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Race Face/Easton bolster Fox Factory’s revenues

Published February 29, 2016
Suspension brand sees double-digit growth in fourth-quarter and full-year sales thanks to acquisition of RaceFace/Easton.

SCOTTS VALLEY, Calif. (BRAIN) — Fox Factory Holding Corp. posted nearly 30 percent growth in revenue in the fourth quarter of 2015, the company announced Monday. Sales for the quarter totaled $95.7 million, compared with $74.1 million for the same quarter the previous year. The company reported that gross margins also were up, at 29.9 percent compared with 29.6 percent in the same period the year before. Net income was up substantially, at $6.8 million, compared to $2.9 million for the same quarters in 2015 and 2014, respectively.

The fourth quarter gains reflect a 37.1 increase in sales of powered vehicle products and a 23.3 percent increase in sales of bike products. The increase in bike was primarily because of Race Face/Easton, which the company acquired in late 2014 and from the company’s legacy Fox business, the company said.

The increase in gross margin was due to improved efficiencies from moving production to Taichung of its bike suspension. But those gains were offset by changes in product and customer mix and higher acquisition-related costs. Excluding acquisition-related costs, non-GAAP gross margin for the fourth quarter increased approximately 90 basis points compared to the previous year.

Operating expenses were $19.2 million for the fourth quarter compared to $17.7 million in the fourth quarter of the prior fiscal year. The increase was due to Race Face/Easton acquisition-related expenses. Operating income was $9.4 million for the fourth quarter of fiscal 2015, compared to operating income of $4.2 million in the fourth quarter of fiscal 2014.

Sales for the full year totaled $366.8 million, an increase of 19.6 percent compared with 2014. Sales of powered vehicle products were up 21.6 percent and bike products were up 18.1 percent compared to 2014. Gross margins decreased slightly from 30.8 percent to 30.5 percent due to costs related to the West Coast port slowdown in the first quarter and the purchase of Marzocchi's mountain bike product lines in the fourth quarter of last year .

Net income for the year was $25 million, compared with $27.7 million in 2014. Adjusted EBITDA increased 14.4 percent to $63.5 million in 2015, compared to $55.5 million in fiscal 2014.

The company said it decreased debt, however, inventory is slightly up, from $59.2 million in December 2014 to $68.2 million in December of last year.

For the first quarter of this year, Fox Holding expects sales in the range of $73 million to $77 million and non-GAAP adjusted earnings per diluted share in the range of $0.12 to $0.16. It expects full year sales in the range of $375 million to $395 million and non-GAAP adjusted earnings per diluted share in the range of $1.05 to $1.13.

Larry Enterline, Fox's CEO, told investors during an earnings call Monday afternoon that the company is aware of worldwide economic conditions that suggest a slowing of sales. "2015 was challenging and conditions will persist, but Fox's position allows us to perform well despite the climate," he said. Still, the company is bracing for mid- to high-single digit growth in 2016, lower than its double-digit growth in 2015. 

Fox continues to reap the benefits of transferring production of its fork and suspension mountain bike products to Taiwan, which will continue to have a positive impact on margin growth, Enterline added. Enterline said the company has completed the transition of 80 to 85 percent of fork and rear suspension production to Taichung. The company also said model-year 2017 products are being well received by OEMs and athletes, and new, lower price point forks will be included in that lineup under both Fox and Marzocchi brands. 

Asked about reports of inventory glut in the channel, Mario Galasso, who heads Fox's various business divisions, said, "We're watching that. We don't think it will be model-year 2017 buzz kill. When we see reports like that we'll talk to customers and try to get a handle of where we are. We're in a relatively decent position to start off 2017."  

"We're cautiously optimistic," Galasso added about Fox's 2017 spec forecasts and share. 

Fox Factory was split off from Compass Diversified in a 2013 IPO. It acquired Race Face and Easton Cycling in December 2014, and certain assets related to Marzocchi’s mountain bike suspension in the fourth quarter of 2015. The company’s stock is traded on the Nasdaq stock market under the FOXF symbol, and its stock performance is tracked on BRAIN’s stock page.

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