
|
|
$ |
147,184 |
|
|
$ |
171,830 |
|
|
|
|
|
|
|
|
|
Adjusted
EPS |
|
|
|
|
|
|
|
Basic |
$ |
1.06 |
|
|
$ |
1.36 |
|
|
$ |
3.48 |
|
|
$ |
4.07 |
|
Diluted |
$ |
1.05 |
|
|
$ |
1.35 |
|
|
$ |
3.46 |
|
|
$ |
4.06 |
|
|
|
|
|
|
|
|
|
Weighted average
shares used to compute adjusted EPS |
|
|
|
|
|
|
|
Basic |
|
42,395 |
|
|
|
42,281 |
|
|
|
42,350 |
|
|
|
42,215 |
|
Diluted |
|
42,510 |
|
|
|
42,387 |
|
|
|
42,497 |
|
|
|
42,374 |
|
(1) Represents various acquisition-related costs
and expenses incurred to integrate acquired entities into the
Company’s operations and the impact of the finished goods inventory
valuation adjustment recorded in connection with the purchase of
acquired assets, per period as follows:
|
For the three months ended |
|
For the nine months ended |
|
September 29, 2023 |
|
September 30, 2022 |
|
September 29, 2023 |
|
September 30, 2022 |
Acquisition related costs and expenses |
$ |
113 |
|
$ |
414 |
|
$ |
1,817 |
|
$ |
1,712 |
Finished goods inventory
valuation adjustment |
|
1,008 |
|
|
— |
|
|
9,903 |
|
|
— |
Other acquisition and
integration-related expenses |
$ |
1,121 |
|
$ |
414 |
|
$ |
11,720 |
|
$ |
1,712 |
(2) Represents expenses associated with various
restructuring initiatives, including the reduction of our Specialty
Sports Group workforce.
(3) Represents costs associated with various
strategic initiatives including the expansion of the Powered
Vehicles Group’s manufacturing operations.
(4) Represents amounts paid for a non-recurring
property tax assessment.
(5) Tax impact calculated based on the
respective year-to-date effective tax rate.
FOX FACTORY HOLDING CORP.
NET INCOME TO ADJUSTED EBITDA RECONCILIATION AND
NET INCOME MARGIN TO ADJUSTED EBITDA MARGIN
RECONCILIATION (in thousands, except
percentages) (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 a reconciliation of net income
margin to adjusted EBITDA margin (a non-GAAP measure) for the three
and nine months ended September 29, 2023 and
September 30, 2022. 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 29, 2023 |
|
September 30, 2022 |
|
September 29, 2023 |
|
September 30, 2022 |
Net income |
$ |
35,293 |
|
$ |
50,771 |
|
$ |
116,795 |
|
$ |
152,319 |
Provision for income
taxes |
|
3,484 |
|
|
13,365 |
|
|
20,957 |
|
|
28,265 |
Depreciation and
amortization |
|
14,807 |
|
|
12,403 |
|
|
43,519 |
|
|
36,813 |
Non-cash stock-based
compensation |
|
3,858 |
|
|
4,289 |
|
|
14,042 |
|
|
11,379 |
Litigation and
settlement-related expenses |
|
654 |
|
|
1,395 |
|
|
2,291 |
|
|
1,596 |
Other acquisition and
integration-related expenses (1) |
|
1,121 |
|
|
414 |
|
|
11,720 |
|
|
1,598 |
Organizational restructuring
expenses (2) |
|
1,849 |
|
|
— |
|
|
1,849 |
|
|
— |
Strategic transformation costs
(3) |
|
— |
|
|
430 |
|
|
— |
|
|
2,769 |
Non-recurring property tax
assessment (4) |
|
— |
|
|
841 |
|
|
— |
|
|
841 |
Interest and other expense,
net |
|
2,588 |
|
|
1,226 |
|
|
11,087 |
|
|
9,408 |
Adjusted
EBITDA |
$ |
63,654 |
|
$ |
85,134 |
|
$ |
222,260 |
|
$ |
244,988 |
|
|
|
|
|
|
|
|
|
For the three months ended |
|
For the nine months ended |
|
September 29, 2023 |
|
September 30, 2022 |
|
September 29, 2023 |
|
September 30, 2022 |
Net income margin |
10.7 |
% |
|
12.4 |
% |
|
10.3 |
% |
|
12.8 |
% |
Provision for income
taxes |
1.1 |
|
|
3.3 |
|
|
1.9 |
|
|
2.4 |
|
Depreciation and
amortization |
4.5 |
|
|
3.0 |
|
|
3.8 |
|
|
3.1 |
|
Non-cash stock-based
compensation |
1.2 |
|
|
1.0 |
|
|
1.2 |
|
|
1.0 |
|
Litigation and
settlement-related expenses |
0.2 |
|
|
0.3 |
|
|
0.2 |
|
|
0.1 |
|
Other acquisition and
integration-related expenses (1) |
0.3 |
|
|
0.1 |
|
|
1.0 |
|
|
0.1 |
|
Organizational restructuring
expenses (2) |
0.6 |
|
|
— |
|
|
0.2 |
|
|
— |
|
Strategic transformation costs
(3) |
— |
|
|
0.1 |
|
|
— |
|
|
0.2 |
|
Non-recurring property tax
assessment (4) |
— |
|
|
0.2 |
|
|
— |
|
|
0.1 |
|
Interest and other expense,
net |
0.8 |
|
|
0.3 |
|
|
1.0 |
|
|
0.8 |
|
Adjusted EBITDA
Margin |
19.2 |
% |
|
20.8 |
% |
|
19.6 |
% |
|
20.5 |
% |
*Percentages may not foot due to rounding.
(1) Represents various acquisition-related costs
and expenses incurred to integrate acquired entities into the
Company’s operations, excluding $114 in stock-based compensation
for the nine month period ended September 30, 2022, and the
impact of the finished goods inventory valuation adjustment
recorded in connection with the purchase of acquired assets, per
period as follows:
|
For the three months ended |
|
For the nine months ended |
|
September 29, 2023 |
|
September 30, 2022 |
|
September 29, 2023 |
|
September 30, 2022 |
Acquisition related costs and expenses |
$ |
113 |
|
$ |
414 |
|
$ |
1,817 |
|
$ |
1,598 |
Finished goods inventory
valuation adjustment |
|
1,008 |
|
|
— |
|
|
9,903 |
|
|
— |
Other acquisition and
integration-related expenses |
$ |
1,121 |
|
$ |
414 |
|
$ |
11,720 |
|
$ |
1,598 |
(2) Represents expenses associated with various
restructuring initiatives, including the reduction of our Specialty
Sports Group workforce.
(3) Represents costs associated with various
strategic initiatives including the expansion of the Powered
Vehicles Group’s manufacturing operations.
(4) Represents amounts paid for a non-recurring
property tax assessment.
FOX FACTORY HOLDING CORP.
GROSS PROFIT TO ADJUSTED GROSS PROFIT RECONCILIATION
ANDCALCULATION OF GROSS MARGIN AND ADJUSTED GROSS
MARGIN (in thousands)
(unaudited)
The following table provides a reconciliation of
gross profit to adjusted gross profit (a non-GAAP measure) for
the three and nine months ended September 29, 2023
and September 30, 2022, and the calculation of gross
margin and adjusted gross margin (a non-GAAP measure). 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 29, 2023 |
|
September 30, 2022 |
|
September 29, 2023 |
|
September 30, 2022 |
Net sales |
$ |
331,117 |
|
|
$ |
409,168 |
|
|
$ |
1,131,683 |
|
|
$ |
1,193,850 |
|
|
|
|
|
|
|
|
|
Gross
Profit |
$ |
107,227 |
|
|
$ |
137,267 |
|
|
$ |
372,551 |
|
|
$ |
400,471 |
|
Strategic transformation costs
(1) |
|
— |
|
|
|
430 |
|
|
|
— |
|
|
|
2,769 |
|
Non-recurring property tax
assessment (2) |
|
— |
|
|
|
841 |
|
|
|
— |
|
|
|
841 |
|
Amortization of acquired
inventory valuation markup |
|
1,008 |
|
|
|
— |
|
|
|
9,903 |
|
|
|
— |
|
Organizational restructuring
expenses (3) |
|
1,849 |
|
|
|
— |
|
|
|
1,849 |
|
|
|
— |
|
Adjusted Gross
Profit |
$ |
110,084 |
|
|
$ |
138,538 |
|
|
$ |
384,303 |
|
|
$ |
404,081 |
|
|
|
|
|
|
|
|
|
Gross
Margin |
|
32.4 |
% |
|
|
33.5 |
% |
|
|
32.9 |
% |
|
|
33.5 |
% |
|
|
|
|
|
|
|
|
Adjusted Gross
Margin |
|
33.2 |
% |
|
|
33.9 |
% |
|
|
34.0 |
% |
|
|
33.8 |
% |
(1) Represents costs associated with various
strategic initiatives including the expansion of the Powered
Vehicles Group’s manufacturing operations.
