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Item 2. Management’s Discussion and Analysis

2024-05-03 compared with 2023-11-03 · 110 added, 147 removed, 135 unchanged (66% of the section changed)

12 unchanged sentences

Forward-looking statements contained in this Quarterly Report on Form 10-Q are subject to numerous risks and uncertainties, including but not limited to risks related to:

• the spread of highly infectious or contagious disease, such as COVID-19, could cause severe disruptions in the U.S.

and global economy, which could in turn disrupt the business activities and operations of our customers, as well as our businesses and operations;

• changes in general economic conditions, including market and macro-economic disruptions resulting from escalating tensions between China and Taiwan, the on-going Russian war in Ukraine or due to growing inflation or higher interest rates;

• changes in general economic conditions, including market and macro-economic disruptions resulting from escalating tensions between China and Taiwan, the on-going Russian war in Ukraine, the Israel-Palestine conflict, or due to growing inflation or higher interest rates;

• our dependency on a limited number of suppliers for materials, product parts, and vehicle chassis could lead to an increase in material costs, disruptions in our supply chain, or reputational costs;

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• our ability to leverage our technologies and brand to expand into new categories and end-markets;

• the spread of highly infectious or contagious disease, such as COVID-19, could cause severe disruptions in the U.S.

and global economy, which could in turn disrupt the business activities and operations of our customers, as well as our businesses and operations;

• our ability to increase our aftermarket penetration;

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New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q.

We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur.

We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur and you should not place undue reliance on our forward-looking statements.

Actual results, events, or circumstances could differ materially from those contemplated by, set forth in, or underlying any forward-looking statements.

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We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.

We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements.

Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

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

United Auto Workers Strike

On September 15, 2023, the United Auto Workers (“UAW”) union began a strike at certain of our OEM customers’ U.S.

The strike had an undesirable impact on our sales for the three months ended September 29, 2023.

Although the union has reached tentative agreements with the automakers, we expect the impact to continue to affect our business in the future periods as our OEM customers recover from the strike.

Results of Operations

The table below summarizes our results of operations:

For the three months ended For the nine months ended

(in thousands) September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

For the three months ended

(in millions) March 29, 2024 March 31, 2023

Net sales $ 333.5 $ 399.9

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Interest expense 13.3 3.5

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

Other expense, net 0.3 —

(Loss) Income before income taxes (4.8) 51.1

(Benefit) Provision for income taxes (1.3) 9.4

Net (loss) income $ (3.5) $ 41.8

*Amounts may not foot due to rounding.

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

For the three months ended For the nine months ended

September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

For the three months ended

March 29, 2024 March 31, 2023

Net sales 100.0 % 100.0 %

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Interest expense 4.0 0.9

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

Income before income taxes 11.7 15.7 12.2 15.1

Provision for income taxes 1.1 3.3 1.9 2.4

Net income 10.7 % 12.4 % 10.3 % 12.8 %

Other expense, net 0.1 —

(Loss) Income before income taxes (1.4) 12.8

(Benefit) Provision for income taxes (0.4) 2.3

Net (loss) income (1.0) % 10.4 %

*Percentages may not foot due to rounding.

Three months ended September 29, 2023 compared to three months ended September 30, 2022

Three months ended March 29, 2024 compared to three months ended March 31, 2023

Consolidated net sales

For the three months ended

(in millions) September 29, 2023 September 30, 2022 Change ($) Change (%)

Powered Vehicle Group $ 123.1 $ 109.5 $ 13.6 12.4 %

Aftermarket Applications Group 136.0 125.7 10.3 8.2

Specialty Sports Group 72.0 174.0 (102.0) (58.6)

Total net sales $ 331.1 $ 409.2 $ (78.1) (19.1) %

Total net sales for the three months ended September 29, 2023 decreased $78.1 million, or 19.1%, compared to the three months ended September 30, 2022.

Specialty Sports Group net sales decreased by $102.0 million, or 58.6%, due to the impacts of higher levels of inventory across various channels.

Powered Vehicle Group net sales increased by $13.6 million, or 12.4%, due to increased demand in the OEM channel, partially offset by the impact of the UAW strike.

Aftermarket Applications Group net sales increased by $10.3 million, or 8.2%, due to the inclusion of revenue from our Custom Wheel House subsidiary, which was acquired in March 2023, partially offset by the impact of the UAW strike.

