What changed in this filing

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Item 1. Financial Statements

2023-08-04 compared with 2023-05-04 · 154 added, 171 removed, 370 unchanged (47% of the section changed)

3 unchanged sentences

(in thousands, except per share data)

March 31, December 30,

June 30, 2023 December 30, 2022

Current assets:

Cash and cash equivalents $ 105,440 $ 145,250

Accounts receivable (net of allowances of $ 789 and $ 443 at March 31, 2023 and December 30, 2022, respectively)

Accounts receivable (net of allowances of $ 962 and $ 443 at June 30, 2023 and December 30, 2022, respectively)

171,303 200,440

19 unchanged sentences

Stockholders’ equity

Preferred stock, $ 0.001 par value — 10,000 authorized and no shares issued or outstanding as of March 31, 2023 and December 30, 2022

Preferred stock, $ 0.001 par value — 10,000 authorized and no shares issued or outstanding as of June 30, 2023 and December 30, 2022

Common stock, $ 0.001 par value — 90,000 authorized;

43,193 shares issued and 42,303 outstanding as of March 31, 2023;

43,244 shares issued and 42,354 outstanding as of June 30, 2023;

43,160 shares issued and 42,270 outstanding as of December 30, 2022

1 unchanged sentence

Treasury stock, at cost;

890 common shares as of March 31, 2023 and December 30, 2022

890 common shares as of June 30, 2023 and December 30, 2022

( 13,754 ) ( 13,754 )

7 unchanged sentences

(in thousands, except per share data)

For the three months ended

March 31, April 1,

Sales $ 399,851 $ 377,977

For the three months ended For the six months ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Net sales $ 400,715 $ 406,705 $ 800,566 $ 784,682

Cost of sales 268,689 263,761 535,242 521,478

1 unchanged sentence

Operating expenses:

General and administrative 30,221 28,444 63,982 54,011

Sales and marketing 26,556 24,175 50,225 46,764

Research and development 15,188 14,214 30,470 26,856

General and administrative 33,761 25,567

Amortization of purchased intangibles 7,277 5,636 13,173 10,943

1 unchanged sentence

Income from operations 52,784 70,475 107,474 124,630

Interest and other expense, net:

Interest expense 4,418 1,697 7,939 3,674

Other expense, net 536 2,816 560 4,508

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

Income before income taxes 47,830 65,962 98,975 116,448

11 unchanged sentences

(in thousands)

For the three months ended

March 31, April 1,

For the three months ended For the six months ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Net income $ 39,735 $ 53,498 $ 81,502 $ 101,548

Other comprehensive (loss) income

Other comprehensive income (loss)

Interest rate swap, net of tax effects 1,125 922 ( 1,938 ) 6,733

Foreign currency translation adjustments, net of tax effects 611 ( 1,068 )

Other comprehensive (loss) income ( 2,452 ) 4,743

Foreign currency translation adjustments ( 726 ) ( 2,688 ) ( 115 ) ( 3,756 )

Other comprehensive income (loss) 399 ( 1,766 ) ( 2,053 ) 2,977

Comprehensive income $ 40,134 $ 51,732 $ 79,449 $ 104,525

3 unchanged sentences

(in thousands)

Common Stock Treasury Additional paid-in capital Accumulated other comprehensive income Retained earnings Total stockholders' equity

Common Stock Treasury Additional paid-in capital Accumulated other comprehensive income (loss) Retained earnings Total stockholders ’ equity

Shares Amount Shares Amount

5 unchanged sentences

Balance - April 1, 2022 43,039 $ 42 890 $ ( 13,754 ) $ 346,328 $ 9,619 $ 606,849 $ 949,084

The accompanying notes are an integral part of these condensed consolidated statements.

FOX FACTORY HOLDING CORP.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands)

Common Stock Treasury Additional paid-in capital Accumulated other comprehensive loss Retained earnings Total stockholders' equity

Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding 114 — — — ( 2,950 ) — — ( 2,950 )

Stock-based compensation expense — — — — 4,061 — — 4,061

Other comprehensive loss — — — — — ( 1,766 ) — ( 1,766 )

Net income — — — — — — 53,498 53,498

Balance - July 1, 2022 43,153 $ 42 890 $ ( 13,754 ) $ 347,439 $ 7,853 $ 660,347 $ 1,001,927

Common Stock Treasury Additional paid-in capital Accumulated other comprehensive income (loss) Retained earnings Total stockholders’ equity

Shares Amount Shares Amount

5 unchanged sentences

Balance - March 31, 2023 43,193 $ 42 890 $ ( 13,754 ) $ 359,785 $ 12,330 $ 805,844 $ 1,164,247

The accompanying notes are an integral part of these condensed consolidated statements.

Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding 51 — — — ( 3,063 ) — — ( 3,063 )

Stock-based compensation expense — — — — 4,483 — — 4,483

Other comprehensive income — — — — — 399 — 399

Net income — — — — — — 39,735 39,735

Balance - June 30, 2023 43,244 $ 42 890 $ ( 13,754 ) $ 361,205 $ 12,729 $ 845,579 $ 1,205,801

The accompanying notes are an integral part of these condensed consolidated financial statements.

FOX FACTORY HOLDING CORP.

1 unchanged sentence

(in thousands)

For the three months ended

March 31, 2023 April 1, 2022

For the six months ended

June 30, 2023 July 1, 2022

OPERATING ACTIVITIES:

Net income $ 81,502 $ 101,548

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization 28,712 24,449

1 unchanged sentence

Amortization of loan fees 453 634

Write off of unamortized loan origination fees — 1,927

Amortization of deferred gains on prior swap settlements ( 2,126 ) ( 1,050 )

1 unchanged sentence

Deferred taxes ( 139 ) ( 11,284 )

Changes in operating assets and liabilities:

Changes in operating assets and liabilities, net of effects of acquisitions:

Accounts receivable 32,744 ( 57,444 )

16 unchanged sentences

Repurchases from stock compensation program, net ( 5,218 ) ( 3,770 )

Proceeds from termination of swap agreement — 12,270

Net cash provided by financing activities 119,782 32,220

3 unchanged sentences

CASH AND CASH EQUIVALENTS—End of period $ 105,440 $ 108,637

The accompanying notes are an integral part of these condensed consolidated statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

FOX FACTORY HOLDING CORP.

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(in thousands)

For the three months ended

For the six months ended

SUPPLEMENTAL CASH FLOW INFORMATION:

March 31, 2023 April 1, 2022

June 30, 2023 July 1, 2022

Cash paid during the period for:

Income taxes $ 47,701 $ 31,230

Cash paid for interest, net of capitalized interest $ 5,145 $ 1,619

Cash paid for amounts included in the measurement of lease liabilities $ 2,764 $ 2,713

Interest, net of capitalized interest $ 9,661 $ 3,228

Amounts included in the measurement of lease liabilities $ 6,307 $ 5,290

Non-cash operating activities:

2 unchanged sentences

Capital expenditures included in accounts payable $ 846 $ 1,975

(1) New leases executed in the U.S.

The accompanying notes are an integral part of these condensed consolidated financial statements.

4 unchanged sentences

(the “Company”) designs, engineers, manufactures, and markets performance-defining products and systems for customers worldwide.

Our premium brand, performance-defining products and systems are used primarily for bicycles ("bikes"), side-by-side vehicles ("side-by-sides"), on-road vehicles with and without off-road capabilities, off-road vehicles and trucks, all-terrain vehicles ("ATVs"), snowmobiles, and specialty vehicles and applications.

Some of our products are specifically designed and marketed to the leading cycling and powered vehicle original equipment manufacturers ("OEMs"), while others are distributed to consumers through a global network of dealers and distributors.

Our premium brand, performance-defining products and systems are used primarily on bicycles (“bikes”), side-by-side vehicles (“side-by-sides”), on-road vehicles with and without off-road capabilities, off-road vehicles and trucks, all-terrain vehicles (“ATVs”), snowmobiles, and specialty vehicles and applications.

Some of our products are specifically designed and marketed to some of the leading cycling and powered vehicle original equipment manufacturers (“OEMs”), while others are distributed to consumers through a global network of dealers and distributors.

Throughout this Form 10-Q, unless stated otherwise or as the context otherwise requires, the “Company,” “FOX,” “Fox Factory,” “we,” “us,” “our,” and “ours” refer to Fox Factory Holding Corp.

11 unchanged sentences

The twelve month periods ended December 29, 2023 and December 30, 2022, will include or have included 52 weeks.

The three month periods ended March 31, 2023 and April 1, 2022 each included 13 weeks.

The three and six month periods ended June 30, 2023 and July 1, 2022 each included 13 weeks and 26 weeks, respectively.

Principles of Consolidation - These condensed consolidated financial statements include the Company and its subsidiaries.

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Revenues generated from upfit packages generally do not include the vehicle chassis, as the Company is not the principal in this arrangement and the automotive dealer purchases the chassis directly from the OEM.

The Company is required to place a deposit on all vehicle chassis that the dealer purchases directly from the OEM, however that deposit is refunded when the chassis is sold through to the end customer.

The Company is required to place a deposit on some vehicle chassis that the dealer purchases directly from the OEM, however that deposit is refunded when the chassis is sold through to the end customer.

Provisions for discounts, rebates, sales incentives, returns, and other adjustments are generally provided for in the period the related sales are recorded, based on management’s assessment of historical trends and projection of future results.

Certain pricing provisions that provide the customer with future discounts are considered a material right.

Such material rights result in the deferral of revenues that are recognized when the rights are exercised by the customer.

Measuring the material rights requires judgments including forecasts of future sales and product mix.

FOX FACTORY HOLDING CORP.

9 unchanged sentences

therefore, actual results could differ from management’s estimates.

Reclassifications - We have reclassified certain prior period amounts within our condensed consolidated statement of cash flows for the three months ended April 1, 2022 to conform to our current year presentation.

Reclassifications - We have reclassified certain prior period amounts within our condensed consolidated statement of cash flows for the six months ended July 1, 2022 to conform to our current year presentation.

The reclassifications did not have any impact on net income or other major financial statement line items.

Certain Significant Risks and Uncertainties - The Company is subject to those risks common in manufacturing-driven markets, including, but not limited to, competitive forces, dependence on key personnel, customer demand for its products, the successful protection of its proprietary technologies, compliance with government regulations, and the possibility of not being able to obtain additional financing when needed.

Additionally, the Company has been impacted by the ongoing coronavirus (“COVID-19”) pandemic.

The global outbreak of COVID-19 has negatively affected the U.S.

and global economy, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place,” and created significant disruption of the financial markets.

Despite the Company’s efforts to manage and remedy these impacts to the Company, the ultimate impact and the extent to which the COVID-19 pandemic will continue to affect the business, results of operation and financial condition is difficult to predict and depends on numerous evolving factors outside of the Company’s control, including:

the duration and scope of the COVID-19 pandemic;

government, social, business and other actions that have been and will be taken in response to the COVID-19 pandemic;

and the effect of the COVID-19 pandemic on short- and long-term general economic conditions.

In addition, heightened political tensions between China and Taiwan could negatively impact our business and operations.

For example, our bike suspension manufacturing is located in Taiwan.

We cannot assure you that any contentious situation between Taiwan and China will always resolve in maintaining the current status quo or remain peaceful.

Relations between Taiwan and China, potential confrontations between the United States and China and other factors affecting military, political, social or economic conditions in Taiwan could have a material adverse effect on our business, our supply chain and our operations.

Furthermore, during the first quarter of 2022, Russia commenced a military invasion of Ukraine, and the ensuing conflict has created disruption in the region and around the world.

In addition, in response to this invasion, the United States and several European and Asian countries instated sanctions against Russia.

The impact of the Russia invasion of Ukraine on the global economy, energy supplies and raw materials is uncertain but may prove to negatively impact the Company’s business and operations.

Fair Value Measurements and Financial Instruments - The Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, that requires the valuation of assets and liabilities required or permitted to be either recorded or disclosed at fair value based on hierarchy of available inputs as follows:

2 unchanged sentences

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

The carrying amounts of the Company’s financial instruments, including cash, receivables, accounts payable, accrued liabilities and line of credit approximate their fair values due to their short-term nature.

Amounts owed under the Company's Prior Credit Facility (as defined in Note 8 - Debt below) approximated fair value due to the variable interest rate features embedded in the term debt.

Recent Accounting Pronouncements - In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Recent Accounting Pronouncements - In October 2021, the FASB issued accounting standards update (“ASU”) 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

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Refer to the “Bailment Pool Arrangements” section within Note 8 - Commitments and Contingencies for further details of this adoption.

The following table summarizes total sales by product category:

For the three months ended

March 31, 2023 April 1, 2022

Powered Vehicles $ 280,964 $ 208,107

Specialty Sports 118,887 169,870

Total sales $ 399,851 $ 377,977

The following table summarizes total sales by sales channel:

For the three months ended

March 31, 2023 April 1, 2022

OEM $ 217,661 $ 201,265

Aftermarket 182,190 176,712

Total sales $ 399,851 $ 377,977

FOX FACTORY HOLDING CORP.

1 unchanged sentence

(in thousands, except per share amounts)

The following table summarizes total sales generated by geographic location of the customer:

For the three months ended

March 31, 2023 April 1, 2022

In the second quarter of fiscal year 2023, the Company realigned Powered Vehicles Group into Powered Vehicles Group and Aftermarket Applications Group to be more aligned with the Company’s end customers and drive additional focus on product development .

All prior-period amounts have been recast to conform with current period presentation.

The following table summarizes total net sales by product group:

For the three months ended For the six months ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Powered Vehicles Group $ 140,196 $ 105,734 $ 282,443 $ 190,364

Aftermarket Applications Group 155,635 123,298 294,352 246,775

Specialty Sports Group 104,884 177,673 223,771 347,543

Total net sales $ 400,715 $ 406,705 $ 800,566 $ 784,682

The following table summarizes total net sales by sales channel:

For the three months ended For the six months ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

OEM $ 197,257 $ 223,110 $ 414,918 $ 424,375

Aftermarket 203,458 183,595 385,648 360,307

Total net sales $ 400,715 $ 406,705 $ 800,566 $ 784,682

The following table summarizes total net sales generated by geographic location of the customer:

For the three months ended For the six months ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

North America $ 303,999 $ 257,183 $ 595,909 $ 491,142

Asia 42,128 60,017

Europe 53,927 81,540 115,124 160,074

Asia 36,731 61,812 78,859 121,829

Rest of the world 6,058 6,170 10,674 11,637

Total sales $ 399,851 $ 377,977

Total net sales $ 400,715 $ 406,705 $ 800,566 $ 784,682

Inventory consisted of the following:

March 31, December 30,

June 30, 2023 December 30, 2022

Raw materials $ 243,054 $ 247,441

2 unchanged sentences

Total inventory $ 355,218 $ 350,620

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

Prepaids and Other Current Assets

Prepaids and other current assets consisted of the following:

March 31, December 30,

June 30, 2023 December 30, 2022

Prepaid chassis deposits $ 180,807 $ 74,013

2 unchanged sentences

Total $ 214,761 $ 101,364

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

Property, Plant and Equipment, net

Property, plant and equipment, net consisted of the following:

March 31, December 30,

June 30, 2023 December 30, 2022

Building and building improvements $ 75,302 $ 73,594

9 unchanged sentences

The Company’s long-lived assets by geographic location are as follows:

March 31, December 30,

June 30, 2023 December 30, 2022

United States $ 174,827 $ 166,544

4 unchanged sentences

(in thousands, except per share amounts)

The Company has operating lease agreements for administrative, research and development, manufacturing, and sales and marketing facilities.

These leases have remaining lease terms ranging from one to eleven years , some of which include options to extend the lease term for up to eleven years , and some of which include options to terminate the leases within one year .

Certain leases are subject to annual escalations as specified in the lease agreements.

The Company considered these options in determining the lease term used to establish its right-of-use assets and lease liabilities.

These lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As most of the Company's leases do not provide an interest rate, the Company used the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

The weighted-average remaining lease term for the Company's operating leases was 6 years and the weighted-average incremental borrowing rate was 2.67 % as of March 31, 2023.

Operating lease costs consisted of the following:

For the three months ended

March 31, 2023 April 1, 2022

Operating lease cost $ 3,098 $ 2,823

Other lease costs (1) 1,055 718

Total lease costs $ 4,153 $ 3,541

(1) Includes short-term leases and variable lease costs.

The Company elected a policy exclusion permitting leases with an original lease term of less than one year to be excluded from the right-of-use assets and lease liabilities.

Supplemental balance sheet information related to the Company's operating leases is as follows:

Balance Sheet Classification March 31, 2023

Operating lease right-of-use assets Lease right-of-use assets $ 58,029

Current lease liabilities Accrued expenses $ 11,940

Non-current lease liabilities Other liabilities $ 45,798

Maturities of lease liabilities by fiscal year for the Company's operating leases are as follows:

For fiscal year Total future payments

2023 (remaining nine months) $ 10,015

Thereafter 16,060

Total lease payments 63,186

imputed interest ( 5,448 )

Present value of lease liabilities 57,738

current portion ( 11,940 )

Lease liabilities less current portion $ 45,798

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

Accrued Expenses

Accrued expenses consisted of the following:

March 31, December 30,

June 30, 2023 December 30, 2022

Payroll and related expenses $ 26,152 $ 38,193

Current portion of lease liabilities 11,940 10,314

Warranty 18,224 17,071

Income tax payable 24,326 40,701

Warranty 19,751 17,071

Current portion of lease liabilities 13,179 10,314

Accrued sales rebate 12,485 8,693

2 unchanged sentences

Activity related to warranties is as follows:

For the three months ended

March 31, 2023 April 1, 2022

For the three months ended For the six months ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Beginning warranty liability $ 18,224 $ 15,993 $ 17,071 $ 15,510

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

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

The Company paid $ 1,980 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.

1 unchanged sentence

The Company expensed $ 1,927 of the remaining unamortized debt issuance costs and allocated $ 2,546 to the 2022 Credit Facility.

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

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

2 unchanged sentences

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 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 %.

At June 30, 2023, the one-month SOFR and three-month SOFR rates were 5.07 % and 4.99 %, respectively.

At June 30, 2023, our weighted-average interest rate on outstanding borrowing was 5.56 %.

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 March 31, 2023.

The Company was in compliance with the covenants as of June 30, 2023.

The following table summarizes the line of credit under the 2022 Credit Facility:

March 31, December 30,

June 30, 2023 December 30, 2022

Amount outstanding $ 325,000 $ 200,000

1 unchanged sentence

Total borrowing capacity $ 650,000 $ 650,000

Maturity date April 5, 2027

On June 11, 2021, the Company entered into a swap agreement (the “2021 Swap Agreement”) to obtain a more favorable interest rate and to manage interest rate risk exposure.

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Bailment Pool Arrangements - The Company has relationships with several OEM partners, including General Motors (“GM”), Ford Motor Company (“Ford”), and Chrysler to obtain truck chassis.

For Chrysler chassis purchases, the Company pays a cash deposit upon transfer of the chassis to the Company’s premises, and records the chassis within prepaids and other current assets on the Consolidated Balance Sheet until the chassis is transferred to the dealer customer’s floorplan, at which time the cash deposit is returned to the Company.

For Chrysler chassis, the Company pays a cash deposit upon transfer of the chassis to the Company’s premises, and records the chassis within prepaids and other current assets on the condensed consolidated balance sheets until the chassis is transferred to the dealer customer’s floorplan, at which time the cash deposit is returned to the Company.

For GM and Ford, the Company has entered into floorplan financing agreements with the OEM.

The Company receives an allocation of chassis and pays interest expense on the allocated value of trucks based on the duration of time they are on the Company’s premises.

Bailment ends when the vehicle is sold to an authorized dealer, or upon authorized return of the vehicle to the manufacturer.

Bailment, which is the non-ownership transfer of the chassis from GM and Ford to the Company, ends when the vehicle is sold to an authorized dealer, or upon authorized return of the vehicle to the manufacturer.

The Company does not pay a cash deposit to obtain GM and Ford chassis, and accordingly it does not recognize an asset or a liability related to these chassis.

Interest payments made to manufacturer-affiliated finance companies are classified as operating activities in the Consolidated Statements of Cash Flows.

At March 31, 2023, the Company had utilized $ 10,470 out of a maximum of $ 26,200 of Ford allocation and $ 37,881 out of a maximum of $ 100,000 GM allocation.

The company paid $ 1,401 of interest expense related to chassis on hand, and received interest credits from Chrysler of $ 426 resulting in net floorplan interest expense of $ 975 .

Interest payments made to manufacturer-affiliated finance companies are classified as operating activities in the condensed consolidated statements of cash flows.

At June 30, 2023 and December 30, 2022, the Company had utilized $ 4,907 and $ 2,634 , respectively, out of a maximum of $ 26,200 of Ford allocation of chassis and $ 53,468 and $ 67,149 , respectively, out of a maximum of $ 100,000 GM allocation of chassis.

The company paid $ 2,169 and $ 3,570 of interest expense related to chassis on hand during the three and six months ended June 30, 2023, respectively.

Other Commitments - On November 30, 2017, the Company through FF US Holding Corp., acquired the assets of Flagship, Inc.

6 unchanged sentences

The cash portion was settled in quarterly installment payments beginning in July 2020 through July 2022, which amounted to $ 6,556 , $ 4,550 and $ 2,700 in 2020, 2021 and 2022, respectively.

The Company paid $ 900 during the three months ended April 1, 2022.

The Company had no remaining liability as of March 31, 2023.

The Company paid $ 900 and $ 1,800 during the three and six months ended July 1, 2022, respectively.

The Company had no remaining liability as of June 30, 2023.

The stock portion of 136 shares were released from escrow on a quarterly basis starting January 2021 through July 2022.

The Company released 19 shares of stock during the three months ended April 1, 2022.

The Company had no remaining shares to be released as of March 31, 2023.

The Company released 19 and 39 shares of stock during the three and six months ended July 1, 2022, respectively.

The Company had no remaining shares to be released as of June 30, 2023.

The exercise of the Call Option effectively canceled the put option held by Flagship, Inc.

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The Company utilizes interest rate swaps to limit its exposure to interest rate risk by converting a portion of its floating-rate debt to a fixed-rate basis, thus reducing the impact of interest rate changes on future interest expense.

Interest rate swaps involve the receipt of floating-rate amounts in exchange for fixed-rate interest payments based on the one-month London Interbank Offered Rate ("LIBOR") or SOFR over the lives of the agreements without an exchange of the underlying principal amounts.

As of March 31, 2023 and December 30, 2022, the Company had the following interest rate swap contracts:

March 31, 2023 December 30, 2022

Interest rate swaps involve the receipt of floating-rate amounts in exchange for fixed-rate interest payments based on the SOFR over the lives of the agreements without an exchange of the underlying principal amounts.

As of June 30, 2023 and December 30, 2022, the Company had the following interest rate swap contracts:

June 30, 2023 December 30, 2022

Effective Date Termination Date Notional Amount Unrealized Gain in AOCI Unrealized Gain in AOCI

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As required under ASC 815, the interest rate swap contracts’ effectiveness will be assessed on a quarterly basis using a quantitative regression analysis.

The gains and losses, net of tax, related to the effective portion of derivative instruments designated as cash flow hedges recognized in accumulated other comprehensive income for the three months ended March 31, 2023 and April 1, 2022 were a loss of $ 3,063 and a gain of $ 5,811 , respectively.

The gains and losses, net of tax, related to the effective portion of derivative instruments designated as cash flow hedges recognized in other comprehensive income for the three and six months ended June 30, 2023 were a gain of $ 1,125 and a loss of $ 1,938 , respectively;

and for the three and six months ended July 1, 2022 were a gain of $ 922 and $ 6,733 , respectively.

Over the next twelve months, the Company expects to recognize $ 6,645 of the $ 12,879 of unrealized gains included in accumulated other comprehensive income related to the interest rate swap contracts.

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The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of the following periods:

March 31, 2023 December 30, 2022

June 30, 2023 December 30, 2022

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

1 unchanged sentence

Total assets measured at fair value $ — $ 5,636 $ — $ 5,636 $ — $ 5,087 $ — $ 5,087

There were no transfers of assets or liabilities between Level 1, Level 2, and Level 3 categories of the fair value hierarchy during the three month period ended March 31, 2023.

There were no transfers of assets or liabilities between Level 1, Level 2, and Level 3 categories of the fair value hierarchy during the three and six month periods ended June 30, 2023.

On June 11, 2021, the Company entered into the 2021 Swap Agreement to mitigate the cash flow risk associated with changes in interest rates on its variable rate debt.

On April 5, 2022, the Company terminated its 2021 Swap Agreement and entered into the 2022 Swap Agreement.

Refer to N ote 10 - Derivatives and Hedging for additional details of the agreement.

Refer to Note 9 - Derivatives and Hedging for additional details of the agreement.

In accordance with ASC 815, an interest rate swap contract is recognized as an asset or liability on the condensed consolidated balance sheets and is measured at fair value.

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The following table summarizes the allocation of stock-based compensation in the accompanying condensed consolidated statements of income:

For the three months ended

March 31, 2023 April 1, 2022

For the three months ended For the six months ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Cost of sales $ 331 $ 231 $ 573 $ 409

3 unchanged sentences

Total $ 4,483 $ 4,061 $ 10,184 $ 7,090

The following table summarizes the activity for the Company's unvested RSUs for the three months ended March 31, 2023:

The following table summarizes the activity for the Company’s unvested restricted stock units (“RSUs”) for the six months ended June 30, 2023:

Unvested RSUs

4 unchanged sentences

Vested ( 115 ) $ 84.10

Unvested at March 31, 2023 304 $ 88.44

As of March 31, 2023, the Company had approximately $ 18,712 of unrecognized stock-based compensation expense related to RSUs, which will be recognized over the remaining weighted-average vesting period of approximately 1.91 years.

During the three months ended March 31, 2023, the Company issued performance share units (“PSUs”) to certain executives that represent shares potentially issuable in the future.

Unvested at June 30, 2023 296 $ 98.75

As of June 30, 2023, the Company had approximately $ 24,148 of unrecognized stock-based compensation expense related to RSUs, which will be recognized over the remaining weighted-average vesting period of approximately 2.15 years.

During the six months ended June 30, 2023, the Company issued performance share units (“PSUs”) to certain executives that represent shares potentially issuable in the future.

Issuance is based upon the Company’s performance, over a 3 year performance period, on certain measures including return on invested capital and free cash flow.

The PSUs vest only upon the achievement of the applicable performance goals for the performance period, and, depending on the actual achievement on the performance goals, the grantee may earn between 0 % and 200 % of the target PSUs.

The Company considered it probable that the performance goals would be achieved, therefore the fair value of PSUs is calculated based on the stock price on the date of grant.

The following table summarizes the activity for the Company's unvested PSUs for the three months ended March 31, 2023:

The fair value of PSUs is calculated based on the stock price on the date of grant assuming the performance goals will be achieved.

The following table summarizes the activity for the Company’s unvested PSUs for the six months ended June 30, 2023:

Unvested PSUs

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Granted 44 $ 115.70

Unvested at March 31, 2023 86 $ 123.29

Unvested at June 30, 2023 92 $ 121.41

The stock-based compensation expense recognized each period is dependent upon our estimate of the number of shares that will ultimately vest based on the achievement of certain performance conditions.

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(in thousands, except per share amounts)

For the three months ended

March 31, 2023 April 1, 2022

For the three months ended For the six months ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Provision for income taxes $ 8,095 $ 12,464 $ 17,473 $ 14,900

Effective tax rates 16.9 % 18.9 % 17.7 % 12.8 %

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.

For the three months ended June 30, 2023, the difference between the Company’s effective tax rate of 16.9 % and the 21 % federal statutory rate was due to a lower tax rate on foreign derived intangible income and excess benefit related to stock-based compensation.

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

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 U.S.

For the six months ended June 30, 2023, the difference between the Company’s effective tax rate and the 21% federal statutory rate resulted primarily from 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 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 six months ended July 1, 2022, the difference between the Company’s effective tax rate 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 limited 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.

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.

We do not expect the results from any ongoing income tax audits to have a material impact on our consolidated financial condition, results of operations, or cash flows.

Related Party Transactions

On March 11, 2020, the Company acquired 100% of the issued and outstanding stock of SCA Performance Holdings, Inc.

The Company has transactions with an automotive dealership owned by a former owner of SCA, who was an employee of the Company.

The Company purchased approximately $ 211 and $ 281 of parts and vehicles and sold approximately $ 132 and $ 457 of upfit packages to the dealership during the three months ended March 31, 2023 and April 1, 2022, respectively.

The Company had $ 54 and $ 17 in accounts payable and $ 78 and $ 27 in accounts receivable as of March 31, 2023 and April 1, 2022 respectively, related to this dealership.

As of March 31, 2023, the employee is no longer employed with the Company.

On July 22, 2020, the Company, pursuant to a stock purchase agreement with Flagship, Inc., purchased the remaining 20 % interest of FF US Holding Corp.

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The Company believes that this acquisition will be complementary to its upfitting businesses and will help to expand its product offerings.

The total purchase price of $ 130,918 , net of cash acquired, was allocated to net assets of $ 21,001 , identified intangible assets of $ 53,000 , and goodwill of $ 56,917 .

This acquisition was financed through a combination of cash on hand and the Company's existing 2022 Credit Facility.

The Company's valuation is preliminary and subject to the Company's validation of the valuation of intangible assets, related deferred taxes, and finalization of working capital adjustments.

This acquisition was financed through the Company’s existing 2022 Credit Facility.

The acquisition was closed on March 3, 2023 and accounted for as a business combination.

The purchase price of Custom Wheel House has been preliminarily allocated to the assets acquired and liabilities assumed based on their estimated respective fair values as of March 3, 2023 with the excess purchase price allocated to goodwill.

The Company’s valuation is preliminary and subject to the Company’s validation of the valuation of intangible assets, related deferred taxes and working capital.

The Company expects to amortize the acquired trade name, customer relationship and core technology assets over their expected useful lives that range between two and seven years .

The acquired goodwill represents the value of combining operations of Custom Wheel House and the Company, and is expected to be partially deductible for tax purposes.

The results of operations for Custom Wheel House have been included in the Company's Consolidated Statements of Income since the closing date of the acquisition on March 3, 2023.

The total revenue and net loss from operations included since the date of acquisition through March 31, 2023 amounted to $ 6,937 and $ 2,039 , respectively.

This purchase was accounted for as a business combination.

During the three months ended June 30, 2023, the Company updated the purchase price allocation and recorded adjustments to net assets of $ 756 , identified intangible assets of $ 4,337 , and goodwill of $ 5,093 .

The Company’s allocation of the purchase price to the net tangible and intangible assets acquired and liabilities assumed is as follows:

Acquisition consideration

Cash consideration $ 130,918

Total consideration at closing $ 130,918

Fair market values

Inventory $ 23,266

Other current and non-current assets 4,233

Property, plant and equipment 3,529

Lease right-of-use assets 4,718

Intangibles 48,663

Goodwill 62,010

Total assets acquired 146,419

Accounts payable and accrued expenses 10,783

Current portion of lease liabilities 1,694

Lease liabilities 3,024

Total liabilities assumed 15,501

Purchase price allocation $ 130,918

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

The Company incurred $ 38 and $ 925 of transaction costs related to the acquisition of Custom Wheel House during the three and six months ended June 30, 2023.

These costs are classified as general and administrative expenses in the accompanying condensed consolidated statements of income.

The results of operations for Custom Wheel House have been included in the Company's condensed consolidated statements of income since the closing date of the acquisition on March 3, 2023.

The total revenue and net loss from operations for Custom Wheel House for the three months ended June 30, 2023 amounted to $ 19,748 and $ 4,509 , respectively.

The total revenue and net loss from operations for Custom Wheel House for the six months ended June 30, 2023 amounted to $ 26,685 and $ 6,548 , respectively.

Pro-forma financial information of the combined entities is not presented due to the immaterial impact of the financial results of the acquired entity on our consol1idated financial statements.

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 1. Financial Statements