Q1 2021 Fox Factory Holding Corp Earnings Call
Our team has executed remarkably well and while making sustained continuous improvements operationally. This consistent performance also reflects the continued strength of our leading brand portfolio and our team's commitment to deliver high performance products to our valued customers, while still managing dynamic supply chain and realities.
Turning to the numbers, our first quarter sales were $281 1 million and increase of $52 five per cent compared to the first quarter of last year.
From a profitability perspective, we reported non-GAAP adjusted earnings per diluted share of $1 five versus 52 and.
And increase of over 100 per cent compared to the first quarter of 2020.
The staggering top and bottom line performance is further evidence that our customers can and do differentiate our premium brands from that of our competitors.
The foundational and drivers of our robust performance can be attributed to our expanded portfolio of high performance products, which continues to deliver on quality engineering and service that consistent consistently resonates with the and consumers.
Another competitive advantage behind our performance is our team's ability to effectively operate under the current dynamic supply chain environment.
We recognize the unprecedented demand growth and continue to make necessary investments and products people technology, and while continuing to build operational discipline and a strong balance sheet.
Starting with specialty sports group product sales were up 85, 5% compared to the first quarter of 2020, making this S S cheese highest revenue quarter ever.
As I mentioned and the last earnings call, we continue to capitalize and the expanded writer base. During this unprecedented restocking cycle by leveraging strong OEM and supplier relationships.
And our commitment to innovation to create performance defining products speaks for itself as it is we had yet another record quarter for shock and for unit volumes.
Needless to say, we had several supply chain issues from shipping container availability to other logistical challenges.
However, our team members demonstrated strong execution by successfully controlling costs and managing operations to meet our Oems and expectations.
Helping our customers manage evolving backlog and order trends.
In addition, our SSG team adapted to and accelerated timeline to complete all model year 2023 cell and tools nearly six months ahead of the typical schedule and empowering our sales team and to potentially capture additional market share.
Looking forward to the rest of 2021 and the demand projection remains very strong. However, we are cognizant of the growing supply chain challenges. Therefore, we continue to work closely with our suppliers and OEM customers to identify opportunities for further collaboration and improvement.
Now shifting to our powered vehicles group, we posted a record revenue quarter as PPG grew 35 per cent compared to the first quarter of 2020, a key contributor to this performance was a robust demand for our aftermarket products, including increasing dealership penetration of our outfitting business and the ongoing robust demand for our power sports products.
<unk>.
Growth and our PPG automotive OEM business was lower than our long term target.
As a result and supply chain challenges faced by our customers and the typical model year changeover at one of our major OEM customers.
We see the current supply chain shortage as a byproduct of the current OEM environment with demand generally moving into backlog versus lost business.
I'm also proud to report that we had fewer COVID-19 cases, and our north American facilities compared to the fourth quarter of 2020, which also enabled us to increase productivity.
Our ongoing Georgia factory transition remains on track, we are closely monitoring our margins and duplicative costs associated with that transition for any lessons learned as we continually look to identify opportunities for margin expansion.
As we have previously stated we expect to see margin improvements and the latter half of this year.
Turning to our power sports OEM partnerships as you are aware the power sports industry has been experiencing significant growth.
Capitalize on this growth Cowen Zaki introduced the Terex care acts featuring our Fox two five per year and live valve shocks with internal bypass. In addition, Polaris launched two new snowmobiles, the indie XC and switchback XC, featuring our high performance Fox Qs three shocks and offer easy pre write adjustability.
<unk> and deliver outstanding performance on and off the trail. This is our first major players snowmobiles spec win.
Moving onto our accomplishments and the racing World, which is beginning to return to a more normal environment. One of the biggest races of the year at King of the hammers took place and Q1.
<unk> continued its winning legacy with wins and a grudge match with the top three podium spots the top two unlimited trucks and the tier one desert challenge and a top five sweep of the every man challenge, including wins and both are 40 840 500 classes and addition, Ford performance unveiled their new Bronco 4600 race vehicle, which will.
And the ultra for stock class.
