Fox Factory Holding Corp. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2022, the 13 weeks ended April 1, 2022; comparison is the 13 weeks ended April 2, 2021. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted. The filing is unaudited.
Business context and results
Fox designs, manufactures and sells performance products for bicycles and powered vehicles, including OEM and aftermarket products. It reports one operating segment. Sales rose 34.4% to $378.0 million, reflecting strong demand in Specialty Sports and growth in powered-vehicle upfitting.
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Sales | $378.0 | $281.1 | +34.4% |
| Gross profit / margin | $120.3 / 31.8% | $97.9 / 34.8% | +22.8% / −3.0 pp |
| Operating income / margin | $54.2 / 14.3% | $45.9 / 16.3% | +18.1% / −2.0 pp |
| Net income | $48.1 | $38.0 | +26.6% |
| Diluted EPS | $1.13 | $0.90 | +25.6% |
| Operating cash flow | $(143.1) | $66.0 | Declined $209.2 |
| Capital expenditures | $8.2 | $16.9 | Down $8.7 |
Powered Vehicles sales increased 27.9% to $208.1 million; Specialty Sports sales increased 43.5% to $169.9 million. OEM sales were $201.3 million and aftermarket sales were $176.7 million.
Liquidity, cash flow and debt
Cash and cash equivalents were $68.8 million at April 1, down from $179.7 million at December 31, 2021. Current assets were $855.5 million and current liabilities $280.8 million. Operating cash use primarily reflected higher chassis deposits ($171.3 million increase in prepaids and other assets), receivables and inventory, partly offset by higher accounts payable. The company said deposits secured chassis supply for its upfitting business and inventory purchases were intended to mitigate supply-chain uncertainty.
At April 1, carrying amounts included $20.0 million of current debt, $356.3 million of long-term debt and $42.9 million drawn on the prior revolving facility. On April 5, after quarter-end, Fox replaced that facility with a $650 million revolving credit facility maturing April 5, 2027, and borrowed $475 million to repay the prior facility and for general corporate purposes. The company reported $175 million of revolving availability as of April 5. The new facility is secured by substantially all assets, has financial covenants and variable-rate borrowings. A new $100 million interest-rate swap was also entered into.
Drivers, outlook and risks
- Gross margin contracted amid higher raw-material and freight costs and production inefficiencies as the company ramped its Gainesville, Georgia facility following the Watsonville, California production transition.
- Operating expenses rose 26.9%, mainly from employee-related, commission, insurance and facility costs, but declined as a share of sales to 17.5% from 18.5%.
- The 4.8% effective tax rate included a $9.2 million release of a valuation allowance on foreign tax credits following finalized tax regulations. The unusually low rate increased reported earnings and may not represent a recurring tax benefit.
- Management provided no specific earnings or revenue guidance in the supplied filing text. It expected cash on hand, operating cash flow and availability under the new credit facility to fund operations for at least the next 12 months.
- Management expected raw-material, supply, labor-availability and logistics cost pressures to continue through 2022. Risks also include COVID-19 and geopolitical disruption, supplier and chassis constraints, discretionary consumer demand, foreign exchange, and the impact of rising variable interest rates.
- The filing says pending ordinary-course legal matters were not expected to have a material adverse effect. Disclosure controls were assessed as effective at a reasonable assurance level, with no material change in internal control reported.
Important facts for investors to verify
- Whether chassis deposits and inventory investments convert into sales and operating cash flow, and whether working-capital outflows persist.
- Whether gross margins recover as input, freight and facility-transition pressures evolve.
- The ongoing earnings impact of the foreign-tax-credit valuation allowance release and the company’s sustainable tax rate.
- Borrowings, available capacity, covenant headroom and interest expense under the new credit facility, including exposure remaining after the swap.
- Whether supply-chain, chassis availability and demand conditions support management’s liquidity outlook.