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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 001-36040
Fox Factory Holding Corp.
(Exact name of registrant as specified in its charter)
Delaware26-1647258
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
2055 Sugarloaf Circle, Suite 300, Duluth GA 30097
(Address of principal executive offices) (Zip Code)
(831) 274-6500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per shareFOXFThe NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerEmerging growth company
Non-accelerated filerSmaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of April 29, 2022, there were 42,148,734 shares of the registrant’s common stock outstanding.

1


Fox Factory Holding Corp.
FORM 10-Q
Table of Contents
 
Page 
Unaudited Condensed Consolidated Balance Sheets as of April 1, 2022 and December 31, 2021
Unaudited Condensed Consolidated Statements of Income for the Three Months Ended April 1, 2022 and April 2, 2021
Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended April 1, 2022 and April 2, 2021
Unaudited Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended April 1, 2022 and April 2, 2021
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 1, 2022 and April 2, 2021
Notes to Unaudited Condensed Consolidated Financial Statements

2

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOX FACTORY HOLDING CORP.
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
As of As of
April 1,December 31,
20222021
(unaudited) 
Assets
Current assets:
Cash and cash equivalents$68,773 $179,686 
Accounts receivable (net of allowances of $512 and $410 at April 1, 2022 and December 31, 2021, respectively)
177,858 142,040 
Inventory314,971 279,837 
Prepaids and other current assets293,927 123,107 
Total current assets855,529 724,670 
Property, plant and equipment, net193,609 192,003 
Lease right-of-use assets44,122 38,752 
Deferred tax assets43,351 34,998 
Goodwill323,283 323,299 
Intangibles, net191,716 197,021 
Other assets12,405 4,986 
Total assets$1,664,015 $1,515,729 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$157,015 $99,984 
Accrued expenses103,792 112,378 
Current portion of long-term debt20,000 17,500 
Total current liabilities280,807 229,862 
Line of credit42,852  
Long-term debt, less current portion356,288 360,953 
Other liabilities34,984 30,832 
Total liabilities714,931 621,647 
Commitments and contingencies (Refer to Note 9 - Commitments and Contingencies)
Stockholders’ equity
Preferred stock, $0.001 par value — 10,000 authorized and no shares issued or outstanding as of April 1, 2022 and December 31, 2021
  
Common stock, $0.001 par value — 90,000 authorized; 43,039 shares issued and 42,149 outstanding as of April 1, 2022; 43,010 shares issued and 42,120 outstanding as of December 31, 2021
42 42 
Additional paid-in capital346,328 344,119 
Treasury stock, at cost; 890 common shares as of April 1, 2022 and December 31, 2021
(13,754)(13,754)
Accumulated other comprehensive income9,619 4,876 
Retained earnings606,849 558,799 
Total stockholders’ equity949,084 894,082 
Total liabilities and stockholders’ equity$1,664,015 $1,515,729 
The accompanying notes are an integral part of these condensed consolidated financial statements.

3

FOX FACTORY HOLDING CORP.
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited) 
For the three months ended
April 1,April 2,
20222021
Sales$377,977 $281,136 
Cost of sales257,717 183,212 
Gross profit120,260 97,924 
Operating expenses:
Sales and marketing22,589 16,858 
Research and development12,642 9,876 
General and administrative25,567 20,369 
Amortization of purchased intangibles5,307 4,965 
Total operating expenses66,105 52,068 
Income from operations54,155 45,856 
Interest and other expense, net:
Interest expense1,977 2,904 
Other expense, net1,692 959 
Interest and other expense, net3,669 3,863 
Income before income taxes50,486 41,993 
Provision for income taxes2,436 4,007 
Net income$48,050 $37,986 
Earnings per share:
Basic$1.14 $0.91 
Diluted$1.13 $0.90 
Weighted-average shares used to compute earnings per share:
Basic42,144 41,851 
Diluted42,381 42,343 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4

FOX FACTORY HOLDING CORP.
Condensed Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited) 
For the three months ended
April 1,April 2,
20222021
Net income$48,050 $37,986 
Other comprehensive income
Interest rate swap, net of tax effects5,811 2,145 
Foreign currency translation adjustments, net of tax effects(1,068)(524)
Other comprehensive income4,743 1,621 
Comprehensive income$52,793 $39,607 
The accompanying notes are an integral part of these condensed consolidated financial statements.

5

FOX FACTORY HOLDING CORP.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands)
(unaudited)
Common StockTreasuryAdditional paid-in capitalAccumulated other comprehensive incomeRetained earningsTotal stockholders' equity
SharesAmountSharesAmount
Balance - January 1, 202142,692 $42 890 $(13,754)$336,834 $1,068 $394,981 $719,171 
Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding162 — — — 598 — — 598 
Stock-based compensation expense— — — — 2,915 — — 2,915 
Other comprehensive income— — — — — 1,621 — 1,621 
Net income— — — — — — 37,986 37,986 
Balance - April 2, 202142,854 $42 890 $(13,754)$340,347 $2,689 $432,967 $762,291 



FOX FACTORY HOLDING CORP.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands)
(unaudited)
Common StockTreasuryAdditional paid-in capitalAccumulated other comprehensive incomeRetained earningsTotal stockholders' equity
SharesAmountSharesAmount
Balance - December 31, 202143,010 $42 890 $(13,754)$344,119 $4,876 $558,799 $894,082 
Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding29 — — — (820)— — (820)
Stock-based compensation expense— — — — 3,029 — — 3,029 
Other comprehensive income— — — — — 4,743 — 4,743 
Net income— — — — — — 48,050 48,050 
Balance - April 1, 202243,039 $42 890 $(13,754)$346,328 $9,619 $606,849 $949,084 
The accompanying notes are an integral part of these condensed consolidated statements.


6

FOX FACTORY HOLDING CORP.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
For the three months ended
April 1, 2022April 2, 2021
OPERATING ACTIVITIES:
Net income$48,050 $37,986 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization11,897 10,069 
Stock-based compensation3,029 2,494 
Deferred taxes and uncertain tax positions(10,083)(438)
Amortization of loan fees402 411 
Changes in operating assets and liabilities:
Accounts receivable(37,781)(16,536)
Inventory(37,467)(40,074)
Income taxes(4,982)2,288 
Prepaids and other assets(171,307)33,263 
Accounts payable58,639 33,653 
Accrued expenses and other liabilities(3,521)2,912 
Net cash (used in) provided by operating activities(143,124)66,028 
INVESTING ACTIVITIES:
Purchases of property and equipment(8,191)(16,885)
Net cash used in investing activities(8,191)(16,885)
FINANCING ACTIVITIES:
Proceeds from line of credit109,336 8,480 
Payments on line of credit(66,484)(8,480)
Repayment of debt(2,500)(2,500)
Installment on purchase of non-controlling interest(900)(1,850)
(Repurchases) proceeds from stock compensation program, net (820)598 
Net cash provided by (used in) financing activities38,632 (3,752)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS1,770 316 
CHANGE IN CASH AND CASH EQUIVALENTS(110,913)45,707 
CASH AND CASH EQUIVALENTS—Beginning of period179,686 245,764 
CASH AND CASH EQUIVALENTS—End of period$68,773 $291,471 


7

FOX FACTORY HOLDING CORP.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
For the three months ended
SUPPLEMENTAL CASH FLOW INFORMATION:April 1, 2022April 2, 2021
Cash paid during the period for:
Income taxes$17,441 $2,048 
Cash paid for interest, net of capitalized interest$1,619 $2,422 
Cash paid for amounts included in the measurement of lease liabilities$2,713 $1,994 
Non-cash operating activities:
Right-of-use assets obtained in exchange for lease obligations$7,619 $1,160 
Non-cash investing and financing activities:
Capital expenditures included in accounts payable$4,406 $3,633 
The accompanying notes are an integral part of these condensed consolidated financial statements.

8

FOX FACTORY HOLDING CORP.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share amounts)
(unaudited)
1. Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies - Fox Factory Holding Corp. (the "Company") designs, engineers, manufactures, and markets performance-defining products and systems for customers worldwide. Our premium brand, performance-defining products and systems are used primarily for bicycles ("bikes"), side-by-side vehicles ("Side-by-Sides"), on-road vehicles with and without off-road capabilities, off-road vehicles and trucks, all-terrain vehicles ("ATVs"), snowmobiles, specialty vehicles and applications, motorcycles and commercial trucks. Some of our products are specifically designed and marketed to the leading cycling and powered vehicle original equipment manufacturers ("OEMs"), while others are distributed to consumers through a global network of dealers and distributors.
Throughout this Form 10-Q, unless stated otherwise or as the context otherwise requires, the "Company," "FOX," "Fox Factory," "we," "us," "our," and "ours" refer to Fox Factory Holding Corp. and its operating subsidiaries on a consolidated basis.
Basis of Presentation - The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted (“GAAP”) in the United States of America ("U.S." or "United States") and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 24, 2022. In management’s opinion, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, that are necessary for a fair presentation of financial results for the interim periods presented. Operating results for any quarter are not necessarily indicative of the results for the full fiscal year.
Fiscal Year Calendar - The Company operates on a 52-53 week fiscal year calendar. For 2022 and 2021, the Company's fiscal year will end or has ended on December 30, 2022 and December 31, 2021, respectively. The twelve month periods ended December 30, 2022 and December 31, 2021, will include or have included 52 weeks. The three month periods ended April 1, 2022 and April 2, 2021 each included 13 weeks.
Principles of Consolidation - These condensed consolidated financial statements include the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Summary of Significant Accounting Policies - There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 24, 2022 that have had a material impact on our condensed consolidated financial statements and related notes.
Revenue Recognition - Revenues are generated from the sale of performance-defining products and systems to customers worldwide. The Company’s performance-defining products and systems are solutions that improve performance of powered vehicles and bikes. Powered vehicles include Side-by-Sides, on-road vehicles with off-road capabilities, off-road vehicles and trucks, ATVs, snowmobiles, specialty vehicles and applications, and motorcycles.
Revenue is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to a customer, generally at the time of shipment. Contracts are generally in the form of purchase orders and are governed by standard terms and conditions. For larger OEMs, the Company may also enter into master agreements. Sales tax and other similar taxes are excluded from revenues.
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. Certain pricing provisions that provide the customer with future discounts are considered a material right. Such material rights result in the deferral of revenues 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.

