What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-05 · 131 added, 68 removed, 159 unchanged (56% of the section changed)

15 unchanged sentences

and global economy, which could in turn disrupt the business activities and operations of our customers, as well as our businesses and operations;

• changes in general economic conditions, including market and macro-economic disruptions resulting from the Russian invasion of Ukraine;

• changes in general economic conditions, including market and macro-economic disruptions resulting from escalating tensions between China and Taiwan, the Russian invasion of Ukraine or due to growing inflation or higher interest rates;

• our dependency on a limited number of suppliers for materials, product parts, and vehicle chassis could lead to an increase in material costs, disruptions in our supply chain, or reputational costs;

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The table below summarizes our results of operations:

For the three months ended

(in thousands) April 1, 2022 April 2, 2021

For the three months ended For the six months ended

(in thousands) July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

Sales $ 406,705 $ 328,164 $ 784,682 $ 609,300

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The following table sets forth selected statement of income data as a percentage of sales for the periods indicated:

For the three months ended

April 1, 2022 April 2, 2021

For the three months ended For the six months ended

July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

Sales 100.0 % 100.0 % 100.0 % 100.0 %

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*Percentages may not foot due to rounding.

Three months ended April 1, 2022 compared to three months ended April 2, 2021

Three months ended July 1, 2022 compared to three months ended July 2, 2021

For the three months ended

(in millions) April 1, 2022 April 2, 2021 Change ($) Change (%)

(in millions) July 1, 2022 July 2, 2021 Change ($) Change (%)

Powered Vehicle products $ 229.0 $ 189.5 $ 39.5 20.9 %

1 unchanged sentence

Total sales $ 406.7 $ 328.2 $ 78.5 23.9 %

Total sales for the three months ended April 1, 2022 increased approximately $96.9 million, or 34.4%, compared to the three months ended April 2, 2021.

Specialty Sports product sales increased by $51.5 million, or 43.5%, due to continued strong demand in both the OEM and aftermarket channels.

Total sales for the three months ended July 1, 2022 increased approximately $78.5 million, or 23.9%, compared to the three months ended July 2, 2021.

Specialty Sports product sales increased by $39.0 million, or 28.1%, due to continued strong demand in the OEM channel.

Powered Vehicle product sales increased by $39.5 million, or 20.9%, due to strong performance in our upfitting product lines.

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For the three months ended

(in millions) April 1, 2022 April 2, 2021 Change ($) Change (%)

(in millions) July 1, 2022 July 2, 2021 Change ($) Change (%)

Cost of sales $ 263.8 $ 217.1 $ 46.7 21.5 %

Cost of sales for the three months ended April 1, 2022 increased approximately $74.5 million, or 40.7%, compared to the three months ended April 2, 2021.

Cost of sales for the three months ended July 1, 2022 increased approximately $46.7 million, or 21.5%, compared to the three months ended July 2, 2021.

The increase in cost of sales was primarily due to the 23.9% 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 April 1, 2022, our gross margin decreased 300 basis points to 31.8% compared to 34.8% for the three months ended April 2, 2021.

The decrease in gross margin was primarily driven by continued increases in supply chain related costs, including increased prices for raw materials and freight.

Additionally, the completion of the planned shutdown of our Watsonville, California facility and transition of those production lines resulted in inefficiencies as we ramp up our Gainesville, Georgia facility.

For the three months ended July 1, 2022, our gross margin increased 120 basis points to 35.1% compared to 33.9% for the three months ended July 2, 2021.

The increase in gross margin was primarily due to favorable product mix and improved factory efficiencies.

Operating expenses

For the three months ended

(in millions) April 1, 2022 April 2, 2021 Change ($) Change (%)

(in millions) July 1, 2022 July 2, 2021 Change ($) Change (%)

Operating expenses:

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Total operating expenses $ 72.5 $ 58.4 $ 14.1 24.1 %

Total operating expenses for the three months ended April 1, 2022 were $66.1 million compared to $52.1 million for the three months ended April 2, 2021.

The increase in operating expenses is primarily due to higher employee related costs, higher commission costs, and higher insurance and facility-related expenses.

When expressed as a percentage of total sales, total operating expenses were 17.5% for the three months ended April 1, 2022, a decrease of 100 basis points, compared to 18.5% of total sales in the three months ended April 2, 2021.

Within operating expenses, sales and marketing expenses increased approximately $5.7 million primarily due to higher commissions and marketing related expenses.