The bulk of 4600 and competition tuned high performance off road stability suspension features Fox Corp over shocks with remote reservoirs and Fox pneumatic bumped up on all four corners.
In closing I am very pleased with the exceptional results and a great start to the year with.
Recognize the pandemic is still not over and the lingering risks risks are challenging us and many new ways every day power.
However, I feel very confident that our performance defining products are complementary and diverse set of businesses will help us continue to deliver strong performance in 2021.
And with that I'll turn the call over to Scott.
Thanks, Mike Good afternoon, everyone.
I'll begin by going over our first quarter financial results and then review our guidance.
Sales and the first quarter of 2021 were $281 1 million and increase of 52, 5% versus sales of $184 4 million and the first quarter of 2020.
Our specialty sports group delivered and 85, 5% increase and sales in the quarter compared to the same period last year.
And by high demand and both the OEM and aftermarket channels.
Our powered vehicles group.
And a 35% increase and sales compared to the first quarter of 2020, primarily due to higher growth and the power sports business and a full quarter of SBA, which we acquired in March of 2020.
Looking sequentially SCA revenue grew over 40% compared to Q4 of 2020.
Excluding the impact of the SCA acquisition revenue and T V. G increased eight 8% year over year, driven by strong demand and the aftermarket channel.
Fox Factory's gross margin was 34, 8% in the first quarter of 2021, a 410 basis point increase from 37% and the prior year period.
Non-GAAP gross margin also increased by 410 basis points to 35% versus Q1 of 2020.
The increase in gross margin during Q1 was driven by a shift in channel mix, primarily from a full quarter of FCA and their results as well as lower COVID-19 related costs. This year.
Offset by duplicative costs due to the Georgia facility transition.
Total operating expenses were $52 1 million or 18, 5% of sales and the first quarter of 2021 compared to $45 million or 24, 4% of sales and the first quarter of last year.
The increase in operating expenses on a dollar basis was primarily due to the inclusion of a full quarter.
Of Fca's operating expenses and higher employee related costs, including incentive compensation.
At the end of Q1, 2020, we drastically reduced our bonus accrual for the year due to pandemic related shutdowns.
The increase in operating expenses was partially offset by lower acquisition related costs.
And looking at non-GAAP operating expenses as a percentage of sales our non-GAAP operating expenses decreased by 60 basis points to 16, 1% compared to 16, 7% and the prior year period.
Looking at Opex and more detail sales and marketing expenses were up by $4 8 million, primarily due to a full quarter of SBA costs and increased personnel costs, primarily driven by higher sales commissions and incentives.
In addition, R&D costs were up by $1 9 million to support future growth and product initiatives.
G&A expenses were down approximately $2 million driven by lower acquisition related cost.
For the first quarter, our effective tax rate was nine 5%. This rate is lower than our previous long range guidance of 15% to 19% primarily due to excess benefits related to stock based compensation and the release of our excess tax reserve offset by an increase and evaluation of <unk>.
<unk> of foreign tax credits.
Adjusted EBITDA increased by 93, 1% to $60 4 million for the first quarter of 2021 compared to $31 3 million and the same quarter last year.
I want to congratulate our team on our best EBITDA quarterly performance ever.
Furthermore, adjusted EBITDA margin expanded 450 basis points to 21, 5% compared to 17% and the first quarter of 2020.
The increase in EBITDA margin is primarily due to the impact from higher sales and better product mix and the positive impact of SBA on our results.
On a GAAP basis net income attributable to Fox and the first quarter of 2021 was $38 million.
And <unk> 90 per diluted share.
Compared to $8 3 million or <unk> 21 per diluted share in the prior year period.
Non-GAAP adjusted net income was $44 5 million and increase of approximately $24 million or 117% compared to $25 million and the first quarter of last year.
We delivered $1 five of non-GAAP adjusted earnings per diluted share and the first quarter of 2021 compared to 52 and the first quarter of 2020.
Now focusing on our balance sheet.
For the first quarter, which ended on April <unk> 2021, compared to our 2020 year and on January one 2021, we ended with cash on hand of $291 5 million.
