FOX FACTORY HOLDING CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS FOX FACTORY HOLDING CORP. Condensed Consolidated Balance Sheets (in thousands, except per share data) (unaudited) As of As of September 29, 2023 December 30, 2022 Assets Current assets: Cash and cash equivalents $ 90,631 $ 145,250 Accounts receivable (net of allowances of $ 1,374 and $ 443 at September 29, 2023 and December 30, 2022, respectively) 149,989 200,440 Inventory 341,209 350,620 Prepaids and other current assets 155,394 101,364 Total current assets 737,223 797,674 Property, plant and equipment, net 211,142 202,215 Lease right-of-use assets 64,133 48,096 Deferred tax assets 57,256 57,339 Goodwill 386,139 323,978 Intangibles, net 207,659 178,980 Other assets 10,806 10,054 Total assets $ 1,674,358 $ 1,618,336 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 88,476 $ 131,160 Accrued expenses 103,201 127,729 Total current liabilities 191,677 258,889 Line of credit 190,000 200,000 Other liabilities 51,378 38,061 Total liabilities 433,055 496,950 Commitments and contingencies (Refer to Note 8 - Commitments and Contingencies ) Stockholders’ equity Preferred stock, $ 0.001 par value — 10,000 authorized and no shares issued or outstanding as of September 29, 2023 and December 30, 2022 — — Common stock, $ 0.001 par value — 90,000 authorized; 43,270 shares issued and 42,380 outstanding as of September 29, 2023; 43,160 shares issued and 42,270 outstanding as of December 30, 2022 42 42 Additional paid-in capital 364,118 356,239 Treasury stock, at cost; 890 common shares as of September 29, 2023 and December 30, 2022 ( 13,754 ) ( 13,754 ) Accumulated other comprehensive income 10,025 14,782 Retained earnings 880,872 764,077 Total stockholders’ equity 1,241,303 1,121,386 Total liabilities and stockholders’ equity $ 1,674,358 $ 1,618,336 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents FOX FACTORY HOLDING CORP. Condensed Consolidated Statements of Income (in thousands, except per share data) (unaudited) For the three months ended For the nine months ended September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Net sales $ 331,117 $ 409,168 $ 1,131,683 $ 1,193,850 Cost of sales 223,890 271,901 759,132 793,379 Gross profit 107,227 137,267 372,551 400,471 Operating expenses: General and administrative 25,710 29,171 89,692 83,182 Sales and marketing 24,439 23,508 74,664 70,272 Research and development 8,904 13,955 39,374 40,811 Amortization of purchased intangibles 6,809 5,271 19,982 16,214 Total operating expenses 65,862 71,905 223,712 210,479 Income from operations 41,365 65,362 148,839 189,992 Interest expense 3,466 2,667 11,405 6,341 Other (income) expense, net ( 878 ) ( 1,441 ) ( 318 ) 3,067 Income before income taxes 38,777 64,136 137,752 180,584 Provision for income taxes 3,484 13,365 20,957 28,265 Net income $ 35,293 $ 50,771 $ 116,795 $ 152,319 Earnings per share: Basic $ 0.83 $ 1.20 $ 2.76 $ 3.61 Diluted $ 0.83 $ 1.20 $ 2.75 $ 3.59 Weighted-average shares used to compute earnings per share: Basic 42,395 42,281 42,350 42,215 Diluted 42,510 42,387 42,497 42,374 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents FOX FACTORY HOLDING CORP. Condensed Consolidated Statements of Comprehensive Income (in thousands) (unaudited) For the three months ended For the nine months ended September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Net income $ 35,293 $ 50,771 $ 116,795 $ 152,319 Other comprehensive (loss) income Interest rate swap, net of tax effects ( 281 ) 2,563 ( 2,219 ) 9,296 Foreign currency translation adjustments ( 2,423 ) ( 4,091 ) ( 2,538 ) ( 7,847 ) Other comprehensive (loss) income ( 2,704 ) ( 1,528 ) ( 4,757 ) 1,449 Comprehensive income $ 32,589 $ 49,243 $ 112,038 $ 153,768 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents FOX FACTORY HOLDING CORP. Condensed Consolidated Statements of Stockholders’ Equity (in thousands) (unaudited) Common Stock Treasury Additional paid-in capital Accumulated other comprehensive income Retained earnings Total stockholders ’ equity Shares Amount Shares Amount Balance - December 31, 2021 43,010 $ 42 890 $ ( 13,754 ) $ 344,119 $ 4,876 $ 558,799 $ 894,082 Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding 29 — — — ( 820 ) — — ( 820 ) Stock-based compensation expense — — — — 3,029 — — 3,029 Other comprehensive income — — — — — 4,743 — 4,743 Net income — — — — — — 48,050 48,050 Balance - April 1, 2022 43,039 $ 42 890 $ ( 13,754 ) $ 346,328 $ 9,619 $ 606,849 $ 949,084 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 Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding 4 — — — ( 325 ) — — ( 325 ) Stock-based compensation expense — — — — 4,289 — — 4,289 Other comprehensive loss — — — — — ( 1,528 ) — ( 1,528 ) Net income — — — — — — 50,771 50,771 Balance - September 30, 2022 43,157 $ 42 890 $ ( 13,754 ) $ 351,403 $ 6,325 $ 711,118 $ 1,055,134 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents Common Stock Treasury Additional paid-in capital Accumulated other comprehensive income Retained earnings Total stockholders’ equity Shares Amount Shares Amount Balance - December 30, 2022 43,160 $ 42 890 $ ( 13,754 ) $ 356,239 $ 14,782 $ 764,077 $ 1,121,386 Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding 33 — — — ( 2,155 ) — — ( 2,155 ) Stock-based compensation expense — — — — 5,701 — — 5,701 Other comprehensive loss — — — — — ( 2,452 ) — ( 2,452 ) Net income — — — — — — 41,767 41,767 Balance - March 31, 2023 43,193 $ 42 890 $ ( 13,754 ) $ 359,785 $ 12,330 $ 805,844 $ 1,164,247 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 Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding 26 — — — ( 945 ) — — ( 945 ) Stock-based compensation expense — — — — 3,858 — — 3,858 Other comprehensive loss — — — — — ( 2,704 ) — ( 2,704 ) Net income — — — — — — 35,293 35,293 Balance - September 29, 2023 43,270 $ 42 890 $ ( 13,754 ) $ 364,118 $ 10,025 $ 880,872 $ 1,241,303 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents FOX FACTORY HOLDING CORP. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) For the nine months ended September 29, 2023 September 30, 2022 OPERATING ACTIVITIES: Net income $ 116,795 $ 152,319 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 43,519 36,813 Stock-based compensation 14,042 11,379 Amortization of loan fees 679 860 Write off of unamortized loan origination fees — 1,927 Amortization of deferred gains on prior swap settlements ( 3,189 ) ( 2,113 ) Amortization of inventory fair value step-up 9,903 — Gain on disposal of property and equipment — ( 1,845 ) Deferred taxes ( 512 ) ( 12,515 ) Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable 53,299 ( 59,976 ) Inventory 24,317 ( 84,834 ) Income taxes ( 20,384 ) 4,171 Prepaids and other assets ( 53,130 ) ( 55,000 ) Accounts payable ( 51,389 ) 43,439 Accrued expenses and other liabilities ( 7,265 ) 22,410 Net cash provided by operating activities 126,685 57,035 INVESTING ACTIVITIES: Acquisitions of businesses, net of cash acquired ( 130,918 ) — Acquisition of other assets, net of cash acquired ( 2,432 ) — Purchases of property and equipment ( 32,048 ) ( 35,559 ) Proceeds from sale of property and equipment — 3,180 Net cash used in investing activities ( 165,398 ) ( 32,379 ) FINANCING ACTIVITIES: Proceeds from line of credit 210,000 582,356 Payments on line of credit ( 220,000 ) ( 259,336 ) Repayment of term debt — ( 382,500 ) Installment on purchase of non-controlling interest — ( 2,700 ) Repurchases from stock compensation program, net ( 6,163 ) ( 4,094 ) Proceeds from termination of swap agreement — 12,270 Net cash used in financing activities ( 16,163 ) ( 54,004 ) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 257 2,799 CHANGE IN CASH AND CASH EQUIVALENTS ( 54,619 ) ( 26,549 ) CASH AND CASH EQUIVALENTS—Beginning of period 145,250 179,686 CASH AND CASH EQUIVALENTS—End of period $ 90,631 $ 153,137 The accompanying notes are an integral part of these condensed consolidated financial statements. 8 Table of Contents FOX FACTORY HOLDING CORP. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) For the nine months ended SUPPLEMENTAL CASH FLOW INFORMATION: September 29, 2023 September 30, 2022 Cash paid during the period for: Income taxes $ 42,017 $ 36,487 Interest, net of capitalized interest 14,608 6,649 Amounts included in the measurement of lease liabilities 10,026 7,807 Non-cash operating activities: Right-of-use assets obtained in exchange for lease obligations (1) $ 28,812 $ 11,966 Non-cash investing and financing activities: Capital expenditures included in accounts payable $ 756 $ 1,698 (1) Includes new leases executed in the United States of America “U.S.”. The accompanying notes are an integral part of these condensed consolidated financial statements. 9 Table of Contents FOX FACTORY HOLDING CORP. Notes to Condensed Consolidated Financial Statements (in thousands, except per share data) (unaudited ) 1. Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies - Fox Factory Holding Corp. (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 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. and its operating subsidiaries on a consolidated basis. Basis of Presentation - The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted (“GAAP”) in the United States of America (“U.S.” or “United States”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended December 30, 2022 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 23, 2023. In management’s opinion, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, that are necessary for a fair presentation of financial results for the interim periods presented. Operating results for any quarter are not necessarily indicative of the results for the full fiscal year. Fiscal Year Calendar - The Company operates on a 52-53 week fiscal year calendar. For 2023 and 2022, the Company’s fiscal year will end or has ended on December 29, 2023 and December 30, 2022, respectively. The twelve month periods ended December 29, 2023 and December 30, 2022, will include or have included 52 weeks. The three and nine month periods ended September 29, 2023 and September 30, 2022 each included 13 weeks and 26 weeks, respectively. Principles of Consolidation - These condensed consolidated financial statements include the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Summary of Significant Accounting Policies - There have been no changes to our significant accounting policies 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. Revenue Recognition - Revenues are generated from the sale of performance-defining products and systems to customers worldwide. The Company’s performance-defining products and systems are solutions that improve performance of powered vehicles and bikes. Powered vehicles include side-by-sides, on-road vehicles with off-road capabilities, off-road vehicles and trucks, ATVs, snowmobiles, specialty vehicles and applications, and motorcycles. Revenue is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to a customer, generally at the time of shipment. Contracts are generally in the form of purchase orders and are governed by standard terms and conditions. For larger OEMs, the Company may also enter into master agreements. Sales tax and other similar taxes are excluded from revenues. 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 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. 10 Table of Contents FOX FACTORY HOLDING CORP. Notes to Condensed Consolidated Financial Statements (in thousands, except per share data) (unaudited ) Segments - The Company has determined that it has a single operating and reportable segment: manufacturing, sale and service of performance-defining products. The Company considers operating segments to be components of the Company in which separate financial information is available that is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance. The chief operating decision maker for the Company is the Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. Use of Estimates - The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ from management’s estimates. Reclassifications - We have reclassified certain prior period amounts within our Note 2 - Revenues for the three and nine months ended September 30, 2022 to conform to our current period 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. 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: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3: 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). 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. Recent Accounting Pronouncements In September 2022, the FASB issued accounting standards update (“ASU”) 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405): Disclosure of Supplier Finance Program Obligations. Under ASU 2022-04, the buyer in a supplier finance program is required to disclose sufficient information to allow a user of the financial statements to understand the program's nature, activity during the period, changes from period to period, and potential magnitude. The guidance is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted. These amendments will be applied retrospectively to each period in which a balance sheet is presented, except for the disclosure of rollforward information, which will be applied prospectively. The Company adopted the interim disclosure requirements, as applicable, during the first quarter of 2023 and will adopt the annual disclosure requirements, except for the annual rollforward, in our 2023 Annual Report on Form 10-K. The Company expects to adopt the annual rollforward requirement in our 2024 Annual Report on Form 10-K. Refer to the “Bailment Pool Arrangements” section within Note 8 - Commitments and Contingencies for further details of this adoption. 11 Table of Contents FOX FACTORY HOLDING CORP. Notes to Condensed Consolidated Financial Statements (in thousands, except per share data) (unaudited ) 2. Revenues In the second quarter of fiscal year 2023, the Company realigned its Powered Vehicles Group into the Powered Vehicles Group and the Aftermarket Applications Group to be more aligned with the Company’s end customers and drive additional focus on product development. The new Powered Vehicles Group is comprised of sales to original equipment off-road and power sports manufacturers and aftermarket businesses that sell shocks directly to dealers and distributors. The Aftermarket Applications Group is comprised of aftermarket businesses that offer custom vehicle shock, tuning, suspension, lift kit, upfitting, and wheel and tire solutions for automotive and power sports enthusiasts. All prior-period amounts have been recast to conform with the current period presentation. The following table summarizes total net sales by product group: For the three months ended For the nine months ended September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Powered Vehicles Group $ 123,076 $ 109,467 $ 405,519 $ 299,831 Aftermarket Applications Group 136,039 125,729 430,391 372,504 Specialty Sports Group 72,002 173,972 295,773 521,515 Total net sales $ 331,117 $ 409,168 $ 1,131,683 $ 1,193,850 The following table summarizes total net sales by sales channel: For the three months ended For the nine months ended September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 OEM $ 155,632 $ 238,078 $ 570,550 $ 662,453 Aftermarket 175,485 171,090 561,133 531,397 Total net sales $ 331,117 $ 409,168 $ 1,131,683 $ 1,193,850 The following table summarizes total net sales generated by geographic location of the customer: For the three months ended For the nine months ended September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 North America $ 268,703 $ 255,424 $ 864,612 $ 746,566 Europe 31,958 82,299 147,082 242,373 Asia 25,540 66,875 104,399 188,704 Rest of the world 4,916 4,570 15,590 16,207 Total net sales $ 331,117 $ 409,168 $ 1,131,683 $ 1,193,850 12 Table of Contents FOX FACTORY HOLDING CORP. Notes to Condensed Consolidated Financial Statements (in thousands, except per share data) (unaudited ) 3. Inventory Inventory consisted of the following: September 29, 2023 December 30, 2022 Raw materials $ 234,049 $ 247,441 Work-in-process 10,346 9,959 Finished goods 96,814 93,220 Total inventory $ 341,209 $ 350,620 4. Prepaids and Other Current Assets Prepaids and other current assets consisted of the following: September 29, 2023 December 30, 2022 Prepaid chassis deposits $ 119,666 $ 74,013 Advanced payments and prepaid contracts 22,786 13,598 Other current assets 12,942 13,753 Total $ 155,394 $ 101,364 5. Property, Plant and Equipment, net Property, plant and equipment, net consisted of the following: September 29, 2023 December 30, 2022 Machinery and manufacturing equipment $ 138,047 $ 122,748 Building and building improvements 76,097 73,594 Internal-use computer software 32,956 30,290 Information systems, office equipment and furniture 24,924 21,655 Leasehold improvements 24,415 20,078 Transportation equipment 14,683 12,450 Land and land improvements 14,538 14,493 Total property, plant and equipment 325,660 295,308 Less: accumulated depreciation and amortization ( 114,518 ) ( 93,093 ) Total property, plant and equipment, net $ 211,142 $ 202,215 The Company’s long-lived assets by geographic location are as follows: September 29, 2023 December 30, 2022 United States $ 172,938 $ 166,544 International 38,204 35,671 Total long-lived assets $ 211,142 $ 202,215 13 Table of Contents FOX FACTORY HOLDING CORP. Notes to Condensed Consolidated Financial Statements (in thousands, except per share data) (unaudited ) 6. Accrued Expenses Accrued expenses consisted of the following: September 29, 2023 December 30, 2022 Payroll and related expenses $ 23,424 $ 38,193 Income tax payable 20,290 40,701 Warranty 20,041 17,071 Current portion of lease liabilities 12,815 10,314 Accrued sales rebate 12,608 8,693 Other accrued expenses 14,023 12,757 Total $ 103,201 $ 127,729 The Company generally provides a limited warranty for 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 the product is incorporated as original equipment on the purchased bike or powered vehicle; (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. Activity related to warranties is as follows: For the three months ended For the nine months ended September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Beginning warranty liability $ 19,751 $ 16,088 $ 17,071 $ 15,510 Charge to cost of sales 4,152 2,812 12,763 8,261 Fair value of warranty assumed in acquisition — — 100 — Costs incurred ( 3,862 ) ( 2,659 ) ( 9,893 ) ( 7,530 ) Ending warranty liability $ 20,041 $ 16,241 $ 20,041 $ 16,241 *All changes to warranty liability were within normal course of business. 7. Debt Prior Credit Facility In June 2019, the Company entered into a credit facility with Bank of America and other named lenders, which was periodically amended and restated and/or amended. The credit facility was amended and restated on March 11, 2020, and further amended on June 19, 2020, and June 11, 2021 (as amended, the “Prior Credit Facility”). The Prior Credit Facility (which was terminated on April 5, 2022 and replaced with the 2022 Credit Facility (as discussed below)), would have matured on March 11, 2025, and provided a senior secured revolving line of credit with a borrowing capacity of $ 250,000 and a term loan of $ 400,000 . The term loan was subject to quarterly amortization payments. 2022 Credit Facility On April 5, 2022, the Company entered into a new credit agreement with Wells Fargo Bank, National Association, and other named lenders (the “2022 Credit Facility”), and concurrently repaid in full and terminated the Prior Credit Facility. The 2022 Credit Facility, which matures on April 5, 2027, provides for revolving loans, swingline loans and letters of credit up to an aggregate amount of $ 650,000 . On April 5, 2022, the Company borrowed $ 475,000 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. 14 Table of Contents FOX FACTORY HOLDING CORP. Notes to Condensed Consolidated Financial Statements (in thousands, except per share data) (unaudited ) 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. Additionally, the Company had $ 4,473 of remaining unamortized debt issuance costs related to the Prior Credit Facility. The Company expensed $ 1,927 of the remaining unamortized debt issuance costs and allocated $ 2,546 to the 2022 Credit Facility. The Company may borrow, prepay and re-borrow principal under the 2022 Credit Facility during its term. Advances under the 2022 Credit Facility can be either Adjusted Term Secured Overnight Financing Rate (“SOFR”) loans or base rate loans. SOFR rate revolving loans bear interest on the outstanding principal amount thereof for each interest period at a rate per annum equal to Term SOFR for such calculation plus 0.10 % plus a margin ranging from 1.00 % to 2.00 %. Base rate revolving loans bear interest on the outstanding principal amount thereof at a rate per annum equal to the highest of (i) Federal Funds Rate plus 0.50 %, (ii) the rate of interest in effect for such day as publicly announced from time to time by the lender as its “prime rate”, and (iii) Adjusted Term SOFR rate for a one-month tenor plus 1.00 %, subject to the interest rate floors set forth therein, plus a margin ranging from 0.00 % to 1.00 %. At September 29, 2023, the one-month SOFR and three-month SOFR rates were 5.32 % and 5.27 %, respectively. At September 29, 2023, our weighted-average interest rate on outstanding borrowing was 5.31 %. 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 29, 2023. The following table summarizes the line of credit under the 2022 Credit Facility: September 29, 2023 December 30, 2022 Amount outstanding $ 190,000 $ 200,000 Available borrowing capacity 460,000 450,000 Total borrowing capacity $ 650,000 $ 650,000 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. On April 5, 2022, the Company terminated its 2021 Swap Agreement and entered into a new interest rate swap agreement (the “2022 Swap Agreement”). Through the 2022 Swap Agreement, the Company hedges the variability of cash flows in interest payments associated with $ 100,000 of its variable rate debt. Refer to Note 9 - Derivatives and Hedging for further details of the 2022 Swap Agreement. 15 Table of Contents FOX FACTORY HOLDING CORP. Notes to Condensed Consolidated Financial Statements (in thousands, except per share data) (unaudited ) 8. Commitments and Contingencies Indemnification Agreements - In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company or intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. While the outcome of these matters cannot be predicted with certainty, the Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on the Company’s results of operations, financial position or liquidity. Legal Proceedings - From time to time, the Company is involved in legal proceedings that arise in the ordinary course of business. Although the Company cannot assure the outcome of any such legal proceedings, based on information currently available, management does not believe that the ultimate resolution of any pending matters, either individually or in the aggregate, will have a material adverse effect on the Company’s financial condition, results of operations or cash flows. 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, 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, 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 condensed consolidated statements of cash flows. At September 29, 2023 and December 30, 2022, the Company had utilized $ 21,228 and $ 2,634 out of a maximum of $ 43,600 and $ 26,200 of Ford allocation of chassis, respectively, and $ 11,259 and $ 67,149 , respectively, out of a maximum of $ 100,000 GM allocation of chassis. The company incurred $ 740 and $ 4,310 of interest expense related to chassis on hand during the three and nine months ended September 29, 2023, respectively. Other Commitments - On November 30, 2017, the Company through FF US Holding Corp., acquired the assets of Flagship, Inc. d/b/a Tuscany and issued a 20% interest in FF US Holding Corp. to Flagship, Inc. A stockholders’ agreement with Flagship, Inc. provided the Company with a call option (the “Call Option”) to acquire the remaining 20 % of FF US Holding Corp. at any time from November 30, 2019 through November 30, 2024 at a value that approximates fair market value. On July 22, 2020, the Company exercised the Call Option and, pursuant to a stock purchase agreement with Flagship, Inc., the Company purchased the remaining 20 % interest for $ 24,975 payable in a combination of stock and cash. 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 and $ 2,700 during the three and nine months ended September 30, 2022, respectively. The Company had no remaining liability as of September 29, 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 and 58 shares of stock during the three and nine months ended September 30, 2022, respectively. The Company had no remaining shares to be released as of September 29, 2023. The exercise of the Call Option effectively canceled the put option held by Flagship, Inc. 16 Table of Contents FOX FACTORY HOLDING CORP. Notes to Condensed Consolidated Financial Statements (in thousands, except per share data) (unaudited ) 9. Derivatives and Hedging The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is interest rate risk. 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 SOFR over the lives of the agreements without an exchange of the underlying principal amounts. As of September 29, 2023 and December 30, 2022, the Company had the following interest rate swap contracts: September 29, 2023 December 30, 2022 Effective Date Termination Date Notional Amount Unrealized Gain in AOCI Unrealized Gain in AOCI September 2, 2020 June 11, 2021 $ 200,000 $ 125 $ 189 July 2, 2021 April 5, 2022 $ 200,000 6,055 9,180 April 5, 2022 April 5, 2027 $ 100,000 6,497 5,087 Total $ 12,677 $ 14,456 On June 11, 2021, the Company terminated its existing swap agreement (the “2020 Swap Agreement”) and entered into an interest rate swap agreement (the “2021 Swap Agreement”) with a notional amount of $ 200,000 . On April 5, 2022, the Company terminated its 2021 Swap Agreement and entered into a new interest rate swap agreement (the “2022 Swap Agreement”) with a notional amount of $ 100,000 . The terminated 2020 and 2021 Swap Agreements resulted in unrealized gains of $ 324 and $ 12,270 , respectively, at the termination dates that will continue to be accounted for in accumulated other comprehensive income and amortized into earnings over the term of the associated debt instrument. The 2022 Swap Agreement has a maturity date of April 5, 2027 and is indexed to a three-month Term SOFR (as defined in the 2022 Swap Agreement). The 2022 Swap Agreement met the criteria as a cash flow hedge under ASC 815, Derivatives and Hedging (“ASC 815”), and is recorded to other assets or other liabilities on the condensed consolidated balance sheets. Refer to Note 10 - Fair Value Measurements and Financial Instruments for additional information on determining the fair value. The unrealized gains or losses, after tax, will be recorded in accumulated other comprehensive income, a component of equity, and are expected to be reclassified into interest expense on the condensed consolidated statements of income when the forecasted transactions affect earnings. 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 other comprehensive income for the three and nine months ended September 29, 2023 were a loss of $ 281 and $ 2,219 , respectively; and for the three and nine months ended September 30, 2022 were a gain of $ 2,563 and $ 9,296 , respectively. Over the next twelve months, the Company expects to recognize $ 7,167 of the $ 12,677 of unrealized gains included in accumulated other comprehensive income related to the interest rate swap contracts. 17 Table of Contents FOX FACTORY HOLDING CORP. Notes to Condensed Consolidated Financial Statements (in thousands, except per share data) (unaudited ) 10. Fair Value Measurements and Financial Instruments 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: September 29, 2023 December 30, 2022 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets: Interest Rate Swap $ — $ 6,497 $ — $ 6,497 $ — $ 5,087 $ — $ 5,087 Total assets measured at fair value $ — $ 6,497 $ — $ 6,497 $ — $ 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 and nine month periods ended September 29, 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 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. The fair value was calculated utilizing Level 2 inputs. 18 Table of Contents FOX FACTORY HOLDING CORP. Notes to Condensed Consolidated Financial Statements (in thousands, except per share data) (unaudited ) 11. Stockholders’ Equity Equity Incentive Plans The following table summarizes the allocation of stock-based compensation in the accompanying condensed consolidated statements of income: For the three months ended For the nine months ended September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Cost of sales $ 330 $ 292 $ 903 $ 701 Sales and marketing 418 227 1,096 680 Research and development 331 215 834 705 General and administrative 2,779 3,555 11,209 9,293 Total $ 3,858 $ 4,289 $ 14,042 $ 11,379 The following table summarizes the activity for the Company’s unvested restricted stock units (“RSUs”) for the nine months ended September 29, 2023: Unvested RSUs Number of shares outstanding Weighted-average grant date fair value Unvested at December 30, 2022 297 $ 87.05 Granted 129 $ 111.11 Canceled ( 26 ) $ 86.29 Vested ( 139 ) $ 83.85 Unvested at September 29, 2023 261 $ 111.00 As of September 29, 2023, the Company had approximately $ 19,744 of unrecognized stock-based compensation expense related to RSUs, which will be recognized over the remaining weighted-average vesting period of approximately 1.92 years. During the nine months ended September 29, 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 fair value of PSUs is calculated based on the stock price on the date of grant assuming the performance goals will be achieved. 19 Table of Contents FOX FACTORY HOLDING CORP. Notes to Condensed Consolidated Financial Statements (in thousands, except per share data) (unaudited ) The following table summarizes the activity for the Company’s unvested PSUs for the nine months ended September 29, 2023: Unvested PSUs Number of shares outstanding Weighted-average grant date fair value Unvested at December 30, 2022 48 $ 126.69 Granted 44 $ 115.70 Canceled ( 9 ) $ 119.93 Unvested at September 29, 2023 83 $ 139.95 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. Future stock-based compensation expense for unvested performance-based awards could reach a maximum of $ 10,960 assuming achievement at the maximum level. The unrecognized stock-based compensation expense is expected to be recognized over a weighted average period of 1.70 years. 12. Income Taxes For the three months ended For the nine months ended September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Provision for income taxes $ 3,484 $ 13,365 $ 20,957 $ 28,265 Effective tax rates 9.0 % 20.8 % 15.2 % 15.7 % For the three months ended September 29, 2023, the difference between the Company’s effective tax rate of 9.0 % and the 21 % federal statutory rate was due to a benefit from the U.S. research and development tax credit related to multiple periods and lower tax rate on foreign derived intangible income. These benefits were partially offset by other non-deductible expenses and state taxes. For the nine months ended September 29, 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 and benefit from the U.S. research and development tax credit related to multiple periods. These benefits were partially offset by other non-deductible expenses and state taxes. 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 nine months ended September 30, 2022, 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, and the impact of the finalized U.S. tax regulations published by the U.S. Treasury and Internal Revenue Service on January 4, 2022. These regulations limit the amount of newly generated foreign taxes that are creditable against U.S. income taxes, which resulted in a release of the Company’s valuation allowance against foreign tax credits due to the Company's ability to use foreign tax credit carryforwards that had previously been reserved against. 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. 20 Table of Contents FOX FACTORY HOLDING CORP. Notes to Condensed Consolidated Financial Statements (in thousands, except per share data) (unaudited ) 13. Related Party Transactions 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. for $ 24,975 payable in a combination of stock and cash. The cash portion was settled in quarterly installment payments through July 2022. Refer to Note 8 - Commitments and Contingencies for additional details of this agreement. 14. Acquisitions On February 17, 2023 the Company entered into a Securities Purchase Agreement with CWH Holdco, LLC (“CWH”), CWH Blocker Corp., (“Blocker”), Thompson Street Capital Partners V, L.P., and each other member of CWH to purchase all of the outstanding equity of Blocker, and thereafter Blocker acquired all of the outstanding equity interest of CWH. CWH is the parent company of Custom Wheel House, LLC (“Custom Wheel House”). Custom Wheel House is a designer, marketer, and distributor of high-performance wheels, performance off-road tires, and accessories, including the premier flagship brand Method Race Wheels. The Company believes that this acquisition will be complementary to its upfitting businesses and will help to expand its product offerings. 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 deferred taxes. 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. During the nine months ended September 29, 2023, the Company updated the purchase price allocation and recorded adjustments to net assets of $ 745 , identified intangible assets of $ 4,337 , and goodwill of $ 5,082 . 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 assets 4,243 Property, plant and equipment 3,529 Lease right-of-use assets 4,718 Intangibles 48,663 Goodwill 62,000 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 21 Table of Contents FOX FACTORY HOLDING CORP. Notes to Condensed Consolidated Financial Statements (in thousands, except per share data) (unaudited ) The Company incurred $ 929 of transaction costs related to the acquisition of Custom Wheel House during the nine months ended September 29, 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 income from operations for Custom Wheel House for the three months ended September 29, 2023 amounted to $ 19,331 and $ 1,296 , respectively. The total revenue and net loss from operations for Custom Wheel House for the nine months ended September 29, 2023 amounted to $ 46,016 and $ 5,252 , 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 consolidated financial statements. 15. Subsequent Events Marucci Sports, LLC (“Marucci”) Transaction On November 1, 2023 the Company’s subsidiary, Fox Factory, Inc., entered into an Agreement and Plan of Merger (the “Marucci Merger Agreement”) by and among Fox Factory, Inc., Marucci Merger Sub, Inc., a wholly-owned subsidiary of Fox Factory, Inc. (“Merger Sub), Wheelhouse Holdings Inc. (“Wheelhouse) and Compass Group Diversified Holdings LLC, as representative of the Wheelhouse equity holders. Pursuant to the Marucci Merger Agreement, the Merger Sub will merge with and into Wheelhouse with Wheelhouse surviving as a wholly-owned subsidiary of Fox Factory, Inc. (the “Marucci Merger”). Pursuant to the Marucci Merger, Fox Factory, Inc. will acquire substantially all the issued and outstanding capital stock of Wheelhouse Holdings, Inc., the parent company of Marucci, at an enterprise value of $ 572,000 , subject to various adjustments described in the Marucci Merger Agreement. Marucci, based in Baton Rouge, Louisiana, is a leading designer, manufacturer, and marketer of highly engineered premium wood, aluminum and composite baseball bats as well as other diamond sports products. The Company believes that this transaction will be complementary to its technology innovation and brand value and will help to expand its product offerings. The transaction, which is subject to various closing conditions, is expected to close in the fourth quarter of 2023. The transaction will be financed through a term loan from an amendment to the 2022 Credit Facility. Amendment to 2022 Credit Facility On November 1, 2023, the Company entered into a commitment letter (the “Debt Commitment Letter”) with certain lenders party to the 2022 Credit Facility (collectively, the “Commitment Parties”) pursuant to which the Commitment Parties have agreed to provide the Company with a term loan in an amount not to exceed $ 400,000 and a delayed draw term loan in an amount not to exceed $ 200,000 (collectively, the “Incremental Term Loans”), each of which are permitted under the 2022 Credit Facility. The Incremental Term Loans will support the Company’s capital allocation strategy, including funding a portion of the acquisition consideration owed under the Marucci transaction. The funding of the Incremental Term Loans provided for in the Debt Commitment Letter are contingent on satisfaction of customary conditions, including, among other things, (i) the execution and delivery of the amendment to the 2022 Credit Facility and (ii) the consummation of the Marucci transaction. The amendment to the 2022 Credit Facility will be effective on the closing date of the Marucci transaction and has not been finalized; accordingly, the actual terms may differ from the description of such terms in the Debt Commitment Letter. Share Repurchase Plan On November 1, 2023, the Company’s Board of Directors authorized a share repurchase plan for up to $ 300,000 in shares of the Company’s common stock, par value $ 0.001 per share. The share repurchase program is scheduled to expire on November 1, 2028. Repurchases of shares of Common Stock under the stock repurchase plan will be made in accordance with applicable securities laws and may be made under a variety of methods, which may include open market purchases. The stock repurchase program does not obligate the Company to acquire any particular amount of common stock, and it may be suspended or terminated at any time at the Company’s discretion. 22 Table of Contents