If you've ever seen a mountain biker hauling full-tilt over
rocks and ruts, or an ATV driver barrel over terrain you wouldn't
ride a mule on, you understand the importance of suspension
Without proper suspension, these folks would go flipping head
over hindquarters quicker than you can say "X Games."
For the best riders and drivers, not any kind of suspension
will do. They spend a lot of money on high-end bikes and
vehicles, and expect the best parts and systems in return.
This is the marketFox Factory Holding (
Fox Factory designs and makes high-performance suspension
products for mountain bikes, snowmobiles, motorcycles and other
on- and off-road vehicles. It aims for the high end of the market
-- bikes and vehicles ridden by racing pros and other serious
"Most of Fox's customers on the bike side are real avid
riders," said Lawrence Solow, an analyst at CJS Securities, which
co-managed Fox Factory's Aug. 8 initial public offering on the
These are not your weekend warriors out to sweat off a few
extra calories for a couple of hours.
"About 5% of their customers are professionals, but the others
also race or ride competitively," Solow said. "These are
customers who always aspire to have the best product."
Fox gets most of its business from original equipment
manufacturers. Its key customers include Trek and Cannondale in
the mountain bike market, andFord (
) andPolaris (
) in powered vehicles.
Big In The Best Bikes
About two-thirds of Fox's revenue come from its mountain bike
division. In this segment, Fox offers front fork and rear
suspension products. Solow estimates that the company has close
to 70% market share in the "high-end," or top quartile, of the
3.5 million suspended mountain bikes sold globally.
"They are taking more share in high-end retail bikes," Solow
said. "They dominate that market in terms of suspension."
Fox also has a dominant position in certain powered vehicle
categories. The company holds an estimated 75% of the suspension
market for side-by-side vehicles, which are ATVs that hold two
passengers instead of one.
It also dominates the suspension market for a category known
as on-road pickup trucks with off-road capabilities, Solow says.
For that, Fox can thank its deal to supply suspension products
for Ford's F-150 SVT Raptor, which was introduced in 2010.
Fox's products are sold to around 150 OEMs (original equipment
manufacturers) and distributed to more than 2,300 retail dealers.
OEM customers account for about 81% of overall revenue.
Most of Fox's competition comes from privately held companies.
In mountain bikes, key rivals include Manitou Products, Marzocchi
and RockShox. Its main competitors in powered vehicles include
KYB, Sachs and Walker Evans Racing.
One of Fox's competitive advantages is its ability to keep
coming up with new designs, analysts say. The company was founded
in 1974 by Robert Fox, an engineer and motocross rider who
designed an "AirShox" system in his garage as a way of improving
on the performance of traditional coil springs.
In the years since, Fox Factory has earned a reputation for
"It has been first to market with numerous innovative new
product offerings. In addition, Fox has been able to leverage its
expertise to address a broader range of end-markets and a variety
of vehicles," Jon Andersen, analyst at William Blair, noted in a
Sept. 3 report initiating coverage on Fox Factory.
He points to Fox Factory's success in the premium segment of
the all-terrain vehicle category, which "preceded the widespread
adoption of Fox suspension technology in the recreational
Innovating The Ride
In 2012, Fox Factory launched more than 20 new products and
got over 70% of its revenue from products introduced over the
preceding three years.
Those products include the Podium RC3 for motocross bikes. The
RC3 allows riders to make external adjustments so the shock can
be tuned for different skill levels, terrain and racing type.
Another product, the ECS shock, boasts an external cooling
system that can significantly lower temperatures, which lets
powered vehicles operate at higher speeds for extended
New product introductions have helped Fox Factory more than
double its annual revenue over the past four years. The company
is on track to log nearly $270 million in sales this year, up
from $236 million in 2012.
Fox went public with an offering price of 15. It closed its
first day of trading at 18.61, a 24% gain. Shares currently trade
On Sept. 19, the company reported second-quarter results. It
posted sales of $70.3 million, up 16% from the prior year. Net
income climbed 32% to $5.7 million, while gross margin increased
190 basis points to 29.0%.
In a statement, CEO Larry Enterline said Fox Factory
"identified several areas" for future margin improvement, though
he didn't name which areas.
Over the past several years, the company has traded margin
growth for more manufacturing capacity in order to meet sales
demand, analyst Solow says. This increased production has led to
"rising inefficiencies," including excess staff, freight and
While Fox Factory works to improve its efficiency and margins,
it also has "multiple pathways for growth," Andersen notes.
He cites growth in existing product categories and market
share, expansion into new product categories and geographic
markets, and opportunities to move into other price
Fox is the sixth largest firm in IBD's Leisure-Products
industry group, afterHarley Davidson (
), Polaris,Brunswick Corp. (
),Tumi Holdings (TUMI) andArctic Cat (ACAT).