Fox(FOXF) - 2024 Q2 - Quarterly Results

Fox Factory Holding Corp. Second Quarter Fiscal 2024 Financial Results This report provides a comprehensive overview of Fox Factory Holding Corp.'s second quarter fiscal 2024 financial results, including performance highlights, detailed segment analysis, management insights, leadership transitions, and updated fiscal year guidance Second Quarter Fiscal 2024 Highlights Fox Factory Holding Corp. reported sequential sales growth and improved profitability in Q2 2024, alongside a significant leadership transition Q2 2024 Key Financial Metrics | Metric | Value | | :--- | :--- | | Net Sales | $348.5 million | | Sequential Sales Growth | 4.5% | | Diluted EPS | $0.13 | | Adjusted Diluted EPS | $0.38 | | Adjusted EBITDA Margin | 12.7% | - Bike revenues demonstrated strong sequential recovery, growing 52%[2] - The company improved its capital structure by drawing on a $200.0 million Delayed Draw Term Loan to pay down its revolver[2] - CFO Dennis Schemm will become President of AAG while retaining his CFO role, as Thomas Fletcher departs. Chief Accounting Officer Brendan Enick will assume Treasurer responsibilities[2] Management Commentary Management noted Q2 results met expectations with sequential improvement, but adjusted H2 outlook due to ongoing macroeconomic headwinds - The company sees encouraging signals of stabilization in business areas that were disproportionately impacted by industry-wide inventory oversupply[3] - Expectations for the second half of 2024 have been adjusted due to ongoing industry challenges and macroeconomic headwinds, with the pace of acceleration expected to be more moderate than initially projected[3] - The company is intensifying its focus on cost management and prudent resource allocation to navigate the current market[3] Detailed Financial Results This section provides a comprehensive overview of Q2 and H1 2024 financial performance, including segment-specific sales trends and balance sheet changes Second Quarter 2024 Results Q2 2024 saw a 13.0% year-over-year decline in net sales to $348.5 million, with significant drops in net income and adjusted EBITDA Q2 2024 vs. Q2 2023 Performance | Metric | Q2 2024 (in millions) | Q2 2023 (in millions) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $348.5 | $400.7 | -13.0% | | Gross Margin | 31.8% | 32.9% | -110 bps | | Net Income | $5.4 | $39.7 | -86.4% | | Diluted EPS | $0.13 | $0.94 | -86.2% | | Adjusted Net Income | $15.9 | $51.4 | -69.1% | | Adjusted Diluted EPS | $0.38 | $1.21 | -68.6% | | Adjusted EBITDA | $44.1 | $79.4 | -44.5% | | Adjusted EBITDA Margin | 12.7% | 19.8% | -710 bps | Q2 2024 Net Sales by Segment (YoY) | Segment | Q2 2024 Sales (in millions) | Change (YoY) | Reason for Change | | :--- | :--- | :--- | :--- | | Aftermarket Applications Group (AAG) | $107.1 | -31.2% | Lower upfitting sales due to product mix and higher interest rates | | Powered Vehicles Group (PVG) | $117.8 | -16.0% | Lower industry demand in Power Sports due to higher interest rates | | Specialty Sports Group (SSG) | $123.6 | +17.8% | Inclusion of $41.6 million from Marucci, offset by a $22.9 million reduction in bike sales | First Six Months Fiscal 2024 Results For the first six months of 2024, net sales decreased 14.8% to $682.0 million, with substantial declines across all profitability metrics H1 2024 vs. H1 2023 Performance | Metric | H1 2024 (in millions) | H1 2023 (in millions) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $682.0 | $800.6 | -14.8% | | Gross Margin | 31.4% | 33.1% | -170 bps | | Net Income | $1.9 | $81.5 | -97.7% | | Diluted EPS | $0.05 | $1.92 | -97.4% | | Adjusted Net Income | $27.8 | $102.4 | -72.8% | | Adjusted Diluted EPS | $0.67 | $2.41 | -72.2% | | Adjusted EBITDA | $84.6 | $158.6 | -46.6% | | Adjusted EBITDA Margin | 12.4% | 19.8% | -740 bps | H1 2024 Net Sales by Segment (YoY) | Segment | H1 2024 Sales (in millions) | Change (YoY) | Reason for Change | | :--- | :--- | :--- | :--- | | Aftermarket Applications Group (AAG) | $209.0 | -29.0% | Lower upfitting sales due to product mix and higher interest rates | | Powered Vehicles Group (PVG) | $235.9 | -16.5% | Lower industry demand in Power Sports due to higher interest rates | | Specialty Sports Group (SSG) | $237.1 | +5.9% | Inclusion of $101.2 million from Marucci, offset by an $87.9 million reduction in bike sales | Balance Sheet Summary The balance sheet reflects stable cash, a slight increase in inventory, and a $14.6 million net debt increase since year-end 2023 Key Balance Sheet Items (in millions) | Account | June 28, 2024 | Dec 29, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $82.2 | $83.6 | | Inventory | $380.4 | $371.8 | | Accounts Receivable | $157.9 | $171.1 | | Accounts Payable | $144.0 | $104.2 | | Total Debt | $758.1 | $743.5 | - During the first six months of 2024, the Company drew $200 million on its delayed draw term loan and used the proceeds to pay down its revolver balance, resulting in a net debt increase of $14.6 million[15] AAG Segment Leadership Transition CFO Dennis Schemm was appointed President of the AAG