(in millions) March 29, 2024 March 31, 2023 Change ($) Change (%)

Net sales $ 333.5 $ 399.8 $ (66.3) (16.6) %

Total net sales for the three months ended March 29, 2024 decreased $66.3 million, or 16.6%, compared to the three months ended March 31, 2023.

The decrease in net sales is primarily due to product mix and higher interest rates impacting industry and consumer demands and the ongoing Bike channel inventory recalibration, offset by the inclusion of $59.6 million in net sales from Marucci that was acquired in November 2023.

Cost of sales

For the three months ended

(in millions) September 29, 2023 September 30, 2022 Change ($) Change (%)

(in millions) March 29, 2024 March 31, 2023 Change ($) Change (%)

Cost of sales $ 230.3 $ 266.6 $ (36.3) (13.6) %

Cost of sales for the three months ended September 29, 2023 decreased $48.0 million, or 17.7%, compared to the three months ended September 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.

Our gross margin decreased 110 basis points to 32.4% for the three months ended September 29, 2023 as compared to the same prior fiscal year period primarily due to a shift in our product line mix and costs associated with keeping our skilled workforce as production slowed due to the UAW strike, offset by increased efficiencies at our North American facilities.

Cost of sales for the three months ended March 29, 2024 decreased $36.3 million, or 13.6%, compared to the three months ended March 31, 2023.

The decrease in cost of sales was primarily due to our decreased sales.

Our gross margin decreased 240 basis points to 30.9% for the three months ended March 29, 2024 as compared to the same prior fiscal year period primarily due to a shift in our product line mix and operating leverage on lower volume.

Operating expenses

For the three months ended

(in millions) September 29, 2023 September 30, 2022 Change ($) Change (%)

(in millions) March 29, 2024 March 31, 2023 Change ($) Change (%)

Operating expenses:

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Total operating expenses $ 94.3 $ 78.6 $ 15.7 20.0 %

Total operating expenses for the three months ended September 29, 2023 were $65.9 million compared to $71.9 million for the three months ended September 30, 2022.

General and administrative expenses decreased $3.4 million and sales and marketing expenses increased $1.0 million primarily due to strong cost controls offset by the inclusion of Custom Wheel House operating costs.

Total operating expenses for the three months ended March 29, 2024 were $94.3 million compared to $78.6 million for the three months ended March 31, 2023.

Sales and marketing expenses increased $7.5 million and general and administrative expenses increased $3.7 million primarily due to the inclusion of Marucci operating expenses and a full fiscal quarter of Custom Wheel House operating expenses.

Amortization of purchased intangibles increased by $5.3 million mainly due to amortization of additional acquired intangibles.

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For the three months ended

(in millions) September 29, 2023 September 30, 2022 Change ($) Change (%)

(in millions) March 29, 2024 March 31, 2023 Change ($) Change (%)

Income from operations $ 8.9 $ 54.7 $ (45.8) (83.7) %

As a result of the factors discussed above, income from operations for the three months ended September 29, 2023 decreased $24.0 million, or 36.7%, compared to income from operations for the three months ended September 30, 2022.

As a result of the factors discussed above, income from operations for the three months ended March 29, 2024 decreased $45.8 million, or 83.7%, compared to income from operations for the three months ended March 31, 2023.

Interest and other expense, net

For the three months ended

(in millions) September 29, 2023 September 30, 2022 Change ($) Change (%)

(in millions) March 29, 2024 March 31, 2023 Change ($) Change (%)

Interest expense $ 13.3 $ 3.5 $ 9.8 280.0 %

Other (income) expense, net (0.9) (1.4) 0.5 (35.7)

Other expense, net 0.3 — 0.3 NA

Interest and other expense, net $ 13.6 $ 3.5 $ 10.1 288.6 %

Interest and other expense, net for the three months ended September 29, 2023 increased by $1.3 million to $2.6 million compared to $1.3 million for the three months ended September 30, 2022.

Interest expense increased by $0.8 million due to higher interest rates.

Interest and other expense, net for the three months ended March 29, 2024 increased by $10.1 million to $13.6 million compared to $3.5 million for the three months ended March 31, 2023.

Interest expense increased by $9.8 million due to additional debt and higher interest rates.

For the three months ended

(in millions) September 29, 2023 September 30, 2022 Change ($) Change (%)

Provision for income taxes $ 3.5 $ 13.4 $ (9.9) (73.9) %

The effective tax rates were 9.0% and 20.8% for the three month periods ended September 29, 2023 and September 30, 2022, respectively.

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 a lower tax rate on foreign derived intangible income.

These benefits were partially offset by other non-deductible expenses and state taxes.

For the three months ended September 30, 2022, the difference between our effective tax rate of 20.8% and the 21% federal statutory rate resulted primarily from a lower tax rate on foreign derived intangible income and excess benefits related to stock-based compensation.

(in millions) March 29, 2024 March 31, 2023 Change ($) Change (%)

(Benefit) Provision for income taxes $ (1.3) $ 9.4 $ (10.7) (113.8) %

The effective tax rates were 26.6% and 18.3% for the three month periods ended March 29, 2024 and March 31, 2023, respectively.

For the three months ended March 29, 2024, the difference between the Company’s effective tax rate of 26.6% and the 21% federal statutory rate was due to the impact of discrete items and pre-tax loss.

For the three months ended March 31, 2023, the difference between our effective tax rate of 18.3% and the 21% federal statutory rate resulted primarily from a lower tax rate on foreign derived intangible income and excess benefits related to stock-based compensation.

The benefits were partially offset by withholding and state taxes.

Net (loss) income

For the three months ended

(in millions) September 29, 2023 September 30, 2022 Change ($) Change (%)

Net income $ 35.3 $ 50.8 $ (15.5) (30.5) %

As a result of the factors described above, our net income decreased $15.5 million, or 30.5%, to $35.3 million in the three months ended September 29, 2023 from $50.8 million for the three months ended September 30, 2022.

Nine months ended September 29, 2023 compared to nine months ended September 30, 2022

For the nine months ended

(in millions) September 29, 2023 September 30, 2022 Change ($) Change (%)

Powered Vehicle Group $ 405.5 $ 299.8 $ 105.7 35.4 %

(in millions) March 29, 2024 March 31, 2023 Change ($) Change (%)

Net (loss) income $ (3.5) $ 41.8 $ (45.3) (108.4) %

As a result of the factors described above, our net income decreased $45.3 million, or 108.4%, to $3.5 million in the three months ended March 29, 2024 from $41.8 million for the three months ended March 31, 2023.

Segment Review

Due in part to how we operate our business and to best serve our customers, we manage our activities based on three operating segments:

Powered Vehicles Group, Aftermarket Applications Group, and Specialty Sports Group.

For additional financial information related to our operating segments including the reconciliation of net income attributable to our common shareholder to adjusted EBITDA, see Note 1 6 – Segment Information .

The following table summarizes consolidated net sales and adjusted EBITDA by segment:

For the three months ended

(in millions) March 29, 2024 March 31, 2023 Change ($) Change (%)

Power Vehicles Group $ 118.1 $ 142.2 $ (24.1) (16.9) %

Aftermarket Applications Group 101.9 138.7 (36.8) (26.5)

Specialty Sports Group 113.5 118.9 (5.4) (4.5)

Total net sales $ 1,131.7 $ 1,193.8 $ (62.1) (5.2) %

Total net sales for the nine months ended September 29, 2023 decreased $62.1 million, or 5.2%, compared to the nine months ended September 30, 2022.

Specialty Sports Group product net sales decreased by $225.7 million, or 43.3%, due to the impacts of higher levels of inventory across various channels.

Powered Vehicle Group net sales increased by $105.7 million, or 35.4%, mainly due to increased demand in the OEM channel, partially offset by the impact of the UAW strike.

Aftermarket Applications Group net sales increased by $57.9 million, or 15.5%, primarily due to the inclusion of revenue from our Custom Wheel House subsidiary, which was acquired in March 2023, and strong performance in our upfitting product lines.

Cost of sales

For the nine months ended

(in millions) September 29, 2023 September 30, 2022 Change ($) Change (%)

Cost of sales $ 759.1 $ 793.4 $ (34.3) (4.3) %

Cost of sales for the nine months ended September 29, 2023 decreased $34.3 million, or 4.3%, compared to the nine months ended September 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.

Our gross margin decreased 60 basis points to 32.9% for the three months ended September 29, 2023 as compared to the same prior fiscal year period 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

For the nine months ended

(in millions) September 29, 2023 September 30, 2022 Change ($) Change (%)

Operating expenses:

General and administrative $ 89.7 $ 83.2 $ 6.5 7.8 %

Sales and marketing 74.7 70.3 4.4 6.3

Research and development 39.4 40.8 (1.4) (3.4)

Amortization of purchased intangibles 20.0 16.2 3.8 23.5

Total operating expenses $ 223.7 $ 210.5 $ 13.2 6.3 %

Total operating expenses for the nine months ended September 29, 2023 were $223.7 million compared to $210.5 million for the nine months ended September 30, 2022.

General and administrative expenses increased by $6.5 million primarily due to operating expenses associated with facility expansion and the inclusion of Custom Wheel House operating expenses of $3.0 million partially offset by strong cost controls.

Sales and marketing expenses increased $4.4 million primarily due to the inclusion of $7.4 million Custom Wheel House operating expenses offset by strong cost controls.

Research and development costs decreased $1.4 million primarily due to additional benefit from a state research and development tax credit.

Amortization of purchased intangibles increased by $3.8 million mainly due to the amortization of additional acquired intangibles.

Income from operations

For the nine months ended

(in millions) September 29, 2023 September 30, 2022 Change ($) Change (%)

Income from operations $ 148.8 $ 190.0 $ (41.2) (21.7) %

As a result of the factors discussed above, income from operations for the nine months ended September 29, 2023 decreased $41.2 million, or 21.7% , compared to income from operations for the nine months ended September 30, 2022.

Interest and other expense, net

For the nine months ended

(in millions) September 29, 2023 September 30, 2022 Change ($) Change (%)

Interest expense $ 11.4 $ 6.3 $ 5.1 81.0 %

Other (income) expense, net (0.3) 3.1 (3.4) (109.7)

Interest and other expense, net $ 11.1 $ 9.4 $ 1.7 18.1 %

Interest and other expense, net for the nine months ended September 29, 2023 increased by $1.7 million to $11.1 million compared to $9.4 million for the nine months ended September 30, 2022.

Interest expense increased by $5.1 million due to higher interest rates.

Other income, net increased $3.4 million primarily due lower losses on foreign currency transactions.

For the nine months ended

(in millions) September 29, 2023 September 30, 2022 Change ($) Change (%)

Provision for income taxes $ 21.0 $ 28.3 $ (7.3) (25.8) %

The effective tax rates were 15.2% and 15.7% for the nine month periods ended September 29, 2023 and September 30, 2022, respectively.

For the nine months ended September 29, 2023, the difference between the Company’s effective tax rate of 15.2% 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 nine months ended September 30, 2022, the difference between our effective tax rate of 15.7% and the 21% federal statutory rate resulted primarily from the impact of the recently finalized U.S.

tax regulations published by the U.S.

Treasury and Internal Revenue Service on January 4, 2022 and from a lower tax rate on foreign derived intangible income.

These regulations limit the amount of newly generated foreign taxes that are creditable against U.S.

income taxes, which resulted in a release of the Company’s valuation allowance against foreign tax credits due to the Company’s ability to use foreign tax credit carryforwards that had previously been reserved against.

These benefits were partially offset by withholding and state taxes.

For the nine months ended

(in millions) September 29, 2023 September 30, 2022 Change ($) Change (%)

Net income $ 116.8 $ 152.3 $ (35.5) (23.3) %

As a result of the factors described above, our net income decreased $35.5 million, or 23.3%, to $116.8 million in the nine months ended September 29, 2023 from $152.3 million for the nine months ended September 30, 2022.

Net sales $ 333.5 $ 399.8 $ (66.3) (16.6) %

Adjusted EBITDA

Power Vehicles Group $ 15.9 $ 17.7 $ (1.8) (10.2) %

Aftermarket Applications Group 14.9 36.3 (21.4) (59.0)

Specialty Sports Group 24.1 40.8 (16.7) (40.9)

Unallocated corporate expenses (14.4) (16.6) 2.2 (13.3)

Adjusted EBITDA $ 40.5 $ 78.2 $ (37.7) (48.2) %

Powered Vehicles Group

Powered Vehicles Group net sales decreased by $24.1 million, or 16.9%, due to lower industry demand in Power Sports because of higher interest rates.

Powered Vehicles Group adjusted EBITDA decreased by $1.8 million, or 10.2%, driven by a decrease in gross profit, partially offset by reductions across operating expenses from our cost control efforts.

Aftermarket Applications Group

Aftermarket Applications Group net sales decreased by $36.8 million, or 26.5%, driven by lower upfitting sales due to product mix and higher interest rates impacting industry dealers and consumers.

Aftermarket Applications Group adjusted EBITDA decreased by $21.4 million, or 59.0%, mainly due to lower gross profit driven by high interest rates, product mix shift, and reduced operating leverage on lower volume.

Specialty Sports Group

Specialty Sports Group net sales decreased by $5.4 million, or 4.5%, primarily due to a reduction in Bike sales of $65.0 million because of the ongoing Bike channel inventory recalibration, offset by the inclusion of $59.6 million in net sales from Marucci which we acquired in November 2023.

Specialty Sports Group adjusted EBITDA decreased by $16.7 million, or 40.9%, primarily due to a decline in gross profit driven by the ongoing Bike channel inventory recalibration, to a lesser extent, lower end consumer demand, and reduced operating leverage on lower volume, offset by the inclusion of Marucci which grew year over year.

Unallocated corporate expenses

Unallocated corporate expenses consist of corporate overhead expenses that are not directly attributable to one of our business segments and include unallocated occupancy costs for our corporate headquarters, acquisition costs, other benefit and compensation programs, including performance-based compensation, and administrative expenses such as accounting, finance, legal, human resources, and information technology expenses.

Unallocated corporate expenses decreased by $2.2 million, or 13.3%, driven by cost containment measures.

Liquidity and Capital Resources

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.

Historically, we 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 events described in Cautionary Note Regarding Forward-Looking Statements and Item 1A.

Risk Factors .

As of September 29, 2023, we held $37.0 million of our $90.6 million of cash and cash equivalents in accounts of our subsidiaries outside of the U.S., which we may repatriate.

As of March 29, 2024, we held $16.8 million of our $69.6 million of cash and cash equivalents in accounts of our subsidiaries outside of the U.S., which we may repatriate.

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

For the nine months ended

(in millions) September 29, 2023 September 30, 2022

Net cash provided by operating activities $ 126.7 $ 57.0

For the three months ended

(in millions) March 29, 2024 March 31, 2023

Net cash provided by (used in) operating activities $ 9.4 $ (66.8)

Net cash used in investing activities (15.3) (144.3)

Net cash used in financing activities (16.2) (54.0)

Net cash (used in) provided by financing activities (7.9) 157.8

Effect of exchange rate changes on cash and cash equivalents (0.2) —

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Operating activities

In the nine months ended September 29, 2023, net cash provided by operating activities was $126.7 million.

Our investment in operating assets and liabilities is a result of increases in prepaids and other assets of $53.1 million primarily due to carrying more chassis to meet current year production needs for the upfitting product lines, and decreases in accounts payable of $51.4 million, income taxes payable of $20.4 million and accrued expenses and other liabilities of $7.2 million, partially offset by decreases in accounts receivable of $53.3 million and inventory of $24.3 million.

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

In the three months ended March 29, 2024, net cash provided by operating activities was $9.4 million.

Our investment in operating assets and liabilities is a result of an increase in prepaids and other assets of $36.5 million and decreases in accounts payable of $2.4 million, accrued expenses and other liabilities of $1.2 million, and income taxes payable of $0.8 million, partially offset by decreases in inventory of $20.0 million and accounts receivable of $5.3 million.

The increase in prepaids and other assets is primarily due to carrying new model year chassis to meet current year production needs for the upfitting product lines and, to a lesser degree, slowing sales of older model years.

The change in our accounts receivable reflects 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.

The change in accrued expenses and other liabilities is primarily due to settlements of sales rebate accruals.

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

In the nine months ended September 30, 2022, net cash provided by operating activities was $57.0 million.

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

The change in inventory is due to several factors, including receipt of long lead time items that had been delayed, higher levels of safety stock to mitigate uncertainty and the result of normal growth to meet anticipated demand.

