10-Q

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 3, 2020

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)

Delaware	26-1647258
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

6634 Hwy 53, Braselton GA 30517

(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 Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share	FOXF	The 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 filer	☒	Accelerated filer	☐	Emerging growth company	☐
Non-accelerated filer	☐	Smaller 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 May 4, 2020, there were 38,602,757 shares of the registrant’s common stock outstanding.

1

Fox Factory Holding Corp.

FORM 10-Q

Table of Contents

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets as of April 3, 2020 and January 3, 2020	1
	Unaudited Condensed Consolidated Statements of Income for the Three Months Ended April 3, 2020 and March 29, 2019	3
	Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended April 3, 2020 and March 29, 2019	4
	Unaudited Condensed Consolidated Statements of Stockholders' Equity and Redeemable Non-controlling Interest for the Three Months Ended April 3, 2020 and March 29, 2019	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 3, 2020 and March 29, 2019	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3.	Defaults Upon Senior Securities	54
Item 4.	Mine Safety Disclosures	54
Item 5.	Other Information	54
Item 6.	Exhibits	55
Signatures		56

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

1

FOX FACTORY HOLDING CORP.

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

(unaudited)

	As of		As of
	April 3,		January 3
	2020		2020
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	76,182	$	43,736
Accounts receivable (net of allowances of $1,205 and $810 at April 3, 2020 and January 3, 2020, respectively)	85,652		91,632
Inventory	156,553		128,505
Prepaids and other current assets	75,799		17,940
Total current assets	394,186		281,813
Property, plant and equipment, net	127,633		108,379
Lease right-of-use assets	20,632		17,472
Deferred tax assets	15,161		25,725
Goodwill	285,723		93,527
Intangibles, net	219,906		81,949
Other assets	5,458		451
Total assets	$	1,068,699	$	609,316
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	88,613	$	55,144
Accrued expenses	40,285		35,744
Reserve for uncertain tax positions	957		925
Current portion of long-term debt	8,818		—
Total current liabilities	138,673		91,813
Line of credit	85,000		68,000
Long-term debt, less current portion	385,404		—
Other liabilities	13,709		11,584
Total liabilities	622,786		171,397
Commitments and contingencies (Refer to Note 9 - Commitments and Contingencies)
Redeemable non-controlling interest	16,207		15,719
Stockholders’ equity
Preferred stock, $0.001 par value — 10,000 authorized and no shares issued or outstanding as of April 3, 2020 and January 3, 2020	—		—
Common stock, $0.001 par value — 90,000 authorized; 39,493 shares issued and 38,603 outstanding as of April 3, 2020; 39,448 shares issued and 38,559 outstanding as of January 3, 2020	39		39
Additional paid-in capital	123,470		123,274
Treasury stock, at cost; 890 common shares as of April 3, 2020 and January 3, 2020	(13,754)		(13,754)
Accumulated other comprehensive (loss) income	(790)		150
Retained earnings	320,741		312,491
Total stockholders’ equity	429,706		422,200
Total liabilities, redeemable non-controlling interest and stockholders’ equity	$	1,068,699	$	609,316

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

FOX FACTORY HOLDING CORP.

Condensed Consolidated Statements of Income

(in thousands, except per share data)

(unaudited) 

	For the three months ended
	April 3,		March 29,
	2020		2019
Sales	$	184,361	$	161,700
Cost of sales	127,746		110,643
Gross profit	56,615		51,057
Operating expenses:
Sales and marketing	12,063		9,262
Research and development	8,029		7,303
General and administrative	22,413		11,180
Amortization of purchased intangibles	2,543		1,493
Total operating expenses	45,048		29,238
Income from operations	11,567		21,819
Other expense, net:
Interest expense	1,847		829
Other expense (income)	62		(13)
Other expense, net	1,909		816
Income before income taxes	9,658		21,003
Provision for income taxes	920		2,601
Net income	8,738		18,402
Less: net income attributable to non-controlling interest	488		299
Net income attributable to FOX stockholders	$	8,250	$	18,103
Earnings per share:
Basic	$	0.21	$	0.48
Diluted	$	0.21	$	0.46
Weighted average shares used to compute earnings per share:
Basic	38,571		38,041
Diluted	39,151		39,097

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

FOX FACTORY HOLDING CORP.

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited) 

	For the three months ended
	April 3,		March 29,
	2020		2019
Net income	$	8,738	$	18,402
Other comprehensive loss
Foreign currency translation adjustments, net of tax effects	(940)		(159)
Other comprehensive loss	(940)		(159)
Comprehensive income	7,798		18,243
Less: comprehensive income attributable to non-controlling interest	488		299
Comprehensive income attributable to FOX stockholders	$	7,310	$	17,944

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

FOX FACTORY HOLDING CORP.

Condensed Consolidated Statements of Stockholders' Equity and Redeemable Non-controlling Interest

(in thousands)

(unaudited)

	Common Stock			Treasury			Additional paid-in capital		Accumulated other comprehensive (loss) income		Retained earnings		Total stockholders' equity		Redeemable non-controlling interest
	Shares	Amount		Shares	Amount
Balance - December 28, 2018	38,881	$	38	890	$	(13,754)	$	116,019	$	(784)	$	219,686	$	321,205	$	14,282
Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding	180	—		—	—		(1,229)		—		—		(1,229)		—
Stock-based compensation expense	—	—		—	—		1,729		—		—		1,729		—
Foreign currency translation adjustment	—	—		—	—		—		(159)		—		(159)		—
Adoption of new accounting standard, net of taxes	—	—		—	—		—		—		(228)		(228)		—
Net income	—	—		—	—		—		—		18,103		18,103		299
Balance - March 29, 2019	39,061	$	38	890	$	(13,754)	$	116,519	$	(943)	$	237,561	$	339,421	$	14,581

The accompanying notes are an integral part of these consolidated statements.

5

FOX FACTORY HOLDING CORP.

Condensed Consolidated Statements of Stockholders' Equity and Redeemable Non-controlling Interest

(in thousands)

(unaudited)

	Common Stock			Treasury			Additional paid-in capital		Accumulated other comprehensive (loss) income		Retained earnings		Total stockholders' equity		Redeemable non-controlling interest
	Shares	Amount		Shares	Amount
Balance - January 3, 2020	39,448	$	39	890	$	(13,754)	$	123,274	$	150	$	312,491	$	422,200	$	15,719
Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding	45	—		—	—		(2,047)		—		—		(2,047)		—
Stock awards issued for business acquisition	—	—		—	—		322		—		—		322
Stock-based compensation expense	—	—		—	—		1,921		—		—		1,921		—
Foreign currency translation adjustment	—	—		—	—		—		(940)		—		(940)		—
Net income	—	—		—	—		—		—		8,250		8,250		488
Balance - April 3, 2020	39,493	$	39	890	$	(13,754)	$	123,470	$	(790)	$	320,741	$	429,706	$	16,207

The accompanying notes are an integral part of these consolidated statements.

6

FOX FACTORY HOLDING CORP.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	For the three months ended
	April 3, 2020		March 29, 2019
OPERATING ACTIVITIES:
Net income	$	8,738	$	18,402
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	5,829		4,039
Stock-based compensation	1,921		1,729
Deferred taxes and uncertain tax positions	(8,649)		716
Amortization of loan fees	389		68
Changes in operating assets and liabilities, net of effects of acquisition of business:
Accounts receivable	14,391		(4,904)
Inventory	(22,479)		(17,030)
Income taxes	916		(878)
Prepaids and other assets	(61,695)		(7,293)
Accounts payable	30,345		20,660
Accrued expenses and other liabilities	(3,191)		(6,764)
Net cash (used in) provided by operating activities	(33,485)		8,745
INVESTING ACTIVITIES:
Purchases of property and equipment	(12,841)		(7,297)
Acquisition of businesses, net of cash acquired	(329,209)		—
Net cash used in investing activities	(342,050)		(7,297)
FINANCING ACTIVITIES:
Proceeds from line of credit	156,000		26,000
Payments on line of credit	(139,000)		(13,000)
Proceeds from issuance of debt, net of origination fees of $6,622	393,379		—
Repayment of debt	—		(2,813)
Repurchases from stock compensation program, net	(2,047)		(1,229)
Net cash provided by financing activities	408,332		8,958
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(351)		(76)
CHANGE IN CASH AND CASH EQUIVALENTS	32,446		10,330
CASH AND CASH EQUIVALENTS—Beginning of period	43,736		27,958
CASH AND CASH EQUIVALENTS—End of period	$	76,182	$	38,288
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes	$	9,280	$	6,243
Cash paid for interest, net of capitalized interest	$	729	$	702
Cash paid for amounts included in the measurement of lease liabilities	$	1,602	$	1,430
Non-cash operating activities:
Right-of-use assets obtained in exchange for lease obligations	$	4,336	$	2,543
Capital expenditures included in accounts payable	$	2,088	$	1,688

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

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 January 3, 2020 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on March 3, 2020. 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.

The Company operates on a 52-53 week fiscal calendar. For 2020 and 2019, the Company's fiscal year will end or has ended on January 1, 2021 and January 3, 2020, respectively. The twelve month periods ended January 1, 2021 and January 3, 2020, will include or have included 52 and 53 weeks, respectively. The three month periods ended April 3, 2020 and March 29, 2019 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 January 3, 2020, as filed with the SEC on March 3, 2020 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.

8

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(unaudited)

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 revenue that are recognized when the rights are exercised by the customer. Measuring the material rights requires judgments including forecasts of future sales and product mix. At April 3, 2020, the balance of deferred revenue related to pricing provisions was $191. These amounts are expected to be recognized over the next 12 months. Revenues exclude sales tax.

Segments - The Company has determined that it has a single operating and reportable segment. The Company considers operating segments to be components of the Company for 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 recent coronavirus (“COVID-19”) outbreak. 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. The Company’s manufacturing facilities in North America have been affected by local and state “shelter-in-place” orders including the temporary suspension of non-essential operations in certain facilities. The Company is taking actions to manage costs during this time by enacting executive pay cuts and temporary furloughs, curtailing non-essential capital expenditures, and reducing expenses. 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 pandemic; government, social, business and other actions that have been and will be taken in response to the pandemic; and the effect of the pandemic on short and long-term general economic conditions.

Fair Value Measurements and Financial Instruments - The Financial Accounting Standards Board ("FASB") has issued Accounting Standards Codification 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 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.

9

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(unaudited)

Recent Accounting Pronouncements - In February 2016, the FASB issued ASU 2016-02, Leases, which supersedes the existing guidance for lease accounting. To meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases, this ASU requires lessees to recognize most leases on the balance sheet as right-of-use assets and lease liabilities.

The Company adopted this guidance as of the beginning of the first quarter of fiscal year 2019, with a cumulative effect adjustment to the opening balance of retained earnings at December 28, 2018 with no restatement of comparative periods’ financial information ("current-period adjustment method"). Additionally, the Company adopted this guidance using practical expedients with respect to the assessment of embedded leases, lease classification, and initial indirect costs for expired and existing leases. The Company also elected the practical expedient related to treating lease and non-lease components as a single lease component for all of its leases and 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. The Company did not use the hindsight practical expedient to adopt this guidance. The Company recorded a cumulative effect adjustment of $13,637 to operating lease right-of-use assets, $13,937 to operating lease liabilities, and $300 gross ($228 net of taxes) to the opening balance of the Company's retained earnings to reflect the cumulative effect of the adoption of the standard. This standard did not have a material impact on our consolidated income statements.

In June 2016, the FASB issue ASU 2016-13, Financial Instruments: Credit Losses, which adds an impairment model that is based on expected losses rather than incurred losses. Under this standard, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The Company adopted ASU 2016-13 effective in the first quarter of fiscal year 2020 using the aging method, which calculates the allowance based on how long a receivable has been outstanding, taking into account the historical credit loss rate and adjusting for both current conditions and forecasts of economic conditions into that expected credit loss rate. The adoption of ASU 2016-13 did not have a material impact on the Company's consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which clarifies the presentation of certain transactions, including but not limited to contingent consideration payments made after a business combination and debt prepayment and extinguishment costs in the cash flow statement. The Company adopted ASU 2016-16 effective in the first quarter of fiscal year 2019. The adoption of ASU 2016-15 did not have a material impact on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement, which modifies the disclosure requirements of fair value measurements in Topic 820. This standard is effective for fiscal years beginning after December 15, 2019. The Company adopted ASU 2018-13 effective in the first quarter of fiscal year 2020. The adoption of ASU 2018-13 did not have a material impact on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other: Internal-Use Software, which helps simplify how entities evaluate the accounting for costs paid by a customer in a cloud computing arrangement that is a service contract. This standard is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company adopted ASU 2018-15 effective in the first quarter of fiscal year 2020. The adoption of ASU 2018-15 did not have a material impact on the Company's consolidated financial statements.

