FOX Factory Holding Corp. — Form 10-K Summary
Period clarification: The supplied filing is the company’s annual report for the fiscal year ended December 31, 2021, not a 2020 Q4 filing. It includes unaudited quarterly results; the fourth quarter of fiscal 2021 ended December 31, 2021.
Business context
FOX designs, manufactures and sells premium performance products, principally suspension systems and components for bicycles and powered vehicles. It reports one operating segment. In 2021, powered vehicles accounted for 55% of sales and Specialty Sports, primarily bike products, 45%. Sales were 55% to OEMs and 45% through aftermarket dealers and distributors; 38% were international, based on shipment location.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Sales | $1,299.1 million | $890.6 million | +45.9% |
| Gross profit / margin | $432.3 million / 33.3% | $289.5 million / 32.5% | Margin +0.8 percentage points |
| Operating income / margin | $196.9 million / 15.2% | $114.1 million / 12.8% | Income +72.6% |
| Net income attributable to FOX stockholders | $163.8 million | $90.7 million | +80.7% |
| Diluted EPS | $3.87 | $2.22 | +74.3% |
| Net cash from operations | $65.3 million | $82.7 million | Down $17.4 million |
FY2021 cash from operations less property and equipment purchases was approximately $10.4 million. Cash and cash equivalents were $179.7 million at year-end, versus $245.8 million a year earlier. Debt principal outstanding was $382.5 million; the revolving facility had $235.0 million available, subject to its terms. Current assets were $724.7 million and current liabilities $229.9 million.
Fourth-quarter FY2021 sales were $342.3 million, gross profit $107.3 million, operating income $43.1 million and net income attributable to FOX stockholders $37.7 million. The corresponding fourth quarter of FY2020 reported sales of $262.4 million, gross profit of $83.5 million, operating income of $37.7 million and attributable net income of $31.8 million.
Changes and notable items
- Sales rose across both product categories: Specialty Sports sales increased 57.8% and Powered Vehicles sales increased 37.5%. Management attributed growth to higher demand, including Specialty Sports OEM demand, powered-vehicle aftermarket demand, upfitting, and a full year of SCA results.
- Gross margin improved with higher volume, favorable product and channel mix, and strong upfitting performance; FY2020 had additional COVID-related costs. Operating expenses rose 34.2% in dollars but declined to 18.1% of sales from 19.7%.
- Working capital absorbed significant cash: inventory increased $146.5 million, primarily to mitigate supply uncertainty and shortages and to support shipment timing; chassis deposits also increased.
- Investing cash use was $106.7 million, including $54.8 million of property and equipment purchases and $51.9 million for 2021 acquisitions. Acquisitions included Outside Van, Sola Sport and Shock Therapy. The Hall County, Georgia facility was completed, with powered-vehicle suspension manufacturing transitioning from Watsonville, California.
- Firm backlog was $223.5 million at year-end, up from $128.5 million. The company attributed the increase to sales growth, market-share gains and orders delayed by chassis shortages.
- The company paid no dividends and said it did not intend to pay dividends in the foreseeable future. The filing provides no quantitative forward-year earnings or revenue guidance.
Outlook, risks and contingencies
Management expects cash on hand, operating cash flow and credit-facility availability to fund operations for at least the next 12 months. Its strategy emphasizes product innovation, aftermarket and international growth, operational efficiency, and selective acquisitions. The filing cautions that growth may not be sustained and that results are exposed to discretionary consumer demand, competition, customer and product mix, and quarterly variability.
Key stated risks include ongoing COVID-19 effects; supplier, component, chassis, port and shipping constraints; raw-material, wage and inflationary cost pressures; dependence on Taiwan for bike-component manufacturing; and the possibility that manufacturing transitions or facility disruptions delay deliveries. Other risks include customer concentration, foreign-exchange exposure, product recalls and liability, acquisition integration, and variable-rate debt. A 100-basis-point rate change was estimated to affect annual interest expense by about $1.8 million after the swap. The company was in compliance with credit-facility covenants at year-end.
Deferred tax assets included $48.3 million of foreign tax credits, with a $9.2 million valuation allowance for those credits; management said a material valuation-allowance adjustment in the next 12 months was reasonably possible. The long-running patent dispute with SRAM was settled in December 2021 through mutual releases and licenses; FOX’s license carries specified royalty rates. Management did not expect other pending legal matters to have a material adverse effect. The auditor issued unqualified opinions on the financial statements and internal controls; management also concluded controls were effective.
Important facts for investors to verify
- Confirm the intended period: this is FY2021 annual reporting, with FY2021 Q4 data—not a 2020 Q4 filing.
- Assess whether the unusually rapid sales growth and elevated backlog are sustainable, especially as supply and chassis constraints change.
- Track inventory, chassis deposits and operating cash conversion; operating cash flow fell despite substantially higher earnings.
- Review debt repayment, available revolver capacity, interest-rate exposure and facility covenants.
- Monitor realizability of foreign tax credits, warranty accruals, acquisition purchase-price adjustments and integration performance.
- Review the SRAM license royalty terms and any resulting financial impact, which is not quantified in the supplied filing text.