FOX FACTORY HOLDING CORP 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2023, as filed with the SEC on February 23, 2024, and our other reports and registration statements that we file with the SEC from time to time. In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section included in Part II, Item 1A. Unless the context otherwise requires, the terms “FOX,” the “Company,” “we,” “us,” and “our” in this Quarterly Report on Form 10-Q refer to Fox Factory Holding Corp. and its operating subsidiaries on a consolidated basis. Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements, which are subject to the “safe harbor” created by Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We may make forward-looking statements in our SEC filings, press releases, news articles, earnings presentations and when we are speaking on behalf of the Company. Forward-looking statements generally relate to future events or our future financial or operating performance that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements because they contain words such as “may,” “might,” “will,” “would,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “likely,” “potential”, “remain” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. 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: • 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; • our ability to develop new and innovative products in our current end-markets; • 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; • our ability to accelerate international growth; • our exposure to exchange rate fluctuations; • the loss of key customers; • our ability to improve operating and supply chain efficiencies; • our ability to enforce our intellectual property rights; • our future financial performance, including our sales, cost of sales, gross profit or gross margins, operating expenses, ability to generate positive cash flow and ability to maintain our profitability; • our ability to maintain our premium brand image and high-performance products; • our ability to maintain relationships with the professional athletes and race teams we sponsor; • our ability to selectively add additional dealers and distributors in certain geographic markets; • the growth of the markets in which we compete, our expectations regarding consumer preferences and our ability to respond to changes in consumer preferences; • changes in demand for performance-defining products; 29 Table of Contents • the loss of key personnel, management and skilled engineers; • our ability to successfully identify, evaluate and manage potential or completed acquisitions and to benefit from such acquisitions; • legal and regulatory developments, including the resolution of legal proceedings or regulatory or other governmental inquiries, and the impact of changing emissions and other related climate change regulations in the various jurisdictions in which our products are produced, used, and/or sold; • the cost of compliance with, or liabilities related to, environmental or other governmental regulations or changes in governmental or industry regulatory standards; • future disruptions in the operations of our manufacturing facilities; • our ability to adapt our business model to mitigate the impact of certain changes in tax laws; • changes in the relative proportion of profit earned in the numerous jurisdictions in which we do business and in tax legislation, case law and other authoritative guidance in those jurisdictions; • product recalls and product liability claims; and • future economic or market conditions. You should not rely upon forward-looking statements as predictions of future events. We based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects and the outcomes of any of the events described in any forward-looking statements are subject to risks, uncertainties, and other factors. In addition to the risks, uncertainties and other factors discussed above and elsewhere in this Quarterly Report on Form 10-Q, the risks, uncertainties and other factors expressed or implied in Part I, Item 1A. “Risk Factors” of our 2023 Annual Report on Form 10-K, as filed with the SEC on February 23, 2024, could cause or contribute to actual results differing materially from those set forth in any forward-looking statement. Moreover, we operate in a very competitive and challenging environment. 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 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. For all of these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements in Section 27A of the Securities Act and Section 21E of the Exchange Act. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. 