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 is currently assessing the impact this guidance will have on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Facilitation of Effects of Reference Rate Reform on Financial Reporting, which was created in response to concerns about structural risks of interbank offered rates (IBORs) and the risk of cessation of the London Interbank Offered Rate (LIBOR). This standard provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. This standard is effective for all entities as of March 12, 2020 through December 31, 2022. The Company adopted ASU 2020-04 effective in the first quarter of fiscal year 2020. The adoption of ASU 2020-04 did not have a material impact on the Company's consolidated financial statements.

10

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(unaudited)

2. Revenues

The following table summarizes total sales by product category:

	For the three months ended
	April 3, 2020		March 29, 2019
Powered Vehicles	$	120,526	$	96,708
Specialty Sports	63,835		64,992
Total sales	$	184,361	$	161,700

The following table summarizes total sales by sales channel:

	For the three months ended
	April 3, 2020		March 29, 2019
OEM	$	103,748	$	100,505
Aftermarket	80,613		61,195
Total sales	$	184,361	$	161,700

The following table summarizes total sales generated by geographic location of the customer:

	For the three months ended
	April 3, 2020		March 29, 2019
North America	$	130,622	$	109,632
Asia	22,878		23,386
Europe	28,959		27,536
Rest of the world	1,902		1,146
Total sales	$	184,361	$	161,700

3. Inventory

Inventory consisted of the following:

	April 3,		January 3
	2020		2020
Raw materials	$	103,509	$	87,779
Work-in-process	12,439		7,075
Finished goods	40,605		33,651
Total inventory	$	156,553	$	128,505

11

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(unaudited)

4. Prepaids and Other Current Assets

Prepaids and other current assets consisted of the following:

	April 3,		January 3
	2020		2020
Prepaid chassis deposits	$	52,445	$	6,701
Advanced payments and prepaid contracts	9,686		5,774
Current portion of acquisition-related compensation held in escrow	4,642		—
Other current assets	9,026		5,465
Total	$	75,799	$	17,940

5. Property, Plant and Equipment, net

Property, plant and equipment, net consisted of the following:

	April 3,		January 3
	2020		2020
Building and building improvements	$	50,779	$	42,343
Information systems, office equipment and furniture	12,007		10,102
Internal-use computer software	17,708		16,860
Land	6,072		5,414
Leasehold improvements	12,457		13,841
Machinery and manufacturing equipment	68,839		57,331
Transportation equipment	5,422		5,006
Total	173,284		150,897
Less: accumulated depreciation and amortization	(45,651)		(42,518)
Property, plant and equipment, net	$	127,633	$	108,379

The Company’s long-lived assets by geographic location are as follows:

	April 3,		January 3
	2020		2020
United States	$	118,028	$	100,508
International	9,605		7,871
Total long-lived assets	$	127,633	$	108,379

12

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 1 to 8 years, some of which include options to extend the lease term for up to 5 years, and some of which include options to terminate the leases within 1 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 4.53 years and the weighted-average incremental borrowing rate was 3.54% as of April 3, 2020.

Operating lease costs consisted of the following:

	For the three months ended
	April 3, 2020		March 29, 2019
Operating lease cost	$	1,576	$	1,420
Other lease costs (1)	274		183
Total	$	1,850	$	1,603
(1) Includes short-term leases and variable lease costs. The Company elected a policy 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 Classification	April 3, 2020
Operating lease right-of-use assets	Lease right-of-use assets	$	20,632
Current lease liabilities	Accrued expenses	$	6,825
Non-current lease liabilities	Other liabilities	$	13,709

Maturities of lease liabilities by fiscal year for the Company's operating leases are as follows:

For fiscal year	Total future payments
2020 (excluding the 3 months ended April 3, 2020)	$	5,276
2021	5,387
2022	3,766
2023	3,376
2024	1,722
Thereafter	2,722
Total lease payments	22,249
Less: imputed interest	(1,715)
Present value of lease liabilities	20,534
Less: current portion	(6,825)
Lease liabilities less current portion	$	13,709

13

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 3,		January 3
	2020		2020
Payroll and related expenses	$	8,932	$	14,595
Current portion of lease liabilities	6,825		6,242
Warranty	8,719		5,649
Income tax payable	6,976		4,295
Other accrued expenses	8,833		4,963
Total	$	40,285	$	35,744

Activity related to warranties is as follows:

	For the three months ended
	April 3, 2020		March 29, 2019
Beginning warranty liability	$	5,649	$	6,433
Charge to cost of sales	1,054		575
Fair value of warranty assumed in acquisition	3,158		—
Costs incurred	(1,142)		(1,268)
Ending warranty liability	$	8,719	$	5,740

14

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(unaudited)

8. Debt

Former Second Amended and Restated Credit Facility

In August 2013, the Company entered into a credit facility with SunTrust Bank, N.A. and other named lenders, which was periodically amended and restated (the "Second Amended and Restated Credit Facility"). The Company paid off the Second Amended and Restated Credit Facility in June 2019 upon entering into the new Credit Facility with Bank of America, N.A. ("Bank of America").

Amended and Restated Credit Facility

In June 2019, the Company entered into a credit facility with Bank of America and other named lenders, which was later amended and restated on March 11, 2020 (the "Credit Facility"). The Credit Facility, which matures on March 11, 2025, provides a senior secured revolving line of credit with a borrowing capacity of $250,000 and a maturing secured term loan of $400,000. The term loan is subject to quarterly amortization payments.

The Company paid $6,622 in debt issuance costs, of which $5,858 were allocated to the term debt and $764 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, which are included in other expense, net on the Condensed Consolidated Statements of Income for the three months ended April 3, 2020 and the remaining $157 were allocated to the line of credit. Loan fees allocated to the term debt will be amortized using the interest method and loan fees allocated to the line of credit will be amortized on a straight-line basis over the term of the Credit Facility.

The Credit Facility provides for interest at a rate either based on the London Interbank Offered Rate, or LIBOR, plus a margin ranging from 1.00% to 1.75%, or based on the base rate offered by Bank of America plus a margin ranging from 0.00% to 0.75%. At April 3, 2020, the one-month LIBOR and prime rates were 0.99% and 3.25%, respectively. At April 3, 2020, our weighted average interest rate on outstanding borrowing was 2.33%. The 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 April 3, 2020.

The Credit Facility permits 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 3, 2020.

The following table summarizes the line of credit under the Credit Facility:

	April 3,
	2020
Amount outstanding	$	85,000
Standby letters of credit	15,000
Available borrowing capacity	150,000
Total borrowing capacity	$	250,000
Maturity date	March 11, 2025

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FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(unaudited)

As of April 3, 2020, future principal payments for long-term debt, including the current portion, as summarized as follows:

	April 3,
	2020
For fiscal year
2020 (remaining nine months)	$	7,500
2021	10,000
2022	17,500
2023	20,000
2024	20,000
Thereafter	325,000
Total	400,000
Debt issuance cost	(5,778)
Long-term debt, net of issuance cost	394,222
Less: current portion	(8,818)
Long-term debt less current portion	$	385,404

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 due to 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 - A lawsuit was filed on December 17, 2015 by SRAM Corporation (“SRAM”) in the U.S. District Court, Northern District of Illinois, against the Company’s wholly-owned subsidiary, RFE Canada Holding Corp. (“RFE Canada”). The lawsuit alleges patent infringement of U.S. Patent number 9,182,027 ("027 Patent") and violation of the Lanham Act. SRAM filed a second lawsuit in the same court against RFE Canada on May 16, 2016, alleging patent infringement of U.S Patent number 9,291,250 ("'250 Patent"). The Company believes that the lawsuits are without merit and intends vigorously to defend itself. As such, the Company has filed, before the U. S. Patent and Trademark Appeals Board ("PTAB"), for Interparties Reviews ("IPR") of the '027 Patent and separately the same for the '250 Patent. In April 2018, the PTAB issued opinions in the ‘027 Patent petition cases stating that the Company has not shown the claims of the ‘027 Patent to be obvious. Regarding the PTAB ‘027 opinions, the Company has filed an Appeal to the Court of Appeals for the Federal Circuit ("CAFC"). The CAFC found in favor of the Company and has vacated and remanded all of the PTAB findings with the exception of their finding that the ‘027 patent met the prima facia test for obviousness, which was affirmed. SRAM has appealed to the CAFC to rehear the case en banc. The CAFC has declined to rehear the case and has issued the final remand order sending the case back to the PTAB. The PTAB has issued an opinion in the ‘250 Patent petition case stating that the Company has not shown the claims of the ‘250 Patent to be obvious. The Company has appealed that PTAB opinion to the CAFC and the CAFC ruling is pending.

In a separate action, the Company filed a lawsuit on January 29, 2016 in the U.S. District Court, Northern District of California against SRAM. That lawsuit alleges SRAM’s infringement of two separate Company owned patents, specifically U.S. Patent numbers 6,135,434 and 6,557,674. The Company filed a second lawsuit on July 1, 2016 in the U.S. District Court, Northern District of California against SRAM alleging infringement of the Company’s U.S. Patent numbers 8,226,172 and 8,974,009. These lawsuits have been moved to U.S. District Court, District of Colorado and are otherwise proceeding. The U.S. District Court, Northern District of Illinois, has again stayed the SRAM lawsuits against the Company pending outcome of the remanded ‘027 PTAB issue.

16

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(unaudited)

Due to the inherent uncertainties of litigation, the Company is not able to predict either the outcome or a range of reasonably possible losses, if any, at this time. Accordingly, no amounts have been recorded in the consolidated financial statements for the settlement of these matters. Were an unfavorable ruling to occur, or if factors indicate that a loss is probable and reasonably estimable, the Company's business, financial condition or results of operations could be materially and adversely affected. The Company is involved in other legal matters that arise in the ordinary course of business. Based on information currently available, management does not believe that the ultimate resolution of these 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 an 80% interest in the business of Flagship, Inc. ("Tuscany"). The stockholders' agreement provides the Company with a call option (the "Call Option") to acquire the remaining 20% of Tuscany any time from November 30, 2019 through November 30, 2024 at a value that approximates fair market value. In addition, if the Call Option has not been exercised as of November 30, 2024, the non-controlling owners shall be entitled to exercise a put option on November 30, 2024 and for a 180-day period thereafter, which would require the Company to purchase all of the remaining shares held by the non-controlling owners at a price that approximates fair market value.

On July 24, 2019 the Company entered into a standard form of agreement between with design-builder Carroll Daniel Construction Company to provide design and construction services related to an approximately 336,000 square foot facility located in Gainesville, Georgia. The Company plans to use the facility for the manufacture of its products including vehicle shock absorbers. This agreement was amended on December 23, 2019. The agreement contains several design and construction milestone dates that began in June 2019. The Company expects to pay a total of approximately $36,500 under the terms of this agreement. Any additional costs will be addressed as they arise until the completion of the facility, which is currently expected to occur on or around August 31, 2020.

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 3, 2020. 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. Fair Value Measurements and Financial Instruments

The following table presents the Company's hierarchy for its assets, liabilities and redeemable non-controlling interest measured at fair value on a recurring basis as of the following periods:

	April 3, 2020								January 3, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Liabilities:
Credit Facility	$	—	$	479,222	$	—	$	479,222	$	—	$	68,000	$	—	$	68,000
Non-controlling interest subject to put provisions	—		—		16,207		16,207		—		—		15,719		15,719
Total liabilities measured at fair value	$	—	$	479,222	$	16,207	$	495,429	$	—	$	68,000	$	15,719	$	83,719

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 3, 2020.

The Company used Level 2 inputs to determine the fair value of its Credit Facility. As of April 3, 2020, the carrying amount of the principal under the Company’s Credit Facility approximated fair value because it had a variable interest rate that reflected market changes in interest rates and changes in the Company’s net leverage ratio.

The Company has potential obligations to purchase the non-controlling interests held by third parties in the Tuscany subsidiary. These obligations are in the form of put provisions and are exercisable at the third-party owners' discretion within the specified periods outlined in the put provision within the Tuscany stockholders' agreement. If these put provisions were exercised, the Company would be required to purchase the third-party owners' non-controlling interests at the appraised fair value. The initial non-controlling interest value was implicit in the purchase price and is revalued each quarter, with the adjustment being recorded directly as a component of retained earnings. The methodology the Company uses to estimate the fair value of the non-controlling interests subject to these put provisions is based on an average multiple of earnings before income taxes, depreciation and amortization ("EBITDA"), taking into consideration historical earnings and other factors. The estimated fair value is then compared to the carrying value based on the initial valuation and the cumulative net earnings attributable to the non-controlling interest. At April 3, 2020, the estimated fair value was lower than the carrying value and, in accordance with applicable guidance, the non-controlling interest has been adjusted to the carrying value. The estimated fair values of the non-controlling interests subject to put provisions can fluctuate and the implicit multiple of earnings at which these non-controlling interest obligations may ultimately be settled could vary significantly from our future estimates depending upon market conditions.

The following table provides a reconciliation of the beginning and ending balances for the Company's redeemable non-controlling interest measured at fair value using Level 3 inputs:

	Redeemable Non-Controlling Interest (level 3 measurement)
Balance at January 3, 2020	$	15,719
Net income attributable to non-controlling interest	488
Balance at April 3, 2020	$	16,207

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FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(unaudited)

11. Stockholders' Equity

Equity Incentive Plans

The following table summarizes the allocation of stock-based compensation in the accompanying consolidated statements of income:

	For the three months ended
	April 3, 2020		March 29, 2019
Cost of sales	$	129	$	129
Sales and marketing	152		126
Research and development	201		165
General and administrative	1,439		1,309
Total	$	1,921	$	1,729

The following table summarizes the activity for the Company's unvested restricted stock units ("RSU") for the three months ended April 3, 2020:

	Unvested RSUs
	Number of shares outstanding	Weighted-average grant date fair value
Unvested at January 3, 2020	427	$	44.98
Granted	43	$	54.94
Canceled	(3)	$	42.29
Vested	(81)	$	31.15
Unvested at April 3, 2020	386	$	49.01

As of April 3, 2020, the Company had approximately $14,299 of unrecognized stock-based compensation expense related to RSUs, which will be recognized over the remaining weighted-average vesting period of approximately 2.62 years.

During the three months ended April 3, 2020, 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 3, 2020, stock-based compensation expense related to stock options has been fully recognized.

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FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(unaudited)

12. Income Taxes

	For the three months ended
	April 3, 2020			March 29, 2019
Provision for income taxes	$	920		$	2,601
Effective tax rates	9.5		%	12.4		%

For the three months ended April 3, 2020, the difference between the Company's effective tax rate of 9.5% and the 21% federal statutory rate resulted primarily from a lower tax rate on foreign derived intangible income, research and development credits, and a reduction of Switzerland withholding tax. These benefits were partially offset by state taxes, global low-tax intangible income tax and nondeductible expenses. There was a $40 excess benefit related to stock-based compensation.

For the three months ended March 29, 2019, the difference between the Company's effective tax rate of 12.4% and the 21% federal statutory rate resulted primarily from lower foreign tax rates, lower effective federal rates on foreign derived intangible income, research and development credits, and $1,825 from excess benefits related to the exercise of stock options. These benefits were partially offset by state taxes, foreign withholding taxes and the impact of nondeductible expenses.

We do not expect the results from any ongoing income tax audit to have a material impact on our consolidated financial condition, results of operations, or cash flows.

13. Related Party Transactions

On May 3, 2019, the Company acquired substantially all of the assets of Air Ride Technologies, Inc., d/b/a Ridetech, which has a building lease for its manufacturing and offices in Jasper, Indiana. The building is owned by a former owner of Ridetech, who is now an employee of the Company. The lease is effective through April 1, 2024, with monthly rent payments of $16. Rent expense under this lease was $48 for the three months ended April 3, 2020.

On March 11, 2020, the Company acquired 100% of the issued and outstanding stock of SCA Performance Holdings, Inc. ("SCA"), which has a building lease for its manufacturing and offices in Trussville, Alabama. The building is owned by a former owner of SCA, who is now an employee of the Company. The lease is effective through April 13, 2028, with monthly rent payments of $28. Rent expense under this lease was $28 for the three months ended April 3, 2020. Refer to Note 14 - Acquisitions for further details of this acquisition.

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FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(unaudited)

14. Acquisitions

On March 11, 2020, the Company, through Fox Factory, Inc., acquired 100% of the issued and outstanding stock of SCA Performance Holdings, Inc. ("SCA") from Southern Rocky Holdings, LLC for $329,531, net of cash acquired and exclusive of vehicle inventory. SCA is a leading OEM authorized specialty vehicle manufacturer for light duty trucks and SUVs with headquarters in Trussville, Alabama. SCA operates under three aftermarket brands: SCA Performance, Rocky Ridge Trucks, and Rocky Mountain Truckworks. The Company believes the acquisition will be complementary to FOX’s Tuscany business, expanding its North American geographic manufacturing footprint and broadening its product offering in a growing segment of the automotive industry. This transaction was accounted for as a business combination.

The Company also agreed to an additional $10,589 of contingent retention incentives for key SCA management, of which $9,283 is cash and $1,306 is stock, to be held in escrow and payable over the next two years. The Company recognized $143 in costs associated with such retention incentives during the three months ended April 3, 2020. Additionally, the Company agreed to pay $1,750 in transaction compensation to key SCA management concurrently with the closing.

The purchase price of SCA has been preliminarily allocated to the assets acquired and liabilities assumed based on their estimated respective fair values as of March 11, 2020 with the excess purchase price allocated to goodwill. The Company’s allocation of the purchase price to the net tangible and intangible assets acquired and liabilities assumed is as follows:

Acquisition consideration
Cash consideration	$	329,209
Non-cash consideration	322
Total consideration at closing	$	329,531
Fair market values
Other current assets	$	15,556
Property, plant and equipment	9,953
Lease right-of-use assets	4,027
Customer relationships	129,000
Trademarks and brand	11,500
Goodwill	192,215
Total assets acquired	$	362,251
Accounts payable and accrued expenses	$	9,454
Lease liabilities	4,027
Deferred taxes	19,239
Total liabilities assumed	32,720
Purchase price allocation	$	329,531

The Company incurred $10,579 of acquisition costs in conjunction with the SCA acquisition, including $1,750 of transaction compensation during the three months ended April 3, 2020 and $602 of transaction costs during the three months ended January 3, 2020. These costs are classified as general and administrative expenses in the accompanying condensed consolidated statements of income. Additional debt issuance costs of $6,622 were incurred in association with financing the transaction and will be amortized over the term of the Credit Facility. Refer to Note 8 - Debt for further details.

The primary areas of the preliminary purchase price allocations that have not been finalized relate to the finalization of working capital and the valuation of real estate, intangible assets and related deferred tax liabilities. Upon completion of the fair value assessment, the Company anticipates that the ultimate intangible assets may differ from the preliminary assessment outlined above. Any change in the finalization of working capital will reduce or increase the cash consideration. Any changes to the preliminary estimates of the fair value of the real estate and intangible assets will be adjusted to goodwill during the measurement period, with subsequent changes in estimates recorded in the statement of operations.

21

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(unaudited)

The preliminarily values assigned to the identifiable intangible assets were determined by discounting the estimated future cash flows associated with these assets to their present value. The goodwill of $192,215 reflects the strategic fit of SCA with the Company’s operations. The Company will amortize the acquired customer relationships assets over their expected useful lives of 5-10 years. Trademarks, brand names and goodwill are expected to have an indefinite life, and will be subject to impairment testing. The goodwill is not deductible for income tax purposes. SCA previously purchased intangibles and goodwill in asset acquisitions with a remaining net tax basis approximating $77,989 which the Company may deduct for income tax purposes.

The following unaudited pro forma financial information shows the combined results of operations of the Company and SCA, as if the acquisition had occurred as of the beginning of the periods presented. The pro forma results include the effects of the amortization of purchased intangible assets and acquired inventory valuation step-up, interest expense on the term debt secured to finance the acquisition, and the net tax benefit of the above adjustments calculated at the statutory federal tax rate of 21%. SCA was operated as a C Corporation for federal taxation purposes. A pro forma adjustment has been made to reflect the income taxes that would have been recorded at the federal statutory rate based on SCA’s net income. The pro forma results for the three months ended April 3, 2020 exclude transaction costs associated with the acquisition and the results for the three months ended March 29, 2019 have been adjusted to include these charges. This pro forma data is presented for informational purposes only and does not purport to be indicative of the results of future operations or of the results that would have occurred had the acquisition taken place in the periods noted below.

	For the three months ended
	April 3, 2020		March 29, 2019
Pro forma sales	$	203,709	$	177,258
Pro forma net income attributable to FOX stockholders	$	15,570	$	8,810
Pro forma basic earnings per share	$	0.40	$	0.23
Pro forma diluted earnings per share	$	0.40	$	0.23
Total SCA revenues included in the condensed consolidated statements of income	$	6,548
Total SCA pre-tax income included in the condensed consolidated statements of income	$	68

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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 consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 3, 2020, as filed with the U.S. Securities and Exchange Commission ("SEC") on March 3, 2020, 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:

•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;

•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;

•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;

23

•our ability to adapt to 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 2019 Annual Report on Form 10-K, as filed with the SEC on March 3, 2020, 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.

Recent Developments

Acquisition of SCA Performance, Inc.

On March 11, 2020, we, through Fox Factory, Inc., acquired 100% of the issued and outstanding stock of SCA Performance Holdings, Inc. ("SCA") from Southern Rocky Holdings, LLC for $329.5 million, net of cash acquired and exclusive of vehicle inventory. SCA is a leading OEM authorized specialty vehicle manufacturer for light duty trucks and SUVs with headquarters in Trussville, Alabama.

In connection with the acquisition, we also agreed to an additional $10.6 million of contingent retention incentives for key SCA management, to be held in escrow and payable over the next two years in a combination of cash and stock. Additionally, we agreed to $1.8 million in transaction compensation to key SCA management paid concurrently with the closing.

24

Critical Accounting Policies and Estimates

Beginning in the first quarter of fiscal year 2019, the Company adopted Accounting Standards Update No. 2016-02, Leases. 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 of this update.

As a result of the enactment of the Tax Cuts and Jobs Act of 2017 (the "TCJA" or "Tax Act") in December 2017, we believe that it is more likely than not that a portion of our foreign tax credits will not be realizable before their expiration and therefore provided a partial valuation allowance of $6.7 million against that tax asset. We reassess our projections and assumptions regarding the realization of our foreign tax credits periodically as changes in our business and tax regulations occur. To the extent such a valuation allowance is established or reduced in a period, we reflect the change with a corresponding increase or decrease of our income tax provision in our consolidated statements of income. There have been no material changes in the valuation allowance for foreign tax credits for the three month periods ended April 3, 2020 or March 29, 2019.

There have been no other changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended January 3, 2020, as filed with the SEC on March 3, 2020, 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 3, 2020		March 29, 2019
Sales	$	184,361	$	161,700
Cost of sales	127,746		110,643
Gross profit	56,615		51,057
Operating expenses:
Sales and marketing	12,063		9,262
Research and development	8,029		7,303
General and administrative	22,413		11,180
Amortization of purchased intangibles	2,543		1,493
Total operating expenses	45,048		29,238
Income from operations	11,567		21,819
Other expense, net:
Interest expense	1,847		829
Other expense (income)	62		(13)
Other expense, net	1,909		816
Income before income taxes	9,658		21,003
Provision for income taxes	920		2,601
Net income	8,738		18,402
Less: net income attributable to non-controlling interest	488		299
Net income attributable to FOX stockholders	$	8,250	$	18,103

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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 3, 2020		March 29, 2019
Sales	100.0	%	100.0	%
Cost of sales	69.3		68.4
Gross profit	30.7		31.6
Operating expenses:
Sales and marketing	6.5		5.7
Research and development	4.4		4.5
General and administrative	12.2		6.9
Amortization of purchased intangibles	1.4		0.9
Total operating expenses	24.4		18.1
Income from operations	6.3		13.5
Other expense, net:
Interest expense	1.0		0.5
Other expense (income)	—		—
Other expense, net	1.0		0.5
Income before income taxes	5.2		13.0
Provision for income taxes	0.5		1.6
Net income	4.7		11.4
Less: net income attributable to non-controlling interest	0.3		0.2
Net income attributable to FOX stockholders	4.5	%	11.2	%

*Percentages may not foot due to rounding.

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Three months ended April 3, 2020 compared to three months ended March 29, 2019

Sales

	For the three months ended
(in millions)	April 3, 2020		March 29, 2019		Change ($)		Change (%)
Powered Vehicle products	$	120.5	$	96.7	$	23.8	24.6	%
Specialty Sports products	63.8		65.0		(1.2)		(1.8)
Total sales	$	184.3	$	161.7	$	22.6	14.0	%

Total sales for the three months ended April 3, 2020 increased approximately $22.6 million, or 14.0%, compared to the three months ended March 29, 2019. Powered Vehicle product sales increased by $23.8 million, or 24.6%, due to the Ridetech and SCA acquisitions, and the continued success of its product lineup. Additionally, Specialty Sports product sales decreased by $1.2 million, or 1.8%, primarily due to the timing of OEM orders.

Cost of sales

	For the three months ended
(in millions)	April 3, 2020		March 29, 2019		Change ($)		Change (%)
Cost of sales	$	127.7	$	110.6	$	17.1	15.5	%

Cost of sales for the three months ended April 3, 2020 increased approximately $17.1 million, or 15.5%, compared to the three months ended March 29, 2019. The increase in cost of sales was driven primarily by an increase in sales as well as certain business factors affecting gross margin, which are discussed below.

For the three months ended April 3, 2020, our gross margin decreased 90 basis points to 30.7% compared to 31.6% for the three months ended March 29, 2019. The decrease in gross margin was primarily due to costs associated with COVID-19 mandated closures, including overhead inefficiencies and labor costs.

Operating expenses

	For the three months ended
(in millions)	April 3, 2020		March 29, 2019		Change ($)		Change (%)
Operating expenses:
Sales and marketing	$	12.1	$	9.3	$	2.8	30.1	%
Research and development	8.0		7.3		0.7		9.6
General and administrative	22.4		11.1		11.3		101.8
Amortization of purchased intangibles	2.5		1.5		1.0		66.7
Total operating expenses	$	45.0	$	29.2	$	15.8	54.1	%

Total operating expenses for the three months ended April 3, 2020 were $45.0 million compared to $29.2 million for the three months ended March 29, 2019. When expressed as a percentage of total sales, total operating expenses increased to 24.4% of total sales for the three months ended April 3, 2020 compared to 18.1% of total sales in the three months ended March 29, 2019. The increase in operating expenses is primarily due to SCA related costs, including acquisition costs, operating costs and amortization expense, as well as higher facility-related costs and higher selling expenses, partially offset by lower patent litigation related costs.

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Within operating expenses, our sales and marketing expenses increased approximately $2.8 million primarily due to costs associated with our Ridetech and SCA subsidiaries of $1.2 million, higher commission expense of $0.8 million and various others. Research and development costs increased approximately $0.7 million primarily due to headcount investments as we continue to pursue product innovation. General and administrative expenses increased by approximately $11.3 million resulting from various factors including SCA acquisition costs of approximately $10.6 million, SCA and Ridetech expenses of $0.9 million, and higher facility-related costs of $0.7 million. These costs were partially offset by a decrease of $1.4 million in patent-related legal expenses.

Amortization of purchased intangibles for the three months ended April 3, 2020 increased by approximately $1.0 million as compared to the three months ended March 29, 2019. The increase is primarily due to the amortization of intangible assets obtained through our acquisition of SCA.

Income from operations

	For the three months ended
(in millions)	April 3, 2020		March 29, 2019		Change ($)		Change (%)
Income from operations	$	11.6	$	21.8	$	(10.2)	(46.8)	%

As a result of the factors discussed above, income from operations for the three months ended April 3, 2020 decreased approximately $10.2 million, or 46.8%, compared to income from operations for the three months ended March 29, 2019.

Other expense, net

	For the three months ended
(in millions)	April 3, 2020		March 29, 2019		Change ($)		Change (%)
Other expense, net:
Interest expense	$	1.8	$	0.8	$	1.0	125.0	%
Other expense (income)	0.1		—		0.1		100.0
Other expense, net	$	1.9	$	0.8	$	1.1	137.5	%

Other expense, net for the three months ended April 3, 2020 increased by $1.1 million to $1.9 million compared to $0.8 million for the three months ended March 29, 2019. The increase in other expense, net is primarily due to additional interest expense incurred as a result of additional debt taken on in connection with the Company's acquisition of SCA during the three months ended April 3, 2020.

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Income taxes

	For the three months ended
(in millions)	April 3, 2020		March 29, 2019		Change ($)		Change (%)
Provision for income taxes	$	0.9	$	2.6	$	(1.7)	(65.4)	%

The effective tax rates were 9.5% and 12.4% for the three months ended April 3, 2020 and March 29, 2019, respectively.

For the three months ended April 3, 2020, the difference between the Company's effective tax rate of 9.5% and the 21% federal statutory rate resulted primarily from a lower tax rate on foreign derived intangible income, research and development credits, and a reduction of Switzerland withholding tax. These benefits were partially offset by state taxes, global low-tax intangible income and nondeductible expenses. There was a $0.1 million benefit related to stock based compensation.

For the three months ended March 29, 2019, the difference between the Company's effective tax rate of 12.4% and the 21% federal statutory rate resulted primarily from lower foreign tax rates, lower effective federal rates on foreign derived intangible income, research and development credits, and $1.8 million from excess benefits related to the exercise of stock options. These benefits were partially offset by state taxes, foreign withholding taxes and the impact of nondeductible expenses.

The effective tax rate for the three months ended April 3, 2020 decreased as compared to the same period in 2019 primarily as a result of foreign derived intangible income benefits and reduced withholding taxes, partially offset by global low-tax intangible income, state taxes, and nondeductible expenses.

Net income

	For the three months ended
(in millions)	April 3, 2020		March 29, 2019		Change ($)		Change (%)
Net income	$	8.7	$	18.4	$	(9.7)	(52.7)	%

As a result of the factors described above, our net income decreased $9.7 million, or 52.7%, to $8.7 million in the three months ended April 3, 2020 from $18.4 million for the three months ended March 29, 2019.

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Liquidity and Capital Resources

Our primary cash needs are to support working capital, capital expenditures, acquisitions, and debt repayments. Historically, we have generally financed our liquidity needs with operating cash flows and borrowings under our credit facilities. These sources of liquidity may be impacted by various factors, including demand for our products, impacts of mandated closures in response to COVID-19, investments made by us in acquired businesses, our plant and equipment and other capital expenditures, and expenditures on general infrastructure and information technology. A summary of our operating, investing and financing activities are shown in the following table:

	For the three months ended
(in thousands)	April 3, 2020		March 29, 2019
Net cash (used in) provided by operating activities	$	(33,485)	$	8,745
Net cash used in investing activities	(342,050)		(7,297)
Net cash provided by financing activities	408,332		8,958
Effect of exchange rate changes on cash and cash equivalents	(351)		(76)
Change in cash and cash equivalents	$	32,446	$	10,330

Operating activities

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

In the three months ended April 3, 2020, net cash used in operating activities was $33.5 million and consisted of net income of $8.7 million, plus non-cash items totaling $0.5 million and less changes in operating assets and liabilities totaling $41.7 million. Non-cash items and other adjustments consisted of depreciation and amortization of $5.8 million, stock-based compensation of $1.9 million, and amortization of loan fees of $0.4 million, offset by a $8.6 million change in deferred taxes and uncertain tax positions.

Our investment in operating assets and liabilities is a result of increased prepaids and other current assets of $61.7 million, inventory of $22.4 million, and decreases in accrued expenses of $3.2 million, offset by decreases in accounts receivable of $14.4 million, increases in accounts payable of $30.3 million and income taxes of $0.9 million. The change in prepaids and other current assets is primarily due to deposits on chassis and acquisition-related compensation payments held in escrow, both related to our recently acquired SCA subsidiary. The changes in inventory, accounts receivable, and accounts payable reflect the impact of mandated shutdowns in response to COVID-19 on our shipment, collection and payment cycles. The changes in accrued expenses and income taxes are primarily attributable to seasonality and the timing of tax payments.

In the three months ended March 29, 2019, net cash provided by operating activities was $8.7 million and consisted of net income of $18.4 million, plus non-cash items totaling $6.5 million and less changes in operating assets and liabilities totaling $16.2 million. Non-cash items and other adjustments consisted of depreciation and amortization of $4.1 million, stock-based compensation of $1.7 million, offset by a $0.7 million change in deferred taxes and uncertain tax positions. Our investment in operating assets and liabilities is a result of increases in accounts receivable of $4.9 million, inventory of $17.0 million, and prepaids and other assets of $7.3 million, and decreases in accrued expenses of $6.8 million and income taxes payable of $0.9 million, partially offset by an increase in accounts payable of $20.7 million. The changes in inventory, accounts payable, accrued expenses, accounts receivable and prepaids and other assets are primarily due to seasonal impacts on working capital. The decrease in income taxes payable is primarily due to the timing of estimated tax payments and refunds.

Investing activities

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

In the three months ended April 3, 2020 and March 29, 2019, net cash used in investing activities was $342.1 million and $7.3 million, respectively. Investing activities for the three months ended April 3, 2020 consisted of $329.2 million of cash consideration for our acquisition of SCA and $12.8 million of property and equipment additions. Our investing activities for the three months ended March 29, 2019 consisted entirely of property and equipment additions.

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Financing activities

Cash provided by financing activities primarily relates to various forms of debt and equity instruments used to finance our business.

In the three months ended April 3, 2020, net cash provided by financing activities was $408.3 million, which consisted of $393.4 million in proceeds, net of issuance costs, from our new Credit Facility, which was amended and restated in connection with our acquisition of SCA, as well as net draws of $17.0 million from our line of credit. In addition, we paid $2.1 million to repurchase shares of our common stock, as part of our stock-based compensation program.

In the three months ended March 29, 2019, net cash provided by financing activities was $9.0 million, which consisted of $26.0 million in proceeds from our line of credit, partially offset by $13.0 million paid on our line of credit and $2.8 million paid on our term debt. In addition, we paid $1.2 million to repurchase shares of our common stock, net of proceeds from the exercise of stock options, as part of our stock-based compensation program.

Former Second Amended and Restated Credit Facility

In August 2013, the Company entered into a credit facility with SunTrust Bank, N.A. and other named lenders, which was periodically amended and restated (the "Second Amended and Restated Credit Facility"). The Company paid off the Second Amended and Restated Credit Facility in June 2019 upon entering into the new Credit Facility with Bank of America, N.A. ("Bank of America").

Amended and Restated Credit Facility

In June 2019, the Company entered into a credit facility with Bank of America and other named lenders, which was later amended and restated on March 11, 2020 (the "Credit Facility"). The Credit Facility, which matures on March 11, 2025, provides a senior secured revolving line of credit with a borrowing capacity of $250.0 million and a maturing secured term loan of $400.0 million. The term loan is subject to quarterly amortization payments.

The Company paid $6.6 million in debt issuance costs, of which $5.9 million were allocated to the term debt and $0.8 million were allocated to the line of credit. Additionally, the Company had $0.4 million of remaining unamortized debt issuance costs. The Company expensed $0.3 million of the remaining unamortized debt issuance costs, which are included in other expense, net on the Condensed Consolidated Statements of Income for the three months ended April 3, 2020 and the remaining $0.2 million were allocated to the line of credit. All loan fees allocated to the term debt will be amortized using the interest method and all loan fees allocated to the line of credit will be amortized on a straight-line basis over the term of the Credit Facility.

The Credit Facility provides for interest at a rate either based on the London Interbank Offered Rate, or LIBOR, plus a margin ranging from 1.00% to 1.75%, or based on the base rate offered by Bank of America plus a margin ranging from 0.00% to 0.75%. At April 3, 2020, the one-month LIBOR and prime rates were 0.99% and 3.25%, respectively. At April 3, 2020, our weighted average interest rate on outstanding borrowing was 2.33%. The 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 April 3, 2020.

Hall County, Georgia Project - Phase 1

As previously announced on October 31, 2018, the Company is expanding its manufacturing and operations capacity and relocating the Company’s headquarters to Hall County, Georgia. The Company plans to invest approximately $50.0 million in capital expenditures and employ up to 800 personnel over the next five years, dependent on market and general economic conditions in Georgia. The Company currently estimates that the first phase of the project will be completed in mid-2020. The amount of any such capital expenditures is subject to change depending on the circumstances and the scope of the project.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements.

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, could have an adverse impact on our business, financial condition and results of operations.

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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 January 3, 2020, as filed with the SEC on March 3, 2020.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Our management, under the direction and with the participation of our Chief Executive Officer and our Interim Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of April 3, 2020. Based on the evaluation of our disclosure controls and procedures as of April 3, 2020, our Chief Executive Officer and Interim Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Interim Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

A lawsuit was filed on December 17, 2015 by SRAM Corporation (“SRAM”) in the U.S. District Court, Northern District of Illinois, against the Company’s wholly-owned subsidiary, RFE Canada Holding Corp. (“RFE Canada”). The lawsuit alleges patent infringement of U.S. Patent number 9,182,027 ("027 Patent") and violation of the Lanham Act. SRAM filed a second lawsuit in the same court against RFE Canada on May 16, 2016, alleging patent infringement of U.S Patent number 9,291,250 ("'250 Patent"). The Company believes that the lawsuits are without merit and intends vigorously to defend itself. As such, the Company has filed, before the U. S. Patent and Trademark Appeals Board ("PTAB"), for Interparties Reviews ("IPR") of the '027 Patent and separately the same for the '250 Patent. In April 2018, the PTAB issued opinions in the ‘027 Patent petition cases stating that the Company has not shown the claims of the ‘027 Patent to be obvious. Regarding the PTAB ‘027 opinions, the Company has filed an Appeal to the Court of Appeals for the Federal Circuit ("CAFC"). The CAFC found in favor of the Company and has vacated and remanded all of the PTAB findings with the exception of their finding that the ‘027 patent met the prima facia test for obviousness, which was affirmed. SRAM has appealed to the CAFC to rehear the case en banc. The CAFC has declined to rehear the case and has issued the final remand order sending the case back to the PTAB. The PTAB has issued an opinion in the ‘250 Patent petition case stating that the Company has not shown the claims of the ‘250 Patent to be obvious. The Company has appealed that PTAB opinion to the CAFC and the CAFC ruling is pending.

In a separate action, the Company filed a lawsuit on January 29, 2016 in the U.S. District Court, Northern District of California against SRAM. That lawsuit alleges SRAM’s infringement of two separate Company owned patents, specifically U.S. Patent numbers 6,135,434 and 6,557,674. The Company filed a second lawsuit on July 1, 2016 in the U.S. District Court, Northern District of California against SRAM alleging infringement of the Company’s U.S. Patent numbers 8,226,172 and 8,974,009. These lawsuits have been moved to U.S. District Court, District of Colorado and are otherwise proceeding. The U.S. District Court, Northern District of Illinois, has again stayed the SRAM lawsuits against the Company pending outcome of the remanded ‘027 PTAB issue.

Due to the inherent uncertainties of litigation, the Company is not able to predict either the outcome or a range of reasonably possible losses, if any, at this time. Accordingly, no amounts have been recorded in the consolidated financial statements for the settlement of these matters. Were an unfavorable ruling to occur, or if factors indicate that a loss is probable and reasonably estimable, the Company's business, financial condition or results of operations could be materially and adversely affected. The Company is involved in other legal matters that arise in the ordinary course of business. Based on information currently available, management does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company's financial condition, results of operations or cash flows.

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ITEM 1A. RISK FACTORS

Our business, financial condition, operating results and prospects could be materially and adversely affected by various risks and uncertainties that are described herein. In addition to the risks and uncertainties discussed elsewhere in this Quarterly Report on Form 10-Q, you should carefully consider the risks and uncertainties described below. If any of these risks actually occur, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline.

Risks related to our business

If we are unable to continue to enhance existing products and develop, manufacture and market new products that respond to consumer needs and preferences and achieve market acceptance, we may experience a decrease in demand for our products, and our business and financial results could suffer.

Our growth strategy involves the continuous development of innovative performance-defining products. We may not be able to compete as effectively with our competitors, and ultimately satisfy the needs and preferences of our customers and the end users of our products, unless we can continue to enhance existing products and develop new, innovative products in the global markets in which we compete. In addition, we must continuously compete for not only end users who purchase our products through the dealers and distributors who are our customers, but also for the OEMs, which incorporate our products into their bikes and powered vehicles. These OEMs regularly evaluate our products against those of our competitors to determine if they are allowing the OEMs to achieve higher sales and market share on a cost-effective basis. Should one or more of our OEM customers determine that they could achieve overall better financial results by incorporating a competitor’s new or existing product, they would likely do so, which could harm our business, financial condition or results of operations.

Product development requires significant financial, technological and other resources. While we expended approximately $31.8 million, $25.8 million, and $20.2 million for our research and development efforts in 2019, 2018 and 2017, respectively, there can be no assurance that this level of investment in research and development will be sufficient in the future to maintain our competitive advantage in product innovation, which could cause our business, financial condition or results of operations to suffer.

Product improvements and new product introductions require significant planning, design, development and testing at the technological, product and manufacturing process levels, and we may experience unanticipated delays in our introduction of product improvements or new products. Our competitors’ new products may beat our products to market, be more effective and/or less expensive than our products, obtain better market acceptance or render our products obsolete. Any new products that we develop may not receive market acceptance or otherwise generate any meaningful sales or profits for us relative to our expectations. In addition, one of our competitors could develop an unforeseen and entirely new product or technology that renders our products less desirable or obsolete, which could negatively affect our business, financial condition or results of operations.

We face intense competition in all product lines, including from some competitors that may have greater financial and marketing resources. Failure to compete effectively against competitors would negatively impact our business and operating results.

The industries in which we operate are highly competitive. We compete with a number of other manufacturers that produce and sell performance-defining products to OEMs and aftermarket dealers and distributors, including OEMs that produce their own lines of products for their own use. Our continued success depends on our ability to continue to compete effectively against our competitors, some of which have significantly greater financial, marketing and other resources than we have. In addition, several of our competitors offer broader product lines to OEMs, which they may sell in connection with suspension products as part of a package offering. In the future, our competitors may be able to maintain and grow brand strength and market share more effectively or quickly than we do by anticipating the course of market developments more accurately than we do, developing products that are superior to our products, creating manufacturing or distribution capabilities that are superior to ours, producing similar products at a lower cost than we can or adapting more quickly than we do to new technologies or evolving regulatory, industry or customer requirements, among other possibilities. In addition, we may encounter increased competition if our current competitors broaden their product offerings by beginning to produce additional types of performance-defining products or through competitor consolidations. We could also face competition from well-capitalized entrants into these product markets, as well as aggressive pricing tactics by other manufacturers trying to gain market share. As a result, our products may not be able to compete successfully with our competitors’ products, which could negatively affect our business, financial condition or results of operations.

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Our business is sensitive to economic conditions that impact consumer spending. Our performance-defining products, and the bike and powered vehicles into which they are incorporated, are discretionary purchases and may be adversely impacted by changes in the economy.

Our business depends substantially on global economic and market conditions. In particular, we believe that currently a significant majority of the end users of our products live in the United States and countries in Europe. These areas have historically experienced recessions, disruptions in banking and/or financial systems, economic weakness and uncertainty. In addition, our products are recreational in nature and are generally discretionary purchases by consumers. Consumers are usually more willing to make discretionary purchases during periods of favorable general economic conditions and high consumer confidence. Discretionary spending may also be affected by many other factors, including interest rates, the availability of consumer credit, taxes and consumer confidence in future economic conditions. During periods of unfavorable economic conditions, or periods when other negative market factors exist, consumer discretionary spending is typically reduced, which in turn could reduce our product sales and have a negative effect on our business, financial condition or results of operations.

There could also be a number of secondary effects resulting from an economic downturn, such as insolvency of our suppliers resulting in product delays, an inability of our OEM and distributor and dealer customers to obtain credit to finance purchases of our products, customers delaying payment to us for the purchase of our products due to financial hardship or an increase in bad debt expense. Any of these effects could negatively affect our business, financial condition or results of operations.

If we are unable to maintain our premium brand image, our business may suffer.

OEMs dealers and distributors select our products in part because of the premium brand reputation we hold with them and our end users. Therefore, our success depends on our ability to maintain and build the image of our brands. We have focused on building our brands through producing products or acquiring businesses that produce products that we believe are innovative, high in performance and highly reliable. In addition, our brands benefit from our strong relationships with our OEM customers and dealers and distributors and through marketing programs aimed at bike and powered vehicle enthusiasts in various media and other channels. For example, we sponsor a number of professional athletes and professional race teams. In order to continue to enhance our brand image, we will need to maintain our position in the performance-defining products industry and continue to provide high-quality products and services. In addition, we will need to continue to invest in sponsorships, marketing and public relations.

There can be no assurance, however, that we will be able to maintain or enhance the strength of our brands in the future. Our brands could be adversely impacted by, among other things:

•failure to develop new products that are innovative, performance-oriented, and reliable;

•internal product quality control issues;

•product quality issues on the bikes and powered vehicles on which our products are installed;

•product recalls;

•high profile component failures (such as a component failure during a race on a mountain bike ridden by an athlete that we sponsor);

•negative publicity regarding our sponsored athletes;

•high profile injury or death to one of our sponsored athletes;

•inconsistent uses of our brand and our other intellectual property assets, as well as failure to protect our intellectual property; and

•changes in consumer trends and perceptions.

Any adverse impact on our brand could in turn negatively affect our business, financial condition or results of operations.

Our growth in the powered vehicle category is dependent upon our continued ability to expand our product sales into powered vehicles that require performance-defining products and the continued expansion of the market for these powered vehicles.

Our growth in the powered vehicle category is in part attributable to the expansion of the market for powered vehicles that require performance-defining products. Such market growth includes the creation of new classes of vehicles that need our products, such as trucks that are up-fitted to be off-road capable, and our ability to create products for these vehicles. In the event these markets stopped expanding or contracted, or we are unsuccessful in creating new products for these markets or other competitors successfully enter into these markets, we may fail to achieve future growth or our sales could decrease, and our business, financial condition or results of operations could be negatively affected.

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A significant portion of our sales are highly dependent on the demand for high-end bikes and a material decline in the demand for these bikes or their suspension components could have a material adverse effect on our business or results of operations.

During 2019, approximately 40% of our sales were generated from the sale of bike products. Part of our success has been attributable to the growth in the high-end bike industry, including increases in average retail sales prices, as better-performing product designs and technologies have been incorporated into these products. If the popularity of high-end or premium-priced bikes does not increase or declines, the number of bike enthusiasts seeking such bikes or premium-priced suspension products, wheels, cranks and other specialty components for their bikes does not increase or declines, or the average price point of these bikes declines, we may fail to achieve future growth or our sales could decrease, and our business, financial condition or results of operations could be negatively affected. In addition, if current bike enthusiasts stop purchasing our products due to changes in preferences, we may fail to achieve future growth or our sales could be decreased, and our business, financial condition or results of operations could be negatively affected.

Changes in our customer, channel and product mix could place demands that are more rigorous on our infrastructure and cause our profitability percentages to fluctuate.

From time to time, we may experience changes in our customer, channel and product mix from changes in demands from existing customers due to shifts in their products and markets. Additionally, the Company may pursue new customers and markets. Such changes in customers, channel and product mix could place demands that are more rigorous on our infrastructure and supply chain and could result in changes to our profitability and profitability percentages. If customers begin to require more lower-margin products from us and fewer higher-margin products, or place demands on our performance that increase our costs, our business, results of operations and financial condition may suffer.

A disruption in the operations of our facilities, or delays in our planned expansion of certain facilities, could have a negative effect on our business, financial condition or results of operations.

During 2017, we completed the process of moving all of the manufacturing of our bike suspension component products to our facility in Taichung, Taiwan. In connection with this move, we are utilizing, and expect to continue to use, suppliers who are located closer to our facility in Taichung, Taiwan for a number of materials and components. With the transition of our entire bike suspension component manufacturing to Taichung, Taiwan, we converted the Watsonville manufacturing facility to be a powered vehicle suspension products manufacturing location exclusively.

In addition, we are currently constructing an approximately 336,000 square foot state-of-the-art facility in Hall County, Georgia to diversify our manufacturing platform and provide additional long-term capacity to support growth in our Powered Vehicles Group. In the future, we may move additional manufacturing operations as we re-balance existing facilities or expand to new manufacturing locations. As a result, we have incurred, and expect to continue to incur, costs associated with some duplication of facilities, equipment and personnel, the amount of which could vary materially from our projections. Significant construction delays or other unforeseen difficulties in our Georgia expansion project and future expansion projects, whatever the cause, could have a material adverse effect on our business, customer relationships, financial condition, operating results, cash flow, and liquidity.

