Fox(FOXF) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company reported a net loss of $3.5 million in Q1 2024, a significant downturn from the prior-year's $41.8 million net income, driven by a 16.6% decrease in net sales, while total assets remained stable at approximately $2.25 billion | Financial Metric | Q1 2024 (ended Mar 29) | Q1 2023 (ended Mar 31) | | :--- | :--- | :--- | | Net Sales | $333.5 million | $399.9 million | | Gross Profit | $103.2 million | $133.3 million | | Net (Loss) Income | $(3.5) million | $41.8 million | | Diluted (Loss) Earnings Per Share | $(0.08) | $0.98 | | Balance Sheet Item | As of Mar 29, 2024 | As of Dec 29, 2023 | | :--- | :--- | :--- | | Total Assets | $2,248.3 million | $2,242.3 million | | Total Liabilities | $1,055.8 million | $1,020.5 million | | Total Stockholders' Equity | $1,192.5 million | $1,221.8 million | | Cash Flow Activity (Q1) | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $9.4 million | $(66.8) million | | Net Cash used in Investing Activities | $(15.3) million | $(144.3) million | | Net Cash (used in) provided by Financing Activities | $(7.9) million | $157.8 million | Note 2: Revenues Total net sales for Q1 2024 decreased by 16.6% year-over-year to $333.5 million, with declines across product groups and geographies, and a shift in sales channels | Net Sales by Product Group (Q1) | 2024 | 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Powered Vehicles Group | $118.1 M | $142.2 M | -16.9% | | Aftermarket Applications Group | $101.9 M | $138.7 M | -26.5% | | Specialty Sports Group | $113.5 M | $118.9 M | -4.5% | | Total Net Sales | $333.5 M | $399.9 M | -16.6% | | Net Sales by Channel (Q1) | 2024 | 2023 | Change (%) | | :--- | :--- | :--- | :--- | | OEM | $137.8 M | $217.7 M | -36.7% | | Aftermarket/Non-OEM | $195.7 M | $182.2 M | +7.4% | | Net Sales by Geography (Q1) | 2024 | 2023 | Change (%) | | :--- | :--- | :--- | :--- | | North America | $284.7 M | $291.9 M | -2.5% | | Europe | $27.3 M | $61.2 M | -55.4% | | Asia | $18.2 M | $42.1 M | -56.9% | Note 7: Debt The company's debt is primarily structured under the 2022 Credit Facility, including a $650 million revolver and a $400 million Incremental Term A Loan, with a 6.93% weighted-average interest rate - The 2022 Credit Facility was amended in November 2023 to add a $400 million Incremental Term A Loan and a $200 million Delayed Draw Term Loan to fund the Marucci acquisition[66] | Revolver Status (as of Mar 29, 2024) | Amount | | :--- | :--- | | Total Borrowing Capacity | $650.0 million | | Amount Outstanding | $392.0 million | | Available Borrowing Capacity | $258.0 million | - As of March 29, 2024, the weighted-average interest rate on outstanding borrowing was 6.93%[65] Note 11: Stockholders' Equity A $300 million share repurchase plan authorized in November 2023 led to $25 million in repurchases during Q1 2024, leaving $250 million available - A share repurchase plan for up to $300 million was authorized on November 1, 2023, with an expiration date of November 1, 2028[90] - During Q1 2024, the company repurchased 378,464 shares for $25.0 million at an average price of $66.03 per share; as of March 29, 2024, $250 million remained available for repurchase[91][180] - Total stock-based compensation expense was $3.9 million for Q1 2024, compared to $5.7 million for Q1 2023[93] Note 15: Acquisitions The acquisition of Marucci Sports LLC for $567.2 million in November 2023 contributed $59.6 million in Q1 2024 revenue and $4.4 million in pre-tax income - The company acquired 100% of Marucci's parent company, Wheelhouse Holdings Inc., on November 14, 2023, for $567.2 million, net of cash acquired[105] - For the three months ended March 29, 2024, the Marucci acquisition contributed $59.6 million in revenue and $4.4 million in pre-tax income[111] | Preliminary Purchase Price Allocation | Amount (in thousands) | | :--- | :--- | | Goodwill | $243,940 | | Trademarks and brands | $174,700 | | Customer and distributor relationships | $83,800 | | Core technologies | $20,600 | Note 16: Segment Information The company now reports across three segments, all experiencing year-over-year declines in Q1 2024 net sales and adjusted EBITDA, with AAG showing the largest profitability drop | Segment Performance (Q1 2024 vs Q1 2023) | Net Sales | Adjusted EBITDA | | :--- | :--- | :--- | | Powered Vehicles Group | $118.1M (-16.9%) | $15.9M (-10.2%) | | Aftermarket Applications Group | $101.9M (-26.5%) | $14.9M (-59.0%) | | Specialty Sports Group | $113.5M (-4.5%) | $24.1M (-40.9%) | | Unallocated Corporate Expenses | N/A | $(14.4)M (-13.3%) | - The company re-aligned its segments in Q2 2023 and changed its reporting structure to three operating segments starting in Q1 2024[34][53] Management's Discussion and Analysis (MD&A) Q1 2024 net sales declined 16.6% due to higher interest rates and inventory recalibration, resulting in a net loss of $3.5 million from lower sales, gross margin contraction, and increased interest expense Results of Operations Net sales fell by $66.3 million (16.6%) in Q1 2024, driven by unfavorable product mix, reduced operating leverage, and a significant increase in interest expense, leading to a net loss - Net sales decreased 16.6% YoY, primarily due to product mix, higher interest rates impacting demand, and ongoing Bike channel inventory recalibration, offset by $59.6 million in sales from the Marucci acquisition[135] - Gross margin decreased 240 basis points to 30.9% due to a shift in product line mix and operating leverage on lower volume[136] - Total operating expenses increased by $15.7 million (20.0%), mainly due to the inclusion of Marucci operating expenses and a $5.3 million increase in amortization of purchased intangibles[137] - Interest expense increased by $9.8 million to $13.3 million due to additional debt from the Marucci acquisition and higher interest rates[139] Segment Review Segment performance in Q1 2024 saw PVG sales decrease due to high interest rates, AAG sales decline from lower upfitting, and SSG sales impacted by Bike inventory recalibration offset by Marucci - Powered Vehicles Group sales decreased 16.9% due to lower industry demand in Power Sports because of higher interest rates[147] - Aftermarket Applications Group sales decreased 26.5%, driven by lower upfitting sales due to product mix and higher interest rates impacting dealers and consumers[148] - Specialty Sports Group sales decreased 4.5%, reflecting a $65.0 million reduction in Bike sales offset by the inclusion of $59.6 million in net sales from Marucci[149] Liquidity and Capital Resources Operating cash flow significantly improved to $9.4 million in Q1 2024, primarily due to inventory reduction, with key cash uses including capital expenditures and share repurchases - Net cash provided by operating activities was $9.4 million in Q1 2024, a significant improvement from $(66.8) million in Q1 2023[154] - The improvement in operating cash flow was largely due to a $20.0 million decrease in inventory, reflecting efforts to optimize inventory levels[156] - Financing activities in Q1 2024 included $25.0 million to repurchase common stock and a net increase of $22.0 million in revolver borrowings[159] Quantitative and Qualitative Disclosures About Market Risk No material changes have occurred to the company's market risk disclosures since its 2023 Annual Report on Form 10-K - There have been no material changes to the disclosures regarding market risk from the company's 2023 Annual Report on Form 10-K[170] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 29, 2024, with no material changes to internal controls during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 29, 2024[172] - No changes in internal control over financial reporting were identified during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[173] PART II. OTHER INFORMATION Legal Proceedings A class action lawsuit filed on February 20, 2024, alleges federal securities law violations regarding product demand and inventory levels, which the company denies and plans to vigorously defend - A class action complaint was filed on February 20, 2024, alleging violations of federal securities laws[75][176] - The suit alleges material misstatements and omissions regarding demand for the Company's products and inventory levels during the period from May 6, 2021, to November 2, 2023[75][176] - The Company denies all allegations of wrongdoing and intends to vigorously defend itself[75][176] Risk Factors Updated risk factors emphasize potential adverse effects from work stoppages and supply chain disruptions, including U.S. port issues and customer labor disputes, with other risks consistent with the 2023 Form 10-K - The company highlights its vulnerability to supply chain disruptions from work stoppages at U.S. ports, citing potential impacts from events like the Baltimore bridge collapse and ongoing port congestion[177] - Labor disputes involving customers, such as the 2023 UAW strike against Ford, GM, and Stellantis, are noted as a risk that could adversely affect operating results[178] - Aside from the newly emphasized risks, there have been no other material changes to the risk factors described in the 2023 Form 10-K[179] Issuer Purchases of Equity Securities During Q1 2024, the company repurchased 400,820 shares for $26.3 million, including 378,464 shares under its $300 million repurchase plan, leaving $250 million available | Share Repurchases (Q1 2024) | Shares Purchased | Average Price Paid | Purchased Under Plan | Remaining Plan Value (Millions) | | :--- | :--- | :--- | :--- | :--- | | Total | 400,820 | $65.50 | 378,464 | $250,000,000 | Note: Total shares purchased includes 22,356 shares acquired to satisfy tax withholding obligations, not part of the public plan