(2) Represents amounts paid for a non-recurring
property tax assessment.
(3) Represents expenses associated with various
restructuring initiatives, including the reduction of our Specialty
Sports Group workforce.
FOX FACTORY HOLDING CORP.
OPERATING EXPENSE TO ADJUSTED OPERATING EXPENSE
RECONCILIATION ANDCALCULATION OF ADJUSTED
OPERATING MARGIN(in thousands)
(unaudited)
The following tables provide a reconciliation of
operating expense to adjusted operating expense (a non-GAAP
measure) and the calculations of operating expense as a percentage
of net sales and adjusted operating expense as a percentage of net
sales (a non-GAAP measure), for the three and nine months ended
September 29, 2023 and September 30, 2022. 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 29, 2023 |
|
September 30, 2022 |
|
September 29, 2023 |
|
September 30, 2022 |
Net sales |
$ |
331,117 |
|
|
$ |
409,168 |
|
|
$ |
1,131,683 |
|
|
$ |
1,193,850 |
|
|
|
|
|
|
|
|
|
Operating
Expense |
$ |
65,862 |
|
|
$ |
71,905 |
|
|
$ |
223,712 |
|
|
$ |
210,479 |
|
Amortization of purchased
intangibles |
|
(6,809 |
) |
|
|
(5,271 |
) |
|
|
(19,982 |
) |
|
|
(16,214 |
) |
Litigation and
settlement-related expenses |
|
(654 |
) |
|
|
(1,395 |
) |
|
|
(2,291 |
) |
|
|
(1,596 |
) |
Other acquisition and
integration-related expenses (1) |
|
(113 |
) |
|
|
(414 |
) |
|
|
(1,817 |
) |
|
|
(1,712 |
) |
Adjusted operating
expense |
$ |
58,286 |
|
|
$ |
64,825 |
|
|
$ |
199,622 |
|
|
$ |
190,957 |
|
|
|
|
|
|
|
|
|
Operating
margin |
|
19.9 |
% |
|
|
17.6 |
% |
|
|
19.8 |
% |
|
|
17.6 |
% |
|
|
|
|
|
|
|
|
Adjusted operating
margin |
|
17.6 |
% |
|
|
15.8 |
% |
|
|
17.6 |
% |
|
|
16.0 |
% |
(1) Represents various acquisition-related costs
and expenses incurred to integrate acquired entities into the
Company’s operations.
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 with regard to expectations related to the acquisition
of Marucci, the expected closing date of the Marucci transaction
and the future performance of Fox and Marucci, as well as
statements about the impact of the global outbreak of COVID-19 on
the Company’s business and operations; 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 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 including, but not limited to, the possibility
that the Marucci acquisition may not be consummated in the
anticipated timeframe, on the contemplated terms or at all, the
possibility that the expected synergies and value creation from the
Marucci acquisition will not be realized, or will not be realized
within the expected time period or the risk that unexpected costs
will be incurred in connection with the completion of the Marucci
acquisition; the Company’s ability to maintain its suppliers for
materials, product parts and vehicle chassis without significant
supply chain disruptions; 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; 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; strategic transformation
costs; the outcome of pending litigation; 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; product recalls and product liability
claims; the impact of change in China-Taiwan relations on our
business, our operations or our supply chain, the impact of the
Russian invasion of Ukraine or rising tension in the Middle East on
the global economy, energy supplies and raw materials; future
economic or market conditions, including the impact of inflation or
the U.S. Federal Reserve’s interest rate increases in response
thereto; and the other risks and uncertainties described in “Risk
Factors” contained in its Annual Report on Form 10-K for the fiscal
year ended December 30, 2022 and filed with the Securities and
Exchange Commission on February 23, 2023, 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:Fox Factory Holding
Corp.Vivek BhakuniSr. Director of Investor Relations and Business
Development706-471-5241vbhakuni@ridefox.com
Compass Diversified (NYSE:CODI)
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