Fox(FOXF) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents the company's unaudited financial statements and management's analysis for the reporting period Financial Statements Presents the unaudited condensed consolidated financial statements for Q2 2021, highlighting significant revenue and profitability growth Unaudited Condensed Consolidated Balance Sheets Details the balance sheet as of July 2, 2021, showing increased assets from inventory and growth in stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | July 2, 2021 | January 1, 2021 | | :--- | :--- | :--- | | Total Current Assets | $723,229 | $581,969 | | Inventory | $208,550 | $127,091 | | Total Assets | $1,453,990 | $1,286,561 | | Total Current Liabilities | $248,879 | $165,389 | | Accounts Payable | $154,089 | $92,403 | | Total Liabilities | $649,621 | $567,390 | | Total Stockholders' Equity | $804,369 | $719,171 | Unaudited Condensed Consolidated Statements of Income Reports substantial year-over-year growth in sales and net income for the three and six months ended July 2, 2021 Income Statement Summary (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Sales | $328,164 | $183,102 | $609,300 | $367,463 | | Gross Profit | $111,088 | $59,986 | $209,012 | $116,601 | | Income from Operations | $52,723 | $19,359 | $98,579 | $30,926 | | Net Income Attributable to FOX Stockholders | $44,275 | $12,608 | $82,261 | $20,858 | | Diluted EPS | $1.05 | $0.32 | $1.94 | $0.53 | Unaudited Condensed Consolidated Statements of Comprehensive Income Shows a significant increase in comprehensive income attributable to FOX stockholders for both the quarter and six-month periods Comprehensive Income Summary (in thousands) | Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $44,275 | $13,192 | $82,261 | $21,930 | | Other Comprehensive Income (Loss) | $131 | $923 | $1,752 | $(17) | | Comprehensive Income Attributable to FOX Stockholders | $44,406 | $13,531 | $84,013 | $20,841 | Unaudited Condensed Consolidated Statements of Stockholders' Equity Details the increase in total stockholders' equity driven by net income, partially offset by stock repurchases - Total stockholders' equity grew to $804.4 million as of July 2, 2021, from $719.2 million as of January 1, 2021[21] - The increase in equity was primarily driven by net income of $82.3 million recognized during the first six months of 2021[21] Unaudited Condensed Consolidated Statements of Cash Flows Summarizes cash flow activities for the first six months of 2021, showing improved operating cash flow and significant investing and financing activities Cash Flow Summary for the Six Months Ended (in thousands) | Activity | July 2, 2021 | July 3, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $81,690 | $5,689 | | Net cash used in investing activities | $(43,273) | $(361,992) | | Net cash (used in) provided by financing activities | $(9,616) | $530,773 | | Change in cash and cash equivalents | $29,212 | $174,229 | - The significant cash used in investing activities in 2020 was due to the acquisition of businesses for $329.2 million, primarily SCA[24] - The large cash inflow from financing activities in 2020 was driven by proceeds from debt issuance ($392.4 million) and sale of common stock ($198.2 million) to fund the SCA acquisition[24] Notes to Unaudited Condensed Consolidated Financial Statements Provides crucial context to the financial statements, detailing accounting policies, revenue breakdown, acquisitions, debt, and legal contingencies Sales by Product Category for the Six Months Ended (in thousands) | Product Category | July 2, 2021 | July 3, 2020 | | :--- | :--- | :--- | | Powered Vehicles | $352,166 | $219,050 | | Specialty Sports | $257,134 | $148,413 | | Total sales | $609,300 | $367,463 | - On May 25, 2021, the Company acquired Outside Van for $15.1 million, and on May 21, 2021, it acquired Sola Sport Pty Ltd for $0.5 million[115][117] - The company is engaged in ongoing patent infringement lawsuits with SRAM Corporation, vigorously defending itself against claims it believes are without merit, with an uncertain outcome[75][76][78] Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes the company's financial performance for Q2 and the first half of 2021, highlighting sales growth, margin improvement, and liquidity Results of Operations Discusses the significant increase in Q2 2021 sales and gross margin, driven by strong demand and favorable product mix Q2 Sales Comparison (in millions) | Product Category | Q2 2021 | Q2 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Powered Vehicle products | $189.5 | $98.5 | $91.0 | 92.4% | | Specialty Sports products | $138.7 | $84.6 | $54.1 | 63.9% | | Total sales | $328.2 | $183.1 | $145.1 | 79.2% | - Q2 2021 gross margin increased to 33.9% from 32.8% in Q2 2020, driven by favorable product/channel mix and strong performance of upfitting product lines[134] - For the six months ended July 2, 2021, total sales grew 65.8% to $609.3 million, and net income increased 275.8% to $82.3 million compared to the prior year period[143][155] Liquidity and Capital Resources Examines the company's liquidity sources, including operating cash flows and credit facility, and details cash flow activities Cash Flow Summary for the Six Months Ended (in thousands) | Activity | July 2, 2021 | July 3, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $81,690 | $5,689 | | Net cash used in investing activities | $(43,273) | $(361,992) | | Net cash (used in) provided by financing activities | $(9,616) | $530,773 | - The company's Credit Facility provides a $250.0 million revolving line of credit and a $400.0 million term loan, maturing in March 2025, with compliance to all covenants as of July 2, 2021[167][169] Quantitative and Qualitative Disclosures About Market Risk States that there have been no material changes to the company's market risk disclosures since its last Annual Report on Form 10-K - There have been no material changes to the disclosures regarding market risk since the company's last Annual Report on Form 10-K[173] Controls and Procedures Confirms the effectiveness of disclosure controls and procedures as of July 2, 2021, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of July 2, 2021[175] - No changes to internal control over financial reporting were identified during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[176] PART II. OTHER INFORMATION Provides additional information including legal proceedings, risk factors, and equity security sales Legal Proceedings Details the ongoing patent infringement litigation with SRAM Corporation, noting the company's vigorous defense and uncertain outcome - The company is engaged in patent infringement lawsuits with SRAM Corporation, with cases pending in U.S. District Courts[178][179] - In February 2021, the U.S. Patent and Trademark Appeals Board (PTAB) issued a favorable opinion for the company regarding SRAM's '027 Patent but an unfavorable one regarding the '250 Patent[178] - The company cannot predict the outcome or estimate potential losses, and no financial provision has been made for these legal matters[180] Risk Factors Outlines significant risks that could adversely affect the company's business, including operational, financial, and regulatory challenges Risks Related to Our Business and Operations Highlights operational risks such as pandemic impacts, intense competition, customer dependency, and supply chain vulnerabilities - The business is exposed to risks from global public health pandemics like COVID-19, which can disrupt demand, manufacturing, and supply chains[189] - The company's five largest OEM customers accounted for approximately 23% of sales in fiscal 2020, creating a dependency on their success and purchasing decisions[218] - The company depends on a limited number of suppliers, including a sole-source supplier (Miyaki Corporation for Kashima coating), which creates supply chain risk[243][246] Risks Related to Our Indebtedness and Liquidity Discusses financial risks associated with the company's debt, including operating restrictions and vulnerability to interest rate increases - The Credit Facility contains covenants that restrict activities such as paying dividends, incurring additional debt, and making acquisitions[252] - As of July 2, 2021, the company had $388.5 million of indebtedness, with a significant portion at a variable interest rate, exposing it to interest rate fluctuations[255][259] Risks Related to Laws and Regulations Covers risks from legal and regulatory compliance, including extensive safety, environmental, and tax laws across multiple jurisdictions - The company is subject to extensive U.S. and international safety, environmental, and other government regulations that may require significant expense to maintain compliance[262] - Changes in tax laws, particularly in the U.S., or interpretations of existing laws could increase tax obligations and adversely affect net income and cash flows[261] - Compliance with SEC rules on conflict minerals requires ongoing due diligence and expense, and failure to comply could lead to reputational damage[273] Risks Related to Ownership of Our Common Stock Outlines risks for stockholders, including stock price volatility, potential dilution, and anti-takeover provisions - The trading price of the common stock may be volatile due to variations in operating results, analyst recommendations, and general market conditions[278] - Anti-takeover provisions, including a classified board and restrictions under Delaware law (Section 203), could discourage or prevent a change in control[285][287] - The company's charter designates the Court of Chancery of the State of Delaware as the exclusive forum for certain stockholder lawsuits, potentially limiting favorable judicial forums for stockholders[288] Unregistered Sales of Equity Securities and Use of Proceeds Reports on the repurchase of common stock during the quarter to satisfy tax-withholding obligations from restricted stock unit awards Issuer Purchases of Equity Securities (Q2 2021) | Period | Total Number of Shares Purchased | Weighted-average Price Paid per Share | | :--- | :--- | :--- | | 4/3 - 5/7 | 29,094 | $153.25 | | 5/8 - 6/4 | — | $ — | | 6/5 - 7/2 | 9,113 | $156.28 | | Total | 38,207 | $153.97 | - All repurchased shares were acquired from holders of restricted stock unit awards to satisfy tax-withholding obligations[291] Defaults Upon Senior Securities States that there were no defaults upon senior securities during the reporting period - None[292] Mine Safety Disclosures Indicates that this item is not applicable to the company's operations - Not applicable[293] Other Information Reports no information for this item - None[294] Exhibits Lists the exhibits filed with the Form 10-Q, including credit facility amendments and required certifications - Key exhibits filed with this report include the Second Amendment to the Amended and Restated Credit Facility and certifications from the CEO and CFO pursuant to Sarbanes-Oxley Sections 302 and 906[296]