Accounts receivable was $137 million compared to $121 2 million.
Inventory was $166 5 million compared to $1 $27 1 million per.
Prepaid and other current assets were $55 8 million compared to $87 9 million.
Accounts payable was $121 7 million compared to $92 4 million and total debt outstanding was $387 4 million compared to $389 6 million and our first quarter net leverage ratio on a pro forma basis was approximately 0.8 times.
The changes and inventory accounts receivable and accounts payable reflect higher sales as well as the timing of vendor payments.
The decrease in prepaid and other current assets was primarily due to the timing of chassis deposits for our upsetting business.
Our net property plant and equipment increased to $170 8 million as of April 21, compared to $1 $63 3 million at the end of 2020.
The increase reflects investments and our new manufacturing facility and Gainesville, Georgia.
Between the cash we have on hand, and our borrowing capacity under our credit facility of $250 million. We are confident that we have the liquidity and financial strength to manage through any ongoing economic uncertainty, while continuing to proactively execute on our long term strategic objectives.
Now turning to guidance.
We are raising our guidance for both our second quarter and full year 2021.
For the second quarter of 2021, we expect sales and the range of 275 to 295 million and non-GAAP adjusted earnings per diluted share and the range of 95 to $1 <unk> per share.
For the full year 2021.
We expect sales and the range of 111 billion to $1 $1 6 billion and non-GAAP adjusted earnings per diluted share and the range of $3 70.
To $4 per share and.
I also like to note that we're not providing guidance on GAAP EPS as it cannot be provided without unreasonable efforts due to the difficulty of actually predicting the elements necessary to provide such guidance and reconciliations.
For the full year 2021 tax guidance, we expect tax rate to be closer to the lower end of the previously provided range of 15% to 19% as.
And as I mentioned last quarter, we plan to update our guidance on each earnings call for the remainder of 2021 as we gain clarity into the supply chain issues and post COVID-19 economic recovery with that I'd like to turn the call back over to Mike.
Thank you Scott I'm very excited about our early momentum in 2020, one the tectonic shift created and a consumer demand by the pandemic seems more tangible than just a transitory bubble and.
Demand for our products and both TPG and S. S. G. It continues to be strong.
We expect the challenges related to the supply chain and commodity price inflation to continue but we believe we have processes in place to mitigate the majority of these headwinds.
I am hopeful that pandemic related challenges will continue to subside in the foreseeable future as vaccinations progress here and around the world.
Our team is quickly incorporated those lessons learned from the past year and to delivering three consecutive quarterly revenue records.
In addition to further extend our competitive edge and to lay the foundation for the next phase of growth. We are bolstering our management team. We have created three new positions to amplify and complement our existing organization first we promoted Tom Fletcher would be to be the president of <unk> business and corporate strategy.
Tom brings a wealth of engineering sales and strategic experience, which will extend <unk> leadership team.
And allow rich winters president of PPG to focus exclusively on the operational and supply chain and fundamentals of the business.
Second we promoted Jackie Martin to be the new Chief purpose and inclusion officer as she aims to elevate inclusion and diversity and engagement as well as ESG. She will also lead change management and workforce development efforts at Fox.
And finally, we hired Tony and merchant to be our new Chief legal officer.
So he has a wealth of experience and both the public and private sectors on a variety of matters ranging from corporate governance securities as well as domestic and global acquisitions.
Thus I feel very confident about our team our plans and our execution capabilities to deliver maximum value to our shareholders, our consumers partners and employees.
I would now like to open the call for questions operator.
Okay.
At this time, if you would like to ask a question. Please press the star.
One on your Touchtone phone.
Draw your question and at any time and pricing and a pound.
Once again and that is star and one.
And we'll take our first question from Larry Solow.
C G CJS Securities. Please go ahead.
Yeah.
Great. Good afternoon, guys and thanks for taking the questions.
I guess.
And sort of you.
You mentioned and it's sort of a Titanic shift and I think you called it.
Certainly with the 85% growth and specialty sports book pretty pretty quick run up and we can you maybe just just discussed.
And it's the same drivers I guess, but maybe.
Delve into a little bit more what are you seeing sort of on from E bikes any other new categories and.
And the lower price points is that helping you guys more and.
E U you're even starting to see some maybe.
And think back into the category that maybe didn't start on block that are maybe shifting already too.
A higher price point and better and our bike.
Yeah, Larry I think it's a bunch of things that are kind of lending itself to this dynamic and we're in right now.
And yes, the restocking which continues to be a significant.
Part of the process most of our distribution centers are empty and so what we bid and we sell all the way through the channel to and in consumer. So you haven't really started a restocking process to get and distribution centers back back to some sort of debt.
And let's take inventory levels, and so you've got that going on and the same time and demographic.
Consumer continues to change and well led by E bikes, and <unk> talked in the past and and expansion of that that that product line and <unk>.
Europe, and the U S specifically as well.
<unk> said before to you and others.
<unk>, which is new.
And.
Bikes that that really kind of split between.
Citi bike and a mountain bikes, it and do kind of all things are possible.
And that issue has been phenomenal so it's not one.
And one thing and it's a number of things that continue to drive.
Significant demand cycle and we've seen is continued through 'twenty one.
And a good portion and 22 at this point so too early to call kind of 'twenty three but for now.
And then and we see points to demand that's going to continue to out sized supplier.
And your ability to meet this demand it sounds like that's a key competitive advantage for you and that you're taking material market share or is it sort of leverage your relationships and.
And the broader base continues to expand rapidly.
And we're taking share and it's a little early to comment on share specifically, because that's really in process right now from model year, 'twenty, three and as you know, but I do more and we're taking share based on responsiveness and supply chain as well as product innovation. So.
We're going to leverage both of those two elements to try and maximize our OEM and distribution relationships and I think so far it's Larry.
And that's proving itself to work quite well.
So question from charterers.
Gotcha.
Go ahead.
Bank of America.
Yeah.
Great and good afternoon, and thanks for taking my question.
Just to start.
It's obviously, a great quarter, but you are raising the guidance by more than you and you're beating by.
Can you just talk about what's giving you confidence about.
The second third and fourth quarter that you didn't see maybe three months ago, that's giving you the confidence to raise guidance by a lot more than the beat.
Yes, I think a couple of things right I think.
The base business continues to look strong and as we said last quarter.
There was a lot of uncertainty around supply chains.
And our ability to get chassis.
And that we would update our guidance each quarter as the picture sort of became a little bit more clear.
I think we've seen that and a.
And we talked and that in the prepared remarks about SBA.
Over 40% sequentially versus Q4.
And so we're we've been able to get chassis for operating business.
As I mentioned first debate business continues to look strong and and as Mike Just said earlier, the restocking doesn't really feel like it's happening yet or still and we're still looking at meeting demand and not restocking shelves and.
And so we are gaining more confidence as we look forward to the rest of this year into our outlook is that helpful.
We lose right.
Okay, operator net net.
Next question Manny.
Moving next to Mike Swartz with truly Securities. Please go ahead.
Hey, guys good afternoon.
And.
And a few questions.
One pertaining to and I mean, everything we've heard about the auto supply chain and the chip shortage and Youre talking about a model year changeover and it appears to be delayed now so just in terms of the integration and the Georgia plant is that is that holding things up or are you kind of on track there to gain from the efficiencies and synergies with <unk>.
Talked about.
Yes.
Mike Good afternoon.
It is not holding us up at all and relative to Georgia, We do kind of adjusted majority of transition and <unk>.
<unk> RASM did product line moves, but thats really not an issue with any delays and some shortages and.
And I'm really not a function of automotive at this point, it's really a function of power sports, which you know is meaningful watsonville. So.
And we feel pretty good about it and the chips.
And just saying is obviously an ongoing challenge for US is the automotive guys and as you mentioned that.
It does kind of.
Challenged some of their launch dates, but I still feel great about automotive on a per the full year and I still think on a full year basis is at or above our long term guidance both for PPG.
And our next question from.
Yeah.
Jim Duffy with Stifel. Please go ahead.
Thanks, Hello, guys good afternoon.
And gentlemen couple of questions from me I wanted to start on the specialty sports business and the.
And.
Inventory deficiency and <unk>.
Distribution centers, and so forth and is there a way to frame the magnitude of the channel inventory deficiencies.
And turning inventory at about four times is that a good metric to use to calculate and necessary inventory catch up but how do you guys think about that.
Yes, I think the way to think about that Jim. Good question, usually there is going to be between five and eight months of inventory and distribution centers.
Normal basis on today's basis is about as fast and they can get it through the centers out the back door. So call it less than two weeks, so that means youre potentially eight months from having a restock inventories that are.
Distribution center.
If you didn't.
Makes sense Super helpful. Mike.
And then I wanted to shift gears on par vehicles zone.
What's the latest on access to chassis, how are you positioned for that SCA and Tuscany business.
And you look into the back half of the year and.
And maybe even further.
And we feel really good about what we did in Q1, obviously and that was a function of a lot of work done late in Q4 and as I mentioned.
At the Q4 earnings call. We felt good about Q2, we do so we will ship this quarter and I feel pretty confident about Q3, and we're still working on Q4, most of the automotive guys and talked about tell us and back in back half of the year relief in terms of getting chassis on fidelity and said that publicly so that helped.
So that gives us some confidence.
And so I guess, my general perspective, and the Q2 grade Q3 pretty good.
So working to make sure it's great and in Q4, it's a little early yet for us to flow locked up.
Well move next to Greg <unk> from Bank of America with a follow up. Please go ahead.
How did things.
And so.
Gross margin expansion.
And it's exciting.
Sure.
Sure.
And container shortages that you referenced.
Can you talk about.
You mentioned mix shifts, but are there other things that are helping you to offset some of those input cost pressures and how do we think about gross margin going forward. This is definitely a higher level than what we've seen in the past is this a level thats more sustainable growth going forward.
Productivity and Q4 and North American facilities was pretty.
Hampered by COVID-19 issues, and redundancy and Workforces to handle COVID-19 absence here and et cetera, and we didn't experience that that issue in Q1 two.
A large degree and I think that helps from a productivity and efficiency perspective, and our north American facilities, which obviously as we move forward and hopefully get more of a pandemic and really where that will be a more of a consistent message. We can give you.
And can follow up from Mike Swartz with true Securities. Please go ahead.
Hey, guys.
Just a follow up question on gross.
Gross margin yes.
I think you had about $2 million and costs that you called out for the quarter related to COVID-19 and some productivity issues.
One am I, right and saying that Hasnt been added back to your adjusted EPS and EBITDA and then two does your guidance reflect any further productivity issues related to COVID-19.
Yes, the COVID-19.
We have some add backs last year, Mike and I think it was in EMEA and Asia.
Alright.
Yes.
Last year, but no nothing.
Nothing that I recall material this year that would have been added back.
And what was the second part of your question.
Okay.
Maybe we lost Mike again.
Operator.
We'll take our next follow up from Larry Solow with CJS Securities. Please go ahead.
Great. Thanks.
Mentioned, Mike the mixed shift I'm, assuming that mix shift is more on the power vehicle side, and I suppose and the aftermarket side and.
And so that question kind of leads me and clear is that really the driver and is that sort of the ICA and.
The more interesting things youre doing and the up fitting market.
Yes.
Good question and I apologize guys, I think digital and and the one question and the system's kicking me out and making and get back in line. So I apologize for that.
In terms of admission if you and you're right. It takes a couple of things, it's not only it's not only and shifting between different product lines, but also in different channels and what you saw in Q1 was not only a large upgrade and business for us which was great to see but also and aftermarket business and in some of our legacy product line that was significantly larger than.
And when we've experienced and the <unk>.
Past and.
And and not to mention the factory as we did last quarter this quarter and in Q1, where backlog into the next quarter. So we were able again to my demand has outstripped supply and we came into Q2 and between 10 and $15 million of backlog and aftermarket. So we're just seeing a really robust demand.
And curve and and aftermarket as well as offering and as I mentioned on the call power sports continues to be incredibly strongly with our large customers in that space.
Got it thanks.
Yeah.
Okay.
Oh.
And as a reminder, we ask that you. Please limit yourself to one question and one follow up.
Once more and that is star and <unk>.
Yes.
Okay.
And we'll move next to Scott <unk> with CL King. Please go ahead.
Okay.
Good afternoon, and thanks for taking my questions.
Hey, Scott.
Just moving on back over to the bike business to.
You talked about and you just general strength across the board.
Is it fair to assume that the aftermarket and OEM are both off the charts is there one that's stronger than the others. It's just everything just going gangbusters right now.
They are both incredibly strong.
And one wasn't necessarily better than the other I would say that we have some container shortages at the end of the quarter that actually pushed a little bit into Q2, some of our soft goods and other aftermarket type products.
And I was just again a function of getting logistics.
To support the demand more than trying to find demand.
And I do think.
The aftermarket and OEM business was strong and in an earlier question was really around with some of that growth driven by lower cost product offerings et cetera, and and the answer to that I should have answered. It there is no.
We're still focused on our high and premium products and that's what our customers want us to supply today.
So that's what we're that's what we're focused on.
And just last question on commercial vehicles.
Suspension application that you have there I know it's been.
Mark is weighted to the aftermarket could you talk about.
Any successful proliferation towards any Oems at some point.
Yes, we're still working in the aftermarket and used and so we're still trying to fulfill the demand at the owner operator level as well as.
And driving aftermarket business into the sperm debt sprinter van category and and somebody.
Other product categories, and we've talked about in the past where and work towards that OEM solution, but I think thats still a ways and the future. We've got a lot of growth in front of us before we get there.
And we're working on new designs, and new product offerings et cetera, along the way to be so probably be in better position for an OEM application.
And when we're ready.
Got it thank you.
Question from Anna.
Las <unk> with Jefferies. Please go ahead.
Yes.
Hi, good afternoon.
My question.
Fire and leaseback on that day performance part lift kit for a hybrid vehicle and you maybe speak to the opportunity from this segment with MTBE.
And what was the ZIP performance part you're talking about.
Recently, there was and I'll, let curt that pan out.
Okay.
Yes, so really all of those are aftermarket type applications versus expanding the portfolio and one of the things that we really strive to do is diversify across as many platforms. As we can and that was just another example of expansion and trying to deliver more products and move into different spaces, So you'll see us and add to those.
And the initiatives.
On an ongoing basis, especially as and 17 more.
Electrification and the space and the opportunity for aftermarket parts on electrified vehicles.
Okay, great. Thank you.
Craig.
And with Baird. Please go ahead.
Yeah, Thanks, a lot and appreciate it.
And congratulations so.
Year ago, you raised a little bit of capital and then and the last year, you just generated a ton and wondered if you'd give us and update them on your capital priorities and and maybe shed some light on what the M&A environment looks like if you have an appetite for that.
Yeah, Greg and then Scott.
Scott first share we have an appetite for further M&A market I think.
And when we did the equity raise we felt like we were doing that to go on offense I don't think at the time, we envision there.
And the valuation to be where they had been at for the past close to a year and.
And so.
While we are very interested and continuing to look at M&A moving forward, we're not going to do anything there.
We're not going to pay too much I guess in our minds.
And so we haven't found the right thing at the right price, yet but absolutely.
And I completely understand and and I.
And acutely aware of the capital structure issues that we have currently.
And I'd love to go and spend some of that cash on the right business, we just need to find the right one.
Yes.
Or for your questions today, and that is star and <unk>.
And on your Touchtone phone.
Any questions to queue.
Okay.
And it does appear there are no further questions at this time.
Okay.
Okay.
Thanks, everyone for joining us and we appreciate your interest and Fox factory.
Thank you.
Yes.
This concludes today's program. Thank you for your participation you may disconnect at any time.
[music].