FOX FACTORY HOLDING CORP 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited condensed consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 1, 2021, as filed with the SEC on February 25, 2021, and our other reports and registration statements that we file with the SEC from time to time. In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section included in Part II, Item 1A. Unless the context otherwise requires, the terms “FOX,” the “Company,” “we,” “us,” and “our” in this Quarterly Report on Form 10-Q refer to Fox Factory Holding Corp. and its operating subsidiaries on a consolidated basis. Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements, which are subject to the “safe harbor” created by Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We may make forward-looking statements in our SEC filings, press releases, news articles, earnings presentations and when we are speaking on behalf of the Company. Forward-looking statements generally relate to future events or our future financial or operating performance that involve substantial risks and uncertainties. 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 the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q are subject to numerous risks and uncertainties, including but not limited to risks related to: • the spread of highly infectious or contagious disease, such as COVID-19, could cause severe disruptions in the U.S. and global economy, which could in turn disrupt the business activities and operations of our customers, as well as our businesses and operations; • our ability to maintain our suppliers for materials, product parts and vehicle chassis without significant supply chain disruptions; • our ability to develop new and innovative products in our current end-markets; • our ability to leverage our technologies and brand to expand into new categories and end-markets; • our ability to increase our aftermarket penetration; • our ability to accelerate international growth; • our exposure to exchange rate fluctuations; • the loss of key customers; • our ability to improve operating and supply chain efficiencies; • our ability to enforce our intellectual property rights; • our future financial performance, including our sales, cost of sales, gross profit or gross margins, operating expenses, ability to generate positive cash flow and ability to maintain our profitability; • our ability to maintain our premium brand image and high-performance products; • our ability to maintain relationships with the professional athletes and race teams we sponsor; • our ability to selectively add additional dealers and distributors in certain geographic markets; • the growth of the markets in which we compete, our expectations regarding consumer preferences and our ability to respond to changes in consumer preferences; • changes in demand for performance-defining products; • the loss of key personnel, management and skilled engineers; • our ability to successfully identify, evaluate and manage potential or completed acquisitions and to benefit from such acquisitions; 27 Table of Contents • the outcome of pending litigation; • future disruptions in the operations of our manufacturing facilities; • our ability to adapt our business model to mitigate the impact of certain changes in tax laws; • changes in the relative proportion of profit earned in the numerous jurisdictions in which we do business and in tax legislation, case law and other authoritative guidance in those jurisdictions; • product recalls and product liability claims; and • future economic or market conditions. You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects and the outcomes of any of the events described in any forward-looking statements are subject to risks, uncertainties, and other factors. In addition to the risks, uncertainties and other factors discussed above and elsewhere in this Quarterly Report on Form 10-Q, the risks, uncertainties and other factors expressed or implied in Part I, Item 1A. "Risk Factors" of our 2020 Annual Report on Form 10-K, as filed with the SEC on February 25, 2021, could cause or contribute to actual results differing materially from those set forth in any forward-looking statement. Moreover, we operate in a very competitive and challenging environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur. Actual results, events, or circumstances could differ materially from those contemplated by, set forth in, or underlying any forward-looking statements. For all of these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements in Section 27A of the Securities Act and Section 21E of the Exchange Act. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. Critical Accounting Policies and Estimates As a result of the enactment of the Tax Cuts and Jobs Act of 2017 (the "TCJA" or "Tax Act") in December 2017, we believe that it is more likely than not that a portion of our foreign tax credits will not be realizable before their expiration and therefore have provided a partial valuation allowance of $7.2 million against that tax asset. We reassess our projections and assumptions regarding the realization of our foreign tax credits periodically as changes in our business and tax regulations occur. To the extent such a valuation allowance is established or reduced in a period, we reflect the change with a corresponding increase or decrease of our income tax provision in our condensed consolidated financial statements. In the first and second quarters of 2021, the Company increased the forecast for additional revenue from Taiwan. The additional revenue is expected to generate foreign tax credits, that the Company believes will result in tax credits carried over from prior periods not to be realizable before their expiration. Therefore, the Company added $3.0 million and $0.6 million to the valuation allowance in the first and second quarters of 2021, respectively. There was no change to the valuation allowance in the third quarter of 2021. There have been no other changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended January 1, 2021, as filed with the SEC on February 25, 2021, that have had a material impact on our condensed consolidated financial statements and related notes. Recent Accounting Pronouncements See Note 1 - Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies to the accompanying notes to unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for further details regarding this topic. 28 Table of Contents Results of Operations The table below summarizes our results of operations: For the three months ended For the nine months ended (in thousands) October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 Sales $ 347,435 $ 260,700 $ 956,735 $ 628,163 Cost of sales 231,417 171,226 631,705 422,088 Gross profit 116,018 89,474 325,030 206,075 Operating expenses: Sales and marketing 17,517 13,667 52,215 38,291 Research and development 12,318 8,514 33,410 24,779 General and administrative 25,614 16,463 70,209 53,443 Amortization of purchased intangibles 5,320 5,277 15,368 13,084 Total operating expenses 60,769 43,921 171,202 129,597 Income from operations 55,249 45,553 153,828 76,478 Interest and other expense, net: Interest expense 1,849 2,291 6,351 7,030 Other (income) expense (187) (189) 855 (57) Interest and other expense, net 1,662 2,102 7,206 6,973 Income before income taxes 53,587 43,451 146,622 69,505 Provision for income taxes 9,764 5,431 20,538 9,555 Net income 43,823 38,020 126,084 59,950 Less: net income attributable to non-controlling interest — — — 1,072 Net income attributable to FOX stockholders $ 43,823 $ 38,020 $ 126,084 $ 58,878 29 Table of Contents The following table sets forth selected statement of income data as a percentage of sales for the periods indicated: For the three months ended For the nine months ended October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 Sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 66.6 65.7 66.0 67.2 Gross profit 33.4 34.3 34.0 32.8 Operating expenses: Sales and marketing 5.0 5.2 5.5 6.1 Research and development 3.5 3.3 3.5 3.9 General and administrative 7.4 6.3 7.3 8.5 Amortization of purchased intangibles 1.5 2.0 1.6 2.1 Total operating expenses 17.5 16.8 17.9 20.6 Income from operations 15.9 17.5 16.1 12.2 Interest and other expense, net: Interest expense 0.5 0.9 0.7 1.1 Other (income) expense (0.1) (0.1) 0.1 — Interest and other expense, net 0.5 0.8 0.8 1.1 Income before income taxes 15.4 16.7 15.3 11.1 Provision for income taxes 2.8 2.1 2.1 1.5 Net income 12.6 14.6 13.2 9.5 Less: net income attributable to non-controlling interest — — — 0.2 Net income attributable to FOX stockholders 12.6 % 14.6 % 13.2 % 9.4 % *Percentages may not foot due to rounding. 30 Table of Contents Three months ended October 1, 2021 compared to three months ended October 2, 2020 Sales For the three months ended (in millions) October 1, 2021 October 2, 2020 Change ($) Change (%) Powered Vehicle products $ 188.0 $ 153.0 $ 35.0 22.8 % Specialty Sports products 159.4 107.7 51.7 48.1 Total sales $ 347.4 $ 260.7 $ 86.7 33.3 % Total sales for the three months ended October 1, 2021 increased approximately $86.7 million, or 33.3%, compared to the three months ended October 2, 2020. Powered Vehicle product sales increased by $35.0 million, or 22.8%, due to strong performance in our upfitting product lines and increased demand in both the original equipment manufacturer ("OEM") and aftermarket channels. Specialty Sports product sales increased by $51.7 million, or 48.1%, due to continued strong demand in the OEM channel. Cost of sales For the three months ended (in millions) October 1, 2021 October 2, 2020 Change ($) Change (%) Cost of sales $ 231.4 $ 171.2 $ 60.2 35.2 % Cost of sales for the three months ended October 1, 2021 increased approximately $60.2 million, or 35.2%, compared to the three months ended October 2, 2020. The increase in cost of sales was primarily due to the 33.3% increase in sales in the same period, as well as certain business factors affecting gross margin, which are discussed below. For the three months ended October 1, 2021, our gross margin decreased 90 basis points to 33.4% compared to 34.3% for the three months ended October 2, 2020. The decrease