Fox Factory Holding Corp.

07/31/2019 | Press release | Distributed by Public on 07/31/2019 14:11

Fox Factory Holding Corp. Announces Second Quarter 2019 Financial Results

Second Quarter 2019 Sales Increased 22.5% to a Record $192.1 Million
Achieves Earnings per Diluted Share of $0.59;
Record Adjusted Earnings per Diluted Share of $0.68; Exceeds Guidance
Company Raises Fiscal 2019 Guidance

BRASELTON, Ga., July 31, 2019 (GLOBE NEWSWIRE) -- Fox Factory Holding Corp. (NASDAQ: FOXF) ('FOX' or the 'Company') today reported financial results for the second quarter ended June 28, 2019.

Second Quarter Fiscal 2019 Highlights

  • Sales increased 22.5% to $192.1 million compared to $156.8 million in the same period last fiscal year
  • Gross margin decreased 100 basis points to 32.4% compared to 33.4% in the same period last fiscal year; Non-GAAP adjusted gross margin decreased 70 basis points compared to the same period last fiscal year
  • Net income attributable to FOX stockholders was $22.9 million, or 12.0% of sales and $0.59 of earnings per diluted share, compared to $18.4 million, or 11.7% of sales and $0.47 of earnings per diluted share in the same period last fiscal year
  • Non-GAAP adjusted net income was $26.6 million, or $0.68 of adjusted earnings per diluted share, compared to $21.9 million, or $0.56 of adjusted earnings per diluted share in the same period last fiscal year
  • Adjusted EBITDA was $38.2 million, or 19.9% of sales, compared to $32.4 million, or 20.7% of sales in the same period last fiscal year

'Our broad-based growth continued in the second quarter as we benefited from solid execution across the business that fueled record sales and profitability above our expectations,' commented Mike Dennison, FOX's Chief Executive Officer. 'FOX's diversified product offerings continued to resonate with our customers, demonstrating our commitment to product innovation and growth of our brands in both existing and new categories. We appreciate the outstanding efforts of our entire global team as we continue to deliver differentiated products to our passionate customer base, reinforcing the value of the FOX brand.'

Sales for the second quarter of fiscal 2019 were $192.1 million, an increase of 22.5% as compared to sales of $156.8 million in the second quarter of fiscal 2018. This increase reflects a 40.1% increase in Powered Vehicles Group sales and a 3.1% increase in Specialty Sports Group sales. The increase in sales across the Company's businesses was primarily due to the continued success of its product lineup, particularly in the Powered Vehicle OEM channel.

Gross margin was 32.4% for the second quarter of fiscal 2019, a 100 basis point decrease from gross margin of 33.4% in the second quarter of fiscal 2018. 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 non-GAAP gross margin was primarily due to a change in customer and product mix as the Company's larger North American OEMs represented a higher proportion of sales. Additionally, we continued to experience manufacturing and supply chain inefficiencies as a result of the increase in demand which negatively impacted gross margins at levels similar to the prior quarter. 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.

Total operating expenses were $32.7 million for the second quarter of fiscal 2019 compared to $28.1 million in the second quarter of fiscal 2018. The increase in operating expenses is primarily due to personnel costs as the Company continued to invest in product innovation, acquisition expenses and operating costs relating to its recently acquired RideTech subsidiary and increases in various other administrative expenses to support FOX's growing business, partially offset by lower patent litigation-related expenses.

As a percentage of sales, operating expenses were 17.0% for the second quarter of fiscal 2019 compared to 17.9% in the second quarter of fiscal 2018. Non-GAAP operating expenses were $29.0 million, or 15.1% of sales in the second quarter of fiscal 2019 compared to $23.7 million, or 15.1% of sales, in the second 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 16.2% in the second quarter of fiscal 2019, compared to a tax rate of 20.0% in the second quarter of fiscal 2018.

Net income attributable to FOX stockholders in the second quarter of fiscal 2019 was $22.9 million, compared to $18.4 million in the second quarter of the prior fiscal year. Earnings per diluted share for the second quarter of fiscal 2019 was $0.59, compared to earnings per diluted share of $0.47 for the second quarter of fiscal 2018.

Non-GAAP adjusted net income was $26.6 million, or $0.68 of adjusted earnings per diluted share, compared to adjusted net income of $21.9 million, or $0.56 of adjusted earnings per diluted share in the same period of last 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 second quarter of fiscal 2019 was $38.2 million, compared to $32.4 million in the second quarter of fiscal 2018. Adjusted EBITDA margin in the second quarter of fiscal 2019 was 19.9%, compared to 20.7% in the second 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.

First Six Months Fiscal Year 2019 Results

Sales for the six months ended June 28, 2019, were $353.8 million, an increase of 23.4% compared to the same period in 2018. Sales of powered vehicle and bike products increased 37.3% and 7.3%, respectively, for the first six months of 2019 compared to the prior year period.

Gross margin was 32.0% in the first six months of fiscal 2019, an 80 basis point decrease, compared to gross margin of 32.8% in the first six months of fiscal 2018. On a non-GAAP basis, adjusted gross margin decreased 50 basis points, excluding the effects of strategic transformation and acquisition related costs. The decrease in year-to-date gross margin was primarily due to a change in customer and product mix as the Company's larger North American OEMs represented a higher proportion of sales. Additionally, FOX incurred inefficiencies in the supply chain and manufacturing associated with 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 first six months of fiscal 2019 was $41.0 million, compared to $39.6 million in the first six months of the prior year. Earnings per diluted share for the first six months of fiscal 2019 was $1.05, compared to $1.02 in the same period of fiscal 2018.

Non-GAAP adjusted net income in the first six months of fiscal 2019 was $48.3 million, or $1.23 of adjusted earnings per diluted share, compared to $36.0 million, or $0.93 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 $68.2 million in the first six months of fiscal 2019, compared to $55.5 million in the first six months of fiscal 2018. Adjusted EBITDA margin of 19.3% in the first six months of fiscal 2019 was unchanged as compared to the first six months of 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 June 28, 2019, the Company had cash and cash equivalents of $39.0 million compared to $28.0 million as of December 28, 2018. Total debt was $77.6 million, compared to $59.4 million as of December 28, 2018. Property, plant and equipment, net was $95.1 million as of June 28, 2019, compared to $64.8 million as of December 28, 2018. The change in property, plant and equipment, includes $17.7 million in lease right of use assets due to the impact of adopting the new lease accounting standards in the first quarter of 2019. Inventory was $136.0 million as of June 28, 2019, compared to $107.1 million as of December 28, 2018. As of June 28, 2019, accounts receivable and accounts payable were $95.7 million and $70.6 million, respectively, compared to December 28, 2018 balances of $78.9 million and $55.1 million, respectively. The changes in inventory, accounts receivable, and accounts payable are primarily attributable to business growth and the Company's normal seasonality.

Fiscal 2019 Guidance

For the third quarter of fiscal 2019, the Company expects sales in the range of $200 million to $208 million and non-GAAP adjusted earnings per diluted share in the range of $0.75 to $0.80.

For the fiscal year 2019, the Company is raising its outlook and now expects sales in the range of $728 million to $743 million and non-GAAP adjusted earnings per diluted share in the range of $2.56 to $2.64. The Company's full year 2019 guidance continues to assume a non-GAAP tax rate range of 15% to 18%.

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 third quarter and full fiscal year 2019 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 13692725. 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, and motorcycles. The Company is a direct supplier to leading power 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. FOX defines non-GAAP operating expense as operating expense adjusted for amortization of purchased intangibles, patent litigation-related expenses, acquisition and integration-related expenses, 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.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
As of As of
June 28, December 28,
2019 2018
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 39,021 $ 27,958
Accounts receivable (net of allowances of $404 and $600 at June 28, 2019 and December 28, 2018, respectively) 95,738 78,882
Inventory 136,005 107,140
Prepaids and other current assets 18,742 17,967
Total current assets 289,506 231,947
Property, plant and equipment, net 95,097 64,788
Deferred tax assets 16,083 15,328
Goodwill 91,661 88,850
Intangibles, net 86,924 83,974
Other assets 502 367
Total assets $ 579,773 $ 485,254
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 70,602 $ 55,086
Accrued expenses 34,302 33,607
Reserve for uncertain tax positions 1,120 1,169
Current portion of long-term debt - 6,923
Total current liabilities 106,024 96,785
Line of credit 77,553 -
Long-term debt, less current portion - 52,503
Other liabilities 11,994 479
Total liabilities 195,571 149,767
Redeemable non-controlling interest 15,022 14,282
Stockholders' equity
Preferred stock, $0.001 par value - 10,000 authorized and no shares issued or outstanding as of June 28, 2019 and December 28, 2018 - -
Common stock, $0.001 par value - 90,000 authorized; 39,274 shares issued and 38,384 outstanding as of June 28, 2019; 38,881 shares issued and 37,991 outstanding as of December 28, 2018 38 38
Additional paid-in capital 123,043 116,019
Treasury stock, at cost; 890 common shares as of June 28, 2019 and December 28, 2018 (13,754 ) (13,754 )
Accumulated other comprehensive loss (629 ) (784 )
Retained earnings 260,482 219,686
Total stockholders' equity 369,180 321,205
Total liabilities, redeemable non-controlling interest and stockholders' equity $ 579,773 $ 485,254
FOX FACTORY HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
For the three months ended For the six months ended
June 28, 2019 June 29, 2018 June 28, 2019 June 29, 2018
Sales $ 192,122 $ 156,825 $ 353,822 $ 286,617
Cost of sales 129,902 104,412 240,545 192,561
Gross profit 62,220 52,413 113,277 94,056
Operating expenses:
Sales and marketing 11,264 9,802 20,526 18,535
Research and development 7,763 6,058 15,066 12,254
General and administrative 12,158 10,779 23,338 19,973
Amortization of purchased intangibles 1,564 1,499 3,057 3,068
Total operating expenses 32,749 28,138 61,987 53,830
Income from operations 29,471 24,275 51,290 40,226
Other expense, net:
Interest expense 1,005 832 1,834 1,631
Other expense (income) 582 (81 ) 569 200
Other expense, net 1,587 751 2,403 1,831
Income before income taxes 27,884 23,524 48,887 38,395
Provision for (benefit of) income taxes 4,522 4,711 7,123 (1,868 )
Net income 23,362 18,813 41,764 40,263
Less: net income attributable to non-controlling interest 441 444 740 670
Net income attributable to FOX stockholders $ 22,921 $ 18,369 $ 41,024 $ 39,593
Earnings per share:
Basic $ 0.60 $ 0.49 $ 1.07 $ 1.05
Diluted $ 0.59 $ 0.47 $ 1.05 $ 1.02
Weighted average shares used to compute earnings per share:
Basic 38,286 37,722 38,164 37,674
Diluted 39,181 38,856 39,140 38,846

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 six months ended June 28, 2019 and June 29, 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 six months ended
June 28, 2019 June 29, 2018 June 28, 2019 June 29, 2018
Net income attributable to FOX stockholders $ 22,921 $ 18,369 $ 41,024 $ 39,593
Amortization of purchased intangibles 1,564 1,499 3,057 3,068
Patent litigation-related expenses 1,144 2,600 3,187 3,944
Other acquisition and integration-related expenses (1) 1,003 215 1,113 463
Strategic transformation costs (2) 686 - 916 -
Tax reform implementation costs (3) 54 90 186 215
Settlement of audit and recognition of tax position (4) - - - (9,838 )
Tax reform legislation impacts (5) - - - 156
Tax impacts of reconciling items above (6) (739 ) (885 ) (1,233 ) (1,565 )
Non-GAAP adjusted net income $ 26,633 $ 21,888 $ 48,250 $ 36,036
Non-GAAP adjusted EPS
Basic $ 0.70 $ 0.58 $ 1.26 $ 0.96
Diluted $ 0.68 $ 0.56 $ 1.23 $ 0.93
Weighted average shares used to compute non-GAAP adjusted EPS
Basic 38,286 37,722 38,164 37,674
Diluted 39,181 38,856 39,140 38,846

(1) Represents various other 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 six months ended
June 28, 2019 June 29, 2018 June 28, 2019 June 29, 2018
Acquisition related costs and expenses $ 575 $ 215 $ 685 $ 463
Finished goods inventory valuation adjustment 428 - 428 -
Other acquisition and integration-related expenses $ 1,003 $ 215 $ 1,113 $ 463

(2) Represents costs incurred to relocate the Specialty Sports Group's U.S. aftermarket bike products distribution, sales and service operations and expand the Powered Vehicles Group's manufacturing operations. For the three and six month periods ended June 28, 2019, $266 and $496, respectively is classified as cost of sales and $420 is classified as operating expenses.

(3) Represents costs and expenses of $54 and $186, and $90 and $215 incurred during the three and six month periods ended June 28, 2019 and June 29, 2018, respectively, 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 six months ended June 28, 2019 and June 29, 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 six months ended
June 28, 2019 June 29, 2018 June 28, 2019 June 29, 2018
Net income $ 23,362 $ 18,813 $ 41,764 $ 40,263
Provision for income taxes 4,522 4,711 7,123 (1,868 )
Depreciation and amortization 4,189 3,473 8,194 6,779
Non-cash stock based compensation 1,621 1,785 3,350 3,831
Patent litigation-related expenses 1,144 2,600 3,187 3,944
Strategic transformation costs (1) 686 - 916 -
Other acquisition and integration-related expenses (2) 1,003 215 1,113 463
Tax reform implementation costs (3) 54 90 186 215
Other expense, net 1,587 751 2,403 1,831
Adjusted EBITDA $ 38,168 $ 32,438 $ 68,236 $ 55,458
Net Income Margin 12.2 % 12.0 % 11.8 % 14.0 %
Adjusted EBITDA Margin 19.9 % 20.7 % 19.3 % 19.3 %

(1) Represents costs incurred to relocate the Specialty Sports Group's U.S. aftermarket bike products distribution, sales and service operations and expand the Powered Vehicles Group's manufacturing operations. For the three and six month periods ended June 28, 2019, $266 and $496, respectively is classified as cost of sales and $420 is classified as operating expenses.

(2) Represents various other 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 six months ended
June 28, 2019 June 29, 2018 June 28, 2019 June 29, 2018
Acquisition related costs and expenses $ 575 $ 215 $ 685 $ 463
Finished goods inventory valuation adjustment 428 - 428 -
Other acquisition and integration-related expenses $ 1,003 $ 215 $ 1,113 $ 463

(3) Represents costs and expenses of $54 and $186, and $90 and $215 incurred during the three and six month periods ended June 28, 2019 and June 29, 2018, respectively, 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 six months ended June 28, 2019 and June 29, 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 six months ended
June 28, 2019 June 29, 2018 June 28, 2019 June 29, 2018
Sales $ 192,122 $ 156,825 $ 353,822 $ 286,617
Gross Profit $ 62,220 $ 52,413 $ 113,277 $ 94,056
Strategic transformation costs (1) 266 - 496 -
Amortization of acquired inventory valuation markup (2) 428 - 428 -
Non-GAAP Adjusted Gross Profit $ 62,914 $ 52,413 $ 114,201 $ 94,056
Gross Margin 32.4 % 33.4 % 32.0 % 32.8 %
Non-GAAP Adjusted Gross Margin 32.7 % 33.4 % 32.3 % 32.8 %

(1) Represents costs incurred to relocate the Specialty Sports Group's U.S. aftermarket bike products distribution, sales and service operations and expand the Powered Vehicles Group's manufacturing operations.

(2) Represents the impact of the finished goods inventory valuation adjustment recorded in connect 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 six months ended June 28, 2019 and June 29, 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 six months ended
June 28, 2019 June 29, 2018 June 28, 2019 June 29, 2018
Sales $ 192,122 $ 156,825 $ 353,822 $ 286,617
Operating Expense $ 32,749 $ 28,138 $ 61,987 $ 53,830
Amortization of purchased intangibles (1,564 ) (1,499 ) (3,057 ) (3,068 )
Patent litigation-related expenses (1,144 ) (2,600 ) (3,187 ) (3,944 )
Tax reform implementation costs (1) (54 ) (90 ) (186 ) (215 )
Other acquisition and integration-related expenses (2) (575 ) (215 ) (685 ) (463 )
Strategic transformation costs (3) (420 ) - (420 ) -
Non-GAAP operating expense $ 28,992 $ 23,734 $ 54,452 $ 46,140
Operating expense as a percentage of sales 17.0 % 17.9 % 17.5 % 18.8 %
Non-GAAP operating expense as a percentage of sales 15.1 % 15.1 % 15.4 % 16.1 %

(1) Represents costs and expenses of $54 and $186, and $90 and $215 incurred during the three and six month periods ended June 28, 2019 and June 29, 2018, respectively, in connection with the Company's implementation of tax reform legislation and related tax restructuring initiatives.

(2) Represents various other acquisition-related costs and expenses incurred to integrate acquired entities into the Company's operations of $575 and $685, and $215 and $463, for the three and six month periods ended June 28, 2019 and June 29, 2018, respectively.

(3) Represents costs incurred to relocate the Specialty Sports Group's U.S. aftermarket bike products distribution, sales and service operations and expand the Powered Vehicles Group's manufacturing operations.

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:
ICRKatie Turner
646-277-1228
[email protected]

Source: Fox Factory Holding Corp.