What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-23 compared with 2023-02-23 · 123 added, 152 removed, 355 unchanged (44% of the section changed)

6 unchanged sentences

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

In addition, we also offer premium baseball and softball gear and equipment.

Virtually all of our revenues were from our product sales;

miscellaneous sources of revenue such as royalty income and service related repair work and the associated sale of parts represented less than 1% of our sales in each of the years ended December 30, 2022, December 31, 2021 and January 1, 2021.

We have determined that we operate in one reportable segment, which is the manufacturing, sale and service of performance-defining products.

Our products fall into the following two categories:

Our products fall into the following three categories:

• powered vehicles, including side-by-sides, certain on-road vehicles with and without off-road capabilities, off-road vehicles and trucks, ATVs, snowmobiles, specialty vehicles and applications, including military, motorcycles, and commercial trucks;

• specialty sports products, which consist primarily of bike suspension and component products.

In each of the years ended December 30, 2022, December 31, 2021 and January 1, 2021, approximately 58%, 55% and 59%, respectively, of our sales were attributable to sales of products for powered vehicles and approximately 42%, 45% and 41%, respectively, of our sales were attributable to sales of specialty sports products.

Our North American sales totaled $1,009.2 million, $811.3 million and $593.3 million, or 63%, 62% and 67% of our total sales in fiscal years 2022, 2021 and 2020, respectively.

Our international sales totaled $593.3 million, $487.8 million and $297.3 million, or 37%, 38% and 33% of our total sales in fiscal years 2022, 2021 and 2020, respectively.

• aftermarket applications, mainly consisting of products for off-road vehicles and trucks, side-by-sides, on-road vehicles with or without off-road capabilities, specialty vehicles and applications as well as lift kits and components with our shock products and aftermarket accessory packages for use in trucks;

• specialty sports products, which consist primarily of bike suspension, component products, and gear and equipment for baseball and softball.

In each of the years ended December 29, 2023, December 30, 2022 and December 31, 2021, approximately 36%, 27% and 28%, respectively, of our net sales were attributable to net sales of powered vehicles products;

approximately 38%, 31%, and 28%, respectively, of our net sales were attributable to net sales of aftermarket application products and approximately 27%, 42% and 45%, respectively, of our net sales were attributable to sales of specialty sports products.

Our North American net sales totaled $1,127.6 million, $1,009.2 million and $811.3 million, or 77%, 63% and 62% of our total net sales in fiscal years 2023, 2022 and 2021, respectively.

Our international net sales totaled $336.6 million, $593.3 million and $487.8 million, or 23%, 37% and 38% of our total net sales in fiscal years 2023, 2022 and 2021, respectively.

Sales attributable to countries outside the U.S.

3 unchanged sentences

Opportunities, challenges and risks

We intend to focus on generating sales of our performance-defining products through OEMs and in the aftermarket channel.

We intend to focus on generating sales of our performance-defining products through OEMs, aftermarket, and retail channels.

To do this, we intend to continue to develop and introduce new and innovative products in our current end-markets and we intend to selectively develop products for applications and end-markets in which we do not currently participate.

8 unchanged sentences

The Gainesville Facility is being used for manufacturing, warehousing, distribution and office space.

Additionally, we completed the transition of our Watsonville Facility and relocation of our powered vehicles suspension manufacturing to the Gainesville Facility in the first quarter of 2022.

From time to time, we have experienced, and may continue to experience, warranty costs and claims relating to our products.

8 unchanged sentences

Basis of presentation

Composition of sales

Composition of net sales

• Product sales:

1 unchanged sentence

Sales are measured based on the consideration specified in a contract with a customer.

We recognize sales when a performance obligation is satisfied by transferring control of a product to a customer, generally at the time of shipment.

We recognize sales when a performance obligation is satisfied by transferring control of a product to a customer, generally at the time of shipment for most products and over the time it takes to complete certain upfit packages.

Contracts are generally in the form of purchase orders and are governed by standard terms and conditions.

7 unchanged sentences

Sales returns have not been significant to date.

We attribute our past growth in sales predominantly to continued higher demand for on and off-road suspension products, acquisitions, and the success of our current product lines including new products within those lines.

Cost of sales

7 unchanged sentences

Gross profit/gross margin

Our gross profit equals our sales minus cost of sales.

Our gross margin measures our gross profit as a percentage of sales.

Our gross profit equals our net sales minus cost of sales.

Our gross margin measures our gross profit as a percentage of net sales.

Our gross margins fluctuate based on production volumes, product, customer and channel mix and overall supply chain and manufacturing efficiencies.

6 unchanged sentences

• amortization of purchased intangibles.

Our sales and marketing expenses include costs related to our sales, customer service and marketing personnel, including their wages, employee benefits and related stock-based compensation, and occupancy related expenses.

Our sales and marketing expenses include costs related to our net sales, customer service and marketing personnel, including their wages, employee benefits and related stock-based compensation, and occupancy related expenses.

Other significant sales and marketing expenses include commissions paid to outside sales representatives, promotional materials and products, our sales office costs, race support and sponsorships of events and athletes, advertising and promotions related to trade shows, and travel and entertainment.

5 unchanged sentences

Our intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be fully recoverable.

No impairments of intangible assets were identified in the years ended December 30, 2022, December 31, 2021 and January 1, 2021.

No impairments of intangible assets were identified in the years ended December 29, 2023, December 30, 2022 and December 31, 2021.

