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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-03 · 73 added, 132 removed, 158 unchanged (56% of the section changed)

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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.

There have been no changes to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended December 30, 2022, as filed with the SEC on February 23, 2023, that have had a material impact on our condensed consolidated financial statements and related notes.

Recent Accounting Pronouncements

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The table below summarizes our results of operations:

For the three months ended For the nine months ended

(in thousands) September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

For the three months ended

(in thousands) March 31, 2023 April 1, 2022

Sales $ 399,851 $ 377,977

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Interest expense 3,521 1,977

Other (income) expense, net (1,441) (187) 3,067 855

Other expense, net 24 1,692

Interest and other expense, net 3,545 3,669

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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 For the nine months ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

For the three months ended

March 31, 2023 April 1, 2022

Sales 100.0 % 100.0 %

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Interest expense 0.9 0.5

Other (income) expense, net (0.4) (0.1) 0.3 0.1

Other expense, net — 0.4

Interest and other expense, net 0.9 1.0

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*Percentages may not foot due to rounding.

Three months ended September 30, 2022 compared to three months ended October 1, 2021

Three months ended March 31, 2023 compared to three months ended April 1, 2022

For the three months ended

(in millions) September 30, 2022 October 1, 2021 Change ($) Change (%)

(in millions) March 31, 2023 April 1, 2022 Change ($) Change (%)

Powered Vehicle products $ 281.0 $ 208.1 $ 72.9 35.0 %

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Total sales $ 399.9 $ 378.0 $ 21.9 5.8 %

Total sales for the three months ended September 30, 2022 increased approximately $61.8 million, or 17.8%, compared to the three months ended October 1, 2021.

Powered Vehicle product sales increased by $47.2 million, or 25.1%, due to strong performance in our upfitting product lines and increased demand in the OEM channel.

Specialty Sports product sales increased by $14.6 million, or 9.1%, driven by continued strong demand in the OEM channel.

Total sales for the three months ended March 31, 2023 increased approximately $21.9 million, or 5.8%, compared to the three months ended April 1, 2022.

Powered Vehicle product sales increased by $72.9 million, or 35.0%, due to increased demand in the OEM channel and strong performance in our upfitting product lines.

Specialty Sports product sales decreased by $51.0 million, or 30.0%, driven by a return to seasonality and pre-pandemic market conditions.

Cost of sales

For the three months ended

(in millions) September 30, 2022 October 1, 2021 Change ($) Change (%)

(in millions) March 31, 2023 April 1, 2022 Change ($) Change (%)

Cost of sales $ 266.6 $ 257.7 $ 8.9 3.5 %

Cost of sales for the three months ended September 30, 2022 increased approximately $40.5 million, or 17.5%, compared to the three months ended October 1, 2021.

Cost of sales for the three months ended March 31, 2023 increased approximately $8.9 million, or 3.5%, compared to the three months ended April 1, 2022.

The increase in cost of sales was primarily due to the 5.8% 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 September 30, 2022, our gross margin increased 10 basis points to 33.5% compared to 33.4% for the three months ended October 1, 2021.

The increase in gross margin was primarily due to favorable product mix and improved factory efficiencies at our Gainesville, Georgia facility.

For the three months ended March 31, 2023, our gross margin increased 150 basis points to 33.3% compared to 31.8% for the three months ended April 1, 2022.

The increase in gross margin was primarily due to lower materials and other related costs, increased efficiencies at our North American facilities and strong performance in our upfitting product lines.

Operating expenses

For the three months ended

(in millions) September 30, 2022 October 1, 2021 Change ($) Change (%)

(in millions) March 31, 2023 April 1, 2022 Change ($) Change (%)

Operating expenses:

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Total operating expenses $ 78.6 $ 66.1 $ 12.5 18.9 %

Total operating expenses for the three months ended September 30, 2022 were $71.9 million compared to $60.8 million for the three months ended October 1, 2021.

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

Within operating expenses, sales and marketing expenses increased approximately $6.0 million primarily due to higher commissions of $2.9 million and employee related costs of $1.6 million, as well as increases in various other costs.

Total operating expenses for the three months ended March 31, 2023 were $78.6 million compared to $66.1 million for the three months ended April 1, 2022.

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

Within operating expenses, sales and marketing expenses increased approximately $1.1 million primarily due to higher commission costs.

Research and development costs increased approximately $2.7 million primarily due to personnel investments to support future growth and product innovation.

General and administrative expenses increased by approximately $3.4 million due to higher employee related costs of $1.7 million, professional fees of $1.0 million, as well as increases in insurance and facility-related expenses of $0.7 million.

General and administrative expenses increased by approximately $8.1 million due to higher employee headcount and benefits-related costs of $6.2 million, legal and professional fees of $2.5 million, insurance and facilities related expenses of $2.0 million, partially offset by lower acquisition-related compensation and other costs of $2.6 million.

Income from operations

For the three months ended

(in millions) September 30, 2022 October 1, 2021 Change ($) Change (%)

(in millions) March 31, 2023 April 1, 2022 Change ($) Change (%)

Income from operations $ 54.7 $ 54.2 $ 0.5 0.9 %

As a result of the factors discussed above, income from operations for the three months ended September 30, 2022 increased approximately $10.2 million, or 18.5%, compared to income from operations for the three months ended October 1, 2021.

As a result of the factors discussed above, income from operations for the three months ended March 31, 2023 increased approximately $0.5 million, or 0.9%, compared to income from operations for the three months ended April 1, 2022.

Interest and other (income) expense, net

For the three months ended

(in millions) September 30, 2022 October 1, 2021 Change ($) Change (%)

Interest and other (income) expense, net:

(in millions) March 31, 2023 April 1, 2022 Change ($) Change (%)

Interest and other expense, net:

Interest expense $ 3.5 $ 2.0 $ 1.5 75.0 %

Other (income) expense, net (1.4) (0.2) (1.2) 600.0 %

Interest and other (income) expense, net $ 1.3 $ 1.6 $ (0.3) (18.8) %

Interest and other (income) expense, net for the three months ended September 30, 2022 decreased by $0.3 million to $1.3 million compared to $1.6 million for the three months ended October 1, 2021.

Other (income) expense, net increased $1.2 million primarily due to a gain from the sale of a land asset in the third quarter of 2022, partially offset by increased losses on foreign currency transactions.

Interest expense increased by $0.9 million due to higher interest rates.

For the three months ended

(in millions) September 30, 2022 October 1, 2021 Change ($) Change (%)

Provision for income taxes $ 13.4 $ 9.8 $ 3.6 36.7 %

The effective tax rates were 20.8% and 18.2% for the three month periods ended September 30, 2022 and October 1, 2021, respectively.

For the three months ended September 30, 2022, the difference between the Company's effective tax rate of 20.8% and the 21% federal statutory rate resulted primarily from a lower tax rate on foreign derived intangible income, partially offset by withholding and state taxes.

For the three months ended October 1, 2021, the difference between our effective tax rate of 18.2% 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.

Other expense, net — 1.7 (1.7) (100.0)

Interest and other expense, net $ 3.5 $ 3.7 $ (0.2) (5.4) %

Interest and other expense, net for the three months ended March 31, 2023 decreased by $0.2 million to $3.5 million compared to $3.7 million for the three months ended April 1, 2022.

Other expense, net decreased $1.7 million primarily due lower losses on foreign currency transactions.

Interest expense increased by $1.5 million due to higher outstanding borrowings on our line of credit used to finance our purchase of Custom Wheel House, which occurred in February 2023, as well as higher interest rates.

For the three months ended

(in millions) September 30, 2022 October 1, 2021 Change ($) Change (%)

Net income $ 50.8 $ 43.8 $ 7.0 16.0 %

As a result of the factors described above, our net income increased $7.0 million, or 16.0%, to $50.8 million in the three months ended September 30, 2022 from $43.8 million for the three months ended October 1, 2021.

Nine months ended September 30, 2022 compared to nine months ended October 1, 2021

For the nine months ended

(in millions) September 30, 2022 October 1, 2021 Change ($) Change (%)

Powered Vehicle products $ 672.3 $ 540.2 $ 132.1 24.5 %

Specialty Sports products 521.5 416.6 104.9 25.2

Total sales $ 1,193.8 $ 956.8 $ 237.0 24.8 %

Total sales for the nine months ended September 30, 2022 increased approximately $237.0 million, or 24.8%, compared to the nine months ended October 1, 2021.

Specialty Sports product sales increased by $104.9 million, or 25.2%, due to continued strong demand in the OEM channel.

Powered Vehicle product sales increased by $132.1 million, or 24.5%, due to strong performance in our upfitting product lines and increased demand in the OEM channel.

Cost of sales

For the nine months ended

(in millions) September 30, 2022 October 1, 2021 Change ($) Change (%)

Cost of sales $ 793.4 $ 631.7 $ 161.7 25.6 %

Cost of sales for the nine months ended September 30, 2022 increased approximately $161.7 million, or 25.6%, compared to the nine months ended October 1, 2021.

The increase in cost of sales was primarily due to the 24.8% 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 September 30, 2022, our gross margin decreased 50 basis points to 33.5% compared to 34.0% for the nine months ended October 1, 2021.

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

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 nine months ended

(in millions) September 30, 2022 October 1, 2021 Change ($) Change (%)

Operating expenses:

Sales and marketing $ 70.3 $ 52.2 $ 18.1 34.7 %

Research and development 40.8 33.4 7.4 22.2

General and administrative 83.2 70.2 13.0 18.5

Amortization of purchased intangibles 16.2 15.4 0.8 5.2

Total operating expenses $ 210.5 $ 171.2 $ 39.3 23.0 %

Total operating expenses for the nine months ended September 30, 2022 were $210.5 million compared to $171.2 million for the nine months ended October 1, 2021.

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

Within operating expenses, sales and marketing expenses increased approximately $18.1 million primarily due to higher commissions of $7.9 million, employee related costs of $5.4 million, and marketing expenses of $4.2 million.

Research and development costs increased approximately $7.4 million primarily due to personnel investments to support future growth and product innovation.

General and administrative expenses increased by approximately $13.0 million due to higher employee related costs of $5.2 million, insurance and facility-related costs of $4.3 million, and professional fees of $4.0 million, which were partially offset by lower acquisition related compensation and other related costs.

Income from operations

For the nine months ended

(in millions) September 30, 2022 October 1, 2021 Change ($) Change (%)

Income from operations $ 190.0 $ 153.8 $ 36.2 23.5 %

As a result of the factors discussed above, income from operations for the nine months ended September 30, 2022 increased approximately $36.2 million, or 23.5%, compared to income from operations for the nine months ended October 1, 2021.

Interest and other (income) expense, net

For the nine months ended

(in millions) September 30, 2022 October 1, 2021 Change ($) Change (%)

Interest and other (income) expense, net:

Interest expense $ 6.3 $ 6.3 $ — — %

Other (income) expense, net 3.1 0.9 2.2 244.4 %

Interest and other (income) expense, net $ 9.4 $ 7.2 $ 2.2 30.6 %

Interest and other expense, net for the nine months ended September 30, 2022 increased by $2.2 million to $9.4 million compared to $7.2 million for the nine months ended October 1, 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, as well as losses on foreign currency transactions, partially offset by the sale of a land asset in the third quarter of 2022.

For the nine months ended

(in millions) September 30, 2022 October 1, 2021 Change ($) Change (%)

(in millions) March 31, 2023 April 1, 2022 Change ($) Change (%)

Provision for income taxes $ 9.4 $ 2.4 $ 7.0 291.7 %

The effective tax rates were 15.7% and 14.0% for the nine month periods ended September 30, 2022 and October 1, 2021, respectively.

For the nine months ended September 30, 2022, the difference between the Company's effective tax rate of 15.7% and the 21% federal statutory rate resulted primarily from a lower tax rate on foreign derived intangible income, and the impact of the recently finalized U.S.

The effective tax rates were 18.3% and 4.8% for the three month periods ended March 31, 2023 and April 1, 2022, respectively.

For the three months ended March 31, 2023, the difference between the Company's effective tax rate of 18.3% and the 21% federal statutory rate resulted primarily due to a lower tax rate on foreign derived intangible income.

This benefit was partially offset by state and foreign withholding taxes.

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

tax regulations published by the U.S.

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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 nine months ended October 1, 2021, the difference between our effective tax rate of 14.0% 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 nine months ended

(in millions) September 30, 2022 October 1, 2021 Change ($) Change (%)

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

For the three months ended

(in millions) March 31, 2023 April 1, 2022 Change ($) Change (%)

Net income $ 41.8 $ 48.1 $ (6.3) (13.1) %

As a result of the factors described above, our net income increased $26.2 million, or 20.8%, to $152.3 million in the nine months ended September 30, 2022 from $126.1 million for the nine months ended October 1, 2021.

As a result of the factors described above, our net income decreased $6.3 million, or 13.1%, to $41.8 million in the three months ended March 31, 2023 from $48.1 million for the three months ended April 1, 2022.

Liquidity and Capital Resources

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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 September 30, 2022, we held $55.6 million of our $153.1 million of cash and cash equivalents in accounts of our subsidiaries outside of the U.S., which we may repatriate.

These sources of liquidity may be impacted by various factors, including demand for our products, 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 March 31, 2023, we held $45.7 million of our $91.9 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 nine months ended

(in thousands) September 30, 2022 October 1, 2021

Net cash provided by operating activities $ 57,035 $ 148,983

For the three months ended

(in thousands) March 31, 2023 April 1, 2022

Net cash used in operating activities $ (66,835) $ (143,125)

Net cash used in investing activities (144,336) (8,191)

Net cash used in financing activities (54,004) (19,967)

Net cash provided by financing activities 157,844 38,632

Effect of exchange rate changes on cash and cash equivalents (31) 1,770

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Operating activities

Cash 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 deferred gains on swap agreements, gains received from disposals of property, plant and equipment, changes in deferred income taxes and uncertain tax positions, and net cash invested in working capital.

In the nine months ended September 30, 2022, net cash provided by operating activities was $57.0 million and consisted of net income of $152.3 million, plus non-cash items totaling $34.5 million, offset by changes in operating assets and liabilities totaling $129.8 million.

Non-cash items and other adjustments consisted of depreciation and amortization of $36.8 million, stock-based compensation of $11.4 million, the write off of unamortized loan origination fees of $1.9 million, the amortization of loan fees of $0.9 million, partially offset by a $12.5 million change in deferred taxes, the amortization of deferred gains on swap agreements of $2.1 million and gains of $1.8 million received from the disposals of property, plant and equipment.

Our investment in operating assets and liabilities is a result of increases in inventory of $84.8 million, accounts receivable of $60.0 million, and prepaids and other assets of $55.0 million, partially offset by an increase in accounts payable of $43.4 million, accrued expenses and other liabilities of $22.4 million and income taxes payable of $4.2 million.

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.

Cash used in 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 deferred gains on swap agreements, amortization of inventory fair value step-up, gains received from disposals of property, plant and equipment, changes in deferred income taxes and uncertain tax positions, and net cash invested in working capital.

In the three months ended March 31, 2023, net cash used in operating activities was $66.8 million and consisted of net income of $41.8 million, plus non-cash items totaling $21.3 million, offset by changes in operating assets and liabilities totaling $129.9 million.

Non-cash items and other adjustments consisted of depreciation and amortization of $13.3 million, stock-based compensation of $5.7 million, the amortization of inventory fair value step-up of $3.1 million, the amortization of loan fees of $0.2 million, and a $0.1 million change in deferred taxes, partially offset by the amortization of deferred gains on swap agreements of $1.1 million.

Our investment in operating assets and liabilities is a result of increases in prepaids and other assets of $112.2 million, inventory of $8.6 million, and decreases in accrued expenses and other liabilities of $7.8 million, accounts payable of $6.7 million and income taxes payable of $4.0 million, partially offset by a decrease in accounts receivable of $9.4 million.

The change in prepaids and other assets is primarily due to a higher supply of chassis as we ramp up to meet current year production needs for our upfitting product line.

The increase in inventory is primarily due to our recent acquisition of Custom Wheel House in February 2023.

The change in accrued expenses and other liabilities is primarily due to payments made for compensation and tax related accruals in the first quarter.

The changes in accounts payable and account receivable reflect the timing of customer collections and vendor payments.

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 $5.1 million, offset by changes in operating assets and liabilities totaling $196.3 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 and the amortization of deferred gains on swap agreements of $0.1 million.

Our investment in operating assets and liabilities is a result of increases in prepaids and other assets of $171.3 million, accounts receivable of $37.6 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.

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 accrued expenses and other liabilities and income taxes is due to increases in sales rebates, compensation related accruals and income taxes payables, as well as normal business growth and the timing of such payments.

In the nine months ended October 1, 2021, net cash provided by operating activities was $149.0 million and consisted of net income of $126.1 million, plus non-cash items totaling $42.1 million, offset by changes in operating assets and liabilities totaling $19.2 million.

Non-cash items and other adjustments consisted of depreciation and amortization of $31.9 million, stock-based compensation of $9.9 million, amortization of loan fees of $1.2 million, and gains of $0.4 million received from the disposals of property, plant and equipment, partially offset by a $1.2 million change in deferred taxes and uncertain tax positions, and amortization of deferred gains on swap agreements of $0.1 million.

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 and other liabilities of $25.9 million, and income taxes of $8.3 million and a decrease in prepaids and other assets of $35.2 million.

The changes in inventory and accounts payable are primarily due to additional raw materials purchased to mitigate risks associated with supply chain uncertainty.

The change in accounts receivable reflects business growth.

The changes in accrued expenses and other liabilities 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.

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

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.

Investing activities

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

In the nine months ended September 30, 2022 and October 1, 2021, net cash used in investing activities consisted of $32.4 million and $55.6 million, respectively.

Investing activities for the nine months ended September 30, 2022 consisted of $35.6 million of property and equipment additions, partially offset by proceeds from the sale of property and equipment of $3.2 million.

Investing activities for the nine months ended October 1, 2021 consisted of $40.0 million of property and equipment additions and $15.7 million of cash consideration for our purchases of Outside Van and Sola Sport Pty Ltd, partially offset by $0.1 million in proceeds from the sale of property and equipment.

In the three months ended March 31, 2023 and April 1, 2022, net cash used in investing activities consisted of $144.3 million and $8.2 million, respectively.

Investing activities for the three months ended March 31, 2023 consisted of $130.9 million of cash consideration for our purchase of Custom Wheel House, $11.1 million of property and equipment additions and $2.3 million in cash consideration for our purchase of other assets.

Investing activities for the three months ended April 1, 2022 consisted of $8.2 million of property and equipment additions.

Financing activities

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

In the nine months ended September 30, 2022, net cash used in financing activities was $54.0 million, and consisted of 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 $259.3 million, payments of $4.1 million to repurchase shares of our common stock, net of proceeds from our stock-based compensation program, and $2.7 million in installment payments related to the purchase of the Tuscany non-controlling interest.

These changes were partially offset by 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.

In the nine months ended October 1, 2021, net cash used in financing activities was $20.0 million, which consisted of payments on our term debt of $10.0 million, payments of $6.6 million to repurchase shares of our common stock, net of proceeds from the exercise of stock options, $3.7 million in installment payments related to the purchase of the Tuscany non-controlling interest, partially offset by $0.3 million in proceeds received from the termination of our 2020 Swap Agreement.

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

In the three months ended March 31, 2023, net cash provided by financing activities was $157.8 million, and consisted of the net proceeds from our 2022 Credit Facility of $160.0 million that were used to finance our purchase of Custom Wheel House, partially offset by payments of $2.2 million to repurchase shares of our common stock from our stock-based compensation program.

In the three months ended April 1, 2022, net cash provided by 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.

Prior Credit Facility

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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.

On April 5, 2022, the Company borrowed $475.0 million under the 2022 Credit Facility, which was used to repay all outstanding amounts owed under the Prior Credit Facility and for general corporate purposes.

Future advances under the 2022 Credit Facility will be used to finance working capital, capital expenditures and other general corporate purposes of the Company.

To the extent not previously paid, all then-outstanding amounts under the 2022 Credit Facility are due and payable on the maturity date.

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.

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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 September 30, 2022, the one-month SOFR and three-month SOFR rates were 2.47% and 2.13%, respectively.

At September 30, 2022, our weighted-average interest rate on outstanding borrowing was 3.72%.

At March 31, 2023, the one-month SOFR and three-month SOFR rates were 4.63% and 4.51%, respectively.

At March 31, 2023, our weighted-average interest rate on outstanding borrowing was 5.38%.

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 September 30, 2022.

The Company was in compliance with the covenants as of March 31, 2023.

Material Cash Requirements

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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 and into 2023.

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.

However, significant increases in inflation, particularly those related to wages and increases in the cost of raw materials could have an adverse impact on our business, financial condition and results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

1 unchanged sentence

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What changed 10-Q

Item 2. Management’s Discussion and Analysis