FOX Factory Holding Corp. — Q1 2021 Form 10-Q
Reporting period: The filing covers the 13 weeks ended April 2, 2021, compared with the 13 weeks ended April 3, 2020. Although the request metadata says “2020 Q1,” the filing itself is for 2021 Q1. Fox designs, manufactures and sells performance products for bicycles and powered vehicles; it reports one operating segment. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Sales | $281.1 million | $184.4 million |
| Gross profit / margin | $97.9 million / 34.8% | $56.6 million / 30.7% |
| Operating income / margin | $45.9 million / 16.3% | $11.6 million / 6.3% |
| Net income attributable to FOX stockholders | $38.0 million | $8.3 million |
| Diluted earnings per share | $0.90 | $0.21 |
| Cash from operating activities | $66.0 million | $(33.5) million |
| Cash used in investing activities | $(16.9) million | $(342.1) million |
| Cash from (used in) financing activities | $(3.8) million | $408.3 million |
- Sales rose 52.5%. Powered Vehicle sales increased 35.0% to $162.7 million; Specialty Sports sales increased 85.5% to $118.4 million. OEM sales were $151.5 million and aftermarket sales were $129.7 million.
- Gross margin improved 410 basis points, with management citing favorable product and channel mix, including SCA, and approximately $1.8 million of additional factory costs in the prior-year quarter due to COVID-19 closures.
- Operating expenses increased 15.8% to $52.1 million, but declined to 18.5% of sales from 24.4%. Lower acquisition-related costs helped offset higher SCA costs, employee expenses and intangible amortization.
- Interest and other expense rose to $3.9 million from $1.9 million, primarily due to borrowing associated with the SCA acquisition and higher foreign-exchange losses. The effective tax rate was 9.5% in both periods.
- Cash and cash equivalents were $291.5 million at April 2, up from $245.8 million at January 1, 2021. Current assets were $650.9 million and current liabilities $198.0 million.
- Debt principal was $392.5 million, including $12.5 million current; the balance-sheet carrying amount, net of issuance costs, was $387.4 million. The $250 million revolving facility had no borrowings outstanding, $15 million of letters of credit and $235 million available. The facility matures in March 2025; Fox reported covenant compliance.
Changes, outlook and risks
- Growth reflects strong Specialty Sports demand and the continuing contribution of SCA, acquired in March 2020; the prior-year period included substantial acquisition spending and financing.
- Operating cash flow improved from an outflow to $66.0 million. Working-capital movements included increased inventory of $40.1 million and receivables of $16.5 million, partly offset by lower prepaids and higher payables. Capital expenditures were $16.9 million.
- Fox did not provide specific forward-looking revenue or earnings guidance in the supplied filing text. Management identifies demand, product mix, supply-chain execution, acquisitions, competition, customer concentration, foreign exchange and COVID-19 as significant uncertainties. Raw-material, chassis, transportation and labor constraints could affect production, costs and fulfillment.
- Fox increased its foreign tax-credit valuation allowance by $3.0 million in Q1, citing a higher Taiwan revenue forecast and expected effects on the realizability of credits. It reported no ongoing income-tax audits at April 2.
- Pending patent litigation with SRAM remains unresolved. A February 2021 PTAB opinion found all claims of one SRAM patent shown to be obvious, while another opinion found Fox had not shown the other patent’s claims to be obvious. The company recorded no litigation-loss accrual and said outcomes or reasonably possible losses could not be estimated.
- A $200 million variable-rate debt exposure is hedged through an interest-rate swap. The filing estimates that a 100-basis-point rate increase would have added approximately $0.5 million to quarterly interest expense after the swap. The company also identifies potential exposure to supply disruptions, inflation, tariffs, and shifts in discretionary consumer demand.
Important facts for investors to verify
- Whether demand growth and the margin improvement persist, particularly across Specialty Sports and SCA-related sales.
- Whether inventory growth, supplier and chassis availability, and shipping constraints affect fulfillment, working capital or margins.
- Debt repayment capacity, revolver availability, covenant compliance and sensitivity to interest rates despite the swap.
- The assumptions behind the foreign tax-credit valuation allowance and the effects of Taiwan revenue and export mix on future taxes and cash flow.
- Developments in the SRAM litigation and any change in the company’s assessment of potential losses.