Total operating expenses for the three months ended July 1, 2022 were $72.5 million compared to $58.4 million for the three months ended July 2, 2021.

The increase in operating expenses is primarily due to higher employee related costs, higher insurance and facility-related expenses, and higher commission costs.

Within operating expenses, sales and marketing expenses increased approximately $6.4 million primarily due to higher commissions of $2.4 million and higher employee related costs of $1.7 million.

Research and development costs increased approximately $3.0 million primarily due to personnel investments to support future growth and product innovation.

General and administrative expenses increased by approximately $5.2 million due to higher employee related costs of $2.1 million, higher insurance and facility related costs of $2.2 million, as well as increases in various other costs.

General and administrative expenses increased by approximately $4.1 million due to higher employee related costs of $2.9 million, as well as increases in insurance and other facilities-related expenses.

Income from operations

For the three months ended

(in millions) April 1, 2022 April 2, 2021 Change ($) Change (%)

(in millions) July 1, 2022 July 2, 2021 Change ($) Change (%)

Income from operations $ 70.5 $ 52.7 $ 17.8 33.8 %

As a result of the factors discussed above, income from operations for the three months ended April 1, 2022 increased approximately $8.3 million, or 18.1%, compared to income from operations for the three months ended April 2, 2021.

As a result of the factors discussed above, income from operations for the three months ended July 1, 2022 increased approximately $17.8 million, or 33.8%, compared to income from operations for the three months ended July 2, 2021.

Interest and other expense, net

For the three months ended

(in millions) April 1, 2022 April 2, 2021 Change ($) Change (%)

(in millions) July 1, 2022 July 2, 2021 Change ($) Change (%)

Interest and other expense, net:

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Interest and other expense, net $ 4.5 $ 1.7 $ 2.8 164.7 %

Interest and other expense, net for the three months ended April 1, 2022 decreased by $0.2 million to $3.7 million compared to $3.9 million for the three months ended April 2, 2021.

Interest and other expense, net for the three months ended July 1, 2022 increased by $2.8 million to $4.5 million compared to $1.7 million for the three months ended July 2, 2021.

The increase in other expense, net is primarily due to $1.9 million of unamortized loan fees that were written off in the second quarter of fiscal year 2022 upon the refinancing of our Prior Credit Facility, as well as losses on foreign currency translation.

For the three months ended

(in millions) April 1, 2022 April 2, 2021 Change ($) Change (%)

(in millions) July 1, 2022 July 2, 2021 Change ($) Change (%)

Provision for income taxes $ 12.5 $ 6.8 $ 5.7 83.8 %

The effective tax rates were 4.8% and 9.5% for the three month periods ended April 1, 2022 and April 2, 2021, respectively.

For the three months ended April 1, 2022, the difference between the Company's effective tax rate of 4.8% and the 21% federal statutory rate resulted primarily from the impact of the recently finalized U.S.

tax regulations published by the U.S Treasury and Internal Revenue Service on January 4, 2022.

These regulations limit the amount of newly generated foreign taxes that are creditable against U.S income taxes which resulted in a release of the Company’s valuation allowance against foreign tax credits due to the Company's ability to use foreign tax credit carryforwards that had previously been reserved against.

This benefit was partially offset by state taxes and other nondeductible expenses.

For the three months ended April 2, 2021, the difference between our effective tax rate of 9.5% and the 21% federal statutory rate resulted primarily from windfall on stock-based compensation, the recognition of uncertain tax positions due to the conclusion of an audit 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, state taxes and nondeductible expenses.

The effective tax rates were 18.9% and 13.3% for the three month periods ended July 1, 2022 and July 2, 2021, respectively.

For the three months ended July 1, 2022, the difference between the Company's effective tax rate of 18.9% and the 21% federal statutory rate resulted primarily from a lower tax rate on foreign derived intangible income and excess benefits related to stock-based compensation.

The benefits were partially offset by withholding and state taxes.

For the three months ended July 2, 2021, the difference between our effective tax rate of 13.3% and the 21% federal statutory rate resulted primarily from excess benefits related to stock-based compensation and a lower tax rate on foreign derived intangible income.

These benefits were partially offset by state taxes, an increase in the valuation allowance for foreign tax credits and non-deductible expenses.