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. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. Critical Accounting Policies and Estimates There have been no changes to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended December 29, 2023, as filed with the SEC on February 23, 2024, that had a material impact on our condensed consolidated financial statements and related notes. Recent Accounting Pronouncements 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. 30 Table of Contents Results of Operations The table below summarizes our results of operations: For the three months ended For the nine months ended (in millions) September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 Net sales $ 359.1 $ 331.1 $ 1,041.1 $ 1,131.7 Cost of sales 251.6 223.9 719.5 759.1 Gross profit 107.5 107.2 321.6 372.6 Operating expenses: General and administrative 32.4 25.7 106.8 89.7 Sales and marketing 29.1 24.4 89.8 74.7 Research and development 16.1 8.9 45.3 39.4 Amortization of purchased intangibles 11.0 6.8 33.4 20.0 Total operating expenses 88.7 65.9 275.3 223.7 Income from operations 18.8 41.4 46.3 148.8 Interest expense 14.2 3.5 41.4 11.4 Other income, net (0.5) (0.9) (0.5) (0.3) Income before income taxes 5.0 38.8 5.3 137.8 Provision (benefit) for income taxes 0.3 3.5 (1.4) 21.0 Net income $ 4.8 $ 35.3 $ 6.7 $ 116.8 *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 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 70.1 67.6 69.1 67.1 Gross profit 29.9 32.4 30.9 32.9 Operating expenses: General and administrative 9.0 7.8 10.3 7.9 Sales and marketing 8.1 7.4 8.6 6.6 Research and development 4.5 2.7 4.4 3.5 Amortization of purchased intangibles 3.1 2.1 3.2 1.8 Total operating expenses 24.7 19.9 26.4 19.8 Income from operations 5.2 12.5 4.4 13.2 Interest expense 4.0 1.0 4.0 1.0 Other income, net (0.1) (0.3) — — Income before income taxes 1.4 11.7 0.5 12.2 Provision (benefit) for income taxes 0.1 1.1 (0.1) 1.9 Net income 1.3 % 10.7 % 0.6 % 10.3 % *Percentages may not foot due to rounding. 31 Table of Contents Three months ended September 27, 2024 compared to three months ended September 29, 2023 Consolidated net sales For the three months ended (in millions) September 27, 2024 September 29, 2023 Change ($) Change (%) Net sales $ 359.1 $ 331.1 $ 28.0 8.5 % Total net sales for the three months ended September 27, 2024 increased $28.0 million, or 8.5%, compared to the three months ended September 29, 2023. The increase in net sales is primarily due to the inclusion of $49.6 million in net sales from Marucci that was acquired in November 2023, and a $27.9 million increase in bike sales, partially offset by a shift in product mix, higher interest rates impacting industry and consumer demands, and higher inventory levels at dealerships. Although bike sales improved compared to prior year, the ongoing channel inventory recalibration and, to a lesser extent, lower end consumer demand remain headwinds. Cost of sales For the three months ended (in millions) September 27, 2024 September 29, 2023 Change ($) Change (%) Cost of sales $ 251.6 $ 223.9 $ 27.7 12.4 % Cost of sales for the three months ended September 27, 2024 increased $27.7 million, or 12.4%, compared to the three months ended September 29, 2023. The increase in cost of sales and a decrease in gross margin of 250 basis points to 29.9% for the three months ended September 27, 2024 as compared to the same prior fiscal year period are primarily due to a shift in our product line mix and reduced operating leverage on lower volume. Operating expenses For the three months ended (in millions) September 27, 2024 September 29, 2023 Change ($) Change (%) Operating expenses: General and administrative $ 32.5 $ 25.7 $ 6.8 26.5 % Sales and marketing 29.1 24.5 4.6 18.8 Research and development 16.1 8.9 7.2 80.9 Amortization of purchased intangibles 11.0 6.8 4.2 61.8 Total operating expenses $ 88.7 $ 65.9 $ 22.8 34.6 % Total operating expenses for the three months ended September 27, 2024 were $88.7 million, compared to $65.9 million for the three months ended September 29, 2023. General and administrative expenses increased $6.8 million, and sales and marketing expenses increased $4.6 million primarily due to the inclusion of Marucci operating expenses. Research and development expenses increased $7.2 million mainly due to personnel investments to support future growth and product innovation and additional benefit from a state research and development tax credit received in prior year. Amortization of purchased intangibles increased by $4.2 million driven by amortization of additional acquired intangibles. 32 Table of Contents Income from operations For the three months ended (in millions) September 27, 2024 September 29, 2023 Change ($) Change (%) Income from operations $ 18.8 $ 41.4 $ (22.6) (54.6) % As a result of the factors discussed above, income from operations for the three months ended September 27, 2024 decreased $22.6 million, or 54.6%, compared to income from operations for the three months ended September 29, 2023. Interest and other expense, net For the three months ended (in millions) September 27, 2024 September 29, 2023 Change ($) Change (%) Interest expense $ 14.2 $ 3.5 $ 10.7 305.7 % Other income, net (0.5) (0.9) 0.4 (44.4) Interest and other expense, net $ 13.7 $ 2.6 $ 11.1 426.9 % Interest and other expense, net for the three months ended September 27, 2024 increased by $11.1 million to $13.7 million, compared to $2.6 million for the three months ended September 29, 2023. Interest expense increased by $10.7 million due to additional debt and higher interest rates. Income taxes For the three months ended (in millions) September 27, 2024 September 29, 2023 Change ($) Change (%) Provision for income taxes $ 0.3 $ 3.5 $ (3.2) (91.4) % The effective tax rates were 5.0% and 9.0% for the three months ended September 27, 2024 and September 29, 2023, respectively. For the three months ended September 27, 2024, the difference between the Company’s effective tax rate of 5.0% and the 21% federal statutory rate was due to a benefit from the U.S. research and development tax credit, offset by the impact of discrete items on lower levels of pre-tax income, including a modification of the tax treatment of certain research and development expenditures recognized in prior years. For the three months ended September 29, 2023, the difference between our 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. Net income For the three months ended (in millions) September 27, 2024 September 29, 2023 Change ($) Change (%) Net income $ 4.8 $ 35.3 $ (30.5) (86.4) % As a result of the factors described above, our net income decreased $30.5 million, or 86.4%, to $4.8 million in the three months ended September 27, 2024 from $35.3 million for the three months ended September 29, 2023. 33 Table of Contents Segment Review Due in part to how we operate our business and to best serve our customers, we manage our activities based on three operating segments: Powered Vehicles Group, Aftermarket Applications Group, and Specialty Sports Group. For additional financial information related to our operating segments including the reconciliation of net income attributable to our common stockholders to adjusted EBITDA, see Note 16 – Segment Information . The following table summarizes consolidated net sales and adjusted EBITDA by segment: For the three months ended (in millions) September 27, 2024 September 29, 2023 Change ($) Change (%) Net sales Powered Vehicles Group $ 109.3 $ 123.1 $ (13.7) (11.2) % Aftermarket Applications Group 100.3 136.0 (35.8) (26.3) Specialty Sports Group 149.5 72.0 77.5 107.6 Net sales $ 359.1 $ 331.1 $ 28.0 8.5 % Adjusted EBITDA Powered Vehicles Group $ 8.9 $ 26.4 $ (17.5) (66.3) % Aftermarket Applications Group 9.4 31.9 (22.5) (70.5) Specialty Sports Group 36.5 19.7 16.8 85.3 Unallocated corporate expenses (12.8) (14.3) 1.5 (10.5) Adjusted EBITDA $ 42.0 $ 63.7 $ (21.7) (34.1) % Powered Vehicles Group Powered Vehicles Group net sales decreased by $13.7 million, or 11.2%, due to lower industry demand in Power Sports and automotive because of higher interest rates. Powered Vehicles Group adjusted EBITDA decreased by $17.5 million, or 66.3%, driven by a decrease in gross profit, an increase in personnel investments and additional benefit from a state research and development tax credit received in prior year. Aftermarket Applications Group Aftermarket Applications Group net sales decreased by $35.8 million, or 26.3%, driven by lower upfitting sales due to product mix, higher interest rates impacting industry dealers and consumers, and higher inventory levels at dealerships. Aftermarket Applications Group adjusted EBITDA decreased by $22.5 million, or 70.5%, mainly due to lower gross profit. Specialty Sports Group Specialty Sports Group net sales increased by $77.5 million, or 107.6%, primarily due to the inclusion of $49.6 million in net sales from Marucci, which we acquired in November 2023, and a $27.9 million increase in bike sales. Although bike sales improved compared to prior year, the ongoing channel inventory recalibration and, to a lesser extent, lower end consumer demand remain headwinds. Specialty Sports Group adjusted EBITDA increased by $16.8 million, or 85.3%, primarily due to an increase in gross profit driven by the inclusion of Marucci. 34 Table of Contents 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 $1.5 million, or 10.5%, driven by cost containment measures. Nine months ended September 27, 2024 compared to nine months ended September 29, 2023 Consolidated net sales For the nine months ended (in millions) September 27, 2024 September 29, 2023 Change ($) Change (%) Net sales $ 1,041.1 $ 1,131.7 $ (90.6) (8.0) % Total net sales for the nine months ended September 27, 2024 decreased $90.6 million, or 8.0%, compared to the nine months ended September 29, 2023. The decrease in net sales is primarily due to product mix, higher interest rates impacting industry and consumer demands, higher levels of inventory at dealerships, and the ongoing bike channel inventory recalibration, offset by the inclusion of $150.8 million in net sales from Marucci that was acquired in November 2023. Cost of sales For the nine months ended (in millions) September 27, 2024 September 29, 2023 Change ($) Change (%) Cost of sales $ 719.5 $ 759.1 $ (39.6) (5.2) % Cost of sales for the nine months ended September 27, 2024 decreased $39.6 million, or 5.2%, compared to the nine months ended September 29, 2023. The decrease in cost of sales is primarily due to our decreased sales. Our gross margin decreased by 200 basis points to 30.9% for the nine months ended September 27, 2024 as compared to the same prior fiscal year period is primarily due to a shift in our product line mix and operating leverage on lower volume. Operating expenses For the nine months ended (in millions) September 27, 2024 September 29, 2023 Change ($) Change (%) Operating expenses: General and administrative $ 106.8 $ 89.7 $ 17.1 19.1 % Sales and marketing 89.8 74.7 15.1 20.2 Research and development 45.3 39.4 5.9 15.0 Amortization of purchased intangibles 33.4 20.0 13.4 67.0 Total operating expenses $ 275.3 $ 223.7 $ 51.6 23.1 % Total operating expenses for the nine months ended September 27, 2024 were $275.3 million, compared to $223.7 million for the nine months ended September 29, 2023. General and administrative expenses increased $17.1 million and sales and marketing expenses increased $15.1 million primarily due to the inclusion of Marucci operating expenses and the full nine months of Custom Wheel House operating expenses, partially offset by our cost containment measures. Research and development expenses increased $5.9 million driven by personnel investments to support future growth and product innovation and the inclusion of Marucci expenses. Amortization of purchased intangibles increased by $13.4 million mainly due to amortization of additional acquired intangibles. 35 Table of Contents Income from operations For the nine months ended (in millions) September 27, 2024 September 29, 2023 Change ($) Change (%) Income from operations $ 46.3 $ 148.8 $ (102.5) (68.9) % As a result of the factors discussed above, income from operations for the nine months ended September 27, 2024 decreased $102.5 million or 68.9%, compared to income from operations for the nine months ended September 29, 2023. Interest and other expense, net For the nine months ended (in millions) September 27, 2024 September 29, 2023 Change ($) Change (%) Interest expense $ 41.4 $ 11.4 $ 30.0 263.2 % Other expense, net (0.5) (0.3) (0.2) 66.7 Interest and other expense, net $ 40.9 $ 11.1 $ 29.8 268.5 % Interest and other expense, net for the nine months ended September 27, 2024 increased by $29.8 million to $40.9 million, compared to $11.1 million for the nine months ended September 29, 2023. Interest expense increased by $30.0 million to $41.4 million due to additional debt and higher interest rates. Income taxes For the nine months ended (in millions) September 27, 2024 September 29, 2023 Change ($) Change (%) (Benefit) provision for income taxes $ (1.4) $ 21.0 $ (22.4) (106.7) % The effective tax rates were (26.2)% and 15.2% for the nine months ended September 27, 2024 and September 29, 2023, respectively. For the nine months ended September 27, 2024, the difference between the Company’s effective tax rate of (26.2)% and the 21% federal statutory rate was due to a benefit from the U.S. research and development tax credit, offset by the impact of discrete items on lower levels of pre-tax income, including a modification of the tax treatment of certain research and development expenditures recognized in prior years. For the nine months ended September 29, 2023, the difference between our 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. Net income For the nine months ended (in millions) September 27, 2024 September 29, 2023 Change ($) Change (%) Net income $ 6.7 $ 116.8 $ (110.1) (94.3) % As a result of the factors described above, our net income decreased $110.1 million, or 94.3% to $6.7 million for the nine months ended September 27, 2024 from $116.8 million for the nine months ended September 29, 2023. 36 Table of Contents Segment Review For additional financial information related to our operating segments including the reconciliation of net income attributable to our common stockholders to adjusted EBITDA, see Note 16 – Segment Information . The following table summarizes consolidated net sales and adjusted EBITDA by segment: For the nine months ended (in millions) September 27, 2024 September 29, 2023 Change ($) Change (%) Net sales Powered Vehicles Group $ 345.2 $ 405.5 $ (60.3) (14.9) % Aftermarket Applications Group 309.3 430.4 (121.1) (28.1) Specialty Sports Group 386.6 295.8 90.8 30.7 Net sales $ 1,041.1 $ 1,131.7 $ (90.6) (8.0) % Adjusted EBITDA Powered Vehicles Group $ 40.7 $ 67.9 $ (27.2) (40.1) % Aftermarket Applications Group 38.4 106.0 (67.6) (63.8) Specialty Sports Group 89.8 95.7 (5.9) (6.2) Unallocated corporate expenses (42.3) (47.3) 5.0 (10.6) Adjusted EBITDA $ 126.6 $ 222.3 $ (95.7) (43.0) % Powered Vehicles Group Powered Vehicles Group net sales decreased by $60.3 million, or 14.9%, due to lower industry demand in Power Sports and automotive because of higher interest rates. Powered Vehicles Group adjusted EBITDA decreased by $27.2 million, or 40.1%, mainly due to a decrease in gross profit. Aftermarket Applications Group Aftermarket Applications Group net sales decreased by $121.1 million, or 28.1%, driven by lower upfitting sales due to product mix, higher interest rates impacting industry dealers and consumers, and higher inventory levels at dealerships. Aftermarket Applications Group adjusted EBITDA decreased by $67.6 million, or 63.8%, mainly due to lower gross profit. Specialty Sports Group Specialty Sports Group net sales increased by $90.8 million, or 30.7%, primarily due to the inclusion of $150.8 million in net sales from Marucci, partially offset by a reduction in bike sales of $60.0 million because of the ongoing bike channel inventory recalibration and, to a lesser extent, lower end consumer demand. Specialty Sports Group adjusted EBITDA decreased by $5.9 million, or 6.2%, primarily due to a decline in gross profit driven by reduced operating leverage on lower volume, offset by the inclusion of Marucci which grew year over year. Unallocated corporate expenses Unallocated corporate expenses decreased by $5.0 million, or 10.6%, driven by cost containment measures. 37 Table of Contents 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 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 Part II, Item 1A. Risk Factors . As of September 27, 2024, we held $31.0 million of our $89.2 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 27, 2024 September 29, 2023 Net cash provided by operating activities $ 50.1 $ 126.7 Net cash used in investing activities (42.5) (165.4) Net cash used in financing activities (1.7) (16.2) Effect of exchange rate changes on cash and cash equivalents (0.4) 0.3 Change in cash and cash equivalents $ 5.6 $ (54.6) *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 Form 10-Q and beyond. Operating activities In the nine months ended September 27, 2024, net cash provided by operating activities was $50.1 million. Our investment in operating assets and liabilities is a result of an increase in inventory of $29.0 million, a decrease in income taxes payable of $25.3 million, and an increase in accounts receivable of $21.8 million, partially offset by an increase in accounts payable of $24.2 million, an increase in accrued expenses and other liabilities of $11.3 million, and a decrease in prepaids and other assets of $9.9 million. The decrease in income taxes payable is mainly due to lower income tax expense and our income tax payments. The increase in inventory is mainly due to timing and some seasonal inventory. The change in our accounts receivable reflects an increase in our sales and the timing of customer collections. The decrease in prepaids and other assets is primarily due to lower chassis deposits as we worked to sell through model year 2024. The increase in accrued expenses and other liabilities is mainly due to additional leases. The change in our accounts payable is driven by timing of inventory purchases and vendor payments. 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 $53.5 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$7.3 million, partially offset by decreases in accounts receivable of $53.3 million and inventory of $20.4 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. The decrease in inventory reflects our continued efforts to optimize inventory levels. Investing activities In the nine months ended September 27, 2024 and September 29, 2023, net cash used in investing activities consisted of $42.5 million and $165.4 million, respectively. Investing activities for the nine months ended September 27, 2024 consisted of $32.1 million of property and equipment additions, $5.3 million of cash consideration for our acquisition of other assets, and $5.0 million of cash consideration for our acquisitions. 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. 38 Table of Contents Financing activities In the nine months ended September 27, 2024, net cash used in financing activities was $1.7 million, and consisted of the proceeds from our 2022 Credit Facility revolver of $169.0 million and draw from the Delayed Draw Term Loan of $200.0 million that were used to support our working capital, offset by payments of $329.0 million to reduce the revolver borrowings, $13.2 million repayments on our term loans, $25.0 million to repurchase shares of our common stock for retirement, and payments of $2.6 million to repurchase shares of our common stock to cover withholding taxes from our stock-based compensation program. 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. 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”). 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. On April 5, 2022, the Company borrowed $475.0 million under the 2022 Credit Facility, which was used to repay all outstanding amounts owed under the Prior Credit Facility and for general corporate purposes. Future advances under the 2022 Credit Facility will be used to finance working capital, capital expenditures and other general corporate purposes of the Company. To the extent not previously paid, all then-outstanding amounts under the 2022 Credit Facility are due and payable on the maturity date. 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. The Company expensed $1.9 million of the remaining unamortized debt issuance costs and allocated $2.5 million to the 2022 Credit Facility. The Company may borrow, prepay and re-borrow principal under the 2022 Credit Facility during its term. Advances under the 2022 Credit Facility can be either Adjusted Term SOFR loans or base rate loans. SOFR rate revolving loans bear interest on the outstanding principal amount thereof for each interest period at a rate per annum equal to Term SOFR for such calculation plus 0.10% plus a margin ranging from 1.00% to 2.00%. Base rate revolving loans bear interest on the outstanding principal amount thereof at a rate per annum equal to the highest of (i) Federal Funds Rate plus 0.50%, (ii) the rate of interest in effect for such day as publicly announced from time to time by the lender as its “prime rate”, and (iii) Adjusted Term SOFR rate for a one-month tenor plus 1.00%, subject to the interest rate floors set forth therein, plus a margin ranging from 0.00% to 1.00%. At September 27, 2024, the one-month SOFR and three-month SOFR rates were 5.21% and 5.33%, respectively. At September 27, 2024, our weighted-average interest rate on outstanding borrowing was 6.30%. 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 was 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. On May 13, 2024, the Company borrowed the full amount of $200,000 of the Delayed Draw Term Loan. The fees were reclassified to a contra-liability account and amortized over the term of the drawn debt using the interest method. 39 Table of Contents On July 31, 2024, the Company entered into the Third Amendment to the Credit Facility to secure an improved covenant profile on its capital structure to provide more flexibility given the uncertain macro environment. The Company continues to work on gaining further flexibility. 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 27, 2024. Material Cash Requirements There have been no material changes to the information in our material cash requirements related to commitments or contractual obligations from those reported in our Annual Report on Form 10-K for the fiscal year ended December 29, 2023, as filed with the SEC on February 23, 2024. Inflation 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 have and could continue to have an adverse impact on our business, financial condition and results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes to the disclosures discussed in the section “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 29, 2023, as filed with the SEC on February 23, 2024.