Equipment failures, delays in deliveries or catastrophic loss at any of our facilities could lead to production or service disruptions, curtailments or shutdowns. In the event of a stoppage in production or a slowdown in production due to high employee turnover or a labor dispute at any of our facilities, even if only temporary, or if we experience delays as a result of events that are beyond our control, delivery times to our customers could be severely affected. If there was a manufacturing disruption in any of our manufacturing facilities, we might be unable to meet product delivery requirements and our business, financial condition or results of operations could be negatively affected, even if the disruption was covered in whole or in part by our business interruption insurance. Any significant delay in deliveries to our customers could lead to increased returns or cancellations, expose us to damage claims from our customers or damage our brand and, in turn, negatively affect our business, financial condition or results of operations.

Our business, financial condition and results of operations have been and may continue to be adversely affected by global public health epidemics or pandemics, including the recent COVID-19 outbreak.

We face various risks related to public health issues, including epidemics, pandemics, and other outbreaks, including the recent coronavirus (“COVID-19”) outbreak. The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government in March 2020. The impact of COVID-19, including changes in consumer behavior, pandemic fears and market downturns, and restrictions on business and individual activities, has created significant volatility in the global economy and led to reduced economic activity. There have been extraordinary actions taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world, including travel bans, quarantines, “stay-at-home” orders, and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations.

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These government-mandated closures, “shelter-in-place” directives, or an outbreak among, or quarantine of, the employees in any of our facilities, have caused and could continue cause significant interruptions to, or temporary closures of our operations. These impacts include, but are not limited to:

•Continued significant reductions in demand or significant future volatility in demand for one or more of our products, which may be caused by, among other things: the temporary inability of consumers to purchase our products due to illness, quarantine or other travel restrictions, store closures, or financial hardship, shifts in demand away from one or more of our more discretionary or higher priced products, supply chain and shipping constraints, reduced options for marketing and promotion of products or other restrictions in connection with COVID-19; if prolonged, such impacts can further increase the difficulty of operating our business, including accurately planning and forecasting, planning for operations and may adversely impact our results;

•Inability to meet our dealers’ or consumers’ needs and achieve cost targets due to disruptions in our manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or other finished product components, transportation, workforce, or other manufacturing and distribution capability;

•Failure of third parties on which we rely, including our suppliers, contract manufacturers, distributors, contractors, commercial banks, and external business partners, to meet their obligations to the Company or to timely meet those obligations, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties and may adversely impact our operations;

•Significant changes in the political conditions in markets in which we manufacture, sell or distribute our products, including additional or expanded quarantines, governmental or regulatory actions, closures or other restrictions that further limit or close our operating and manufacturing facilities, restrict our employees’ ability to travel or perform necessary business functions, restrict or prevent consumers from having access to our products, or otherwise prevent our third-party partners, dealers, suppliers, or customers from sufficiently staffing operations, including operations necessary for the production, distribution, sale, and support of our products, which could adversely impact our results;

•Increased difficulty in determining the fair value of the Company’s goodwill and other assets for accounting purposes given the level of judgment and estimation that is inherently higher in the current environment considering the uncertainty created by the COVID-19 pandemic, which could result in estimates and assumptions made in valuing goodwill and other Company assets proving to be inaccurate in the future.

These impacts have had and could continue to have a negative effect on our business, financial condition, results of operations and cash flows, as well as the trading price of our securities. Furthermore, COVID-19 has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth, the proper functioning of financial and capital markets, foreign currency exchange rates, interest rates, and liquidity. The recent volatility in capital markets has also increased the cost of capital and adversely impacted access to capital.

We have modified, and might further modify, our business practices in response to the COVID-19 pandemic, related third-party responses, including from government authorities and our suppliers, customers and distributors, and the economic and social ramifications of the disease and societal responses across the markets in which the Company operates. Despite our 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 our business, results of operation and financial condition is difficult to predict and depends on numerous evolving factors outside our control including: the duration and scope of the pandemic; government, social, business and other actions that have been and will be taken in response to the pandemic; and the effect of the pandemic on short- and long-term general economic conditions.

Work stoppages or other disruptions at seaports could adversely affect our operating results.

A significant portion of our goods move through ports on the Western Coast of the United States. We have a global supply chain and we import products from our third-party vendors as well as our Fox Taiwan facility into the United States largely through ports on the West Coast. Longshoremen, none of whom are our employees, must offload freight from ships arriving at West Coast ports. We do not control the activities of these employees or seaports and we could suffer supply chain disruptions due to any disputes, capacity shortages, slowdowns or shutdowns that may occur, as was experienced in February 2015, in relation to certain West Coast ports. While the West Coast ports labor dispute ended with a five-year agreement, it lasted longer than we forecasted, and any similar labor dispute in the future could potentially have a negative effect on both our financial condition and results of operations.

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Our business depends substantially on our ability to attract and retain experienced and qualified talent, including our senior management team.

We are dependent upon the contributions, talent and leadership of our senior management team, particularly our Chief Executive Officer, Michael C. Dennison. We do not have a "key person" life insurance policy on Mr. Dennison or any other key employees. We believe that the top nine members of our senior management team are key to establishing our focus and executing our corporate strategies as they have extensive knowledge of our systems and processes. Given our senior management team’s knowledge of our industry and the limited number of direct competitors in the industry, we believe that it could be difficult to find replacements should any of the members of our senior management team leave. For example, our former Chief Financial Officer, Zvi Glasman, resigned effective November 1, 2019, and, although we have named an interim replacement, we have not yet designated a permanent replacement for Mr. Glasman. If we are unable to designate a permanent Chief Financial Officer in a timely manner, there may be an adverse effect on our financial reporting processes, our financial controls and procedures and our ability to raise additional capital.

We could also be adversely affected if we fail to attract and retain talent throughout our organization. For instance, we rely on skilled and well-trained engineers for the design and production of our products, as well as in our research and development functions. Competition for such individuals is intense, particularly in California where several of our facilities are located. Our inability to attract or retain qualified employees in our design, production or research and development functions or elsewhere in our Company could result in diminished quality of our products and delinquent production schedules or impede our ability to develop new products. Our failure to adequately address any of these issues could have a material adverse effect on our business, operating results and financial condition.

We may not be able to sustain our past growth or successfully implement our growth strategy, which may have a negative effect on our business, financial condition or results of operations.

We grew our sales from approximately $619.2 million in 2018 to approximately $751.0 million in 2019. This growth rate may be unsustainable. Our future growth will depend upon various factors, including the strength of the image of our brands, our ability to continue to produce innovative performance-defining products, consumer acceptance of our products, competitive conditions in the marketplace, our ability to make strategic acquisitions, the growth in emerging markets for products requiring high-end suspension products and, in general, the continued growth of the high-end bike and powered vehicle markets into which we sell our products. Our beliefs regarding the future growth of markets for high-end suspension products are based largely on qualitative judgments and limited sources and may not be reliable. If we are unable to sustain our past growth or successfully implement our growth strategy, our business, financial condition or results of operations could be negatively affected.

The professional athletes and race teams who use our products are an important aspect of the image of our brands. The loss of the support of professional athletes for our products or the inability to attract new professional athletes may harm our business.

If current or future professional athletes and race teams do not use our products, our brands could lose value and our sales could decline. While our sponsorship agreements typically restrict our sponsored athletes and race teams from promoting, endorsing or using competitors’ products that compete directly within our product categories during the term of the sponsorship agreements, we do not typically have long-term contracts with any of the athletes or race teams whom we sponsor.

If we are unable to maintain our current relationships with these professional athletes and race teams, these professional athletes and race teams are no longer popular, our sponsored athletes and race teams fail to have success or we are unable to continue to attract the endorsement of new professional athletes and race teams in the future, the value of our brands and our sales could decline.

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We depend on our relationships with dealers and distributors and their ability to sell and service our products. Any disruption in these relationships could harm our sales.

We sell our aftermarket products to dealers and distributors, and we depend on their willingness and ability to market and sell our products to consumers and provide customer and product service as needed. We also rely on our dealers and distributors to be knowledgeable about our products and their features. If we are not able to educate our dealers and distributors so that they may effectively sell our products as part of a positive buying experience, or if they fail to implement effective retail sales initiatives, focus selling efforts on our competitors’ products, reduce the quantity of our products that they sell or reduce their operations due to financial difficulties or otherwise, our brand and business could suffer.

We do not control our dealers or distributors and many of our contracts allow these entities to offer our competitors’ products. Our competitors may incentivize our dealers and distributors to favor their products. In addition, we do not have long-term contracts with a majority of our dealers and distributors, and our dealers and distributors are not obligated to purchase specified amounts of our products. In fact, the majority of our dealers and distributors buy from us on a purchase order basis. Consequently, with little or no notice, many of these dealers and distributors may terminate their relationships with us or materially reduce their purchases of our products. If we were to lose one or more of our dealers or distributors, we would need to obtain a new dealer or distributor to cover the particular location or product line, which may not be possible on favorable terms or at all.

Alternatively, we could use our own sales force to replace such a dealer or distributor, but expanding our sales force into new locations takes a significant amount of time and resources and may not be successful. Further, many of our international distribution contracts contain exclusivity arrangements, which may prevent us from replacing or supplementing our current distributors under certain circumstances.

We are a supplier in the high-end bike and powered vehicles markets, and our business is dependent in large part on the orders we receive from our OEM customers and from their success.

As a supplier to OEM customers, we are dependent in large part on the success of the business of our OEM customers. Model year changes by our OEM customers may adversely impact our sales or cause our sales to vary from quarter to quarter. In addition, losses in market share individually or a decline in the overall market of our OEM customers or the discontinuance by our OEM customers of their products which incorporate our products could negatively impact our business, financial condition or results of operations. For example, if our bike producing OEM customers reduce production of their high-end bikes, their orders to us for our products would in turn be reduced, which could negatively affect our business, financial condition or results of operations.

A relatively small number of customers account for a substantial portion of our sales. The loss of all or a substantial portion of our sales to any of these customers, whether through the temporary or permanent discontinuation of their products which incorporate our products or otherwise, or the loss of market share by these customers could have a material adverse impact on us and our results of operations.

Sales attributable to our five largest OEM customers, which can vary from year to year, collectively accounted for approximately 32% of our sales in fiscal years 2019, 2018 and 2017. The loss of all or a substantial portion of our sales to any of these OEM customers, whether through the temporary or permanent discontinuation of their products which incorporate our products or otherwise, or the loss of market share by these customers could have a material adverse impact on our business, financial condition or results of operations.

In particular, sales to Ford, a powered vehicles OEM, accounted for approximately 11%, 8% and 8% in 2019, 2018 and 2017, respectively. In the event that Ford were to experience manufacturing or other problems, or were to fail to pay us, it could have a material impact on our business, financial condition or results of operations.

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Currency exchange rate fluctuations could impact gross margins and expenses.

Foreign currency fluctuations could in the future have an adverse effect on our business, financial condition or results of operations. We sell our products inside and outside of the United States primarily in U.S. Dollars and New Taiwan Dollars. However, some of the OEMs purchasing products from us sell their products in Europe and other foreign markets using the Euro and other foreign currencies. As a result, as the U.S. Dollar appreciates against these foreign currencies, our products will become relatively more expensive for these OEMs. Accordingly, competitive products that our OEM customers can purchase in other currencies may become more attractive and we could lose sales as these OEMs seek to replace our products with cheaper alternatives. In addition, should the U.S. Dollar depreciate significantly, this could have the effect of decreasing our gross margins and adversely impact our business, financial condition or results of operations.

With a majority of our manufacturing operations for our bike products occurring in Taiwan, a percentage of our sales and expenses are denominated in the New Taiwan Dollar. Should the New Taiwan Dollar appreciate against the U.S. Dollar, this could have the effect of decreasing our sales, increasing our expenses, and decreasing our profitability.

Additionally, certain of our operations take place in Canada and a percentage of our sales and expenses are denominated in Canadian Dollars. Our operating profitability could be negatively impacted as a result of changes in the exchange rate between the U.S. Dollar and the Canadian Dollar.

Our international operations are exposed to risks associated with conducting business globally.

As a result of our international presence, we are exposed to increased risks inherent in conducting business outside of the United States. In addition to foreign currency risks, these risks include:

•difficulty in transporting materials internationally, including labor disputes at West Coast ports, which handle a large amount of our products;

•increased difficulty in protecting our intellectual property rights and trade secrets;

•changes in tax laws and the interpretation of those laws;

•exposure to local economic conditions;

•unexpected government action or changes in legal or regulatory requirements;

•geopolitical regional conflicts, terrorist activity, political unrest, civil strife, acts of war and other political uncertainty;

•changes in tariffs, quotas, trade barriers and other similar restrictions on sales;

•the effects of any anti-American sentiments on our brands or sales of our products;

•increased difficulty in ensuring compliance by employees, agents and contractors with our policies as well as with the laws of multiple jurisdictions, including but not limited to the U.S. Foreign Corrupt Practices Act, local international environmental, health and safety laws, and increasingly complex regulations relating to the conduct of international commerce;

•increased difficulty in controlling and monitoring foreign operations from the United States, including increased difficulty in identifying and recruiting qualified personnel for our foreign operations; and

•increased difficulty in staffing and managing foreign operations or international sales.

An adverse change in any of these conditions could have a negative effect upon our business, financial condition or results of operations.

U.S. policies related to global trade and tariffs could have a material adverse effect on our results of operations.

The current domestic and international political environment, including existing and potential changes to U.S. policies related to global trade and tariffs, have resulted in uncertainty surrounding the future state of the global economy. In 2018, the U.S. imposed tariffs of 25 percent on steel and 10 percent on aluminum, with only a handful of countries exempt from the increase. Since the beginning of the Trump Administration, the United States and China have imposed a variety of tariffs on most goods traded between the two countries, though a recent trade deal has lessened the threat of further escalation. The United States has imposed tariffs on products from the European Union as a result of a dispute at the World Trade Organization. Plans by the United States to impose tariffs on global imports of automobiles and auto parts appear to be on hold for now. While we have limited exposure to implemented tariffs at this time, any expansion in the types of tariffs implemented has the potential to negatively impact our supply chain costs as well as the operating performance of our customers, thus negatively affecting our sales, gross margin and operating performance. Additionally, there is a risk that the U.S. tariffs on imports could be met with additional retaliatory tariffs on U.S. produced exports and that the broader trade uncertainty could intensify. This has the potential to significantly impact global trade and economic conditions in many of the regions where we do business and have a material adverse effect on our results of operations.

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Our sales could be adversely impacted by the disruption or cessation of sales by other bike component manufacturers or if other bike component manufacturers enter into the specialty bike component market.

Most of the bikes incorporating our suspension products also use products and components manufactured by other bike component manufacturers. If such component manufacturers were to cease selling their products and components on a standalone basis, their sales are disrupted, or their competitive market position or reputation is diminished, customers could migrate to competitors that sell complementary bike products that we do not sell. Moreover, such bike component manufacturers could begin manufacturing bike suspension products, wheels, or cranks, or bundle their bike components with suspension products, wheels or cranks manufactured by competitors. If any of the foregoing were to occur, our sales could decrease and our business, financial condition or results of operations could suffer.

We have been and may become subject to intellectual property disputes that could cause us to incur significant costs or pay significant damages or that could prohibit us from selling our products.

As we develop new products or attempt to use our brands in connection with new products, we seek to avoid infringing the valid patents and other intellectual property rights of our competitors. However, from time to time, third parties have alleged, or may allege in the future, that our products and/or trademarks infringe upon their proprietary rights. We will evaluate any such claims and, where appropriate, may obtain or seek to obtain licenses or other business arrangements. To date, there have been no significant interruptions in our business as a result of any claims of infringement, and we do not hold patent infringement insurance. Any claim, regardless of its merit, could be expensive, time consuming to defend and distract management from our business. Moreover, if our products or brands are found to infringe third-party intellectual property rights, we may be unable to obtain a license to use such technology or associated intellectual property rights on acceptable terms. A court determination that our brands, products or manufacturing processes infringe the intellectual property rights of others could result in significant liability and/or require us to make material changes to our products and/or manufacturing processes or preclude our ability to use certain brands. In most circumstances, we are not indemnified for our use of a licensor’s intellectual property, if such intellectual property is found to be infringing. Any of the foregoing results could cause us to redesign our products or defend legal actions, which could cause us to incur substantial costs that could negatively affect our business, financial condition or results of operations.

If we are unable to enforce our intellectual property rights, our reputation and sales could be adversely affected.

Intellectual property is an important component of our business. We patent our proprietary technologies related to vehicle suspension and other products in the U.S. and various foreign patent offices. Additionally, we have registered or have applied for trademarks and service marks with the United States Patent and Trademark Office and a number of foreign countries, including the marks FOX^®, FOX RACING SHOX^®, RACE FACE^® and REDEFINE YOUR LIMITS^®, to be used with certain goods and services. When appropriate, we may from time to time assert our rights against those who infringe on our patents, trademarks, trade dress, or other intellectual property. However, we may not be successful in enforcing our patents or asserting trademark, trade name or trade dress protection with respect to our brand names and our product designs, and third parties may seek to oppose or challenge our patents or trademark registrations. Further, these legal efforts may not be successful in reducing sales of suspension products by those infringing. In addition, our pending patent applications may not result in the issuance of patents, and even issued patents may be contested, circumvented or invalidated and may not provide us with proprietary protection or competitive advantages. If our efforts to develop and enforce our intellectual property are unsuccessful, or if a third party misappropriates our rights, this may adversely affect our business, financial condition or results of operations. Additionally, intellectual property protection may be unavailable or limited in some foreign countries where laws or law enforcement practices may not protect our proprietary rights as fully as in the United States, and it may be more difficult for us to successfully challenge the use of our proprietary rights by other parties in these countries. Furthermore, other competitors may be able to successfully produce products that imitate certain of our products without infringing upon any of our patents, trademarks or trade dress. The failure to prevent or limit infringements and imitations could have a permanent negative impact on the pricing of our products or reduce our product sales and product margins, even if we are ultimately successful in limiting the distribution of a product that infringes our rights, which in turn may affect our business, financial condition or results of operations.

Although we enter into non-disclosure agreements with employees, OEMs, distributors and others to protect our confidential information and trade secrets, we may be unable to prevent such parties from breaching these agreements with us and using our intellectual property in an unauthorized manner. If our efforts to protect our intellectual property are unsuccessful, or if a third party misappropriates our rights, our business may be adversely affected. Defending our intellectual property rights can be very expensive and time consuming, and there is no assurance that we will be successful.

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If we inaccurately forecast demand for our products, we may manufacture insufficient or excess quantities or our manufacturing costs could increase, which could adversely affect our business.

We plan our manufacturing capacity based upon the forecasted demand for our products. In the OEM channel, our forecasts are based in large part on the number of our product specifications for new bikes and powered vehicles and on projections from our OEM customers. In the aftermarket channel, our forecasts are based partially on discussions with our dealers and distributors as well as our own assessment of markets. If we incorrectly forecast demand, we may incur capacity issues in our manufacturing plant and supply chain, increased material costs, increased freight costs, additional overtime, and costs associated with excess inventory, all of which in turn adversely impact our cost of sales and our gross margin. Economic weakness and uncertainty in the United States, Europe and other countries may make accurate forecasting particularly challenging.

In the future, if actual demand for our products exceeds forecasted demand, the margins on our incremental sales in excess of anticipated sales may be lower due to temporary higher costs, which could result in a decrease in our overall margins. While we generally manufacture our products upon receipt of customer orders, if actual demand is less than the forecasted demand for our products and we have already manufactured the products or committed to purchase materials in support of forecasted demand, we could be forced to hold excess inventories. In short, either excess or insufficient production due to inaccurate forecasting could have a negative effect on our business, financial condition or results of operations.

Product recalls, and significant product repair and/or replacement due to product warranty costs and claims have had, and in the future, could have, a material adverse impact on our business.

Unless otherwise required by law, we generally provide a limited warranty for our products for a one or two-year period beginning on: (i) in the case of OEM sales, the date the bike or powered vehicle is purchased from an authorized OEM where our product is incorporated as original equipment on the purchased bike or powered vehicle; or (ii) in the case of aftermarket sales, the date the product is originally purchased from an authorized dealer. From time to time, our customers may negotiate for longer or different warranty coverage. In the ordinary course of business, we incur warranty costs and reserve against such costs in our financial statements. However, there is a risk that we could become aware of an underperforming product and be forced to adjust our warranty reserves or incur costs in excess of these reserves, which could adversely affect our results of operations.

If any of our products are or are alleged to be defective, we may be required to participate in a recall involving such products. Our products and items where our product is incorporated as original equipment on the purchased item are subject to regulation by various agencies, including the NHTSA, the CPSC and similar state and international regulatory authorities. We have had in the past, and may have in the future, recalls (both voluntary and involuntary) of our products or of items that incorporate our products. For example, in October 2016, we initiated a voluntary recall of certain bicycle Float X2 shock absorber products. Most recently, in May 2017, we announced a voluntary recall of approximately 2,500 of FOX's Harley Davidson specific aftermarket motorcycle shock absorbers. In the case of OEM sales, each manufacturer has its own practices regarding product recalls and other product liability actions that could involve its suppliers. Additionally, as suppliers become more integrally involved in the design process and assume a greater role in the overall system design, OEMs could potentially look to us to share in the cost if faced with recalls and product liability claims.

Although we carry product liability and product recall insurance, no assurance can be made that such insurance will provide adequate coverage against any potential claims, such insurance is available in the appropriate markets or that we will be able to obtain such insurance on acceptable terms in the future. In addition to the direct costs related to these or other recalls, our aftermarket and OEM sales could be adversely affected if we do not have a ready replacement product for such recalled products. Such recall events could also adversely affect our brand image and have a negative effect on our relationships with our OEMs, sponsored athletes and race teams, or otherwise have a negative effect on our business, financial condition or results of operations.

An adverse determination in any material product liability claim against us could adversely affect our operating results or financial condition.

The use of our products by consumers, often under extreme conditions, exposes us to risks associated with product liability claims. If our products are defective or used incorrectly by our customers, bodily injury, property damage or other injury, including death, may result in, and could give rise to product liability claims against us, which could adversely affect our brand image or reputation. We have encountered product liability claims in the past and carry product liability insurance to help protect us against the costs of such claims, although our insurance may not be sufficient to cover all losses. Any losses that we may suffer from any product liability claims, and the effect that any product liability litigation may have upon the reputation and marketability of our products, may have a negative impact on our business, financial condition or results of operations.

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Our credit facility places operating restrictions on us and creates default risks.

Our credit facility contains covenants that place restrictions on our operating activities. These covenants, among other things, limit our ability to:

•pay dividends or make distributions to our stockholders or redeem our stock;

•incur additional indebtedness or permit additional encumbrances on our assets; and

•make acquisitions or complete mergers or sales of assets, or engage in new businesses.

These restrictions may interfere with our ability to obtain financing or to engage in other business activities, which may have a material adverse effect on our business, financial condition or results of operations.

If we are unable to comply with the covenants contained in our credit facility, it could constitute an event of default and our lenders could declare all borrowings outstanding, together with accrued and unpaid interest, to be immediately due and payable. If we are unable to repay or otherwise refinance these borrowings when due, our lenders could sell the collateral securing our credit facility, which constitutes substantially all of our assets.

We will continue to have the ability to incur debt and our levels of debt may affect our operations and our ability to pay the principal of and interest on our debt.

In the future, we and our subsidiaries may be able to incur substantial additional debt from amendments to our credit facility with Bank of America and other named lenders (the "Credit Facility"), additional lending sources subject to the restrictions contained in the Credit Facility, or because of certain debt instruments we may issue.

As of April 3, 2020, we had $479.2 million of indebtedness and $150.0 million in revolving credit available to borrow under the Credit Facility. Our ability to borrow under the Credit Facility fluctuates from time to time due to, among other factors, our borrowings under the Credit Facility.

Our indebtedness could be costly or have adverse consequences, such as:

•requiring us to dedicate a substantial portion of our cash flows from operations to payments on our debt;

•limiting our ability to obtain future financing for working capital, capital expenditures, acquisitions, debt obligations and other general corporate requirements;

•making us more vulnerable to adverse conditions in the general economy or our industry and to fluctuations in our operating results, including affecting our ability to comply with and maintain any financial tests and ratios required under our indebtedness;

•limiting our flexibility to engage in certain transactions or to plan for, or react to, changes in our business and industry;

•putting us at a disadvantage compared to competitors that have less relative and/or less restrictive debt; and

•subjecting us to additional restrictive financial and other covenants.

If we incur substantial additional indebtedness in the future, these higher levels of indebtedness may affect our ability to pay the principal of and interest on existing indebtedness and our creditworthiness generally.

Our outstanding indebtedness under the Credit Facility bears interest at a variable rate, which makes us more vulnerable to increases in interest rates and could cause our interest expense to increase and decrease cash available for operations and other purposes.