For the three months ended

(in millions) April 1, 2022 April 2, 2021 Change ($) Change (%)

(in millions) July 1, 2022 July 2, 2021 Change ($) Change (%)

Net income $ 53.5 $ 44.3 $ 9.2 20.8 %

As a result of the factors described above, our net income increased $10.1 million, or 26.6%, to $48.1 million in the three months ended April 1, 2022 from $38.0 million for the three months ended April 2, 2021.

As a result of the factors described above, our net income increased $9.2 million, or 20.8%, to $53.5 million in the three months ended July 1, 2022 from $44.3 million for the three months ended July 2, 2021.

Six months ended July 1, 2022 compared to six months ended July 2, 2021

For the six months ended

(in millions) July 1, 2022 July 2, 2021 Change ($) Change (%)

Powered Vehicle products $ 437.1 $ 352.2 $ 84.9 24.1 %

Specialty Sports products 347.6 257.1 90.5 35.2

Total sales $ 784.7 $ 609.3 $ 175.4 28.7 %

Total sales for the six months ended July 1, 2022 increased approximately $175.4 million, or 28.7%, compared to the six months ended July 2, 2021.

Specialty Sports product sales increased by $90.5 million, or 35.2%, due to continued strong demand in the OEM channel.

Powered Vehicle product sales increased by $84.9 million, or 24.1%, due to strong performance in our upfitting product lines.

Cost of sales

For the six months ended

(in millions) July 1, 2022 July 2, 2021 Change ($) Change (%)

Cost of sales $ 521.5 $ 400.3 $ 121.2 30.3 %

Cost of sales for the six months ended July 1, 2022 increased approximately $121.2 million, or 30.3%, compared to the six months ended July 2, 2021.

The increase in cost of sales was primarily due to the 28.7% increase in sales in the same period, as well as certain business factors affecting gross margin, which are discussed below.

For the six months ended July 1, 2022, our gross margin decreased 80 basis points to 33.5% compared to 34.3% for the six months ended July 2, 2021.

The decrease in gross margin was primarily driven by continued increases in supply chain related costs, including increased prices for raw materials and freight.

Operating expenses

For the six months ended

(in millions) July 1, 2022 July 2, 2021 Change ($) Change (%)

Operating expenses:

Sales and marketing $ 46.8 $ 34.7 $ 12.1 34.9 %

Research and development 26.9 21.1 5.8 27.5

General and administrative 54.0 44.6 9.4 21.1

Amortization of purchased intangibles 10.9 10.0 0.9 9.0

Total operating expenses $ 138.6 $ 110.4 $ 28.2 25.5 %

Total operating expenses for the six months ended July 1, 2022 were $138.6 million compared to $110.4 million for the six months ended July 2, 2021.

The increase in operating expenses is primarily due to higher employee related costs and insurance and facility related expenses, partially offset by lower acquisition-related compensation.

Within operating expenses, sales and marketing expenses increased approximately $12.1 million primarily due to higher commissions of $5.0 million, employee related costs of $3.8 million, and marketing related expenses of $2.9 million.

Research and development costs increased approximately $5.8 million primarily due to personnel investments to support future growth and product innovation.

General and administrative expenses increased by approximately $9.4 million due to higher employee related costs of $4.4 million and higher insurance and facility related costs of $6.2 million, which were partially offset by lower acquisition related compensation and other related costs.

Income from operations

For the six months ended

(in millions) July 1, 2022 July 2, 2021 Change ($) Change (%)

Income from operations $ 124.6 $ 98.6 $ 26.0 26.4 %

As a result of the factors discussed above, income from operations for the six months ended July 1, 2022 increased approximately $26.0 million, or 26.4%, compared to income from operations for the six months ended July 2, 2021.

Interest and other expense, net

For the six months ended

(in millions) July 1, 2022 July 2, 2021 Change ($) Change (%)

Interest and other expense, net:

Interest expense $ 3.7 $ 4.5 $ (0.8) (17.8) %

Other expense, net 4.5 1.0 3.5 350.0 %

Interest and other expense, net $ 8.2 $ 5.5 $ 2.7 49.1 %

Interest and other expense, net for the six months ended July 1, 2022 increased by $2.7 million to $8.2 million compared to $5.5 million for the six months ended July 2, 2021.

For the six months ended

(in millions) July 1, 2022 July 2, 2021 Change ($) Change (%)

Provision for income taxes $ 14.9 $ 10.8 $ 4.1 38.0 %

The effective tax rates were 12.8% and 11.6% for the six month periods ended July 1, 2022 and July 2, 2021, respectively.

