Fox Factory Holding Corp. — FY2023 Form 10-K
Period: Fiscal year ended December 29, 2023 (52 weeks), compared with fiscal 2022 ended December 30, 2022. This is an annual report, not a standalone 2022 Q4 filing; quarterly results are not clearly provided in the supplied filing text.
Business context
FOX designs, manufactures and sells premium suspension and other performance products for powered vehicles, aftermarket applications, bicycles and baseball/softball. It reports one operating segment. The company acquired Custom Wheel House in March 2023 and Marucci in November 2023, expanding into off-road wheels and tires and sports equipment, respectively.
Financial performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net sales | $1,464.2 million | $1,602.5 million | Down 8.6% |
| Gross profit / margin | $464.8 million / 31.7% | $531.3 million / 33.2% | Margin down 1.5 percentage points |
| Operating income / margin | $160.1 million / 10.9% | $246.7 million / 15.4% | Down 35.1% |
| Net income | $120.8 million | $205.3 million | Down 41.2% |
| Diluted EPS | $2.85 | $4.84 | Down 41.1% |
| Cash from operating activities | $178.7 million | $187.1 million | Down $8.4 million |
Gross margin contracted mainly due to product mix and amortization of acquired inventory valuation step-ups, partly offset by improved North American facility efficiency. Operating expenses increased 7.1% to $304.7 million, reflecting higher acquired-business costs, facility expansion and amortization. Interest expense rose to $19.3 million from $8.9 million, primarily due to higher debt and rates. The effective tax rate was 12.8%, versus 12.2%.
Sales mix and comparison
- Powered Vehicles: $523.9 million, up 21.2%, supported by OEM demand; affected in part by the UAW strike and macroeconomic conditions.
- Aftermarket Applications: $551.1 million, up 12.7% (calculated from reported amounts), including $65.6 million from Custom Wheel House; upfitting was pressured by product mix, the UAW strike and higher financing costs for dealers.
- Specialty Sports: $389.2 million, down 42.8%, mainly due to channel inventory recalibration and lower end-consumer demand; included $16.8 million from Marucci after its acquisition.
- OEM sales were $725.2 million versus $909.6 million; aftermarket sales were $738.9 million versus $692.9 million. Ford accounted for approximately 13% of FY2023 sales. The ten largest OEM customers collectively represented approximately 35% of sales.
Cash, debt and liquidity
- Cash and cash equivalents were $83.6 million at year-end, down from $145.3 million. Operating cash flow was $178.7 million; investing used $750.4 million, including $701.1 million for acquisitions and $46.9 million for capital expenditures. Financing provided $509.0 million, primarily to support acquisitions and working capital.
- Debt under the 2022 Credit Facility was reported as $750.0 million of interest-bearing borrowings, including a $370.0 million revolver balance and a $400.0 million Incremental Term A Loan; balance-sheet debt was $743.5 million net of issuance costs. The company reported $280.0 million of unused revolving capacity and a separate $200.0 million delayed-draw term commitment available until no later than May 14, 2024, subject to conditions.
- The facility matures April 5, 2027, is secured by substantially all company assets, and carries variable rates. The weighted-average rate at year-end was 6.97%; a 100-basis-point rate change was estimated to change annual interest expense by approximately $6.5 million after the swap. The company was in covenant compliance.
- Management stated cash on hand, operating cash flow and available facility capacity should fund operations for the next 12 months and beyond. Contractual cash requirements totaled $862.6 million, including $750.0 million of borrowings and $101.0 million of operating lease obligations.
Outlook, risks and unusual items
- No quantified revenue or earnings guidance is provided. Management’s stated priorities include product innovation, aftermarket and international growth, operating efficiency and selective acquisitions.
- Firm backlog declined to $30.7 million from $116.7 million, which management attributed to normalized supply conditions, revised OEM forecasts, production efficiency and capacity planning for newer chassis.
- Demand and inventory remain key considerations: discretionary consumer spending, bicycle and powered-vehicle markets, OEM and dealer inventory cycles, and forecast accuracy could affect sales, margins and working capital. The filing identifies inventory valuation as a critical audit matter.
- Other material risks include customer and supplier concentration, dependence on Taiwan-based bike-component manufacturing, geopolitical and supply-chain disruption, foreign-exchange exposure, inflation, higher interest rates, product warranty/recall and liability exposure, and acquisition integration.
- A securities class-action complaint filed February 20, 2024 alleges misstatements about product demand and inventory levels for May 6, 2021–November 2, 2023. The company denies wrongdoing and intends to defend the case; it was at a preliminary stage.
- The board authorized a $300 million share-repurchase program in November 2023. The company repurchased $25 million during FY2023 and approximately $25 million more through February 15, 2024. No dividends were paid; the company said it does not intend to pay dividends in the foreseeable future.
- The auditor issued unqualified opinions on the financial statements and internal controls. Management’s and the auditor’s internal-control assessments excluded Custom Wheel House and Marucci, acquired in 2023.
Key facts for investors to verify
- Whether channel inventory normalization and weaker Specialty Sports demand stabilize, and how backlog and subsequent orders develop.
- Acquisition performance, integration costs and the assumptions behind acquired intangible-asset valuations and goodwill.
- Debt repayment capacity, variable-rate exposure, covenant headroom and availability/terms of the delayed-draw commitment.
- Inventory valuation and demand forecasts, particularly given the auditor’s critical audit matter and the securities litigation allegations.
- Margin recovery, including the effects of acquired inventory step-ups, product/channel mix, facility efficiency and dealer financing conditions.