Fox Factory Holding Corp. Announces Fourth Quarter and Record Fiscal 2019 Financial Results

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Fourth Quarter 2019 Sales Increased 18.5% to $185.9 Million
Achieves Earnings per Diluted Share of $0.58
Exceeds Guidance with Adjusted Earnings per Diluted Share of $0.65
Company Introduces Fiscal 2020 Guidance

BRASELTON, GA – March 4, 2020 – (Motor Sports NewsWire) – Fox Factory Holding Corp. (NASDAQ: FOXF) (“FOX” or the “Company”) today reported financial results for the fourth quarter and fiscal year ended January 3, 2020.

Fourth Quarter Fiscal 2019 Highlights

  • Sales increased 18.5% to $185.9 million compared to $156.8 million in the same period last fiscal year
  • Gross margin decreased 40 basis points to 32.1% compared to 32.5% in the same period last fiscal year
  • Net income attributable to FOX stockholders was $22.5 million, or 12.1% of sales and $0.58 of earnings per diluted share, compared to $20.1 million, or 12.8% of sales and $0.52 of earnings per diluted share in the same period last fiscal year
  • Non-GAAP adjusted net income was $25.4 million, or $0.65 of adjusted earnings per diluted share, compared to $22.5 million, or $0.58 of adjusted earnings per diluted share in the same period last fiscal year
  • Adjusted EBITDA was $34.4 million, or 18.5% of sales, compared to $29.8 million, or 19.0% of sales in the same period last fiscal year

“We are pleased with our strong finish to fiscal 2019 from both our Powered Vehicles and Specialty Sports Groups. Our solid growth enabled us to generate record annual sales and profitability above our expectations,” commented Mike Dennison, FOX’s Chief Executive Officer. “We believe we are entering fiscal 2020 with solid business momentum and are excited about the growth opportunities ahead of us with our diversified product offerings and differentiated market position. We remain on track to complete our previously announced acquisition of SCA late in the first quarter of fiscal 2020.”

Sales for the fourth quarter of fiscal 2019 were $185.9 million, an increase of 18.5% as compared to sales of $156.8 million in the fourth quarter of fiscal 2018. This increase in sales reflects a 24.2% increase in Powered Vehicles Group sales and an 11.3% increase in the sales of Specialty Sports Group products. The increase in Powered Vehicles Group products is primarily due to the continued success of its product lineup, particularly in the OEM channel. The increase in sales of Specialty Sports Group products reflects new product introductions and strong sell through with certain higher growth OEMs.

Gross margin was 32.1% for the fourth quarter of fiscal 2019, a 40 basis point decrease from gross margin of 32.5% in the fourth quarter of fiscal 2018. The decrease in gross margin was primarily due to a shift in customer and product mix as the Company’s larger North American OEMs represented a higher proportion of sales. Additionally, FOX continued to experience manufacturing and supply chain inefficiencies as a result of the increase in demand which negatively impacted gross margin.

Total operating expenses were $33.5 million for the fourth quarter of fiscal 2019 compared to $28.1 million in the fourth quarter of fiscal 2018. The increase in operating expenses is primarily due to personnel costs as the Company continues to invest in product innovation, operating costs relating to the Company’s Ridetech subsidiary, as well as increases in facility and various other administrative expenses to support FOX’s growing business.

As a percentage of sales, operating expenses were 18.0% for the fourth quarter of fiscal 2019 compared to 17.9% in the fourth quarter of fiscal 2018. Non-GAAP operating expenses were $30.3 million, or 16.3% of sales in the fourth quarter of fiscal 2019 compared to $25.0 million, or 16.0% of sales, in the fourth quarter of the prior fiscal year. Reconciliations of operating expense to non-GAAP operating expense are provided at the end of this press release.

The Company’s effective tax rate was 10.0% in the fourth quarter of fiscal 2019, compared to an effective tax rate of 7.3% in the fourth quarter of fiscal 2018.

Net income attributable to FOX stockholders in the fourth quarter of fiscal 2019 was $22.5 million, compared to $20.1 million in the fourth quarter of the prior fiscal year. Earnings per diluted share for the fourth quarter of fiscal 2019 was $0.58, compared to earnings per diluted share of $0.52 for the fourth quarter of fiscal 2018.

Non-GAAP adjusted net income was $25.4 million, or $0.65 of adjusted earnings per diluted share, compared to adjusted net income of $22.5 million, or $0.58 of adjusted earnings per diluted share in the same period of the prior fiscal year. Reconciliations of net income attributable to FOX stockholders as compared to non-GAAP adjusted net income and the calculation of non-GAAP adjusted earnings per share are provided at the end of this press release.

Adjusted EBITDA in the fourth quarter of fiscal 2019 was $34.4 million, compared to $29.8 million in the fourth quarter of fiscal 2018. Adjusted EBITDA margin in the fourth quarter of fiscal 2019 was 18.5%, compared to 19.0% in the fourth quarter of fiscal 2018. Reconciliations of net income to adjusted EBITDA and the calculation of adjusted EBITDA margin are provided at the end of this press release.

Fiscal Year 2019 Results

Sales for the fiscal year ended January 3, 2020, were $751.0 million, an increase of 21.3% compared to fiscal 2018. Sales of powered vehicle and bike products increased 33.8% and 6.3%, respectively, for the fiscal year 2019 compared to the prior year period.

Gross margin for the fiscal year ended January 3, 2020 was 32.3%, a 90 basis point decrease, compared to 33.2% in the prior year. On a non-GAAP basis, adjusted gross margin decreased 70 basis points, excluding the effects of strategic transformation and acquisition related costs. The decrease in gross margin was primarily due to a shift in customer and product mix as the Company’s larger North American OEMs represented a higher proportion of sales. Additionally, FOX incurred manufacturing and supply chain inefficiencies associated with a higher than anticipated increase in customer demand. A reconciliation of gross profit to non-GAAP adjusted gross profit and the resulting non-GAAP adjusted gross margin is provided at the end of this press release.

Net income attributable to FOX stockholders in the fiscal year ended January 3, 2020 was $93.0 million, compared to $84.0 million in the prior year. Earnings per diluted share for fiscal 2019 was $2.38, compared to $2.16 in fiscal 2018.

Non-GAAP adjusted net income in fiscal 2019 was $106.3 million, or $2.72 of adjusted earnings per diluted share, compared to $86.7 million, or $2.22 of adjusted earnings per diluted share in the same period of the prior fiscal year. Reconciliations of net income attributable to FOX stockholders to non-GAAP adjusted net income and the calculation of non-GAAP adjusted earnings per share are provided at the end of this press release.

Adjusted EBITDA increased to $146.2 million in fiscal 2019, compared to $124.6 million in fiscal 2018. Adjusted EBITDA margin in fiscal 2019 was 19.5%, compared to 20.1% in fiscal 2018. Reconciliations of net income to adjusted EBITDA and the calculation of non-GAAP adjusted EBITDA margin are provided at the end of this press release.

Balance Sheet Highlights

As of January 3, 2020, the Company had cash and cash equivalents of $43.7 million compared to $28.0 million as of December 28, 2018. Total debt was $68.0 million, compared to $59.4 million as of December 28, 2018. Property, plant and equipment, net was $108.4 million as of January 3, 2020, compared to $64.8 million as of December 28, 2018. Inventory was $128.5 million as of January 3, 2020, compared to $107.1 million as of December 28, 2018. As of January 3, 2020, accounts receivable and accounts payable were $91.6 million and $55.1 million, respectively, compared to $78.9 million and $55.1 million, respectively, as of December 28, 2018. The changes in inventory and accounts receivable are primarily attributable to business growth and the impact of the Ridetech acquisition.

Acquisition of SCA Performance Holdings, Inc. (“SCA”)

As previously announced on February 12, 2020, the Company’s subsidiary, Fox Factory, Inc., has signed a definitive agreement to acquire 100% of the issued and outstanding capital stock of Southern Rocky Holdings, LLC. The $328 million transaction, exclusive of vehicle inventory, will be financed through an expanded and syndicated credit facility led by Bank of America. The Company also agreed to an additional $13 million of contingent, performance-based retention incentives for key SCA management payable over the next two years. The transaction is expected to close late in the first quarter of fiscal 2020, subject to customary closing conditions, and to be accretive to FOX’s fiscal 2020 financial results.

Fiscal 2020 Guidance

For the first quarter of fiscal 2020, the Company expects sales in the range of $182 million to $190 million and non-GAAP adjusted earnings per diluted share in the range of $0.55 to $0.60.

For the fiscal year 2020, the Company expects sales in the range of $881 million to $906 million and non-GAAP adjusted earnings per diluted share in the range of $3.00 to $3.10. The Company’s full year 2020 guidance assumes a tax rate range of 15% to 19%.

Non-GAAP adjusted earnings per diluted share exclude the following items net of applicable tax: amortization of purchased intangibles, patent litigation-related expenses, acquisition and integration-related expenses, strategic transformation costs, and costs related to tax restructuring initiatives. Additionally, non-GAAP adjusted earnings per diluted share excludes the tax benefit related to the resolution of audits by taxing authorities. A quantitative reconciliation of non-GAAP adjusted earnings per diluted share for the first quarter and full fiscal year 2020 is not available without unreasonable efforts because management cannot predict, with sufficient certainty, all of the elements necessary to provide such a reconciliation.

Conference Call & Webcast

The Company will hold an investor conference call today at 1:30 p.m. Pacific time (4:30 p.m. Eastern Time). The conference call dial-in number for North America listeners is (877) 425-9470, and international listeners may dial (201) 389-0878; the conference ID is 13699220. Live audio of the conference call will be simultaneously webcast in the investor relations section of the Company’s website at http://www.ridefox.com. The webcast of the teleconference will be archived and available on the Company’s website.

About Fox Factory Holding Corp. (NASDAQ: FOXF)

Fox Factory Holding Corp. designs and manufactures performance-defining ride dynamics products primarily for bicycles, on-road and off-road vehicles and trucks, side-by-side vehicles, all-terrain vehicles, snowmobiles, specialty vehicles and applications, motorcycles, and commercial trucks. The Company is a direct supplier to leading powered vehicle original equipment manufacturers (“OEMs”). Additionally, the Company supplies top bicycle OEMs and their contract manufacturers, and provides aftermarket products to retailers and distributors.

FOX is a registered trademark of Fox Factory, Inc. NASDAQ Global Select Market is a registered trademark of The NASDAQ OMX Group, Inc. All rights reserved.

Non-GAAP Financial Measures

In addition to reporting financial measures in accordance with generally accepted accounting principles (“GAAP”), FOX is including in this press release “non-GAAP gross margin,” “non-GAAP operating expense,” “non-GAAP adjusted net income,” “non-GAAP adjusted earnings per diluted share,” “adjusted EBITDA,” and “adjusted EBITDA margin,” which are non-GAAP financial measures. FOX defines non-GAAP gross margin as gross profit margin adjusted for certain strategic transformation costs and the amortization of acquired inventory valuation markup. FOX defines non-GAAP operating expense as operating expense adjusted for amortization of purchased intangibles, patent litigation-related expenses, acquisition and integration-related expenses, strategic transformation costs and costs related to tax restructuring initiatives. FOX defines non-GAAP adjusted net income as net income attributable to FOX Stockholders adjusted for amortization of purchased intangibles, patent litigation-related expenses, acquisition and integration-related expenses, strategic transformation costs, and costs related to tax restructuring initiatives, all net of applicable tax, as well as tax impacts arising from the settlement of audit and the recognition of related tax positions and tax reform legislation impacts. These adjustments are more fully described in the tables included at the end of this press release. Non-GAAP adjusted earnings per diluted share is defined as non-GAAP adjusted net income divided by the weighted average number of diluted shares of common stock outstanding during the period. FOX defines adjusted EBITDA as net income adjusted for interest expense, net other expense, income taxes, amortization of purchased intangibles, depreciation, stock-based compensation, patent litigation-related expenses, acquisition and integration-related expenses, strategic transformation costs, and costs related to tax restructuring initiatives that are more fully described in the tables included at the end of this press release. Adjusted EBITDA margin is defined as adjusted EBITDA divided by sales.

FOX includes these non-GAAP financial measures because it believes they allow investors to understand and evaluate the Company’s core operating performance and trends. In particular, the exclusion of certain items in calculating non-GAAP operating expense, non-GAAP adjusted net income and adjusted EBITDA (and accordingly, non-GAAP adjusted earnings per diluted share and adjusted EBITDA margin) can provide a useful measure for period-to-period comparisons of the Company’s core business. These non-GAAP financial measures have limitations as analytical tools, including the fact that such non-GAAP financial measures may not be comparable to similarly titled measures presented by other companies because other companies may calculate non-GAAP operating expense, non-GAAP adjusted net income, non-GAAP adjusted earnings per diluted share, adjusted EBITDA and adjusted EBITDA margin differently than FOX does. For more information regarding these non-GAAP financial measures, see the tables included at the end of this press release.

FOX FACTORY HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

As of As of
January 3, December 28,
2020 2018
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 43,736 $ 27,958
Accounts receivable (net of allowances of $810 and $600 at January 3, 2020 and December 28, 2018, respectively) 91,632 78,882
Inventory 128,505 107,140
Prepaids and other current assets 17,940 17,967
Total current assets 281,813 231,947
Property, plant and equipment, net 108,379 64,788
Lease right-of-use assets 17,472
Deferred tax assets 25,725 15,328
Goodwill 93,527 88,850
Intangibles, net 81,949 83,974
Other assets 451 367
Total assets $ 609,316 $ 485,254
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 55,144 $ 55,086
Accrued expenses 35,744 33,607
Reserve for uncertain tax positions 925 1,169
Current portion of long-term debt 6,923
Total current liabilities 91,813 96,785
Line of credit 68,000
Long-term debt, less current portion 52,503
Other liabilities 11,584 479
Total liabilities 171,397 149,767
Redeemable non-controlling interest 15,719 14,282
Stockholders’ equity
Preferred stock, $0.001 par value — 10,000 authorized and no shares issued or outstanding as of January 3, 2020 and December 28, 2018
Common stock, $0.001 par value — 90,000 authorized; 39,448 shares issued and 38,559 outstanding as of January 3, 2020; 38,881 shares issued and 37,991 outstanding as of December 28, 2018 39 38
Additional paid-in capital 123,274 116,019
Treasury stock, at cost; 890 common shares as of January 3, 2020 and December 28, 2018 (13,754 ) (13,754 )
Accumulated other comprehensive income (loss) 150 (784 )
Retained earnings 312,491 219,686
Total stockholders’ equity 422,200 321,205
Total liabilities, redeemable non-controlling interest and stockholders’ equity $ 609,316 $ 485,254

FOX FACTORY HOLDING CORP.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)

For the three months ended For the twelve months ended
January 3, December 28, January 3, December 28,
2020 2018 2020 2018
Sales $ 185,881 $ 156,810 $ 751,020 $ 619,225
Cost of sales 126,240 105,857 508,285 413,729
Gross profit 59,641 50,953 242,735 205,496
Operating expenses:
Sales and marketing 10,608 9,154 42,794 37,296
Research and development 8,347 6,827 31,789 25,847
General and administrative 12,934 10,620 48,999 41,756
Amortization of purchased intangibles 1,593 1,499 6,344 6,065
Total operating expenses 33,482 28,100 129,926 110,964
Income from operations 26,159 22,853 112,809 94,532
Other expense, net:
Interest expense 591 681 3,173 3,059
Other expense 535 201 1,067 583
Other expense, net 1,126 882 4,240 3,642
Income before income taxes 25,033 21,971 108,569 90,890
Provision for income taxes 2,503 1,603 14,099 5,523
Net income 22,530 20,368 94,470 85,367
Less: net income attributable to non-controlling interest 8 233 1,437 1,327
Net income attributable to FOX stockholders $ 22,522 $ 20,135 $ 93,033 $ 84,040
Earnings per share:
Basic $ 0.58 $ 0.53 $ 2.43 $ 2.22
Diluted $ 0.58 $ 0.52 $ 2.38 $ 2.16
Weighted average shares used to compute earnings per share:
Basic 38,540 37,989 38,333 37,805
Diluted 39,151 39,083 39,155 38,956

FOX FACTORY HOLDING CORP.
NET INCOME TO NON-GAAP ADJUSTED NET INCOME RECONCILIATION
AND CALCULATION OF NON-GAAP ADJUSTED EARNINGS PER SHARE 
(In thousands, except per share data)
(Unaudited)

The following table provides a reconciliation of net income attributable to FOX stockholders, the most directly comparable financial measure calculated and presented in accordance with GAAP, to non-GAAP adjusted net income (a non-GAAP measure), and the calculation of non-GAAP adjusted earnings per share (a non-GAAP measure) for the three and twelve months ended January 3, 2020 and December 28, 2018. These non-GAAP financial measures are provided in addition to, and not as alternatives for, the Company’s reported GAAP results.

For the three months ended For the twelve months ended
January 3, December 28, January 3, December 28,
2020 2018 2020 2018
Net income attributable to FOX stockholders $ 22,522 $ 20,135 $ 93,033 $ 84,040
Amortization of purchased intangibles 1,593 1,499 6,344 6,065
Patent litigation-related expenses 354 1,237 4,401 7,160
Other acquisition and integration-related expenses (1) 721 154 2,665 946
Strategic transformation costs (2) 545 1,705
Tax reform implementation costs (3) 167 186 466
Settlement of audit and recognition of tax position (4) (9,838 )
Tax reform legislation impacts (5) (444 ) 264
Tax impacts of reconciling items above (6) (309 ) (238 ) (1,987 ) (2,431 )
Non-GAAP adjusted net income $ 25,426 $ 22,510 $ 106,347 $ 86,672
Non-GAAP adjusted EPS
Basic $ 0.66 $ 0.59 $ 2.77 $ 2.29
Diluted $ 0.65 $ 0.58 $ 2.72 $ 2.22
Weighted average shares used to compute non-GAAP adjusted EPS
Basic 38,540 37,989 38,333 37,805
Diluted 39,151 39,083 39,155 38,956

(1) Represents various acquisition-related costs and expenses incurred to integrate acquired entities into the Company’s operations and the impact of the finished goods inventory valuation adjustment recorded in connection with the purchase of acquired assets, per period as follows:

For the three months ended For the twelve months ended
January 3, December 28, January 3, December 28,
2020 2018 2020 2018
Acquisition related costs and expenses $ 721 $ 154 $ 1,568 $ 946
Finished goods inventory valuation adjustment 1,097
Other acquisition and integration-related expenses $ 721  $ 154  $ 2,665  $ 946 

(2) Represents costs associated with various strategic initiatives including the expansion of the Powered Vehicles Group’s manufacturing operations. For the three and twelve month periods ended January 3, 2020, $476 and $1,140 is classified as operating expense, and $69 and $565 is classified as cost of sales, respectively.

(3) Represents costs and expenses in connection with the Company’s implementation of tax reform legislation and related tax restructuring initiatives.

(4) Recognition of tax positions related to the deductibility of depreciation and amortization as a result of favorable closure of the 2015 IRS audit. Depreciation and amortization arose from Compass’ 2008 acquisition of the Company.

(5) Reflects adjustments related to the refinement of calculations for the implementation of tax reform legislation.

(6) Tax impact calculated based on the respective year to date effective tax rates, excluding the impact of the settlement of audit and recognition of related tax position, and certain tax reform legislation impacts.

FOX FACTORY HOLDING CORP.
NET INCOME TO ADJUSTED EBITDA RECONCILIATION AND
CALCULATION OF NET INCOME MARGIN AND ADJUSTED EBITDA MARGIN
 (In thousands)
(Unaudited)

The following tables provide a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to adjusted EBITDA (a non-GAAP measure), and the calculations of net income margin and adjusted EBITDA margin (a non-GAAP measure) for the three and twelve months ended January 3, 2020 and December 28, 2018. These non-GAAP financial measures are provided in addition to, and not as alternatives for, the Company’s reported GAAP results.

For the three months ended For the twelve months ended
January 3, December 28, January 3, December 28,
2020 2018 2020 2018
Net income $ 22,530 $ 20,368 $ 94,470 $ 85,367
Provision for income taxes 2,503 1,603 14,099 5,523
Depreciation and amortization 4,747 3,749 17,604 14,210
Non-cash stock-based compensation 1,909 1,673 6,864 7,322
Patent litigation-related expenses 354 1,237 4,401 7,160
Other acquisition and integration-related expenses (1) 721 154 2,665 946
Strategic transformation costs (2) 545 1,705
Tax reform implementation costs (3) 167 186 466
Other expense, net 1,126 882 4,240 3,642
Adjusted EBITDA $ 34,435  $ 29,833  $ 146,234  $ 124,636 
Net Income Margin 12.1  % 13.0  % 12.6  % 13.8  %
Adjusted EBITDA Margin 18.5  % 19.0  % 19.5  % 20.1  %

(1) Represents various acquisition-related costs and expenses incurred to integrate acquired entities into the Company’s operations and the impact of the finished goods inventory valuation adjustment recorded in connection with the purchase of acquired assets, per period as follows:

For the three months ended For the twelve months ended
January 3, December 28, January 3, December 28,
2020 2018 2020 2018
Acquisition related costs and expenses $ 721 $ 154 $ 1,568 $ 946
Finished goods inventory valuation adjustment 1,097
Other acquisition and integration-related expenses $ 721  $ 154  $ 2,665  $ 946 

(2) Represents costs associated with various strategic initiatives including the expansion of the Powered Vehicles Group’s manufacturing operations. For the three and twelve month periods ended January 3, 2020, $476 and $1,140 is classified as operating expense, and $69 and $565 is classified as cost of sales, respectively.

(3) Represents costs and expenses in connection with the Company’s implementation of tax reform legislation and related tax restructuring initiatives.

FOX FACTORY HOLDING CORP.
GROSS PROFIT TO NON-GAAP ADJUSTED GROSS PROFIT RECONCILIATION AND
CALCULATION OF GROSS MARGIN AND NON-GAAP ADJUSTED GROSS MARGIN
 (In thousands)
(Unaudited)

The following table provides a reconciliation of gross profit to non-GAAP adjusted gross profit (a non-GAAP measure) for the three and twelve months ended January 3, 2020 and December 28, 2018, and the calculation of gross margin and non-GAAP adjusted gross margin (a non-GAAP measure). These non-GAAP financial measures are provided in addition to, and not as alternatives for, the Company’s reported GAAP results.

For the three months ended For the twelve months ended
January 3, December 28, January 3, December 28,
2020 2018 2020 2018
Sales $ 185,881  $ 156,810  $ 751,020  $ 619,225 
Gross Profit $ 59,641  $ 50,953  $ 242,735  $ 205,496 
Strategic transformation costs (1) 69 565
Amortization of acquired inventory valuation markup (2) 1,097
Non-GAAP Adjusted Gross Profit $ 59,710  $ 50,953  $ 244,397  $ 205,496 
Gross Margin 32.1  % 32.5  % 32.3  % 33.2  %
Non-GAAP Adjusted Gross Margin 32.1  % 32.5  % 32.5  % 33.2  %

(1) Represents costs associated with various strategic initiatives including the expansion of the Powered Vehicles Group’s manufacturing operations.

(2) Represents the impact of the finished goods inventory valuation adjustment recorded in connection with our 2019 acquisition of Ridetech.

FOX FACTORY HOLDING CORP.
OPERATING EXPENSE TO NON-GAAP OPERATING EXPENSE RECONCILIATION AND
CALCULATION OF OPERATING EXPENSE AND NON-GAAP OPERATING EXPENSE AS A PERCENTAGE OF SALES
(In thousands)
(Unaudited)

The following tables provide a reconciliation of operating expense to non-GAAP operating expense (a non-GAAP measure) and the calculations of operating expense as a percentage of sales and non-GAAP operating expense as a percentage of sales (a non-GAAP measure), for the three and twelve months ended January 3, 2020 and December 28, 2018. These non-GAAP financial measures are provided in addition to, and not as an alternative for, the Company’s reported GAAP results.

For the three months ended For the twelve months ended
January 3, December 28, January 3, December 28,
2020 2018 2020 2018
Sales $ 185,881 $ 156,810 $ 751,020 $ 619,225
Operating Expense $ 33,482 $ 28,100 $ 129,926 $ 110,964
Amortization of purchased intangibles (1,593 ) (1,499 ) (6,344 ) (6,065 )
Patent litigation-related expenses (354 ) (1,237 ) (4,401 ) (7,160 )
Other acquisition and integration-related expenses (1) (721 ) (154 ) (1,568 ) (946 )
Strategic transformation costs (2) (476 ) (1,140 )
Tax reform implementation costs (3) (167 ) (186 ) (466 )
Non-GAAP operating expense $ 30,338 $ 25,043 $ 116,287 $ 96,327
Operating expense as a percentage of sales 18.0 % 17.9 % 17.3 % 17.9 %
Non-GAAP operating expense as a percentage of sales 16.3 % 16.0 % 15.5 % 15.6 %

(1) Represents various acquisition-related costs and expenses incurred to integrate acquired entities into the Company’s operations.

(2) Represents costs associated with various strategic initiatives including the expansion of the Powered Vehicles Group’s manufacturing operations.

(3) Represents costs and expenses in connection with the Company’s implementation of tax reform legislation and related tax restructuring initiatives.

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this press release including earnings guidance may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends that all such statements be subject to the “safe-harbor” provisions contained in those sections. Forward-looking statements generally relate to future events or the Company’s future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “might,” “will,” “would,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “likely,” “potential” or “continue” or other similar terms or expressions and such forward-looking statements include, but are not limited to, statements about the Company’s continued growing demand for its products; the Company’s execution on its strategy to improve operating efficiencies; the Company’s optimism about its operating results and future growth prospects; the Company’s expected future sales and future non-GAAP adjusted earnings per diluted share; and any other statements in this press release that are not of a historical nature. Many important factors may cause the Company’s actual results, events or circumstances to differ materially from those discussed in any such forward-looking statements, including but not limited to: the Company’s ability to complete any acquisition and/or incorporate any acquired assets into its business; the Company’s ability to improve operating and supply chain efficiencies; the Company’s ability to enforce its intellectual property rights; the Company’s future financial performance, including its sales, cost of sales, gross profit or gross margin, operating expenses, ability to generate positive cash flow and ability to maintain profitability; the Company’s ability to adapt its business model to mitigate the impact of certain changes in tax laws including those enacted in the U.S. in December 2017; changes in the relative proportion of profit earned in the numerous jurisdictions in which the Company does business and in tax legislation, case law and other authoritative guidance in those jurisdictions; factors which impact the calculation of the weighted average number of diluted shares of common stock outstanding, including the market price of the Company’s common stock, grants of equity-based awards and the vesting schedules of equity-based awards; the Company’s ability to develop new and innovative products in its current end-markets and to leverage its technologies and brand to expand into new categories and end-markets; the Company’s ability to increase its aftermarket penetration; the Company’s exposure to exchange rate fluctuations; the loss of key customers; strategic transformation costs; the outcome of pending litigation; the possibility that the Company may not be able to accelerate its international growth; the Company’s ability to maintain its premium brand image and high-performance products; the Company’s ability to maintain relationships with the professional athletes and race teams that it sponsors; the possibility that the Company may not be able to selectively add additional dealers and distributors in certain geographic markets; the overall growth of the markets in which the Company competes; the Company’s expectations regarding consumer preferences and its ability to respond to changes in consumer preferences; changes in demand for high-end suspension and ride dynamics products; the Company’s loss of key personnel, management and skilled engineers; the Company’s ability to successfully identify, evaluate and manage potential acquisitions and to benefit from such acquisitions; product recalls and product liability claims; future economic or market conditions; and the other risks and uncertainties described in “Risk Factors” contained in its Annual Report on Form 10-K or Quarterly Reports on Form 10-Q or otherwise described in the Company’s other filings with the Securities and Exchange Commission. New risks and uncertainties emerge from time to time and it is not possible for the Company to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this press release. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the Company’s expectations, objectives or plans will be achieved in the timeframe anticipated or at all. Investors are cautioned not to place undue reliance on the Company’s forward-looking statements and the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

CONTACT:

ICR
Katie Turner
646-277-1228
Katie.Turner@icrinc.com

Source: Fox Factory Holding Corp.

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