Income from operations

7 unchanged sentences

Our effective tax rate could be affected by numerous factors such as change in our business operations, acquisitions, investments, entry into new businesses and geographies, intercompany transactions, the relative amount of our foreign earnings, losses incurred in jurisdictions for which we are not able to realize related tax benefits, changes in our deferred tax assets and liabilities and their valuation, changes in the laws, regulations, administrative practices, principles, and interpretations related to tax, including changes to the global tax framework and other laws and accounting rules in various jurisdictions.

For the years ended December 30, 2022, December 31, 2021 and January 1, 2021, we had effective tax rates of 12.2%, 13.0% and 12.2%, respectively.

For the years ended December 29, 2023, December 30, 2022 and December 31, 2021, we had effective tax rates of 12.8%, 12.2% and 13.0%, respectively.

As of December 29, 2023, our deferred tax assets included foreign tax credits of approximately $51.2 million, which begin to expire in 2026 unless utilized.

Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

As of December 30, 2022, we reduced the valuation allowance against Foreign Tax Credits by $9.2 million.

tax regulations proposed by the U.S.

Treasury and Internal Revenue Service on November 22, 2022, which were early adopted by the Company, provided clarification to earlier guidance and resulted in the Company's ability to utilize certain foreign tax credits related to royalties.

As a result, the Company determined a valuation allowance was not needed.

As of December 29, 2023, the Company determined a valuation allowance was not needed.

In the future, our effective tax rate could vary as we update our assessment of valuation allowances for our deferred tax assets, including those associated with credit carryforwards.

6 unchanged sentences

Results of operations

The table below summarizes our results of operations for the fiscal years ended December 30, 2022, December 31, 2021, and January 1, 2021:

The table below summarizes our results of operations for the fiscal years ended December 29, 2023, December 30, 2022, and December 31, 2021:

For the fiscal years ended

December 30 December 31 January 1

(in thousands) 2022 2021 2021

Sales $ 1,602,491 $ 1,299,064 $ 890,554

(in millions) December 29, 2023 December 30, 2022 December 31, 2021

Net sales $ 1,464.2 $ 1,602.5 $ 1,299.1

Cost of sales 999.4 1,071.1 866.7

1 unchanged sentence

Operating expenses:

General and administrative 124.6 116.1 97.2

Sales and marketing 100.5 90.8 70.9

Research and development 53.2 56.2 46.6

General and administrative 116,103 97,241 71,309

Amortization of purchased intangibles 26.5 21.5 20.7

1 unchanged sentence

Income from operations 160.1 246.7 196.9

Interest and other expense, net:

Interest expense 19.3 8.9 8.2

Other expense, net 2.1 4.0 0.4

Total interest and other expense, net 12,933 8,533 9,619

Income before income taxes 138.7 233.8 188.4

1 unchanged sentence

Net income $ 120.8 $ 205.3 $ 163.8

net income attributable to non-controlling interest — — 1,072

Net income attributable to FOX stockholders $ 205,278 $ 163,818 $ 90,674

The following table sets forth statement of income data as a percentage of sales for the years indicated:

*Amounts may not foot due to rounding.

The following table sets forth statement of income data as a percentage of net sales for the years indicated:

For the fiscal years ended

December 30 December 31 January 1

2022 2021 2021

Sales 100.0 % 100.0 % 100.0 %

December 29, 2023 December 30, 2022 December 31, 2021

Net sales 100.0 % 100.0 % 100.0 %

Cost of sales 68.3 66.8 66.7

1 unchanged sentence

Operating expenses:

General and administrative 8.5 7.2 7.5

Sales and marketing 6.9 5.7 5.5

Research and development 3.6 3.5 3.6

General and administrative 7.2 7.5 8.0

Amortization of purchased intangibles 1.8 1.3 1.6

1 unchanged sentence

Income from operations 10.9 15.4 15.2

Interest and other expense, net:

Interest expense 1.3 0.6 0.6

Other expense, net 0.1 0.2 —

Interest and other expense, net 0.8 0.7 1.1

Income before income taxes 9.5 14.6 14.5

1 unchanged sentence

Net income 8.3 % 12.8 % 12.6 %

net income attributable to non-controlling interest — — 0.1

Net income attributable to FOX stockholders 12.8 % 12.6 % 10.2 %

*Percentages may not foot due to rounding.

2 unchanged sentences

(in millions) 2023 2022 Change ($) Change (%)

Powered Vehicle products $ 921.5 $ 720.0 $ 201.5 28.0 %

Specialty Sports products 681.0 579.0 102.0 17.6

Total sales $ 1,602.5 $ 1,299.0 $ 303.5 23.4 %

Sales for the year ended December 30, 2022 increased approximately $303.5 million, or 23.4%, compared to the year ended December 31, 2021.

The sales increase reflects an increase of 28.0% and 17.6% in Powered Vehicle products and Specialty Sports products sales, respectively, for the year ended December 30, 2022 compared to the prior fiscal year.

The increase in Powered Vehicle product sales was primarily due to strong performance from our upfitting product lines and increased demand in the OEM channel.

The increase in Specialty Sports product sales reflects higher demand primarily in the OEM channel.

Powered Vehicle Group $ 523.9 $ 432.4 $ 91.5 21.2 %

Aftermarket Applications Group 551.1 489.1 (291.8) (59.7)

Specialty Sports Group 389.2 681.0 (42.8)

Total net sales $ 1,464.2 $ 1,602.5 $ (138.3) (8.6) %

Net sales for the year ended December 29, 2023 decreased approximately $138.3 million, or 8.6%, compared to the year ended December 30, 2022.

The net sales decrease reflects a decrease of 42.8% in Specialty Sports Group net sales and increases of 21.2% and 59.7% Powered Vehicle Group and Aftermarket Applications Group net sales, respectively, for the year ended December 29, 2023 compared to the prior fiscal year.

The decrease in Specialty Sports Group net sales is primarily related to channel inventory recalibration and to a lesser extent lower end consumer demand, partially offset by the inclusion of $16.8 million net sales from our Marucci subsidiary that was acquired in November 2023.

The increase in Powered Vehicle Group net sales was primarily due to strong demand in the OEM channel, partially offset by the impact of the UAW strike and the effects of macroeconomic environment.

The increase in Aftermarket Applications Group net sales was mainly attributed to the inclusion of $65.6 million net sales from our Custom Wheel House subsidiary, which was acquired in March 2023, partially offset by a decrease in upfitting sales due to a change in product mix as a result of the UAW strike and higher interest rates impacting floor plan financing resulting in dealers taking a more conservative approach to inventory.

Cost of sales

2 unchanged sentences

Cost of sales $ 999.4 $ 1,071.1 $ (71.7) (6.7) %

Cost of sales for the year ended December 30, 2022 increased approximately $204.4 million, or 23.6%, compared to the year ended December 31, 2021.

The increase in cost of sales was driven primarily by an increase in product sales, as well as certain business factors affecting gross margin, which are discussed below.

Cost of sales for the year ended December 29, 2023 decreased approximately $71.7 million, or 6.7%, compared to the year ended December 30, 2022.

The decrease in cost of sales was due to our decreased sales partially offset by certain business factors affecting gross margin, which are discussed below.

For the year ended December 29, 2023, our gross margin was 31.7% compared to 33.2% for the year ended December 30, 2022.

The decrease in gross margin for the fiscal year 2022 was primarily due to increases in factory overhead and materials costs, each of which were driven higher by inflation.

Additionally, the completion of the planned shutdown of our Watsonville Facility and transition of those production lines resulted in inefficiencies in the first half of fiscal year 2022 as we ramped up our Gainesville Facility.

The decrease in gross margin for the fiscal year 2023 was primarily due to a shift in our product line mix and amortization of acquired inventory valuation markups, offset by increased efficiencies at our North American facilities.

Operating expenses

2 unchanged sentences

Operating expenses:

General and administrative $ 124.6 $ 116.1 $ 8.5 7.3 %

Sales and marketing 100.4 90.8 9.6 10.6

Research and development 53.2 56.2 (3.0) (5.3)

General and administrative 116.1 97.2 18.9 19.4

Amortization of purchased intangibles 26.5 21.5 5.0 23.3

1 unchanged sentence

Total operating expenses for the year ended December 29, 2023 increased approximately $20.1 million, or 7.1%, over the comparable period in 2022.

When expressed as a percentage of sales, operating expenses decreased to 17.8% of sales for the year ended December 30, 2022, compared to 18.1% of sales for the fiscal year ended December 31, 2021.

Within operating expenses, our sales and marketing expense increased by approximately $19.9 million primarily due to higher commissions costs of $9.7 million, higher headcount and employee-benefit related costs of $5.8 million, higher marketing-related costs of $4.0 million and various others.

Research and development expenses increased approximately $9.6 million primarily due to headcount investments to support future growth.

General and administrative expenses increased approximately $18.9 million due to higher headcount and employee benefit-related costs of $11.7 million and higher insurance and facility-related costs of $11.1 million.

These increases were partially offset by lower acquisition-related compensation and decreases in other miscellaneous costs.

Amortization of purchased intangible assets for the year ended December 30, 2022 increased by approximately $0.8 million as compared to the year ended December 31, 2021, primarily due to the amortization of Shock Therapy intangible assets.

When expressed as a percentage of net sales, operating expenses increased to 20.8% of net sales for the year ended December 29, 2023, compared to 17.8% of net sales for the fiscal year ended December 30, 2022.

Within operating expenses, our sales and marketing expense increased by approximately $9.6 million primarily due to the inclusion of $10.6 million and $2.7 million Custom Wheel House and Marucci expenses, respectively, offset by cost controls.

General and administrative expenses increased approximately $8.5 million mainly due to operating expenses associated with facility expansion and the inclusion of $3.9 million and $3.2 million Custom Wheel House and Marucci expenses, respectively, partially offset by cost controls.

Research and development expenses decreased approximately $3.0 million driven by additional benefit from a state research and development tax credit.

Amortization of purchased intangible assets for the year ended December 29, 2023 increased by approximately $5.0 million as compared to the year ended December 30, 2022, primarily due to the amortization of Custom Wheel House and Marucci intangible assets.

Income from operations

2 unchanged sentences

Income from operations $ 160.1 $ 246.7 $ (86.6) (35.1) %

As a result of the factors discussed above, income from operations for the year ended December 30, 2022 increased approximately $49.8 million, or 25.3%, compared to the year ended December 31, 2021.

As a result of the factors discussed above, income from operations for the year ended December 29, 2023 decreased approximately $86.6 million, or 35.1%, compared to the year ended December 30, 2022.

Interest and other expense, net

1 unchanged sentence

(in millions) 2023 2022 Change ($) Change (%)

Interest and other expense, net:

Interest expense $ 19.3 $ 8.9 $ 10.4 116.9 %

2 unchanged sentences

Interest and other expense, net for the year ended December 29, 2023 increased by approximately $8.5 million to $21.4 million, compared to $12.9 million for the year ended December 30, 2022.

The increase in interest and other expense, net is primarily due to higher foreign currency losses, as well as increasing interest rates.

Interest expense increased by $10.4 million due to higher debt and interest rates.

Other expense, net decreased $1.9 million primarily due lower losses on foreign currency transactions.

For the fiscal years

1 unchanged sentence

Provision for income taxes $ 17.8 $ 28.5 $ (10.7) (37.5) %

Income tax expense for the year ended December 30, 2022 increased by approximately $3.9 million to $28.5 million compared to income tax expense of $24.6 million for the year ended December 31, 2021.

The increase in expense resulted from an increase in pre-tax profit and decreased benefits from stock-based compensation deductions, partially offset by the release of the valuation allocation for foreign tax credits and the benefit of a lower tax rate on U.S.

foreign derived earnings.

Income tax expense for the year ended December 29, 2023 decreased by approximately $10.7 million to $17.8 million compared to $28.5 million for the year ended December 30, 2022.

The decrease in expense primarily resulted from a decrease in pre-tax profit, partially offset by the release of the valuation allowance for foreign tax credits in the prior year.

The effective tax rates were 12.8% and 12.2% for the years ended December 29, 2023 and December 30, 2022, respectively.

For the year ended December 29, 2023, the difference between our effective tax rate and the 21% federal statutory rate resulted from a lower tax rate on foreign derived intangible income and benefit from the U.S.

research and development tax credit.

For the year ended December 30, 2022, the difference between our effective tax rate and the 21% federal statutory rate resulted from a lower tax rate on U.S.

foreign derived earnings and the release of the valuation allocation for foreign tax credits, partially offset by other non-deductible expenses and state taxes.

For the year ended December 31, 2021, the difference between our effective tax rate and the 21% federal statutory rate resulted from a lower tax rate on U.S.

foreign derived earnings and the benefit of excess stock based compensation deductions.

For the fiscal years

1 unchanged sentence

Net income $ 120.8 $ 205.3 $ (84.5) (41.2) %

As a result of the factors described above, our net income increased $41.5 million, or 25.3%, to $205.3 million in the fiscal year ended December 30, 2022 from $163.8 million for the fiscal year ended December 31, 2021.

Fiscal year ended December 31, 2021 compared to fiscal year ended January 1, 2021

As a result of the factors described above, our net income decreased $84.5 million, or 41.2%, to $120.8 million in the fiscal year ended December 29, 2023 from $205.3 million for the fiscal year ended December 30, 2022.

Fiscal year ended December 30, 2022 compared to fiscal year ended December 31, 2021

For the fiscal years

(in millions) 2022 2021 Change ($) Change (%)

Sales $ 1,299.1 $ 890.6 $ 408.5 45.9 %

Sales for the year ended December 31, 2021 increased approximately $408.5 million, or 45.9%, compared to the year ended January 1, 2021.

The sales increase reflects a 57.8% increase in Specialty Sports products as well as a 37.5% growth in Powered Vehicle products for the year ended December 31, 2021 compared to the prior fiscal year.

The increase in Specialty Sports product sales reflects higher demand primarily in the OEM channel.

The increase in Powered Vehicle product sales was primarily due to strong performance from our upfitting product lines, the inclusion of a full year of SCA's results and increased demand in the aftermarket channel.

Powered Vehicle Group $ 432.4 $ 360.7 $ 71.7 19.9 %

Aftermarket Applications Group 489.1 359.4 129.7 36.1

Specialty Sports Group 681.0 579.0 102.0 17.6

Total net sales $ 1,602.5 $ 1,299.1 $ 303.4 23.4 %

Net sales for the year ended December 30, 2022 increased approximately $303.4 million, or 23.4%, compared to the year ended December 31, 2021.

The net sales increase reflects an increase of 36.1%, 19.9% and 17.6% in Aftermarket Applications Group, Powered Vehicle Group and Specialty Sports Group net sales, respectively, for the year ended December 30, 2022 compared to the prior fiscal year.

The increase in Aftermarket Applications Group net sales was primarily due to strong performance from our upfitting product lines.

The increase in Powered Vehicle product net sales was driven by increased demand in the OEM channel.

The increase in Specialty Sports product net sales reflects higher demand primarily in the OEM channel.

Cost of sales

2 unchanged sentences

Cost of sales $ 1,071.1 $ 866.7 $ 204.4 23.6 %

Cost of sales for the year ended December 31, 2021 increased approximately $265.7 million, or 44.2%, compared to the year ended January 1, 2021.

Cost of sales for the year ended December 30, 2022 increased approximately $204.4 million, or 23.6%, compared to the year ended December 31, 2021.

The increase in cost of sales was driven primarily by an increase in product sales, as well as certain business factors affecting gross margin, which are discussed below.

For the year ended December 31, 2021, our gross margin was 33.3% compared to 32.5% for the year ended January 1, 2021.

The increase in gross margin for the fiscal year 2021 was primarily due to higher volume sales in our Specialty Sports Group and the strong performance of our upfitting product lines, as well as favorable product and channel mix.

Additionally, our gross margin for the prior fiscal year period was negatively impacted by incremental costs related to the COVID-19 pandemic.

For the year ended December 30, 2022, our gross margin was 33.2% compared to 33.3% for the year ended December 31, 2021.

The decrease in gross margin for the fiscal year 2022 was primarily due to increases in factory overhead and materials costs, each of which were driven higher by inflation.

Operating expenses

2 unchanged sentences

Operating expenses:

General and administrative $ 116.1 $ 97.2 $ 18.9 19.4 %

Sales and marketing 90.8 70.9 19.9 28.1

Research and development 56.2 46.6 9.6 20.6

General and administrative 97.2 71.3 25.9 36.3

Amortization of purchased intangibles 21.5 20.7 0.8 3.9

1 unchanged sentence

Total operating expenses for the year ended December 30, 2022 increased approximately $49.2 million, or 20.9%, over the comparable period in 2021.

When expressed as a percentage of sales, operating expenses decreased to 18.1% of sales for the year ended December 31, 2021 compared to 19.7% of sales in 2020.

Within operating expenses, our sales and marketing expense increased by approximately $18.7 million primarily due to higher commissions of $11.8 million, higher employee related expenses of $1.5 million, and various other expenses.

When expressed as a percentage of sales, operating expenses decreased to 17.8% of sales for the year ended December 30, 2022, compared to 18.1% of sales for the fiscal year ended December 31, 2021.

Research and development expenses increased approximately $9.6 million primarily due to headcount investments to support future growth.

General and administrative expenses increased approximately $25.9 million due to higher employee related costs of $18.0 million, as well as various other investments of $5.1 million as we continue to scale our administrative support functions to meet the demands of our growing business.

These increases were partially offset by lower acquisition-related costs of $9.3 million, as well as lower patent litigation related expenses of $1.1 million.

Amortization of purchased intangible assets for the year ended December 31, 2021 increased by approximately $3.1 million as compared to the year ended January 1, 2021, due to the amortization of SCA and Outside Van's intangible assets.

These increases were partially offset by lower acquisition-related compensation and decreases in other miscellaneous costs.

Income from operations

2 unchanged sentences

Income from operations $ 246.7 $ 196.9 $ 49.8 25.3 %

As a result of the factors discussed above, income from operations for the year ended December 31, 2021 increased approximately $82.8 million, or 72.6%, compared to income from operations in the year ended January 1, 2021.

As a result of the factors discussed above, income from operations for the year ended December 30, 2022 increased approximately $49.8 million, or 25.3%, compared to the year ended December 31, 2021.

Interest and other expense, net

1 unchanged sentence

(in millions) 2022 2021 Change ($) Change (%)

Interest and other expense, net:

Interest expense $ 8.9 $ 8.2 $ 0.7 8.5 %

1 unchanged sentence

Interest and other expense, net $ 12.9 $ 8.5 $ 4.4 51.8 %

Interest and other expense, net for the year ended December 31, 2021 decreased by approximately $1.1 million to $8.5 million, compared to $9.6 million for the year ended January 1, 2021.

The decrease in interest and other expense, net is primarily due to lower interest rates and the pay down of our term loan.

Interest and other expense, net for the year ended December 30, 2022 increased by approximately $4.4 million to $12.9 million, compared to $8.5 million for the year ended December 31, 2021.

The increase in interest and other expense, net is primarily due to higher foreign currency losses, as well as increasing interest rates.

For the fiscal years

1 unchanged sentence

Provision for income taxes $ 28.5 $ 24.6 $ 3.9 15.9 %

Income tax expense for the year ended December 31, 2021 increased by approximately $11.8 million to $24.6 million, compared to income tax expense of $12.8 million in the year ended January 1, 2021.

The increase in expense resulted from the increase in pre-tax profit, partially offset by the benefit of a lower tax rate on U.S.

Income tax expense for the year ended December 30, 2022 increased by approximately $3.9 million to $28.5 million compared to income tax expense of $24.6 million for the year ended December 31, 2021.

foreign derived earnings.

The effective tax rates were 13.0% and 12.2% for the years ended December 31, 2021 and January 1, 2021, respectively.

The effective tax rates were 12.2% and 13.0% for the years ended December 30, 2022 and December 31, 2021, respectively.

For the year ended December 30, 2022, the difference between our effective tax rate and the 21% federal statutory rate resulted from a lower tax rate on U.S.

foreign derived earnings and the release of the valuation allocation for foreign tax credits, partially offset by other non-deductible expenses and state taxes.

For the year ended December 31, 2021, the difference between our effective tax rate and the 21% federal statutory rate resulted from a lower tax rate on U.S.

foreign derived earnings and the benefit of excess stock based compensation deductions.

For the year ended January 1, 2021, the difference between our effective tax rate and the 21% federal statutory rate resulted from the benefit of excess deductions on stock-based compensation and the benefit of a lower tax rate on U.S.

foreign derived earnings.

For the fiscal years

1 unchanged sentence

Net income $ 205.3 $ 163.8 $ 41.5 25.3 %

As a result of the factors described above, our net income increased $72.1 million, or 78.6%, to $163.8 million in the fiscal year ended December 31, 2021 from $91.7 million for the fiscal year ended January 1, 2021.

Liquidity and Capital Resources

Our primary cash needs are to support working capital, capital expenditures, acquisitions, and debt repayments.

Our primary cash needs are to support working capital, interest on debt, employee compensation, capital expenditures, acquisitions, debt repayments, and other general corporate purposes.

Historically, we have generally financed our liquidity needs with operating cash flows, borrowings under our Prior Credit Facility and our 2022 Credit Facility, and the issuance of common stock.

These sources of liquidity may be impacted by various factors, including demand for our products, impacts of the COVID-19 pandemic, investments made by us in acquired businesses, our plant and equipment and other capital expenditures, and expenditures on general infrastructure and information technology.

These sources of liquidity may be impacted by factors and events described in Special Note Regarding Forward-Looking Statement s and Item 1A.

Risk Factors .

As of December 29, 2023, we held $24.7 million of our $83.6 million of cash and cash equivalents in accounts of our subsidiaries outside of the U.S., which we may repatriate.

We manage our foreign cash, intercompany payables and intercompany debt to provide a natural foreign currency hedge against U.S.

dollar-denominated trade receivable balances held by our Taiwan location.

A summary of our operating, investing and financing activities are shown in the following table:

A summary of our operating, investing and financing activities is shown in the following table:

For the years ended

December 30 December 31 January 1

(in thousands) 2022 2021 2021

(in millions) December 29, 2023 December 30, 2022 December 31, 2021

Net cash provided by operating activities $ 178.7 $ 187.1 $ 63.2

Net cash used in investing activities (750.4) (44.7) (104.9)

Net cash (used in) provided by financing activities (179,141) (23,776) 506,722

Net cash provided by (used in) financing activities 509.0 (179.1) (23.8)

Effect of exchange rate changes on cash and cash equivalents 1.1 2.3 (0.5)

(Decrease) increase in cash and cash equivalents $ (34,436) $ (66,078) $ 202,028

Decrease in cash and cash equivalents $ (61.6) $ (34.4) $ (66.1)

*Amounts may not foot due to rounding.

We expect that cash on hand, cash flow from operations and availability under our 2022 Credit Facility will be sufficient to fund our operations during the next 12 months from the date of this Annual Report on Form 10-K and beyond.

Operating activities

Cash provided by operating activities primarily consists of net income, adjusted for certain non-cash items, primarily depreciation and amortization, stock-based compensation, and deferred income taxes, offset by net cash invested in working capital.

In the fiscal year ended December 30, 2022, cash provided by operating activities was $187.1 million and consisted of net income of $205.3 million plus non-cash items and other adjustments totaling $45.3 million, less changes in operating assets and liabilities totaling $63.5 million.

Non-cash items and other adjustments consisted primarily of depreciation and amortization of $49.2 million, stock-based compensation of $16.4 million, the write off of unamortized loan origination fees of $1.9 million, and the amortization of loan fees of $1.1 million, partially offset by a $18.4 million change in deferred taxes, the amortization of deferred gains on swap agreements of $3.2 million and gains of $1.7 million related to disposals of property, plant and equipment.

In the fiscal year ended December 29, 2023, net cash provided by operating activities was $178.7 million.

Our investment in operating assets and liabilities is a result of an increase in prepaids and other current assets of $38.2 million primarily due to carrying more chassis to meet current year production needs for the upfitting product lines, and decreases in accounts payable of $44.0 million, accrued expenses and other liabilities of $21.4 million, and income taxes payable of $19.1 million, partially offset by decreases in accounts receivable of $64.5 million and inventory of $31.6 million.

The change in our accounts receivable reflects a shift in our product line mix and the timing of customer collections.

The change in our accounts payable is driven by timing of inventory purchases and vendor payments.

The change in accrued expenses and other liabilities is primarily due to payments made for compensation and tax related accruals and our cost control measures, partially offset by acquired accrued expenses.

The decrease in inventory excluding acquired inventory reflects our continued efforts to optimize inventory levels.

In the fiscal year ended December 30, 2022, cash provided by operating activities was $187.1 million.

Cash invested in operating assets and liabilities is primarily the result of increases in inventory of $87.4 million and accounts receivable of $64.0 million, partially offset by a decrease in prepaids and other current assets of $18.1 million, and increases in accounts payable of $40.5 million, accrued expenses of $11.7 million and income taxes payable of $8.7 million.

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The decrease in prepaids and other current assets is primarily due to a lower supply of chassis as we worked through the safety stock that we had secured at the end of 2021.

In the fiscal year ended December 31, 2021, cash provided by operating activities was $63.2 million and consisted of net income of $163.8 million plus non-cash items and other adjustments totaling $41.6 million, less changes in operating assets and liabilities totaling $142.2 million.

Non-cash items and other adjustments consisted primarily of depreciation and amortization of $43.4 million, stock-based compensation of $13.9 million, and amortization of loan fees of $1.6 million, offset by a $17.1 million change in deferred taxes and various others.

In the fiscal year ended December 31, 2021, cash provided by operating activities was $63.2 million.

Cash invested in operating assets and liabilities is primarily the result of increases in inventory of $150.4 million, prepaids and other current assets of $34.5 million, and accounts receivable of $20.2 million, offset by increases in net income taxes payable of $26.8 million, accrued expenses of $21.8 million, and accounts payable of $10.3 million.

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The increases in net income taxes payable, accrued expenses, accounts receivable and accounts payable are the result of normal business growth and the timing of vendor and tax payments.

In the fiscal year ended January 1, 2021, cash provided by operating activities was $82.4 million and consisted of net income of $91.7 million plus non-cash items and other adjustments totaling $29.7 million, less changes in operating assets and liabilities totaling $39.1 million.

Non-cash items and other adjustments consisted primarily of depreciation and amortization of $33.9 million, stock-based compensation of $8.6 million, and amortization of loan fees of $1.5 million, offset by a $14.3 million change in deferred taxes.

Cash invested in operating assets and liabilities is primarily the result of increases in prepaids and other current assets of $66.4 million and accounts receivable of $18.8 million, partially offset by increases in accounts payable and accrued expenses of $25.9 million and $11.2 million, respectively, an increase in income taxes payable of $1.2 million and a decrease in inventory of $7.8 million.

The increase in prepaids and other current assets is primarily due to deposits on chassis and acquisition-related compensation payments held in escrow, both related to our acquired SCA subsidiary.

The changes in inventory, accounts receivable, accounts payable and accrued expenses reflect business growth as well as timing of vendor payments.

Investing activities

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

In the fiscal year ended December 29, 2023, cash used in investing activities was $750.4 million, which primarily consisted of $701.1 million in cash consideration for our acquisitions of Marucci and Custom Wheel House, $46.9 million in property and equipment additions, and $2.4 million in cash consideration for our purchase of other assets.

In the fiscal year ended December 30, 2022, cash used in investing activities was $44.7 million, which primarily consisted of $43.7 million in property and equipment additions, $3.5 million in cash consideration for our purchase of intellectual property assets, and $0.7 million in cash consideration to finalize our acquisition of Shock Therapy, partially offset by $3.2 million in proceeds from the sale of property and equipment.

In the fiscal year ended December 31, 2021, cash used in investing activities was $104.9 million, which primarily consisted of $54.8 million in property and equipment additions and $51.9 million of cash consideration for our acquisitions of Outside Van, Sola Sport and Shock Therapy, partially offset by $1.8 million in proceeds for the sale of property and equipment.

In the fiscal year ended January 1, 2021, cash used in investing activities was $388.5 million, which primarily consisted of $331.5 million of cash consideration for our acquisition of SCA and $56.7 million in property and equipment additions.

Financing activities

Cash used in or provided by financing activities primarily relates to changes in our capital structure, including the various forms of debt and equity instruments used to finance our business.

In the fiscal year ended December 29, 2023, net cash provided by financing activities was $509.0 million, which primarily consisted of proceeds from our 2022 Credit Facility of $793.5 million, which was used to support our working capital and the purchases of Marucci and Custom Wheel House, partially offset by $230.0 million in payments on our line of credit, $20.0 million in prepayments on our Term A Loan, $25.0 million to repurchase shares of our common stock, net of proceeds from the exercise of stock options, as part of our stock-based compensation program, and $6.2 million and $3.4 million in deferred debt issuance costs.

In the fiscal year ended December 30, 2022, net cash used in financing activities was $179.1 million, which primarily consisted of $404.3 million in payments on our line of credit, $382.5 million in payments on our term debt, $4.3 million to repurchase shares of our common stock, net of proceeds from the exercise of stock options, as part of our stock-based compensation program and $2.7 million in installment payments related to the purchase of the Tuscany non-controlling interest.

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In the fiscal year ended December 31, 2021, net cash used in financing activities was $23.8 million, which primarily consisted of $12.5 million in payments on our term debt, $7.0 million to repurchase shares of our common stock, net of proceeds from the exercise of stock options, as part of our stock-based compensation program and $4.6 million in installment payments related to the purchase of the Tuscany non-controlling interest, partially offset by $0.3 million in proceeds received from the termination of our 2020 Swap Agreement.

In the fiscal year ended January 1, 2021, net cash provided by financing activities was $506.7 million, which consisted primarily of $392.4 million in proceeds, net of issuance costs, from our Prior Credit Facility, which was amended and restated in connection with our acquisition of SCA, partially offset by net payments of $68.0 million on our line of credit and payments on our term debt of $5.0 million.

In addition, we received $198.2 million from our June 2020 issuance of common stock.

These inflows were partially offset by $4.3 million to repurchase shares of our common stock, net of proceeds from the exercise of stock options, as part of our stock-based compensation program and $6.6 million in installment payments related to the purchase of the Tuscany non-controlling interest.

Prior Credit Facility

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Base rate revolving loans bear interest on the outstanding principal amount thereof at a rate per annum equal to the highest of (i) Federal Funds Rate plus 0.50%, (ii) the rate of interest in effect for such day as publicly announced from time to time by the administrative agent 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%.

On November 14, 2023, in connection and concurrently with the closing of the Marucci acquisition, the Company entered into the First Incremental Facility Amendment (the “Amendment”) amending the 2022 Credit Facility.

The Amendment provided the Company with a term loan in an amount of $400.0 million (the “Incremental Term A Loan”) and a delayed draw term loan in an amount of $200.0 million (the “Delayed Draw Term Loan” and, together with the Incremental Term A Loan, the “Incremental Term Loans”), each of which are permitted under the 2022 Credit Facility, subject to satisfaction of certain conditions.

The Incremental Term A Loan was fully funded on November 14, 2023 and used to fund a portion of the consideration owed under the Marucci acquisition.

The Delayed Draw Term Loan is available to the Company from and including December 6, 2023, until the earlier of (a) May 14, 2024 and (b) the date on which the Delayed Draw Term commitments have been terminated.

Each Incremental Term Loan is subject to quarterly amortization payments of principal at a rate of 5.0% per annum.

The Incremental Term Loans are in the form of term SOFR loans and base rate loans, at the option of the Company, and have an applicable margin ranging from 0.5% to 1.50% for base rate loans and 1.50% to 2.50% for term SOFR loans, subject to adjustment provisions.

Each Incremental Term Loan has a maturity date of April 5, 2027, consistent with the 2022 Credit Facility.

The Company paid $10,063 in debt issuance costs, of which $6,709 were allocated to the Term A Loan and $3,354 were allocated to the Delayed Draw Term Loan.

Loan fees allocated to the Term A Loan were amortized using the interest method over the term of the Credit Facility.

Loan fees allocated to the Delayed Draw Term Loan were deferred as an asset until the debt is drawn.

Upon the drawing of the Delayed Draw Term Loan, the fees will be reclassified to a contra-liability account and amortized over the term of the drawn debt using the interest method.

At December 29, 2023, the one-month SOFR and three-month SOFR rates were 5.34% and 5.36%, respectively.

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Material Cash Requirements

As of December 30, 2022, we had the following material cash requirements related to commitments or contractual obligations (in thousands):

As of December 29, 2023, we had the following material cash requirements related to commitments or contractual obligations (in millions):

Payments due by period Total Less than 1 year 1-3 years 4-5 years More than 5 years

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Total $ 862.6 $ 23.4 $ 70.2 $ 726.5 $ 42.4

*Amounts may not foot due to rounding.

Certain portions of our business are seasonal;

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Historically, inflation has not had a material effect on our results of operations.

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

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

Critical Accounting Policies and Estimates

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Some of those significant accounting policies require us to make difficult, subjective, or complex judgments or estimates.

An accounting estimate is considered to be critical if it meets both of the following criteria:

An accounting estimate is considered to be critical if it is made in accordance with GAAP and it meets both of the following criteria:

(i) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and (ii) different estimates reasonably could have been used, or changes in the estimate that are reasonably likely to occur may have a material impact on our financial condition or results of operations.

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If inventory is written down, a new cost basis will be established that cannot be increased in future periods.

Unless otherwise required by law, the Company generally offers limited warranties on its products for one to two years.

Unless otherwise required by law, the Company generally offers limited warranties on its products for one to three years.

We accrue estimated costs related to warranty activities as a component of cost of sales upon product shipment or when information becomes available indicating that an adjustment to the warranty reserves is appropriate.

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To the extent shares are expected to vest, the stock-based compensation cost is recognized on a straight-line basis over the requisite service period.

Stock-based compensation was $16.4 million, $13.9 million and $8.6 million for the fiscal years ended December 30, 2022, December 31, 2021 and January 1, 2021, respectively.

Stock-based compensation was $16.5 million, $16.4 million and $13.9 million for the fiscal years ended December 29, 2023, December 30, 2022 and December 31, 2021, respectively.

Refer to Note 13.

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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 all Stellantis chassis, however that deposit is refunded when the chassis is sold through to the end customer.

For other chassis, the Company entered into floorplan financing agreements, in which the Company pays interest expense based on the duration of time the chassis stay on the Company's premises.

Revenues generated from custom upfit packages from our Outside Van subsidiary generally include the vehicle chassis, of which the Company has the risks and rewards of ownership and are recognized over-time as work is performed based on actual costs incurred.

We elected as a practical expedient to not capitalize the incremental costs to obtain contracts with customers since the amortization period would have been one year or less.

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.

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Sales returns allowances have historically been immaterial to the financial statements.

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

Such material rights result in the deferral of revenue 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.

Allowance for credit losses

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When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk.

As of December 31, 2021, the carrying amount of the principal under the Company’s Prior Credit Facility approximated fair value because it had a variable interest rate that reflected market changes in interest rates and changes in the Company’s net leverage ratio.

The Prior Credit Facility was terminated on April 5, 2022 and replaced with the revolving 2022 Credit Facility.

As of December 29, 2023, the carrying amount of the principal under the Company’s 2022 Credit Facility - Incremental Term A Loan approximated fair value because it had a variable interest rate that reflected market changes in interest rates and changes in the Company’s net leverage ratio.

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

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Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which helps simplify how entities account for income taxes by removing various exceptions related to the recognition of deferred tax liabilities and updating other tax computation requirements.

This standard is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted.

The Company adopted ASU 2019-12 effective in the first quarter of fiscal year 2021.

The adoption of ASU 2021-12 did not have a material impact on the Company's consolidated financial statements.

In October 2020, the FASB issued ASU 2020-10, Codification Improvements.

The amendments in ASU 2020-10 contain improvements to the Codification to ensure consistency by including disclosure guidance in the appropriate Disclosure Section.

This guidance includes an option for an entity to provide certain information either on the face of the financial statements or in the notes.

The ASU also provides clarification to various codification topics to improve consistency in guidance application.

The amendments are effective for interim and annual reporting periods in fiscal years beginning after December 15, 2020, with early adoption permitted.

The Company adopted ASU 2020-10 effective in the first quarter of fiscal year 2021.

The adoption of ASU 2020-10 did not have a material impact on the Company's consolidated financial statements and related disclosures.

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

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

Under ASU 2021-08, an acquirer must recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606.

The guidance is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted.

The Company adopted this guidance in the first quarter of 2022.

This adoption did not have a material impact on our financial statements.

In September 2022, the FASB issued 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 expects to adopt the interim disclosure requirements as applicable during the first quarter of 2023 and the annual disclosure requirements, except for the annual rollforward, in the 2023 Annual Report on Form 10-K.

The Company expects to adopt the annual rollforward requirement in the 2024 Annual Report on Form 10-K.

The Company is currently evaluating ASU 2022-04 and assessing the impact this guidance will have on its consolidated financial statements and disclosures.

See Note 1 - Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies to the accompanying notes to consolidated financial statements included in this Annual Report on Form 10-K for further details regarding this topic.

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-K

Item 7. Management’s Discussion and Analysis