For the six months ended July 1, 2022, the difference between the Company's effective tax rate of 12.8% and the 21% federal statutory rate resulted primarily from the impact of the recently finalized U.S.

tax regulations published by the U.S.

Treasury and Internal Revenue Service on January 4, 2022 and from a lower tax rate on foreign derived intangible income.

These regulations limit the amount of newly generated foreign taxes that are creditable against U.S.

income taxes, which resulted in a release of the Company’s valuation allowance against foreign tax credits due to the Company's ability to use foreign tax credit carryforwards that had previously been reserved against.

These benefits were partially offset by withholding and state taxes.

For the six months ended July 2, 2021, the difference between our effective tax rate of 11.6% and the 21% federal statutory rate resulted primarily from excess benefits related to stock-based compensation, a lower tax rate on foreign derived intangible income and a benefit resulting from the conclusion of an audit.

These benefits were partially offset by an increase in the valuation allowance for foreign tax credits, state taxes and non-deductible expenses.

For the six months ended

(in millions) July 1, 2022 July 2, 2021 Change ($) Change (%)

Net income $ 101.5 $ 82.3 $ 19.2 23.3 %

As a result of the factors described above, our net income increased $19.2 million, or 23.3%, to $101.5 million in the six months ended July 1, 2022 from $82.3 million for the six months ended July 2, 2021.

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 Prior Credit Facility and the issuance of common stock.

Historically, we have generally financed our liquidity needs with operating cash flows, borrowings under our Prior Credit Facility and our 2022 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.

As of April 1, 2022, we held $43.8 million of our $68.8 million of cash and cash equivalents in accounts of our subsidiaries outside of the U.S., which we may repatriate.

As of July 1, 2022, we held $31.8 million of our $108.6 million of cash and cash equivalents in accounts of our subsidiaries outside of the U.S., which we may repatriate.

We manage our foreign cash, intercompany payables and intercompany debt to provide a foreign currency hedge against U.S.

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A summary of our operating, investing and financing activities is shown in the following table:

For the three months ended

(in thousands) April 1, 2022 April 2, 2021

For the six months ended

(in thousands) July 1, 2022 July 2, 2021

Net cash (used in) provided by operating activities $ (85,400) $ 81,366

5 unchanged sentences

Operating activities

In the three months ended April 1, 2022, net cash used in operating activities was $143.1 million and consisted of net income of $48.1 million, plus non-cash items totaling $5.2 million, offset by changes in operating assets and liabilities totaling $196.4 million.

Non-cash items and other adjustments consisted of depreciation and amortization of $11.9 million, stock-based compensation of $3.0 million, and amortization of loan fees of $0.4 million, offset by a $10.1 million change in deferred taxes.

Our investment in operating assets and liabilities is a result of increases in prepaids and other assets of $171.3 million, accounts receivable of $37.7 million, inventory of $37.5 million, and decreases in income taxes of $5.0 million and accrued expenses of $3.5 million, partially offset by an increase in accounts payable of $58.6 million.

Cash used in or provided by operating activities consists of net income, adjusted for certain non-cash items, primarily depreciation and amortization, stock-based compensation, the write off of unamortized loan origination fees, amortization of loan fees, amortization of swap settlements, changes in the fair value of interest rate swaps, changes in deferred income taxes and uncertain tax positions and net cash invested in working capital.

In the six months ended July 1, 2022, net cash used in operating activities was $85.4 million and consisted of net income of $101.5 million, plus non-cash items totaling $21.8 million, offset by changes in operating assets and liabilities totaling $208.7 million.

Non-cash items and other adjustments consisted of depreciation and amortization of $24.5 million, stock-based compensation of $7.1 million, the write off of unamortized loan origination fees of $1.9 million, the amortization of loan fees of $0.6 million, partially offset by a $9.3 million change in deferred taxes, changes in interest rate swap fair value of $1.9 million, and the amortization of swap settlements of $1.1 million.

Our investment in operating assets and liabilities is a result of increases in prepaids and other assets of $146.2 million, inventory of $74.8 million, accounts receivable of $57.4 million, and decreases in income taxes of $5.1 million, partially offset by an increase in accounts payable of $68.7 million and accrued expenses of $6.1 million.

The change in prepaids and other assets is due to increased chassis deposits to secure supply for our upfitting business for the remainder of the year.

The change in inventory is due to additional raw materials purchases to mitigate risks associated with supply chain uncertainty.

The change in inventory is due to several factors, including receipt of long lead time items that had been delayed, higher levels of safety stock to mitigate uncertainty and the result of normal growth to meet anticipated demand.

The changes in accounts receivable and accounts payable reflect business growth and the timing of vendor payments.

The changes in accrued expenses and income taxes reflect lower compensation related accruals and income taxes payable due to business growth and the timing of such payments.

In the three months ended April 2, 2021, net cash provided by operating activities was $66.1 million and consisted of net income of $38.0 million, plus non-cash items totaling $12.6 million and changes in operating assets and liabilities totaling $15.5 million.

Non-cash items and other adjustments consisted of depreciation and amortization of $10.1 million, stock-based compensation of $2.5 million, and amortization of loan fees of $0.4 million, offset by a $0.4 million change in deferred taxes and uncertain tax positions.

Our investment in operating assets and liabilities is a result of increased inventory of $40.1 million, and accounts receivable of $16.6 million, offset by a decrease in prepaids and other current assets of $33.3 million, and increases in accounts payable of $33.7 million, accrued expenses of $2.9 million, and income taxes of $2.3 million.

The decrease in prepaids and other current assets is primarily due to timing of chassis deposits at our SCA and Tuscany subsidiaries.

The changes in inventory, accounts receivable, and accounts payable reflect business growth.

The change in income taxes and accrued expenses is due to normal business growth and the timing of vendor and tax payments.

In the six months ended July 2, 2021, net cash provided by operating activities was $81.4 million and consisted of net income of $82.3 million, plus non-cash items totaling $27.0 million, offset by changes in operating assets and liabilities totaling $27.9 million.

Non-cash items and other adjustments consisted of depreciation and amortization of $21.4 million, stock-based compensation of $5.9 million, and amortization of loan fees of $0.8 million, offset by a $0.6 million change in deferred taxes and uncertain tax positions and changes in interest rate swap fair value of $0.5 million.

Our investment in operating assets and liabilities is a result of increased inventory of $79.2 million, accounts receivable of $28.3 million, and prepaids and other current assets of $0.8 million, partially offset by increases in accounts payable of $63.5 million, accrued expenses of $14.6 million, and income taxes of $2.3 million.

The change in inventory is primarily due to additional raw materials purchases to mitigate risks associated with supply chain uncertainty.

The changes in accounts receivable and accounts payable reflect normal business growth.

The changes in accrued expenses and income taxes are primarily attributable to the timing of rebate payments and the timing of tax payments, respectively.

1 unchanged sentence

Cash used in investing activities primarily relates to investments in our manufacturing and general infrastructure through the procurement of property and equipment.

In the three months ended April 1, 2022 and April 2, 2021, net cash used in investing activities consisted of $8.2 million and $16.9 million in property and equipment additions, respectively.

In the six months ended July 1, 2022 and July 2, 2021, net cash used in investing activities consisted of $19.9 million and $43.3 million, respectively.

Investing activities for the six months ended July 1, 2022 consisted of $19.9 million of property and equipment additions.

Investing activities for the six months ended July 2, 2021 consisted of of $27.6 million of property and equipment additions and $15.6 million of cash consideration for our purchases of Outside Van and Sola Sport Pty Ltd.

Financing activities

Cash provided by or used in financing activities primarily relate to various forms of debt and equity instruments used to finance our business.

In the three months ended April 1, 2022, net cash used in financing activities was $38.6 million, which consisted of net proceeds from our Prior Credit Facility of $42.9 million, which were partially offset by payments on our term debt of $2.5 million, $0.9 million in installment payments related to the purchase of the Tuscany non-controlling interest and payments of $0.8 million to repurchase shares of our common stock, net of proceeds from our stock-based compensation program.

Refer to Note 9 - Commitments and Contingencies for additional information on our purchase of the Tuscany non-controlling interest.

In the three months ended April 2, 2021, net cash used in financing activities was $3.8 million, which consisted of payments on our term debt of $2.5 million and $1.9 million in installment payments related to the purchase of the Tuscany non-controlling interest.

These outflows were partially offset by $0.6 million in net proceeds received as part of our stock-based compensation program.

In the six months ended July 1, 2022, net cash provided by financing activities was $32.3 million, and consisted of net proceeds from our 2022 Credit Facility of $582.4 million, which was used to refinance our Prior Credit Facility, and proceeds from the termination of our 2021 Swap Agreement of $12.3 million.

These changes were partially offset by the repayment of our term debt upon the refinancing of our Prior Credit Facility of $382.5 million, payments made on our line of credit of $174.3 million, payments of $3.8 million to repurchase shares of our common stock, net of proceeds from our stock-based compensation program, and $1.8 million in installment payments related to the purchase of the Tuscany non-controlling interest.

In the six months ended July 2, 2021, net cash used in financing activities was $9.3 million, which consisted of payments of $5.0 million to repurchase shares of our common stock, net of proceeds from the exercise of stock options, payments on our term debt of $5.0 million, and $2.8 million in installment payments related to the purchase of the Tuscany non-controlling interest.

These outflows were partially offset by net proceeds of $3.2 million from our line of credit and $0.3 million in proceeds received from the termination of our 2020 Swap Agreement.

Prior Credit Facility

The Prior Credit Facility (which was terminated on April 5, 2022 and replaced with the 2022 Credit Facility (as discussed below)), would have matured on March 11, 2025, and provided a senior secured revolving line of credit with a borrowing capacity of $250.0 million and a term loan of $400.0 million.

In June 2019, the Company entered into a credit facility with Bank of America and other named lenders, which was periodically amended and restated and/or amended.

The credit facility was amended and restated on March 11, 2020, and further amended on June 19, 2020, and June 11, 2021 (as amended, the "Prior Credit Facility").

The term loan was 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.

The remaining $0.2 million were allocated to the line of credit.

Loan fees allocated to the term debt were amortized using the interest method and loan fees allocated to the line of credit were amortized on a straight-line basis over the term of the Prior Credit Facility.

The Prior Credit Facility provided 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 April 1, 2022, the one-month LIBOR and prime rates were 0.44% and 3.50%, respectively.

At April 1, 2022, our weighted-average interest rate on outstanding borrowing was 1.68%.

The Prior Credit Facility was secured by substantially all of the Company’s assets, restricted the Company's ability to make certain payments and engage in certain transactions, and required that the Company satisfy customary financial ratios.

The Company was in compliance with the covenants as of April 1, 2022.

2022 Credit Facility

On April 5, 2022, the Company entered into the a new credit agreement with Wells Fargo Bank, National Association, and other named lenders (the "2022 Credit Facility"), and concurrently repaid in full and terminated the Prior Credit Facility.

On April 5, 2022, the Company entered into a new credit agreement with Wells Fargo Bank, National Association, and other named lenders (the "2022 Credit Facility"), and concurrently repaid in full and terminated the Prior Credit Facility.

The 2022 Credit Facility, which matures on April 5, 2027, provides for revolving loans, swingline loans and letters of credit up to an aggregate amount of $650.0 million.

Refer to Note 16 - Subsequent Events for further details of the 2022 Credit Facility.

The Company paid $2.0 million in debt issuance costs in connection with the 2022 Credit Facility, which were allocated to the line of credit and amortized on a straight-line basis over the term of the facility.

Additionally, the Company had $4.5 million of remaining unamortized debt issuance costs related to the Prior Credit Facility.

The Company expensed $1.9 million of the remaining unamortized debt issuance costs and allocated $2.5 million to the 2022 Credit Facility.

The Company may borrow, prepay and re-borrow principal under the 2022 Credit Facility during its term.

Advances under the 2022 Credit Facility can be either Adjusted Term SOFR loans or base rate loans.

SOFR rate revolving loans bear interest on the outstanding principal amount thereof for each interest period at a rate per annum equal to Term SOFR for such calculation plus 0.10% plus a margin ranging from 1.00% to 2.00%.

Base rate revolving loans bear interest on the outstanding principal amount thereof at a rate per annum equal to the highest of (i) Federal Funds Rate plus 0.50%, (ii) the rate of interest in effect for such day as publicly announced from time to time by the lender as its “prime rate”, and (iii) Adjusted Term SOFR rate for a one-month tenor plus 1.00%, subject to the interest rate floors set forth therein, plus a margin ranging from 0.00% to 1.00%.

At July 1, 2022, the one-month SOFR and three-month SOFR rates were 1.11% and 0.71%, respectively.

At July 1, 2022, our weighted-average interest rate on outstanding borrowing was 2.54%.

The 2022 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 July 1, 2022.

Material Cash Requirements

There have been no material changes to the information on our material cash requirements material cash requirements related to commitments or contractual obligations from those reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 24, 2022.

There have been no material changes to the information in our material cash requirements related to commitments or contractual obligations from those reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 24, 2022.

Historically, inflation has not had a material effect on our results of operations.

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis