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 December 31, 2021, as filed with the U.S. Securities and Exchange Commission ("SEC") on February 24, 2022, 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; • 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; • 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; 23 Table of Contents • 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; • 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 2021 Annual Report on Form 10-K, as filed with the SEC on February 24, 2022, 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 In the first quarter of 2022, final tax regulations regarding foreign tax credits (“FTC”) were published in the Federal Register. These final FTC regulations apply to foreign taxes paid or accrued in taxable years beginning on or after December 28, 2021. The new regulations narrow the definition of withholding taxes that are eligible for an FTC by imposing a new source-based jurisdictional nexus or “attribution” requirement. The application of these final FTC regulations makes it more likely than not that all of our foreign tax credits will be realizable before their expiration, therefore the Company released its partial valuation allowance of $9.2 million in the first quarter of 2022. There have been no other changes to the critical accounting policies and estimates described 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, 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. 24 Table of Contents Results of Operations The table below summarizes our results of operations: 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 Cost of sales 263,761 217,076 521,478 400,288 Gross profit 142,944 111,088 263,204 209,012 Operating expenses: Sales and marketing 24,175 17,840 46,764 34,698 Research and development 14,214 11,216 26,856 21,092 General and administrative 28,444 24,226 54,011 44,595 Amortization of purchased intangibles 5,636 5,083 10,943 10,048 Total operating expenses 72,469 58,365 138,574 110,433 Income from operations 70,475 52,723 124,630 98,579 Interest and other expense, net: Interest expense 1,697 1,598 3,674 4,502 Other expense, net 2,816 83 4,508 1,042 Interest and other expense, net 4,513 1,681 8,182 5,544 Income before income taxes 65,962 51,042 116,448 93,035 Provision for income taxes 12,464 6,767 14,900 10,774 Net income $ 53,498 $ 44,275 $ 101,548 $ 82,261 25 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 six months ended July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021 Sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 64.9 66.1 66.5 65.7 Gross profit 35.1 33.9 33.5 34.3 Operating expenses: Sales and marketing 5.9 5.4 6.0 5.7 Research and development 3.5 3.4 3.4 3.5 General and administrative 7.0 7.4 6.9 7.3 Amortization of purchased intangibles 1.4 1.5 1.4 1.6 Total operating expenses 17.8 17.8 17.7 18.1 Income from operations 17.3 16.1 15.9 16.2 Interest and other expense, net: Interest expense 0.4 0.5 0.5 0.7 Other expense, net 0.7 — 0.6 0.2 Interest and other expense, net 1.1 0.5 1.0 0.9 Income before income taxes 16.2 15.6 14.8 15.3 Provision for income taxes 3.1 2.1 1.9 1.8 Net income 13.2 % 13.5 % 12.9 % 13.5 % *Percentages may not foot due to rounding. 26 Table of Contents Three months ended July 1, 2022 compared to three months ended July 2, 2021 Sales For the three months ended (in millions) July 1, 2022 July 2, 2021 Change ($) Change (%) Powered Vehicle products $ 229.0 $ 189.5 $ 39.5 20.9 % Specialty Sports products 177.7 138.7 39.0 28.1 Total sales $ 406.7 $ 328.2 $ 78.5 23.9 % 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 $39.5 million, or 20.9%, due to strong performance in our upfitting product lines. Cost of sales For the three months ended (in millions) July 1, 2022 July 2, 2021 Change ($) Change (%) Cost of sales $ 263.8 $ 217.1 $ 46.7 21.5 % Cost of sales for the three months ended July 1, 2022 increased approximately $46.7 million, or 21.5%, compared to the three months ended July 2, 2021. The increase in cost of sales was primarily due to the 23.9% increase in sales in the same period, as well as certain business factors affecting gross margin, which are discussed below. For the three months ended July 1, 2022, our gross margin increased 120 basis points to 35.1% compared to 33.9% for the three months ended July 2, 2021. The increase in gross margin was primarily due to favorable product mix and improved factory efficiencies. Operating expenses For the three months ended (in millions) July 1, 2022 July 2, 2021 Change ($) Change (%) Operating expenses: Sales and marketing $ 24.2 $ 17.8 $ 6.4 36.0 % Research and development 14.2 11.2 3.0 26.8 General and administrative 28.4 24.3 4.1 16.9 Amortization of purchased intangibles 5.6 5.1 0.5 9.8 Total operating expenses $ 72.5 $ 58.4 $ 14.1 24.1 % 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 $4.1 million due to higher employee related costs of $2.9 million, as well as increases in insurance and other facilities-related expenses. 27 Table of Contents Income from operations For the three months ended (in millions) July 1, 2022 July 2, 2021 Change ($) 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 July 1, 2022 increased approximately $17.8 million, or 33.8%, compared to income from operations for the three months ended July 2, 2021. Interest and other expense, net For the three months ended (in millions) July 1, 2022 July 2, 2021 Change ($) Change (%) Interest and other expense, net: Interest expense $ 1.7 $ 1.6 $ 0.1 6.3 % Other expense, net 2.8 0.1 2.7 2,700.0 % Interest and other expense, net $ 4.5 $ 1.7 $ 2.8 164.7 % 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 $1.9 million of unamortized loan fees that were written off in the second quarter of fiscal year 2022 upon the refinancing of our Prior Credit Facility, as well as losses on foreign currency translation. Income taxes For the three months ended (in millions) July 1, 2022 July 2, 2021 Change ($) Change (%) Provision for income taxes $ 12.5 $ 6.8 $ 5.7 83.8 % The effective tax rates were 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. Net income For the three months ended (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 $9.2 million, or 20.8%, to $53.5 million in the three months ended July 1, 2022 from $44.3 million for the three months ended July 2, 2021. 28 Table of Contents Six months ended July 1, 2022 compared to six months ended July 2, 2021 Sales For the six months ended (in millions) July 1, 2022 July 2, 2021 Change ($) 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 $121.2 million, or 30.3%, compared to the six months ended July 2, 2021. The increase in cost of sales was primarily due to the 28.7% increase in sales in the same period, as well as certain business factors affecting gross margin, which are discussed below. For the six months ended July 1, 2022, our gross margin decreased 80 basis points to 33.5% compared to 34.3% for the six months ended July 2, 2021. The decrease in gross margin was primarily driven by continued increases in supply chain related costs, including increased prices for raw materials and freight. Additionally, the completion of the planned shutdown of our Watsonville, California facility and transition of those production lines resulted in inefficiencies as we ramp up our Gainesville, Georgia facility. Operating expenses For the six months ended (in millions) July 1, 2022 July 2, 2021 Change ($) 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. 29 Table of Contents 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. The increase in other expense, net is primarily due to $1.9 million of unamortized loan fees that were written off in the second quarter of fiscal year 2022 upon the refinancing of our Prior Credit Facility, as well as losses on foreign currency translation. Income taxes For the six months ended (in millions) July 1, 2022 July 2, 2021 Change ($) 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. 30 Table of Contents Net income 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 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 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. dollar-denominated trade receivable balances held by our Taiwan location. A summary of our operating, investing and financing activities is shown in the following table: 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 Net cash used in investing activities (19,912) (43,273) Net cash provided by (used in) financing activities 32,220 (9,292) Effect of exchange rate changes on cash and cash equivalents 2,043 411 Change in cash and cash equivalents $ (71,049) $ 29,212 We expect that cash on hand, cash flow from operations and availability under our 2022 Credit Facility will be sufficient to fund our operations during the next 12 months from the date of this Form 10-Q and beyond. Operating activities 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. 31 Table of Contents 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 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 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. Investing activities Cash used in investing activities primarily relates to investments in our manufacturing and general infrastructure through the procurement of property and equipment. 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 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 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 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 $250,000 and a term loan of $400,000. The term loan was subject to quarterly amortization payments. 32 Table of Contents 2022 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. 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 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. 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 throughout 2022. 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. 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 December 31, 2021, as filed with the SEC on February 24, 2022. 33 Table of Contents