9

FOX FACTORY HOLDING CORP.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share amounts)
(unaudited)
Segments - The Company has determined that it has a single operating and reportable segment: manufacturing, sale and service of performance-defining products. The Company considers operating segments to be components of the Company in which separate financial information is available that is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance. The chief operating decision maker for the Company is the Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance.
Use of Estimates - The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ from management’s estimates.
Certain Significant Risks and Uncertainties - The Company is subject to those risks common in manufacturing-driven markets, including, but not limited to, competitive forces, dependence on key personnel, customer demand for its products, the successful protection of its proprietary technologies, compliance with government regulations, and the possibility of not being able to obtain additional financing when needed. Additionally, the Company has been impacted by the ongoing coronavirus (“COVID-19”) pandemic. The global outbreak of COVID-19 has negatively affected the U.S. and global economy, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place,” and created significant disruption of the financial markets. Despite the Company’s efforts to manage and remedy these impacts to the Company, the ultimate impact and the extent to which the COVID-19 pandemic will continue to affect the business, results of operation and financial condition is difficult to predict and depends on numerous evolving factors outside of the Company’s control, including: the duration and scope of the COVID-19 pandemic; government, social, business and other actions that have been and will be taken in response to the COVID-19 pandemic; increases in COVID-19 case counts; any additional waves of the virus, availability and ultimate efficacy of the vaccine on the new variants of the virus, including the Omicron variant; and the effect of the COVID-19 pandemic on short- and long-term general economic conditions.
Furthermore, during the first quarter of 2022, Russia commenced a military invasion of Ukraine, and the ensuing conflict has created disruption in the region and around the world. In addition, in response to this invasion, the United States and several European and Asian countries instated sanctions against Russia. The impact of the Russia invasion of Ukraine on the global economy, energy supplies and raw materials is uncertain but may prove to negatively impact the Company’s business and operations.
Fair Value Measurements and Financial Instruments - The Financial Accounting Standards Board ("FASB") has issued Accounting Standards Codification ("ASC") 820, Fair Value Measurements and Disclosures, that requires the valuation of assets and liabilities required or permitted to be either recorded or disclosed at fair value based on hierarchy of available inputs as follows:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The carrying amounts of the Company's financial instruments, including cash, receivables, accounts payable, and accrued liabilities approximate their fair values due to their short-term nature. Amounts owed under the Company's Prior Credit Facility (as defined in Note 8 - Debt below) approximate fair value due to the variable interest rate features embedded in both the line of credit and the term debt.

10

FOX FACTORY HOLDING CORP.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share amounts)
(unaudited)
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 2019-12 did not have a material impact on the Company's condensed 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. ASU 2020-10 amends the Codification to include this language in the appropriate disclosure section. 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 condensed 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.

2. Revenues
The following table summarizes total sales by product category:
For the three months ended
April 1, 2022April 2, 2021
Powered Vehicles$208,107 $162,747 
Specialty Sports169,870 118,389 
Total sales$377,977 $281,136 

The following table summarizes total sales by sales channel:
For the three months ended
April 1, 2022April 2, 2021
OEM $201,265 $151,480 
Aftermarket176,712 129,656 
Total sales$377,977 $281,136 


11

FOX FACTORY HOLDING CORP.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share amounts)
(unaudited)
The following table summarizes total sales generated by geographic location of the customer:
For the three months ended
April 1, 2022April 2, 2021
North America$233,959 $180,483 
Asia60,017 51,856 
Europe78,534 45,739 
Rest of the world5,467 3,058 
Total sales$377,977 $281,136 

3. Inventory
Inventory consisted of the following:
April 1,December 31,
20222021
Raw materials$227,391 $200,460 
Work-in-process10,584 7,539 
Finished goods76,996 71,838 
Total inventory$314,971 $279,837 

4. Prepaids and Other Current Assets
Prepaids and other current assets consisted of the following:
April 1,December 31,
20222021
Prepaid chassis deposits$262,029 $98,618 
Advanced payments and prepaid contracts18,724 14,024 
Other current assets13,174 10,465 
Total$293,927 $123,107 


12

FOX FACTORY HOLDING CORP.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share amounts)
(unaudited)
5. Property, Plant and Equipment, net
Property, plant and equipment, net consisted of the following:
April 1,December 31,
20222021
Building and building improvements$72,639 $72,088 
Information systems, office equipment and furniture19,920 20,988 
Internal-use computer software26,817 25,700 
Land and land improvements15,492 15,663 
Leasehold improvements17,564 22,835 
Machinery and manufacturing equipment111,693 106,628 
Transportation equipment8,121 7,372 
Total272,246 271,274 
Less: accumulated depreciation and amortization(78,637)(79,271)
Property, plant and equipment, net$193,609 $192,003 
The Company’s long-lived assets by geographic location are as follows:
April 1,December 31,
20222021
United States$162,126 $161,451 
International31,483 30,552 
Total long-lived assets$193,609 $192,003 