The changes in accounts receivable and accounts payable reflect business growth and the timing of vendor payments.

The change in prepaids and other assets is due to increased chassis deposits to secure supply for our upfitting business for the remainder of the year.

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

In the three months ended March 31, 2023, net cash used in operating activities was $66.8 million.

Our investment in operating assets and liabilities is a result of increases in prepaids and other assets of $112.2 million, inventory of $11.5 million, and decreases in accrued expenses and other liabilities of $7.8 million, accounts payable of $6.7 million and income taxes payable of $4.0 million, partially offset by a decrease in accounts receivable of $9.4 million.

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

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

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

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

Investing activities

In the nine months ended September 29, 2023 and September 30, 2022, net cash used in investing activities consisted of $165.4 million and $32.4 million, respectively.

Investing activities for the nine months ended September 29, 2023 consisted of $130.9 million of cash consideration for our purchase of Custom Wheel House, $32.0 million of property and equipment additions and $2.4 million in cash consideration for our purchase of other assets.

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

In the three months ended March 29, 2024 and March 31, 2023, net cash used in investing activities consisted of $15.3 million and $144.3 million, respectively.

Investing activities for the three months ended March 29, 2024 consisted of $9.9 million of property and equipment additions, $5.0 million of cash consideration for our acquisitions and $0.4 million of cash consideration for our acquisition of other assets.

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

Financing activities

In the nine months ended September 29, 2023, net cash provided by financing activities was $16.2 million, and consisted of the proceeds from our 2022 Credit Facility of $210.0 million that were used to support our working capital and the purchase of Custom Wheel House, offset by payments of $220.0 million to reduce the revolver borrowings and payments of $6.2 million to repurchase shares of our common stock to cover withholding taxes from our stock-based compensation program.

In the nine months ended September 30, 2022, net cash used in financing activities was $54.0 million, and consisted of the repayment of our term debt upon the refinancing of our Prior Credit Facility of $382.5 million, payments made on our line of credit of $259.3 million, payments of $4.1 million to repurchase shares of our common stock, net of proceeds from our stock-based compensation program, and $2.7 million in installment payments related to the purchase of the Tuscany non-controlling interest.

These changes were partially offset by net proceeds from our 2022 Credit Facility of $582.4 million, which was used to refinance our Prior Credit Facility, and proceeds from the termination of our 2021 Swap Agreement of $12.3 million.

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 $250.0 million and a term loan of $400.0 million.

The term loan was subject to quarterly amortization payments.

In the three months ended March 29, 2024, net cash used in financing activities was $7.9 million, and consisted of the proceeds from our 2022 Credit Facility of $70.0 million that were used to support our working capital, offset by payments of $48.0 million to reduce the revolver borrowings, $3.6 million quarterly repayment on our Term A Loan, $25.0 million to repurchase shares of our common stock for retirement, and payments of $1.3 million to repurchase shares of our common stock to cover withholding taxes from our stock-based compensation program.

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

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.

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”).

The 2022 Credit Facility, which matures on April 5, 2027, provides for revolving loans, swingline loans and letters of credit up to an aggregate amount of $650.0 million.

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

The Company paid $2.0 million in debt issuance costs in connection with the 2022 Credit Facility, which were allocated to the line of credit and amortized on a straight-line basis over the term of the facility.

The Company paid $2.0 million in debt issuance costs in connection with the 2022 Credit Facility, which were allocated to the revolver and amortized on a straight-line basis over the term of the facility.

Additionally, the Company had $4.5 million of remaining unamortized debt issuance costs related to the 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 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%.

At March 29, 2024, the one-month SOFR and three-month SOFR rates were 5.32% and 5.35%, respectively.

At March 29, 2024, our weighted-average interest rate on outstanding borrowing was 6.93%.

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 the Incremental Term A Loan in an amount of $400.0 million and the Delayed Draw Term Loan in an amount of $200.0 million, 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 for up to six months commencing on 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 5.00% 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 0.50% 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 $10.1 million in debt issuance costs, of which $6.7 million were allocated to the Term A Loan and $3.4 million were allocated to the Delayed Draw Term Loan.

Loan fees allocated to the Term A Loan are 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.

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 Company was in compliance with the covenants as of March 29, 2024.

Material Cash Requirements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis