What changed in this filing

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Item 1A. Risk Factors

2023-08-04 compared with 2023-05-04 · 44 added, 47 removed, 601 unchanged (13% of the section changed)

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• our performance-defining products, and the bikes and powered vehicles into which they are incorporated, are discretionary purchases and may be adversely impacted by changes in the economy, a shrinking market for these powered vehicles, or a material decline in demand for the high-end bikes that make up a significant portion of our sales;

• our business, financial condition and results of operations have been and may continue to be adversely affected by global public health epidemics or pandemics, including the ongoing COVID-19 pandemic;

• the impact of the risks associated with international geopolitical conflicts, including continuing tensions between Taiwan and China, and the Russian invasion of Ukraine on the global economy, energy supplies and raw materials are uncertain, but may prove to negatively impact our business and operations;

• 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;

• failure to effectively compete against competitors, enhance existing products or develop, manufacture and market new products that respond to consumer needs and preferences and achieve market acceptance could result in a decrease in demand for our products and negatively impact our business and financial results;

• changes in our customer, channel and product mix could place demands that are more rigorous on our infrastructure and cause our profitability percentages to fluctuate;

• a disruption in the operations of our facilities, such as work stoppages, or delays in our planned expansion of certain facilities, could have a negative effect on our business, financial condition or results of operations;

• our business depends substantially on our ability to attract and retain experienced and qualified talent, including our senior management team;

• a disruption in the operations of our facilities or along our global supply chain, such as work stoppages, or delays in our planned expansion of certain facilities, could have a negative effect on our business, financial condition or results of operations;

• our business depends substantially on our ability to maintain our premium brand image and to attract and retain experienced and qualified talent, including our senior management team;

• we may not be able to sustain our past growth or successfully implement our growth strategy, which may have a negative effect on our business, financial condition or results of operations;

• the loss of the support of professional athletes for our products, or the inability to attract new professional athletes or disruption in relationships with dealers and distributors may harm our business;

• our business is dependent in large part on the orders we receive from our OEM customers and from their success.

• our business is dependent in large part on our relationships with dealers and distributors and their success and the orders we receive from our OEM customers and from their success.

The loss of all or a substantial portion of our sales to any of these customers could have a material adverse impact on us and our results of operations;

• our international operations are exposed to risks associated with conducting business globally, including currency exchange rate fluctuations and policies related to global trade and tariffs;

• our sales could be impacted by the disruption of sales by other bike component manufacturers or if other bike component manufacturers enter into the specialty bike component market;

• if we are unable to enforce our intellectual property rights, our reputation and sales could be adversely affected, while intellectual property disputes could lead to significant costs or the inability to sell products;

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RISKS RELATED TO OUR BUSINESS AND OPERATIONS

Our business, financial condition and results of operations have been and may continue to be adversely affected by global public health epidemics or pandemics, including the ongoing COVID-19 pandemic.

We continue to face various risks related to public health issues, including epidemics, pandemics, and other outbreaks, including the ongoing coronavirus (“COVID-19”) pandemic.

The impact of the COVID-19 pandemic, including changes in consumer behavior, COVID-19 pandemic fears and market downturns, and restrictions on business and individual activities, has created significant volatility in the global economy and led to reduced economic activity.

There have been extraordinary actions taken by international, federal, state, and local public health and governmental authorities, most of which are no longer in effect, to contain and combat the outbreak and spread of COVID-19 in regions throughout the world, including travel bans, quarantines, “stay-at-home” orders, and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations.

These government-mandated closures, “shelter-in-place” directives, and an outbreak among, or quarantine of, the employees in any of our facilities, have caused and could continue to cause significant interruptions to, or temporary closures of our operations.

The spread of COVID-19 caused us to modify our business practices, and we may take further actions as may be required by government authorities or that we determine is in the best interests of our employees, customers, suppliers, vendors and business partners.

For example, as a result of the COVID-19 pandemic, there has been an increase in the number of employees that work remotely or have a hybrid work schedule.

It is possible that continued widespread remote work arrangements could have a negative impact on our operations, the execution of our business plans, productivity, the availability of key personnel and other employees necessary to conduct our business, and of third-party service providers who perform critical services for us, or otherwise cause operational failures due to changes in our normal business practices necessitated by the outbreak and related governmental actions.

These impacts have had and could continue to have a negative effect on our business, financial condition, results of operations and cash flows, as well as the trading price of our securities.

Furthermore, the COVID-19 pandemic has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth, the proper functioning of financial and capital markets, foreign currency exchange rates, interest rates, and liquidity.

The impact of the risks associated with international geopolitical conflicts, including continuing tensions between Taiwan and China, and the Russian invasion of Ukraine on the global economy, energy supplies and raw materials are uncertain, but may prove to negatively impact our business and operations.

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and countries in Europe.

These areas have historically experienced recessions, disruptions in banking and/or financial systems, economic weakness and uncertainty, and there appears to be an increasing risk of recessions or inflationary economic impacts related to the global COVID-19 pandemic, the Russian invasion of Ukraine, escalating energy costs, global supply chain disruptions, rising interest rates and other economic changes.

These areas have historically experienced recessions, disruptions in banking and/or financial systems, economic weakness and uncertainty, and there appears to be an increasing risk of recessions or inflationary economic impacts related to lingering effects of the global COVID-19 pandemic, the Russian invasion of Ukraine, escalating energy costs, global supply chain disruptions, rising interest rates and other economic changes.

In addition, many of our products are recreational in nature and are generally discretionary purchases by consumers.

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Any of these effects could negatively affect our business, financial condition or results of operations.

We continue to face various risks related to public health issues, including epidemics, pandemics, and other outbreaks, including the ongoing COVID-19 pandemic.

For example, as a result of the COVID-19 pandemic, there has been an increase in the number of employees that work remotely or have a hybrid work schedule.

These impacts have had and could continue to have a negative effect on our business, financial condition, results of operations and cash flows, as well as the trading price of our securities.

If we are unable to maintain our premium brand image, our business may suffer.

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Dennison or any other key employees.

We believe that the top eight members of our senior management team are key to establishing our focus and executing our corporate strategies as they have extensive knowledge of our systems and processes.

We believe that the top nine members of our senior management team are key to establishing our focus and executing our corporate strategies as they have extensive knowledge of our systems and processes.

Given our senior management team’s knowledge of our industry and the limited number of direct competitors in the industry, we believe that it could be difficult to find replacements should any of the members of our senior management team leave.

For example, on April 14, 2023, Scott R.

Humphrey, our former Chief Financial Officer and Treasurer, left the Company.

In connection with Mr.

Humphrey’s separation from the Company, our Board of Directors appointed Maggie E.

Torres as the Company’s Interim Chief Financial Officer and Interim Treasurer to serve while the Company completes its search process for a permanent Chief Financial Officer.

We could face significant competition for the qualifications and experience we are seeking.

We can give no assurance concerning the timing or outcome of our search for a permanent Chief Financial Officer.

We could also be adversely affected if we fail to attract and retain talent throughout our organization.

For instance, we rely on skilled and well-trained engineers for the design and production of our products, as well as in our research and development functions.

Competition for such individuals is intense, particularly in California and Georgia where several of our facilities are located.

Competition for such individuals is intense, particularly in Taiwan, California and Georgia where several of our facilities are located.

Our inability to attract or retain qualified employees in our design, production or research and development functions or elsewhere in our Company could result in diminished quality of our products and delinquent production schedules or impede our ability to develop new products.

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Product recalls, and significant product repair and/or replacement due to product warranty costs and claims have had, and in the future, could have, a material adverse impact on our business.

Unless otherwise required by law, we generally provide a limited warranty for our products for a one or two-year period beginning on:

Unless otherwise required by law, we generally provide a limited warranty for our products for a one, two or three-year period beginning on:

(i) in the case of OEM sales, the date the bike or powered vehicle is purchased from an authorized OEM where our product is incorporated as original equipment on the purchased bike or powered vehicle;

or (ii) in the case of aftermarket sales, the date the product is originally purchased from an authorized dealer.

(ii) in the case of aftermarket sales, the date the product is originally purchased from an authorized dealer;

or (iii) in the case of upfitting sales, the date of the retail sale to an end customer.

From time to time, our customers may negotiate for longer or different warranty coverage.

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We are subject to certain risks in our manufacturing and in the testing of our products.

As of March 31, 2023, we employed approximately 4,400 employees worldwide, a large percentage of which work at our manufacturing facilities.

As of June 30, 2023, we employed approximately 4,300 employees worldwide, a large percentage of which work at our manufacturing facilities.

Our business involves complex manufacturing processes that can be inherently dangerous.

Although we employ safety procedures in the design and operation of our facilities, there is a risk that an accident or death could occur in one of our facilities.

In addition, prior to the introduction of new products, our employees test the products under rigorous conditions, which involve the risk of injury or death.

In addition, prior to the introduction of new products, our employees test the products under rigorous

conditions, which involve the risk of injury or death.

Any accident could result in manufacturing or product delays, which could negatively affect our business, financial condition or results of operations.

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Any such future transformation, due to acquisition integration or business growth and consolidation, involves risks inherent in the conversion to a new computer system, including loss of information and potential disruption to our normal operations.

Our business and results of operations may be adversely affected if we experience operating problems or cost overruns during the ERP implementation process, or if the ERP system and the associated process changes do not give rise to the benefits that we expect.

Our business and results of operations may be adversely affected if we experience

operating problems or cost overruns during the ERP implementation process, or if the ERP system and the associated process changes do not give rise to the benefits that we expect.

Additionally, if we do not effectively implement the ERP system as planned or the system does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected.

We could be negatively impacted by cybersecurity attacks and are subject to evolving privacy laws in the U.S.

Our operations may be impaired if our technology systems fail to perform adequately and we could be negatively impacted by cybersecurity attacks and are subject to evolving privacy laws in the U.S.

and other jurisdictions that could adversely impact our business and require that we incur substantial costs.

We use a variety of information technology systems in the ordinary course of business, which are potentially vulnerable to unauthorized access, computer viruses, ransomware software viruses and other similar types of malicious activities and cyber-attacks, including cyber-attacks to our information technology infrastructure and attempts by others to gain access to our proprietary or sensitive information, and ranging from individual attempts to advanced persistent threats.

Information technology systems are critically important to operating our business.

We rely on information technology systems to manage business data, communications, supply chain, order entry and fulfillment, and other business processes.

The failure of any of the information technology systems to perform as anticipated could disrupt our business and could result in transaction errors, processing inefficiencies and the loss of sales and customers, which could materially adversely affect our business, financial condition, or results of operations.

The information technology systems described above are also potentially vulnerable to unauthorized access, computer viruses, ransomware software viruses and other similar types of malicious activities and cyber-attacks, including cyber-attacks to our information technology infrastructure and attempts by others to gain access to our proprietary or sensitive information, and ranging from individual attempts to advanced persistent threats.

Further, ransomware attacks are becoming increasingly prevalent and severe.

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We have completed several acquisitions over the past several years, including our acquisition of SCA in March 2020, Outside Van and Sola Sport Pty Ltd.

("Sola Sport") in May 2021, Shock Therapy in December 2021, and Custom Wheel House, LLC in February 2023.

(“Sola Sport”) in May 2021, Shock Therapy in December 2021, and Custom Wheel House, LLC in March 2023.

Additionally, we intend to selectively evaluate additional acquisitions in the future.

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If our beliefs regarding the opportunities in the market for our products are incorrect or the number of consumers who we believe are willing to pay premium prices for well-designed, performance-oriented equipment in the markets in which we sell our products does not increase, or declines, we may fail to achieve future growth and our business, financial condition or results of operations could be negatively affected.

Our operations may be impaired if our information technology systems fail to perform adequately or if they are the subject of a data breach or cyber-attack.

Information technology systems are critically important to operating our business.

We rely on information technology systems to manage business data, communications, supply chain, order entry and fulfillment, and other business processes.

Despite various precautionary steps to protect our business from losses resulting from cyber-attacks, any cyber-attack occurrence could still result in losses, which could affect our results of operations.

We are not aware of any cyber incidents that we believe to be material or that could have a material adverse effect on our business, financial condition and results of operations.

Because of the current inflation affecting the economy and the Federal Reserve’s interest rate increases in response, we may be harmed in the future.

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government in reaction to such events could negatively impact our business by increasing our operating costs and our borrowing costs as well as decreasing capital.

Specifically, the Federal Reserve increased benchmark interest rates multiple times in 2022, has already increased benchmark interest rates multiple times in 2023, and has indicated its intention to continue to raise benchmark interest rates in 2023 in an effort to curb the upward inflationary pressure on the cost of goods and services across the U.S.

Specifically, the Federal Reserve increased benchmark interest rates multiple times in 2022 and has already increased benchmark interest rates multiple times in 2023.

While the Federal Reserve did not increase benchmark interest rates at the June 2023 meeting, it has indicated its intention to continue to raise benchmark interest rates in 2023 in an effort to curb the upward inflationary pressure on the cost of goods and services across the U.S.

The raw materials and other supplies we use to produce our products have experienced increasing prices during recent periods as a result of inflation.

In response, we have increased the prices we charge customers for our products.

While these price adjustments have not caused a reduction in sales thus far, continued increases in inflation rates may result in a reduction of customers or sales volumes.

While these price adjustments have not caused a reduction in sales thus far, continued increases in

inflation rates may result in a reduction of customers or sales volumes.

Additionally, as the Federal Reserve begins to increase interest rates, the result could be a recession which would slow demand for our products and hinder our sales growth, or cause sales to decline in future periods.

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In the future, we and our subsidiaries may be able to incur substantial additional debt from amendments to the 2022 Credit Facility, additional lending sources subject to the restrictions contained in the 2022 Credit Facility, or because of certain debt instruments we may issue.

As of March 31, 2023, we had $360.0 million of indebtedness, and $290.0 million in revolving credit available to borrow under the 2022 Credit Facility.

As of June 30, 2023, we had $325.0 million of indebtedness, and $325.0 million in revolving credit available to borrow under the 2022 Credit Facility.

Our ability to borrow under the 2022 Credit Facility fluctuates from time to time due to, among other factors, our borrowings under the 2022 Credit Facility.

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Any such increases in the interest rate or increases of our borrowings under the 2022 Credit Facility will increase our interest expense.

The Federal Reserve increased benchmark interest rates multiple times in 2022, has already increased benchmark interest rates multiple times in 2023, and has indicated its intention to continue to raise benchmark interest rates in 2023 in an effort to curb the upward inflationary pressure on the cost of goods and services across the U.S..

The Federal Reserve increased benchmark interest rates multiple times in 2022 and has already increased benchmark interest rates multiple times in 2023.

Increases in these rates increase our interest expense and reduce our funds available for operations and other purposes.

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Refer to Note 9 - Derivatives and Hedging for additional information regarding the interest rate swap arrangement.

As of March 31, 2023, we had $360.0 million of indebtedness outstanding under the 2022 Credit Facility.

Based on the $260.0 million of variable interest rate indebtedness that was outstanding under the 2022 Credit Facility as of March 31, 2023, after giving effect to our interest rate swap, a hypothetical 100 basis point increase or decrease in the interest rate would have resulted in an approximately $0.7 million increase or decrease in interest expense for the three months ended March 31, 2023, respectively.

As of June 30, 2023, we had $325.0 million of indebtedness outstanding under the 2022 Credit Facility.

Based on the $225.0 million of variable interest rate indebtedness that was outstanding under the 2022 Credit Facility as of June 30, 2023, after giving effect to our interest rate swap, a hypothetical 100 basis point increase or decrease in the interest rate would have resulted in an approximately $0.6 million increase or decrease in interest expense for the three months ended June 30, 2023, respectively.

We may incur losses on interest rate swap and hedging arrangements.

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The trading price of our common stock could be volatile, and you could lose all or part of your investment in our common stock.

For example, from April 3, 2020 through March 31, 2023, our stock price has fluctuated between $190.29 and $35.54 per share and such volatility may continue in the future.

For example, from July 3, 2020 through June 30, 2023, our stock price has fluctuated between $190.29 and $69.28 per share and such volatility may continue in the future.

Factors affecting the trading price of our common stock could include:

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The issuance of additional shares of our common stock, such as the follow-on offering of approximately 2.8 million shares of common stock that we completed in June 2020, could dilute the ownership interest of our common stockholders and could depress the market price of shares of our common stock.

Our Amended and Restated Certificate of Incorporation authorizes us to issue 90,000,000 shares of common stock, 42,302,780 of which shares were outstanding as of March 31, 2023.

Our Amended and Restated Certificate of Incorporation authorizes us to issue 90,000,000 shares of common stock, 42,354,348 of which shares were outstanding as of June 30, 2023.

In the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with financings, acquisitions, registration statements or otherwise.

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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 1A. Risk Factors