in gross margin was primarily driven by supply chain related costs, including increased raw materials prices and higher freight costs. Operating expenses For the three months ended (in millions) October 1, 2021 October 2, 2020 Change ($) Change (%) Operating expenses: Sales and marketing $ 17.5 $ 13.7 $ 3.8 27.7 % Research and development 12.3 8.5 3.8 44.7 General and administrative 25.6 16.4 9.2 56.1 Amortization of purchased intangibles 5.3 5.3 — — Total operating expenses $ 60.8 $ 43.9 $ 16.8 38.3 % Total operating expenses for the three months ended October 1, 2021 were $60.8 million compared to $43.9 million for the three months ended October 2, 2020. When expressed as a percentage of total sales, total operating expenses increased to 17.5% of total sales for the three months ended October 1, 2021 compared to 16.8% of total sales in the three months ended October 2, 2020. The increase in operating expenses is primarily due to higher employee related costs, higher commission costs, and higher investments to right-size our administrative support functions. 31 Table of Contents Within operating expenses, our sales and marketing expenses increased approximately $3.8 million primarily due to higher commissions of $3.0 million. Research and development costs increased approximately $3.8 million primarily due to personnel investments to support future growth and product innovation. General and administrative expenses increased by approximately $9.2 million due to higher employee related costs of $4.5 million, as well as increases in various other costs as we continue to expand our administrative support functions. Income from operations For the three months ended (in millions) October 1, 2021 October 2, 2020 Change ($) Change (%) Income from operations $ 55.2 $ 45.6 $ 9.6 21.1 % As a result of the factors discussed above, income from operations for the three months ended October 1, 2021 increased approximately $9.6 million, or 21.1%, compared to income from operations for the three months ended October 2, 2020. Interest and other expense, net For the three months ended (in millions) October 1, 2021 October 2, 2020 Change ($) Change (%) Interest and other expense, net: Interest expense $ 1.8 $ 2.3 $ (0.5) (21.7) % Other (income) expense (0.2) (0.2) — — % Interest and other expense, net $ 1.6 $ 2.1 $ (0.5) (23.8) % Interest and other expense, net for the three months ended October 1, 2021 decreased by $0.5 million to $1.6 million compared to $2.1 million for the three months ended October 2, 2020. The decrease in interest and other expense, net is primarily due to lower interest rates. Income taxes For the three months ended (in millions) October 1, 2021 October 2, 2020 Change ($) Change (%) Provision for income taxes $ 9.8 $ 5.4 $ 4.4 81.5 % The effective tax rate was 18.2% and 12.5% for the three month periods ended October 1, 2021 and October 2, 2020, respectively. For the three months ended October 1, 2021, the difference between the Company's effective tax rate of 18.2% and the 21% federal statutory rate resulted primarily from a lower tax rate on foreign-derived intangible income and a windfall from stock-based compensation. These benefits were partially offset by other non-deductible expenses and state taxes. For the three months ended October 2, 2020, the difference between our effective tax rate of 12.5% and the 21% federal statutory rate resulted primarily from lower foreign tax rates, a lower tax rate on foreign-derived intangible income, research and development credits, realization of foreign tax credits, and excess benefits related to stock-based compensation. These benefits were partially offset by state taxes, global low-tax intangible income and non-deductible expenses. 32 Table of Contents Net income For the three months ended (in millions) October 1, 2021 October 2, 2020 Change ($) Change (%) Net income $ 43.8 $ 38.0 $ 5.8 15.3 % As a result of the factors described above, our net income increased $5.8 million, or 15.3%, to $43.8 million in the three months ended October 1, 2021 from $38.0 million for the three months ended October 2, 2020. Nine months ended October 1, 2021 compared to nine months ended October 2, 2020 Sales For the nine months ended (in millions) October 1, 2021 October 2, 2020 Change ($) Change (%) Powered Vehicle products $ 540.2 $ 372.1 $ 168.1 45.2 % Specialty Sports products 416.6 256.1 160.5 62.7 Total sales $ 956.8 $ 628.2 $ 328.6 52.3 % Total sales for the nine months ended October 1, 2021 increased approximately $328.6 million, or 52.3%, compared to the nine months ended October 2, 2020. Powered Vehicle product sales increased by $168.1 million, or 45.2%, due to increased demand primarily in the aftermarket channel, including strong performance from our upfitting product lines, and the inclusion of a full nine months of revenues from our SCA subsidiary. Additionally, our prior year results were impacted by production shutdowns at a majority of our OEM partners due to the COVID-19 pandemic. Specialty Sports product sales increased by $160.5 million, or 62.7%, drive by increased demand primarily in the OEM