segment, effective August 1, 2024, with Brendan Enick assuming Treasurer responsibilities - Dennis Schemm, Chief Financial Officer, has been appointed President of AAG, effective August 1, 2024, while continuing to serve as CFO[16] - This transition follows the planned departure of Thomas (Tom) Fletcher, who served as President of AAG since May 2021[16] - Brendan Enick, Chief Accounting Officer, has taken on the additional role of Treasurer to support the transition[17] Third Quarter and Fiscal 2024 Guidance The company provided Q3 and updated full-year fiscal 2024 guidance, projecting $1.407 billion to $1.477 billion in net sales for the full year Q3 Fiscal 2024 Guidance | Metric | Range (in millions) | | :--- | :--- | | Net Sales | $355 - $385 | | Adjusted EPS | $0.35 - $0.50 | Updated Full Year Fiscal 2024 Guidance | Metric | Range | | :--- | :--- | | Net Sales | $1.407B - $1.477B | | Adjusted EPS | $1.40 - $1.72 | | Effective Tax Rate | 15% - 18% | - Expected sequential growth is underpinned by: Bike segment stabilization and new product launches, Marucci's CATX2 launch, and improving chassis mix in AAG. However, these positives are tempered by ongoing industry and macroeconomic challenges[19] Consolidated Financial Statements This section presents the unaudited consolidated balance sheets, statements of income, and statements of cash flows as of June 28, 2024 Consolidated Balance Sheets The consolidated balance sheets detail the company's assets, liabilities, and equity as of June 28, 2024, and December 29, 2023 Consolidated Balance Sheets (in thousands) | Account | As of June 28, 2024 | As of Dec 29, 2023 | | :--- | :--- | :--- | | Assets | | | | Total current assets | $791,720 | $768,055 | | Total assets | $2,265,621 | $2,242,298 | | Liabilities & Equity | | | | Total current liabilities | $252,827 | $221,836 | | Total liabilities | $1,069,238 | $1,020,537 | | Total stockholders' equity | $1,196,383 | $1,221,761 | Consolidated Statements of Income The consolidated statements of income present revenues, costs, and profitability for the three and six-month periods ended June 28, 2024 Consolidated Statements of Income (in thousands) | Metric | Three Months Ended June 28, 2024 | Six Months Ended June 28, 2024 | | :--- | :--- | :--- | | Net sales | $348,491 | $681,963 | | Gross profit | $110,963 | $214,121 | | Income from operations | $18,590 | $27,465 | | Net income | $5,407 | $1,911 | | Diluted EPS | $0.13 | $0.05 | Consolidated Statements of Cash Flows The consolidated statements of cash flows categorize cash movements from operating, investing, and financing activities Consolidated Statements of Cash Flows (in thousands) | Activity | Six Months Ended June 28, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $36,037 | $(3,308) | | Net cash used in investing activities | $(26,579) | $(156,509) | | Net cash (used in) provided by financing activities | $(10,688) | $119,782 | | Change in Cash and Cash Equivalents | $(1,396) | $(39,810) | Reconciliation of GAAP to Non-GAAP Measures This section provides detailed reconciliations of non-GAAP financial measures to their GAAP equivalents for enhanced performance evaluation Net Income to Adjusted Net Income Reconciliation This table reconciles GAAP net income to non-GAAP adjusted net income for the three and six-month periods Reconciliation of Net Income to Adjusted Net Income (in thousands) | Metric | Three Months Ended June 28, 2024 | Six Months Ended June 28, 2024 | | :--- | :--- | :--- | | Net Income (GAAP) | $5,407 | $1,911 | | Adjustments (Amortization, litigation, acquisition costs, etc.) | $10,488 | $25,909 | | Adjusted Net Income (Non-GAAP) | $15,895 | $27,820 | Net Income to Adjusted EBITDA Reconciliation This table reconciles GAAP net income to non-GAAP adjusted EBITDA for the three and six-month periods Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Three Months Ended June 28, 2024 | Six Months Ended June 28, 2024 | | :--- | :--- | :--- | | Net Income (GAAP) | $5,407 | $1,911 | | Adjustments (Taxes, D&A, Interest, etc.) | $38,725 | $82,640 | | Adjusted EBITDA (Non-GAAP) | $44,132 | $84,551 | Gross Profit to Adjusted Gross Profit Reconciliation This table reconciles GAAP gross profit to non-GAAP adjusted gross profit for the three and six-month periods Reconciliation of Gross Profit to Adjusted Gross Profit (in thousands) | Metric | Three Months Ended June 28, 2024 | Six Months Ended June 28, 2024 | | :--- | :--- | :--- | | Gross Profit (GAAP) | $110,963 | $214,121 | | Adjustments | $86 | $4,571 | | Adjusted Gross Profit (Non-GAAP) | $111,049 | $218,692 | Operating Expense to Adjusted Operating Expense Reconciliation This table reconciles GAAP operating expense to non-GAAP adjusted operating expense for the three and six-month periods Reconciliation of Operating Expense to Adjusted Operating Expense (in thousands) | Metric | Three Months Ended June 28, 2024 | Six Months Ended June 28, 2024 | | :--- | :--- | :--- | | Operating Expense (GAAP) | $92,373 | $186,656 | | Adjustments | $(13,933) | $(27,917) | | Adjusted Operating Expense (Non-GAAP) | $78,440 | $158,739 |