13

FOX FACTORY HOLDING CORP.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share amounts)
(unaudited)
6. Leases
The Company has operating lease agreements for administrative, research and development, manufacturing, and sales and marketing facilities. These leases have remaining lease terms ranging from one to nine years, some of which include options to extend the lease term for up to five years, and some of which include options to terminate the leases within one year. Certain leases are subject to annual escalations as specified in the lease agreements. The Company considered these options in determining the lease term used to establish its right-of-use assets and lease liabilities. These lease agreements do not contain any material residual value guarantees or material restrictive covenants.
As most of the Company's leases do not provide an interest rate, the Company used the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The weighted-average remaining lease term for the Company's operating leases was 5.16 years and the weighted-average incremental borrowing rate was 2.11% as of April 1, 2022.
Operating lease costs consisted of the following:
For the three months ended
April 1, 2022April 2, 2021
Operating lease cost$2,823 $2,070 
Other lease costs (1)718 225 
Total$3,541 $2,295 
(1) Includes short-term leases and variable lease costs. The Company elected a policy exclusion permitting leases with an original lease term of less than one year to be excluded from the right-of-use assets and lease liabilities.
Supplemental balance sheet information related to the Company's operating leases is as follows:
Balance Sheet ClassificationApril 1, 2022
Operating lease right-of-use assetsLease right-of-use assets$44,122 
Current lease liabilitiesAccrued expenses$9,789 
Non-current lease liabilitiesOther liabilities$33,071 
Maturities of lease liabilities by fiscal year for the Company's operating leases are as follows:
For fiscal yearTotal future payments
2022 (remaining nine months)$7,972 
202310,095 
20248,888 
20256,627 
20264,832 
Thereafter6,760 
Total lease payments45,174 
Less: imputed interest(2,314)
Present value of lease liabilities42,860 
Less: current portion(9,789)
Lease liabilities less current portion$33,071 


14

FOX FACTORY HOLDING CORP.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share amounts)
(unaudited)
7. Accrued Expenses
Accrued expenses consisted of the following:
April 1,December 31,
20222021
Payroll and related expenses$21,659 $32,968 
Current portion of lease liabilities9,789 9,095 
Warranty15,993 15,510 
Income tax payable29,403 34,845 
Accrued sales rebate11,307 8,568 
Current portion of non-controlling interest buyout liability1,800 2,700 
Other accrued expenses13,841 8,692 
Total$103,792 $112,378 
Activity related to warranties is as follows:
For the three months ended
April 1, 2022April 2, 2021
Beginning warranty liability$15,510 $9,835 
Charge to cost of sales3,127 3,261 
Costs incurred(2,644)(1,575)
Ending warranty liability$15,993 $11,521 

8. Debt
Prior Credit Facility
In June 2019, the Company entered into a credit facility with Bank of America and other named lenders, which was periodically amended and restated and/or amended. The credit facility was amended and restated on March 11, 2020, and further amended on June 19, 2020, and June 11, 2021 (as amended to date, the "Prior Credit Facility"). The Prior Credit Facility (which was terminated on April 5, 2022 and replaced with the 2022 Credit Facility (as discussed below)), would have matured on March 11, 2025, and provided a senior secured revolving line of credit with a borrowing capacity of $250,000 and a term loan of $400,000. The term loan was subject to quarterly amortization payments.
The Company paid $7,615 in debt issuance costs, of which $6,458 were allocated to the term debt and $1,157 were allocated to the line of credit. Additionally, the Company had $434 of remaining unamortized debt issuance costs. The Company expensed $277 of the remaining unamortized debt issuance costs. The remaining $157 were allocated to the line of credit. Loan fees allocated to the term debt were amortized using the interest method and loan fees allocated to the line of credit were amortized on a straight-line basis over the term of the Prior Credit Facility.
The Prior Credit Facility provided for interest at a rate either based on the London Interbank Offered Rate ("LIBOR"), plus a margin ranging from 1.00% to 2.25%, with a floor rate of 0.00%, or based on the base rate offered by Bank of America plus a margin ranging from 0.00% to 1.25%. At April 1, 2022, the one-month LIBOR and prime rates were 0.44% and 3.50%, respectively. At April 1, 2022, our weighted-average interest rate on outstanding borrowing was 1.68%. The Prior Credit Facility was secured by substantially all of the Company’s assets, restricted the Company's ability to make certain payments and engage in certain transactions, and required that the Company satisfy customary financial ratios. The Company was in compliance with the covenants as of April 1, 2022.
The Prior Credit Facility permitted up to $25,000 of the aggregate revolving commitment to be used by the Company for issuance of letters of credit, of which $15,000 was outstanding at April 1, 2022.

15

FOX FACTORY HOLDING CORP.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share amounts)
(unaudited)
The following table summarizes the line of credit under the Prior Credit Facility:
April 1,December 31,
20222021
Amount outstanding$42,852 $ 
Standby letters of credit15,000 $15,000 
Available borrowing capacity192,148 $235,000 
Total borrowing capacity$250,000 $250,000 
Maturity dateMarch 11, 2025
In June 2021, the Company entered into a swap agreement (the "2021 Swap Agreement") to obtain a more favorable interest rate and to manage interest rate risk exposure. On April 5, 2022, the Company terminated its 2021 Swap Agreement and entered into a new interest rate swap agreement (the "2022 Swap Agreement"). Through the 2022 Swap Agreement, the Company hedges the variability of cash flows in interest payments associated with $100,000 of its variable rate debt. Refer to Note 16 - Subsequent Events for further details of this agreement.
As of April 1, 2022, future principal payments for long-term debt, including the current portion, are summarized as follows:
April 1,
2022
For fiscal year
2022 (remaining nine months)$15,000 
202320,000 
202420,000 
2025325,000 
Total380,000 
Debt issuance cost(3,712)
Long-term debt, net of issuance cost376,288 
Less: current portion(20,000)
Long-term debt less current portion$356,288 
2022 Credit Facility
On April 5, 2022, the Company entered into the a new credit agreement with Wells Fargo Bank, National Association, and other named lenders (the "2022 Credit Facility"), and concurrently repaid in full and terminated the Prior Credit Facility. The 2022 Credit Facility, which matures on April 5, 2027, provides for revolving loans, swingline loans and letters of credit up to an aggregate amount of $650,000. Refer to Note 16 - Subsequent Events for further details of the 2022 Credit Facility.


16

FOX FACTORY HOLDING CORP.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share amounts)
(unaudited)
9. Commitments and Contingencies
Indemnification Agreements - In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company or intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. While the outcome of these matters cannot be predicted with certainty, the Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on the Company’s results of operations, financial position or liquidity.
Legal Proceedings - From time to time, the Company is involved in legal proceedings that arise in the ordinary course of business. Although the Company cannot assure the outcome of any such legal proceedings, based on information currently available, management does not believe that the ultimate resolution of any pending matters will have a material adverse effect on the Company's financial condition, results of operations or cash flows.
Other Commitments - On November 30, 2017, the Company through FF US Holding Corp., acquired the assets of Flagship, Inc. d/b/a Tuscany and issued a 20% interest in FF US Holding Corp. to Flagship, Inc. A stockholders' agreement with Flagship, Inc. provided the Company with a call option (the "Call Option") to acquire the remaining 20% of FF US Holding Corp. at any time from November 30, 2019 through November 30, 2024 at a value that approximates fair market value. On July 22, 2020, the Company exercised the Call Option and, pursuant to a stock purchase agreement with Flagship, Inc., the Company purchased the remaining 20% interest for $24,975 payable in a combination of stock and cash. The cash portion has been or will be settled in quarterly installment payments beginning in July 2020 through July 2022, which amount to $6,556, $4,550 and $2,700 in 2020, 2021 and 2022, respectively. The Company paid $900 and $1,850 during the three months ended April 1, 2022 and April 2, 2021, respectively. The Company had a remaining liability of $1,800 as of April 1, 2022. The stock portion of 136 shares held in escrow has been or will be released quarterly starting January 2021 through July 2022. The Company released 19 shares of stock during each of the three months ended April 1, 2022 and April 2, 2021. The exercise of the Call Option effectively canceled the put option held by Flagship, Inc.
Other Contingencies - On June 21, 2018, the U.S. Supreme Court (the “Court”) decided South Dakota v. Wayfair, Inc., et al., holding that internet retailers do not have to maintain a physical presence in a state in order to be required to collect the state’s sales and use tax. As a result of the Court’s decision, most states enacted legislation to require sellers who meet economic nexus thresholds to register, collect and remit sales and use taxes on transactions with out-of-state customers. The Company believes that it is possible that it will incur a liability for uncollected sales tax on some portion of its e-commerce sales through April 1, 2022. Based on information currently available, any retroactively imposed liability is not expected to be material to the Company’s results of operations or financial position because direct end-user sales in states where the Company is not registered comprise a small portion of total revenues.


17

FOX FACTORY HOLDING CORP.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share amounts)
(unaudited)
10. Derivatives and Hedging
The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is interest rate risk. The Company utilizes interest rate swaps to limit its exposure to interest rate risk by converting a portion of its floating-rate debt to a fixed-rate basis, thus reducing the impact of interest rate changes on future interest expense. Interest rate swaps involve the receipt of floating-rate amounts in exchange for fixed-rate interest payments based on the one-month LIBOR over the lives of the agreements without an exchange of the underlying principal amounts.
As of April 1, 2022 and December 31, 2021, the Company had the following interest rate swap contracts:
April 1, 2022December 31, 2021
Effective DateTermination DateNotional AmountUnrealized Gain in AOCIUnrealized Gain in AOCI
September 2, 2020June 11, 2021$200,000$254 $276 
July 2, 2021March 11, 2025$200,00011,068 3,583 
Total $11,322 $3,859 
On June 11, 2021, the Company terminated its existing swap agreement and entered into an interest rate swap agreement (the "2021 Swap Agreement") with a notional amount of $200,000. The terminated swap resulted in an unrealized gain of $324 at the termination date that will continue to be accounted for in accumulated other comprehensive income and amortized into earnings over the term of the associated debt instrument.
The 2021 Swap Agreement has a maturity date of March 11, 2025 and is indexed to a one-month LIBOR with a fixed leg of 0.50%. The Interest Rate Swap met the criteria for cash flow hedges under ASC 815, Derivatives and Hedging ("ASC 815"), and is recorded in other assets on the Condensed Consolidated Balance Sheet. Refer to Note 11 - Fair Value Measurements and Financial Instruments for additional information on determining the fair value. The unrealized gains or losses, after tax, are recorded in accumulated other comprehensive income, a component of equity, and are expected to be reclassified into interest expense on the Condensed Consolidated Statement of Income when the forecasted transactions affect earnings. As required under ASC 815, the Interest Rate Swap’s effectiveness will be assessed on a quarterly basis using a quantitative regression analysis.
The gains and losses, net of tax, related to the effective portion of derivative instruments designated as cash flow hedges recognized in accumulated other comprehensive income for the three months ended April 1, 2022 and April 2, 2021 were a gain of $5,811 and $2,145, respectively.
Unrealized gain of $4,203 included in accumulated other comprehensive income related to the Interest Rate Swap are expected to be recognized in interest expense over the next twelve months.
2022 Swap Agreement
On April 5, 2022, the Company terminated its 2021 Swap Agreement and entered into a new 2022 Swap Agreement with a notional amount of $100,000. Refer to Note 16 - Subsequent Events for further details of the 2022 Swap Agreement.

18

FOX FACTORY HOLDING CORP.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share amounts)
(unaudited)
11. Fair Value Measurements and Financial Instruments
The following table presents the Company's hierarchy for its assets and liabilities measured at fair value on a recurring basis as of the following periods:
April 1, 2022December 31, 2021
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets:
Interest Rate Swap$ $11,068 $ $11,068 $ $3,583 $ $3,583 
Total assets measured at fair value$ $11,068 $ $11,068 $ $3,583 $ $3,583 
Liabilities:
Prior Credit Facility$ $419,140 $ $419,140 $ $378,453 $ $378,453 
Total liabilities measured at fair value$ $419,140 $ $419,140 $ $378,453 $ $378,453 
There were no transfers of assets or liabilities between Level 1, Level 2, and Level 3 categories of the fair value hierarchy during the three month period ended April 1, 2022.
The Company used Level 2 inputs to determine the fair value of the Prior Credit Facility. The Company believes the carrying amount of the Prior Credit Facility approximates the fair value at April 1, 2022 because, while subject to a minimum LIBOR floor rate, the interest rate approximates current market rates of debt with similar terms and comparable credit risk.
On June 11, 2021, the Company entered into the 2021 Swap Agreement to mitigate the cash flow risk associated with changes in interest rates on its variable rate debt. Refer to Note 10 - Derivatives and Hedging for additional details of the agreement. In accordance with ASC 815, an interest rate swap contract is recognized as an asset or liability on the Condensed Consolidated Balance Sheets and is measured at fair value. The fair value was calculated utilizing Level 2 inputs.


19

FOX FACTORY HOLDING CORP.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share amounts)
(unaudited)
12. Stockholders' Equity
Equity Incentive Plans
The following table summarizes the allocation of stock-based compensation in the accompanying Condensed Consolidated Statements of Income:
For the three months ended
April 1, 2022April 2, 2021
Cost of sales$178 $121 
Sales and marketing226 152 
Research and development228 187 
General and administrative2,397 2,034 
Total$3,029 $2,494 
As of January 1, 2021, $421 of stock-based compensation expense related to our executive bonus plan is included in Accrued Expenses on the Condensed Consolidated Balance Sheets. This amount was recognized as additional paid in capital during the three months ended April 2, 2021 upon the issuance of the underlying restricted stock units ("RSUs").
The following table summarizes the activity for the Company's unvested RSUs for the three months ended April 1, 2022:
Unvested RSUs
Number of shares outstandingWeighted-average grant date fair value
Unvested at December 31, 2021338 $76.30 
Granted41 $120.90 
Canceled(4)$83.07 
Vested(35)$96.49 
Unvested at April 1, 2022340 $79.57 
As of April 1, 2022, the Company had approximately $19,408 of unrecognized stock-based compensation expense related to RSUs, which will be recognized over the remaining weighted-average vesting period of approximately 2.15 years.

20

FOX FACTORY HOLDING CORP.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share amounts)
(unaudited)
During the three months ended April 1, 2022, the Company issued performance share units (“PSUs”) to certain executives that represent shares potentially issuable in the future. Issuance is based upon the Company's performance, over a 2-3 year performance period, on certain measures including return on invested capital and free cash flow. The PSUs vest only upon the achievement of the applicable performance goals for the performance period, and, depending on the actual achievement on the performance goals, the grantee may earn between 0% and 200% of the target PSUs. The fair value of PSUs is calculated based on the stock price on the date of grant.
The following table summarizes the activity for the Company's unvested PSUs for the three months ended April 1, 2022:
Unvested PSUs
Number of shares outstandingWeighted-average grant date fair value
Unvested at December 31, 202129 $141.46 
Granted37 $120.90 
Unvested at April 1, 202266 $129.94 
The stock-based compensation expense recognized each period is dependent upon our estimate of the number of shares that will ultimately vest based on the achievement of certain performance conditions. Future stock-based compensation expense for unvested performance-based awards could reach a maximum of $14,741 assuming achievement at the maximum level. The unrecognized stock-based compensation expense is expected to be recognized over a weighted average period of 2.21 years.
For the three months ended April 1, 2022, the Company had 3 unvested RSUs and PSUs outstanding which were excluded from the calculation of dilutive earnings per share because the effect would be anti-dilutive.
During the three months ended April 1, 2022, no shares of common stock were issued due to the exercise of stock options and no options to purchase common stock expired or were forfeited. As of April 1, 2022, stock-based compensation expense related to stock options has been fully recognized.

13. Income Taxes
For the three months ended
April 1, 2022April 2, 2021
Provision for income taxes$2,436 $4,007 
Effective tax rates4.8 %9.5 %
For the three months ended April 1, 2022, the difference between the Company's effective tax rate of 4.8% 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. 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. This benefit was partially offset by state taxes and other nondeductible expenses.
For the three months ended April 2, 2021, the difference between the Company's effective tax rate of 9.5% and the 21% federal statutory rate resulted primarily from windfall on stock-based compensation, the recognition of uncertain tax positions due to the conclusion of an audit and a lower tax rate on foreign-derived intangible income. These benefits were partially offset by an increase in the valuation allowance for foreign tax credits, state taxes and nondeductible expenses.
We do not expect the results from any ongoing income tax audits to have a material impact on our consolidated financial condition, results of operations, or cash flows.


21

FOX FACTORY HOLDING CORP.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share amounts)
(unaudited)
14. Related Party Transactions
On March 11, 2020, the Company acquired 100% of the issued and outstanding stock of SCA Performance Holdings, Inc. ("SCA"). The Company has transactions with an automotive dealership owned by a former owner of SCA, who is now an employee of the Company. The Company purchased approximately $281 and $202 of parts and vehicles and sold approximately $457 and $120 of upfit packages to the dealership during the three months ended April 1, 2022 and April 2, 2021, respectively. As of April 1, 2022, the Company had $17 and $85 in accounts payable and accounts receivable, respectively, related to this dealership. As of April 2, 2021, the Company had $27 and $88 in accounts payable and accounts receivable, respectively, related to this dealership.
On July 22, 2020 the Company, pursuant to a stock purchase agreement with Flagship, Inc., purchased the remaining 20% interest of FF US Holding Corp. for $24,975 payable in a combination of stock and cash. The cash portion will be settled in quarterly installment payments through July 2022. Refer to Note 9 - Commitments and Contingencies for additional details of this agreement.

15. Acquisitions
On May 21, 2021, the Company, through its wholly owned subsidiary, Fox Factory Australia Pty Ltd., acquired substantially all the assets of Sola Sport Pty Ltd. for $486. The acquisition was not material to the Company's financial statements.
On May 25, 2021, the Company, through its wholly owned subsidiary, SCA Performance, Inc., acquired 100% of the issued and outstanding stock of Manifest Joy LLC, d/b/a Outside Van ("Outside Van") a custom van conversion company. The total purchase price of $15,275, net of cash acquired, was allocated to the assets acquired and liabilities assumed based on their estimated respective fair values as of May 25, 2021, with the excess purchase price allocated to goodwill. The purchase price was allocated to the net liabilities assumed of $1,057, $5,560 in identifiable intangible assets and goodwill acquired of $10,772. The Company will amortize the acquired customer relationship and trade name assets over their expected useful lives of one and ten years, respectively. This purchase was accounted for as a business combination and was not material to the Company's financial statements.
On December 30, 2021, the Company, through its wholly owned subsidiary, Shock Therapy Suspension, Inc., acquired substantially all the assets of Shock Therapy LLC ("STS"), for $36,120, net of cash acquired. STS is a premier suspension tuning company in the off-road industry, with headquarters in Phoenix, Arizona. This purchase was accounted for as a business combination. The purchase price of STS is allocated to the assets acquired and liabilities assumed based on their estimated respective fair values as of December 30, 2021, with the excess purchase price allocated to goodwill.
The allocation of the purchase price to the net assets assumed of $5,244, $7,086 in identifiable intangible assets and goodwill acquired of $23,790, is preliminary and subject to the completion of the Company's validation of working capital, valuation of intangible assets and deferred taxes, with the assistance of specialists. The Company will amortize the acquired non-compete and trade name assets over their expected useful lives of one and ten years, respectively. The acquired goodwill represents the value of combining operations of STS and the company and is expected to be deductible for tax purposes. The acquisition was not material to the Company's financial statements.


22

FOX FACTORY HOLDING CORP.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share amounts)
(unaudited)
16. Subsequent Events
2022 Credit Facility
On April 5, 2022, the Company entered into a new credit agreement with Wells Fargo Bank, National Association, and other named lenders (the "2022 Credit Facility"), and concurrently repaid in full and terminated the Prior Credit Facility. The 2022 Credit Facility, which matures on April 5, 2027, provides for revolving loans, swingline loans and letters of credit up to an aggregate amount of $650,000.
On April 5, 2022, the Company borrowed $475,000 under the 2022 Credit Facility, which was used to repay all outstanding amounts owed under the Prior Credit Facility and for general corporate purposes. Future advances under the 2022 Credit Facility will be used to finance working capital, capital expenditures and other general corporate purposes of the Company. To the extent not previously paid, all then-outstanding amounts under the 2022 Credit Facility are due and payable on the maturity date.
The Company paid $1,980 in debt issuance costs in connection with the 2022 Credit Facility, which will be allocated to the line of credit and amortized on a straight-line basis over the term of the facility. Additionally, the Company had $4,473 of remaining unamortized debt issuance costs related to the Prior Credit Facility. The Company expects to expense a portion of the remaining unamortized debt issuance costs and allocate a portion to the 2022 Credit Facility.
The Company may borrow, prepay and re-borrow principal under the 2022 Credit Facility during its term. Advances under the 2022 Credit Facility can be either Adjusted Term Secured Overnight Financing Rate ("SOFR") loans or base rate loans. SOFR rate revolving loans bear interest on the outstanding principal amount thereof for each interest period at a rate per annum equal to Term SOFR for such calculation plus 0.10% plus a margin ranging from 1.00% to 2.00%. Base rate revolving loans bear interest on the outstanding principal amount thereof at a rate per annum equal to the highest of (i) Federal Funds Rate plus 0.50%, (ii) the rate of interest in effect for such day as publicly announced from time to time by the lender as its “prime rate”, and (iii) Adjusted Term SOFR rate for a one-month tenor plus 1.00%, subject to the interest rate floors set forth therein, plus a margin ranging from 0.00% to 1.00%.
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.
2022 Swap Agreement
On April 5, 2022, the Company terminated its 2021 Swap Agreement and entered into a new interest rate swap agreement (the "2022 Swap Agreement") with a notional amount of $100,000. The 2022 Swap Agreement has a maturity date of April 5, 2027 and is indexed to a three-month Term SOFR. The 2022 Swap Agreement met the criteria for cash flow hedges under ASC 815, and will be recorded to other assets or other liabilities on the Condensed Consolidated Balance Sheet. The unrealized gains or losses, after tax, will be recorded in accumulated other comprehensive income, a component of equity, and are expected to be reclassified into interest expense on the Condensed Consolidated Statement of Income when the forecasted transactions affect earnings. As required under ASC 815, the Interest Rate Swap’s effectiveness will be assessed on a quarterly basis using a quantitative regression analysis.


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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 condensed consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the U.S. Securities and Exchange Commission ("SEC") on February 24, 2022, 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” 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:
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 the Russian invasion of Ukraine;
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;
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;

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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;
the outcome of pending litigation;
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 have 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 2021 Annual Report on Form 10-K, as filed with the SEC on February 24, 2022, 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. 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. 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.

Critical Accounting Policies and Estimates
In the first quarter of 2022, final tax regulations regarding foreign tax credits (“FTC”) were published in the Federal Register. These final FTC regulations apply to foreign taxes paid or accrued in taxable years beginning on or after December 28, 2021. The new regulations narrow the definition of withholding taxes that are eligible for an FTC by imposing a new source-based jurisdictional nexus or “attribution” requirement. The application of these final FTC regulations makes it more likely than not that all of our foreign tax credits will be realizable before their expiration, therefore the Company released its partial valuation allowance of $9.2 million in the first quarter of 2022.
There have been no other changes to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 24, 2022, that have 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.


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Results of Operations
The table below summarizes our results of operations:
For the three months ended
(in thousands)April 1, 2022April 2, 2021
Sales$377,977 $281,136 
Cost of sales257,717 183,212 
Gross profit120,260 97,924 
Operating expenses:
Sales and marketing22,589 16,858 
Research and development12,642 9,876 
General and administrative25,567 20,369 
Amortization of purchased intangibles5,307 4,965 
Total operating expenses66,105 52,068 
Income from operations54,155 45,856 
Interest and other expense, net:
Interest expense1,977 2,904 
Other expense, net1,692 959 
Interest and other expense, net3,669 3,863 
Income before income taxes50,486 41,993 
Provision for income taxes2,436 4,007 
Net income$48,050 $37,986 


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The following table sets forth selected statement of income data as a percentage of sales for the periods indicated:
For the three months ended
April 1, 2022April 2, 2021
Sales100.0 %100.0 %
Cost of sales68.2 65.2 
Gross profit31.8 34.8 
Operating expenses:
Sales and marketing6.0 6.0 
Research and development3.3 3.5 
General and administrative6.8 7.2 
Amortization of purchased intangibles1.4 1.8 
Total operating expenses17.5 18.5 
Income from operations14.3 16.3 
Interest and other expense, net:
Interest expense0.5 1.0 
Other expense, net0.4 0.3 
Interest and other expense, net1.0 1.4 
Income before income taxes13.4 14.9 
Provision for income taxes0.6 1.4 
Net income12.7 %13.5 %
*Percentages may not foot due to rounding.

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Three months ended April 1, 2022 compared to three months ended April 2, 2021
Sales
For the three months ended
(in millions)April 1, 2022April 2, 2021Change ($)Change (%)
Powered Vehicle products$208.1 $162.7 $45.4 27.9 %
Specialty Sports products169.9 118.4 51.5 43.5 
Total sales$378.0 $281.1 $96.9 34.4 %
Total sales for the three months ended April 1, 2022 increased approximately $96.9 million, or 34.4%, compared to the three months ended April 2, 2021. Specialty Sports product sales increased by $51.5 million, or 43.5%, due to continued strong demand in both the OEM and aftermarket channels. Powered Vehicle product sales increased by $45.4 million, or 27.9%, due to strong performance in our upfitting product lines.
Cost of sales
For the three months ended
(in millions)April 1, 2022April 2, 2021Change ($)Change (%)
Cost of sales$257.7 $183.2 $74.5