channel. Cost of sales For the nine months ended (in millions) October 1, 2021 October 2, 2020 Change ($) Change (%) Cost of sales $ 631.7 $ 422.1 $ 209.6 49.7 % Cost of sales for the nine months ended October 1, 2021 increased approximately $209.6 million, or 49.7%, compared to the nine months ended October 2, 2020. The increase in cost of sales was primarily due to the 52.3% increase in sales in the same period, as well as certain business factors affecting gross margin, which are discussed below. For the nine months ended October 1, 2021, our gross margin increased 120 basis points to 34.0% compared to 32.8% for the nine months ended October 2, 2020. The increase in gross margin was primarily due to higher volume sales in our Specialty Sports Group and the strong performance of our upfitting product lines, as well as favorable product and channel mix. Additionally, our gross margin for the first nine months of the prior fiscal year period was negatively impacted by incremental costs related to the COVID-19 pandemic. 33 Table of Contents Operating expenses For the nine months ended (in millions) October 1, 2021 October 2, 2020 Change ($) Change (%) Operating expenses: Sales and marketing $ 52.2 $ 38.3 $ 13.9 36.3 % Research and development 33.4 24.8 8.6 34.7 General and administrative 70.2 53.4 16.8 31.5 Amortization of purchased intangibles 15.4 13.1 2.3 17.6 Total operating expenses $ 171.2 $ 129.6 $ 41.6 32.1 % Total operating expenses for the nine months ended October 1, 2021 were $171.2 million compared to $129.6 million for the nine months ended October 2, 2020. When expressed as a percentage of total sales, total operating expenses decreased to 17.9% of total sales for the nine months ended October 1, 2021 compared to 20.6% of total sales in the nine months ended October 2, 2020. The increase in operating expenses is primarily due to higher employee related costs, increases in various other costs as we continue to expand our administrative support functions, and the impact of a full nine months of SCA operating costs. These increases were partially offset by lower acquisition-related costs and lower patent litigation-related expenses. Within operating expenses, our sales and marketing expenses increased approximately $13.9 million primarily due to commissions of $8.7 million, employee related expenses of $3.5 million, and various other expenses. Research and development costs increased approximately $8.6 million primarily due to personnel investments to support future growth and product innovation. General and administrative expenses increased by approximately $16.8 million due to higher employee related costs of $15.5 million, as well as various other investments of $9.8 million as we continue to right-size our administrative support functions. These increases were partially offset by lower acquisition-related costs of $9.4 million and lower litigation expenses of $0.9 million. Amortization of purchased intangibles for the nine months ended October 1, 2021 increased by approximately $2.3 million as compared to the nine months ended October 2, 2020. The increase is primarily due to the amortization of intangible assets obtained through our acquisitions of SCA and Outside Van. Income from operations For the nine months ended (in millions) October 1, 2021 October 2, 2020 Change ($) Change (%) Income from operations $ 153.8 $ 76.5 $ 77.3 101.0 % As a result of the factors discussed above, income from operations for the nine months ended October 1, 2021 increased approximately $77.3 million, or 101.0%, compared to income from operations for the nine months ended October 2, 2020. Interest and other expense, net For the nine months ended (in millions) October 1, 2021 October 2, 2020 Change ($) Change (%) Interest and other expense, net: Interest expense $ 6.3 $ 7.0 $ (0.7) (10.0) % Other expense (income) 0.9 (0.1) 1.0 (1,000.0) % Interest and other expense, net $ 7.2 $ 6.9 $ 0.3 4.3 % Interest and other expense, net for the nine months ended October 1, 2021 increased by $0.3 million to $7.2 million compared to $6.9 million for the nine months ended October 2, 2020. The increase in interest and other expense, net is primarily due to higher foreign exchange losses, partially offset by a decrease in interest expense due to the pay down of additional borrowings incurred in the prior year in connection with our March 2020 acquisition of SCA and lower interest rates. 34 Table of Contents Income taxes For the nine months ended (in millions) October 1, 2021 October 2, 2020 Change ($) Change (%) Provision for income taxes $ 20.5 $ 9.6 $ 10.9 113.5 % The effective tax rate was 14.0% and 13.7% for the nine months periods ended October 1, 2021 and October 2, 2020, respectively. For the nine months ended October 1, 2021, the difference between the Company's effective tax rate of 14.0% and the 21% federal statutory rate resulted primarily from a windfall on stock-based compensation and a lower tax rate on foreign-derived intangible income. These benefits were partially offset by an increase in the valuation allowance for foreign tax credits and state taxes. For the nine months ended October 2, 2020, the difference between our effective tax rate of 13.7% and the 21% federal statutory rate resulted primarily from a lower tax rate on foreign-derived intangible income, research and development credits, a negotiated reduction of Switzerland's withholding tax on prior year earnings, and excess tax benefits related to stock-based compensation. These benefits were partially offset by state taxes, global low-tax intangible income and non-deductible expenses. Net income For the nine months ended (in millions) October 1, 2021 October 2, 2020 Change ($) Change (%) Net income $ 126.1 $ 60.0 $ 66.1 110.2 % As a result of the factors described above, our net income increased $66.1 million, or 110.2%, to $126.1 million for the nine months ended October 1, 2021 from $60.0 million for the nine months ended October 2, 2020. 35 Table of Contents Liquidity and Capital Resources Our primary cash needs are to support working capital, capital expenditures, acquisitions, and debt repayments. Historically, we have generally financed our liquidity needs with operating cash flows, borrowings under our Credit Facility and the issuance of common stock. These sources of liquidity may be impacted by various factors, including demand for our products, impacts of the COVID-19 pandemic, investments made by us in acquired businesses, our plant and equipment and other capital expenditures, and expenditures on general infrastructure and information technology. A summary of our operating, investing and financing activities is shown in the following table: For the nine months ended (in thousands) October 1, 2021 October 2, 2020 Net cash provided by operating activities $ 149,309 $ 99,801 Net cash used in investing activities (55,608) (375,409) Net cash (used in) provided by financing activities (20,291) 510,019 Effect of exchange rate changes on cash and cash equivalents 168 99 Change in cash and cash equivalents $ 73,578 $ 234,510 Operating activities Cash provided by operating activities consists of net income, adjusted for certain non-cash items, primarily depreciation and amortization, stock-based compensation, changes in deferred income taxes and uncertain tax positions, amortization of loan fees and net cash invested in working capital. In the nine months ended October 1, 2021, net cash provided by operating activities was $149.3 million and consisted of net income of $126.1 million, plus non-cash items totaling $42.2 million, offset by changes in operating assets and liabilities totaling $19.0 million. Non-cash items and other adjustments consisted of depreciation and amortization of $32.3 million, stock-based compensation of $9.9 million, and amortization of loan fees of $1.2 million, offset by a $1.2 million change in deferred taxes and uncertain tax positions. Our investment in operating assets and liabilities is a result of increased inventory of $116.8 million, and accounts receivable of $37.9 million, partially offset by increases in accounts payable of $66.1 million, accrued expenses of $25.9 million, and income taxes of $8.3 million and a decrease in prepaids and other assets of $35.4 million. The changes in inventory and accounts payable are primarily due to additional raw materials purchases to mitigate risks associated with supply chain uncertainty. The change in accounts receivable reflects business growth. The changes in accrued expenses and income taxes reflect higher compensation related accruals, warranty reserves, sales rebates and income taxes payable due to both business growth, as well as the timing of such payments. The change in prepaids and other assets are primarily due to a decrease in deposits on chassis. In the nine months ended October 2, 2020, net cash provided by operating activities was $99.8 million and consisted of net income of $60.0 million, plus non-cash items totaling $20.4 million and less changes in operating assets and liabilities totaling $19.5 million. Non-cash items and other adjustments consisted of depreciation and amortization of $24.8 million, stock-based compensation of $6.4 million, and amortization of loan fees of $1.1 million, offset by a $11.9 million change in deferred taxes and uncertain tax positions. Our investment in operating assets and liabilities is a result of increased prepaids and other current assets of $14.7 million, accounts receivable of $12.6 million, and inventory of $0.6 million, offset by increases in accounts payable of $36.7 million, accrued expenses of $7.5 million, and income taxes of $3.2 million. The change in prepaids and other current assets is primarily due to deposits on chassis and acquisition-related compensation payments held in escrow, both related to our SCA subsidiary acquisition in March 2020. The changes in inventory, accounts receivable, and accounts payable reflect seasonality as well as timing of vendor payments. The changes in accrued expenses and income taxes are primarily attributable to the timing of rebate payments and the timing of tax payments, respectively. Investing activities Cash used in investing activities primarily relates to strategic acquisitions of businesses and other assets and investments in our manufacturing and general infrastructure through the procurement of property and equipment. In the nine months ended October 1, 2021 and October 2, 2020, net cash used in investing activities was $55.6 million and $375.4 million, respectively. Investing activities for the nine months ended October 1, 2021 consisted of $40.0 million of property and equipment additions and $15.6 million of cash consideration for our purchases of Outside Van and Sola Sport Pty Ltd. Our investing activities for the nine months ended October 2, 2020 consisted of $329.2 million of cash consideration for our acquisition of SCA, $46.0 million of property and equipment additions and $0.3 million of acquisition of other assets. 36 Table of Contents Financing activities Cash used in or provided by financing activities primarily relates to various forms of debt and equity instruments used to finance our business. In the nine months ended October 1, 2021, net cash used in financing activities was $20.3 million, which consisted of payments of $6.6 million to repurchase shares of our common stock, net of proceeds from the exercise of stock options, payments on our term debt of $10.0 million, and $3.7 million in installment payments related to the purchase of the Tuscany non-controlling interest. Refer to Note 9 - Commitments and Contingencies for additional information on our purchase of the Tuscany non-controlling interest. In the nine months ended October 2, 2020, net cash provided by financing activities was $510.0 million, which consisted of $392.4 million in proceeds, net of issuance costs, from our Credit Facility, which was amended and restated in connection with our acquisition of SCA, partially offset by net payments of $68.0 million on our line of credit and payments on our term debt of $5.0 million. In addition, we received $198.2 million from our June 2020 issuance of common stock. These inflows were partially offset by $4.6 million to repurchase shares of our common stock as part of our stock-based compensation program and $3.0 million in installment payments related to the purchase of the Tuscany non-controlling interest. Credit Facility In June 2019, the Company entered into a credit facility with Bank of America and other named lenders, which was amended and restated on March 11, 2020, and further amended on June 19, 2020 and June 11, 2021 (as amended to date, the "Credit Facility"). The Credit Facility, which matures on March 11, 2025, provides a senior secured revolving line of credit with a borrowing capacity of $250.0 million and a term loan of $400.0 million. The term loan is subject to quarterly amortization payments. The Company paid $7.6 million in debt issuance costs, of which $6.5 million were allocated to the term debt and $1.2 million were allocated to the line of credit. Additionally, the Company had $0.4 million of remaining unamortized debt issuance costs. The Company expensed $0.3 million of the remaining unamortized debt issuance costs, which are included in interest and other expense, net on the Condensed Consolidated Statements of Income for the nine months ended October 2, 2020. The remaining $0.2 million were allocated to the line of credit. All loan fees allocated to the term debt will be amortized using the interest method, and all loan fees allocated to the line of credit will be amortized on a straight-line basis over the term of the Credit Facility. The Credit Facility provides for interest at a rate either based on the London Interbank Offered Rate ("LIBOR"), plus a margin ranging from 1.00% to 2.25%, with a floor rate of 0.00% or based on the base rate offered by Bank of America plus a margin ranging from 0.00% to 1.25%. At October 1, 2021, the one-month LIBOR and prime rates were 0.08% and 3.25%, respectively. At October 1, 2021, our weighted-average interest rate on outstanding borrowing was 1.30%. The Credit Facility is secured by substantially all of the Company’s assets, restricts the Company's ability to make certain payments and engage in certain transactions, and requires that the Company satisfy customary financial ratios. The Company was in compliance with the covenants as of October 1, 2021. Off-Balance Sheet Arrangements We have no material off-balance sheet arrangements. Inflation Historically, inflation has not had a material effect on our results of operations. However, we have recently experienced a rise in raw material costs, supply constraints, labor availability issues and logistical cost increases and our expectation is that these impacts will continue into the fourth quarter of 2021. While we are currently taking actions to mitigate these impacts, should these actions be unsuccessful or should such costs exceed what we can effectively mitigate, our business, financial condition and results of operations could be adversely impacted. 37 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes to the disclosures discussed in the section “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended January 1, 2021, as filed with the SEC on February 25, 2021.