Fox(FOXF) - 2019 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, highlighting significant sales growth, increased assets, and a new credit facility Condensed Consolidated Balance Sheets Total assets increased to $579.8 million, driven by inventory and equipment, while liabilities rose to $195.6 million due to a new credit facility Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 28, 2019 | December 28, 2018 | | :--- | :--- | :--- | | Total current assets | $289,506 | $231,947 | | Inventory | $136,005 | $107,140 | | Property, plant and equipment, net | $95,097 | $64,788 | | Total assets | $579,773 | $485,254 | | Total current liabilities | $106,024 | $96,785 | | Line of credit | $77,553 | $— | | Long-term debt, less current portion | $— | $52,503 | | Total liabilities | $195,571 | $149,767 | | Total stockholders' equity | $369,180 | $321,205 | Condensed Consolidated Statements of Income The company reported strong year-over-year growth in sales and net income for both the three and six-month periods, with Q2 sales up 22.5% to $192.1 million Statement of Income Highlights (in thousands, except per share data) | Metric | Q2 2019 | Q2 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Sales | $192,122 | $156,825 | $353,822 | $286,617 | | Gross Profit | $62,220 | $52,413 | $113,277 | $94,056 | | Income from Operations | $29,471 | $24,275 | $51,290 | $40,226 | | Net Income Attributable to FOX | $22,921 | $18,369 | $41,024 | $39,593 | | Diluted EPS | $0.59 | $0.47 | $1.05 | $1.02 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities decreased to $20.4 million, while investing activities increased to $23.2 million, and financing activities provided $13.7 million due to a new credit facility Cash Flow Summary (in thousands) | Activity | Six Months Ended June 28, 2019 | Six Months Ended June 29, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $20,424 | $32,855 | | Net cash used in investing activities | ($23,181) | ($9,046) | | Net cash provided by (used in) financing activities | $13,693 | ($36,853) | | Change in Cash and Cash Equivalents | $11,063 | ($13,261) | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail the adoption of new lease accounting, revenue growth drivers, the RideTech acquisition, a new $250 million revolving credit facility, and ongoing patent litigation - The company designs and manufactures performance-defining products for bicycles, side-by-side vehicles, on-road and off-road vehicles, and other specialty vehicles, supplying both OEMs and the aftermarket[24] Sales by Product Category (in thousands) | Product Category | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | | Powered Vehicles | $211,954 | $154,381 | | Specialty Sports | $141,868 | $132,236 | | Total sales | $353,822 | $286,617 | - In June 2019, the company entered into a new credit facility with Bank of America, providing a $250 million senior secured revolving line of credit maturing in 2024, replacing the former credit facility[62] - On May 3, 2019, the company acquired substantially all assets of RideTech for approximately $14.0 million, consisting of $6.8 million in cash and $7.2 million in newly issued common stock[94][261] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2019 sales growth of 22.5%, gross margin decline, liquidity, and a new $250 million credit facility supporting a major facility expansion Results of Operations Q2 2019 sales increased 22.5% driven by Powered Vehicle products, while gross margin declined to 32.4% due to product mix and inefficiencies, and six-month net income growth was impacted by a prior-year tax benefit Sales Comparison - Three Months Ended | (in millions) | Q2 2019 | Q2 2018 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Powered Vehicle products | $115.2 | $82.2 | $33.0 | 40.1% | | Specialty Sports products | $76.9 | $74.6 | $2.3 | 3.1% | | Total sales | $192.1 | $156.8 | $35.3 | 22.5% | - Q2 2019 gross margin decreased by 100 basis points to 32.4% primarily due to a change in customer/product mix and supply chain/manufacturing inefficiencies from higher than anticipated demand[111] Sales Comparison - Six Months Ended | (in millions) | YTD 2019 | YTD 2018 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Powered Vehicle products | $212.0 | $154.4 | $57.6 | 37.3% | | Specialty Sports products | $141.8 | $132.2 | $9.6 | 7.3% | | Total sales | $353.8 | $286.6 | $67.2 | 23.4% | - The effective tax rate for the six months ended June 29, 2018 included a $9.8 million one-time benefit from the favorable conclusion of a 2015 IRS audit, significantly impacting year-over-year net income comparison[132][133] Liquidity and Capital Resources Cash needs include working capital, capital expenditures, and acquisitions, with operating activities providing $20.4 million and a new $250 million credit facility enhancing liquidity for a planned $50 million facility expansion - Net cash from operating activities decreased to $20.4 million in the first six months of 2019 from $32.9 million in the prior year, mainly due to increased investment in inventory and accounts receivable to support sales growth[138][139][140] - In June 2019, the company entered into a new $250 million revolving credit facility with Bank of America, maturing in 2024, which replaced its previous credit agreement[147] - The company plans to invest up to $50.0 million in capital expenditures for a new headquarters and manufacturing facility in Hall County, Georgia, with the first phase expected to be completed in mid-2020[149] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures have occurred since the fiscal year ended December 28, 2018 - There have been no material changes to the disclosures regarding market risk since the fiscal year ended December 28, 2018[152] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 28, 2019, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of June 28, 2019, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[155] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[156] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is engaged in ongoing patent infringement litigation with SRAM Corporation, vigorously defending itself against claims it believes are without merit, with no estimable loss recorded - The company is engaged in patent infringement lawsuits with SRAM Corporation, with both parties having filed suits against each other[159][160] - The company believes the lawsuits filed by SRAM are without merit and is vigorously defending itself, with no financial provision made due to the inability to predict the outcome or estimate a range of possible losses[161] Item 1A. Risk Factors The company faces risks including intense competition, reliance on consumer spending and key OEM customers, manufacturing disruptions, single-source suppliers, currency fluctuations, trade tariffs, and intellectual property disputes - The company faces intense competition and must continuously innovate to respond to consumer needs and maintain its market position with OEMs[164][167] - A small number of OEM customers account for a substantial portion of sales (32% in 2018 from the top five), making the company vulnerable to the loss of any of these customers[188] - The business is exposed to risks from international operations, including currency fluctuations, tariffs, and supply chain disruptions, with U.S. policies on global trade and tariffs potentially materially affecting results[189][192][193] - The company depends on a limited number of suppliers, including a sole-source supplier (Miyaki Corporation for Kashima coating), and the loss of any key supplier could harm the business[231][233] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 33,605 shares for tax obligations and issued 98,281 unregistered shares valued at $7.2 million for the RideTech acquisition - On May 3, 2019, the Company issued 98,281 unregistered shares of common stock valued at $7.2 million as part of the acquisition of RideTech, in a private placement exempt from registration under Section 4(a)(2) of the Securities Act[261] - The company acquired 33,605 shares from holders of restricted stock unit awards to satisfy tax withholding obligations during the quarter[260] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - None[262] Item 4. Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[263] Item 5. Other Information No other material information is reported in this section - None[264] Item 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including credit agreements and required certifications - Lists exhibits filed with the report, including the new Credit Agreement with Bank of America and certifications from the CEO and CFO[266]