Borrowings under our Credit Facility bear interest on a variable rate, which increases and decreases based upon changes in the underlying interest rate and/or our leverage ratio. Any such increases in the interest rate or increases of our borrowings under the Credit Facility will increase our interest expense.

As of April 3, 2020, we had $479.2 million of indebtedness, bearing interest at a variable rate, outstanding under the Credit Facility. Recent interest rates in the United States have been at historically low levels, and any increase in these rates would increase our interest expense and reduce our funds available for operations and other purposes. Although from time to time we may enter into agreements to hedge a portion of our interest rate exposure, these agreements may be costly and may not protect against all interest rate fluctuations. Accordingly, we may experience material increases in our interest expense as a result of increases in interest rate levels generally. Based on the $479.2 million of variable interest rate indebtedness that was outstanding as of April 3, 2020, a hypothetical 100 basis point increase or decrease in the interest rate would have resulted in an approximately $1.2 million change to our interest expense for the three months ended April 3, 2020.

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Unanticipated changes in our tax provisions, the adoption of new tax legislation or exposure to additional tax liabilities could affect our financial performance.

In 2017, Congress enacted the Tax Cuts and Jobs Act of 2017 (the "TCJA" or “Tax Act”), which significantly changed how the U.S. taxes corporations. Additional guidance related to the Tax Act continues to be issued by the U.S. Department of the Treasury and the Internal Revenue Service ("IRS"). The Tax Act requires complex computations to be performed that were not previously required under U.S. tax law, significant judgments to be made in interpretation of the provisions of the Tax Act, significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. The U.S. Department of the Treasury, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the Tax Act will be applied or otherwise administered that is different from our interpretations. In addition, it remains unclear in some cases how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities, or how foreign governments will view the changes.

Our analysis and interpretation of this legislation is ongoing. Additionally, the reduction in the U.S. corporate tax rate, the revision of rules governing foreign tax credits, and changes in the rules regarding the sourcing of income are expected to have an impact on our ability to utilize our existing and future foreign tax credits, and as such, we have provided a partial valuation allowance on these tax assets. A full valuation allowance was not provided primarily due to the decision to implement a prudent and feasible tax planning strategy to restructure business functions. However, there can be no assurance that we will be able to implement such a plan. Changes in our estimates regarding our ability to utilize our foreign tax credits could have a material impact on our tax provision, net income and cash flows.

There may be other material adverse effects resulting from the legislation that will become apparent as regulations are issued, and practice evolves through interpretation and case law. While some of the changes made by the tax legislation may adversely affect the Company in one or more reporting periods and prospectively, other changes may be beneficial. We continue to work with our tax advisors to determine the full impact that the recent tax legislation as a whole will have on us.

We are subject to income and other taxes in the United States and numerous foreign jurisdictions. Our tax liabilities in the United States and abroad are affected by the amounts we charge in intercompany transactions for inventory, services, licenses, funding and other items. We are subject to ongoing tax audits in various jurisdictions. Tax authorities may disagree with our intercompany charges, cross-jurisdictional transfer pricing or other matters, and may assess additional taxes as a result. We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision. However, there can be no assurance that we will accurately predict the outcomes of these audits, and the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and therefore could have a material impact on our tax provision, net income and cash flows.

We are subject to certain risks in our manufacturing and in the testing of our products.

As of April 3, 2020, we employed approximately 2,900 full-time employees worldwide, a large percentage of which work at our manufacturing facilities. Our business involves complex manufacturing processes that can be inherently dangerous. Although we employ safety procedures in the design and operation of our facilities, there is a risk that an accident or death could occur in one of our facilities. In addition, prior to the introduction of new products, our employees test the products under rigorous conditions, which involve the risk of injury or death. Any accident could result in manufacturing or product delays, which could negatively affect our business, financial condition or results of operations. The outcome of litigation is difficult to assess or quantify and the cost to defend litigation can be significant. As a result, the costs to defend any action or the potential liability resulting from any such accident or death or arising out of any other litigation, and any negative publicity associated therewith, could have a negative effect on our business, financial condition or results of operations.

We are subject to extensive United States federal and state, foreign and international safety, environmental, employment practices and other government regulations that may require us to incur expenses or modify product offerings in order to maintain compliance with such regulation, which could have a negative effect on our business and results of operations.

We are subject to extensive laws and regulations relating to safety, environmental, and other laws and regulations promulgated by the United States federal and state governments, as well as foreign and international regulatory authorities. Although we believe that our products, policies and processes comply with applicable safety, environmental, and other standards and related regulations, future regulations may require additional safety standards that would require additional expenses and/or modification of product offerings in order to maintain such compliance. Failure to comply with applicable regulations could result in fines, increased expenses to modify our products and harm to our reputation, all of which could have an adverse effect on our business, financial condition or results of operations.

Moreover, certain of our product offerings require us to comply with the rules and regulations of various standards of standard-setting organizations, such as the CPSC, the NHTSA, and the European Committee for Standardization ("CEN"). Failure to comply with the requirements of such organizations could result in the loss of certain customer contracts, fines and penalties, or both, which could have an adverse effect on our business, financial condition or results of operations.

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Unpredictability in the adoption, implementation and enforcement of increasingly stringent emission standards by multiple jurisdictions could adversely affect our business.

Certain of our products are subject to extensive statutory and regulatory requirements governing emission and noise, including standards imposed by the EPA, the EU, state regulatory agencies (such as the CARB) and other regulatory agencies around the world. We have made, and continue to make, capital and research expenditures to ensure our certain of our products comply with these emission standards. Developing products to meet numerous changing government regulatory requirements, with different implementation timelines and emission requirements, makes developing products efficiently for multiple markets complicated and could result in additional costs that may be difficult to recover in certain markets. In some cases, we may be required to develop new products to comply with new regulations, particularly those relating to air emissions. The successful development and introduction of new and enhanced products in order to comply with new regulatory requirements are subject to other risks, such as delays in product development, cost over-runs and unanticipated technical and manufacturing difficulties.

In addition to these risks, the nature and timing of government implementation and enforcement of increasingly stringent emission standards is unpredictable. Any delays in implementation or enforcement could result in the products we developed or modified to comply with these standards becoming unnecessary or becoming necessary later than expected, which in turn could delay, diminish or eliminate the expected return and may adversely affect our business.

Increasing focus on environmental, social and governance responsibility may impose additional costs on us and expose us to new risks.

Regulators, stockholders and other interested constituencies have focused increasingly on the environmental, social and governance practices of companies. Our customers may require us to implement environmental, social or governance responsibility procedures or standards before they will continue to do business with us. Additionally, we may face reputational challenges in the event our environmental, social or governance responsibility procedures or standards do not meet the standards set by certain constituencies. The occurrence of any of the foregoing could have a material adverse effect on the price of our shares and our business, financial condition and results of operations.

Climate change and related regulatory responses may adversely impact our business.

There is increasing concern that a gradual increase in global average temperatures due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere will cause significant changes in weather patterns around the globe and an increase in the frequency and severity of natural disasters. Changes in weather patterns and an increased frequency, intensity and duration of extreme weather conditions could, among other things, disrupt the operation of our supply chain, since our bike suspension manufacturing is entirely located in Taiwan, which is prone to typhoons, increase our product costs and impact the types and amounts of products that consumers purchase, since the majority of our products are used in outdoor recreation. As a result, the effects of climate change could have a long-term adverse impact on our business and results of operations.

In many of the countries in which we operate, governmental bodies are increasingly enacting legislation and regulations in response to the potential impacts of climate change. These laws and regulations, which may be mandatory, have the potential to impact our operations directly or indirectly as a result of required compliance by our suppliers and us. In addition, we may choose to take voluntary steps to mitigate our impact on climate change. As a result, we may experience increases in energy, production, transportation and raw material costs, capital expenditures or insurance premiums and deductibles. Inconsistency of legislation and regulations among jurisdictions may also affect the costs of compliance with such laws and regulations. Any assessment of the potential impact of future climate change legislation, regulations or industry standards, as well as any international treaties and accords, is uncertain given the scope of potential regulatory change in the countries in which we operate.

We are subject to employment practice laws and regulations, and, as such, are exposed to litigation risks.

We are subject to extensive laws and regulations relating employment practices, including wage and hour, wrongful termination and discrimination. Complying with such laws and regulations, and defending against allegations of our failure to comply (including meritless allegations), can be expensive and time consuming. We believe that our policies and processes comply with applicable employment standards and related regulations; however, we are subject to risks of litigation by employees and others that might involve allegations of illegal, unfair or inconsistent employment practices, including wage and hour violations and employment discrimination, misclassification of independent contractors as employees, wrongful termination and other concerns, which could require additional expenditures.

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We are subject to environmental laws and regulation and potential exposure for environmental costs and liabilities.

Our operations, facilities and properties are subject to a variety of foreign, federal, state and local laws and regulations relating to health, safety and the protection of the environment. These environmental laws and regulations include those relating to the use, generation, storage, handling, transportation, treatment and disposal of solid and hazardous materials and wastes, emissions to air, discharges to waters and the investigation and remediation of contamination. Many of these laws impose strict, retroactive, joint and several liability upon owners and operators of properties, including with respect to environmental matters that occurred prior to the time the party became an owner or operator. In addition, we may have liability with respect to third party sites to which we send waste for disposal. Failure to comply with such laws and regulations can result in significant fines, penalties, costs, liabilities or restrictions on operations that could negatively affect our business, financial condition or results of operations. From time to time, we have been involved in administrative or legal proceedings relating to environmental, health or safety matters and have incurred expenditures relating to such matters in the past.

We believe that our operations are in substantial compliance with applicable environmental laws and regulations. However, additional environmental issues relating to presently known or unknown matters could give rise to currently unanticipated investigation, assessment or expenditures. Compliance with laws or regulations that are more stringent, as well as different interpretations of existing laws, more vigorous enforcement by regulators or unanticipated events, could require additional expenditures that may materially affect our business, financial condition or results of operations.

Federal, state, local, foreign and international laws and regulations relating to land-use, and noise and air pollution may have a negative impact on our future sales and results of operations.

The products in our powered vehicles line are used in vehicles that are subject to numerous federal, state, local, foreign and international laws and regulations relating to noise and air pollution. Powered vehicles, and even bikes, have become subject to laws and regulations prohibiting their use on certain lands and trails. For example, in San Mateo County, California, mountain bikes are not allowed on county trails, and ATV and Side-by-Side riding is not allowed in Zion National Park, among many other national and state parks. In addition, recreational snowmobiling has been restricted in some national parks and federal lands in Canada, the United States and other countries. If more of these laws and regulations are passed and the users of our products lose convenient locations to ride their mountain bikes and powered vehicles, our sales could decrease and our business, financial condition or results of operations could suffer.

Fuel shortages, or high prices for fuel, could have a negative effect on the use of powered vehicles that use our products.

Gasoline or diesel fuel is required for the operation of the powered vehicles that use our products. There can be no assurance that the supply of these fuels will continue uninterrupted, that rationing will not be imposed or that the price of or tax on these petroleum products will not significantly increase in the future. Future shortages of gasoline and diesel fuel and substantial increases in the price of fuel could have a material adverse effect on our powered vehicle product category, which could have a negative effect on our business, financial condition or results of operations.

We do not control our suppliers, OEMs, other customers or partners, or require them to comply with a formal code of conduct, and actions that they might take could harm our reputation and sales.

We do not control our suppliers, OEMs, other customers or partners, or their labor, environmental or other practices. A violation of labor, environmental, intellectual property or other laws by our suppliers, OEMs, other customers or partners, or a failure of these parties to follow generally accepted ethical business practices, could create negative publicity and harm our reputation. In addition, we may be required to seek alternative suppliers or partners if these violations or failures were to occur. We do not inspect or audit compliance of our suppliers, OEMs, customers or partners with these laws or practices, and we do not require our suppliers, OEMs, customers or partners to comply with a formal code of conduct. Any conduct or actions that our suppliers could take could reduce demand for our products, harm our ability to meet demand or harm our reputation, brand image, business, financial condition or results of operations.

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We depend on a limited number of suppliers for our materials and component parts for some of our products, and the loss of any of these suppliers or an increase in cost of raw materials could harm our business.

We depend on a limited number of suppliers for certain components. If our current suppliers, in particular the minority of those that are "single-source" suppliers, are unable to timely fulfill orders, or if we are required to transition to other suppliers, we could experience significant production delays or disruption to our business. We define a single-source supplier as a supplier from which we purchase all of a particular raw material or input used in our manufacturing operations, although other suppliers are available from which to purchase the same raw material or input or an equivalent substitute. We do not maintain long-term supply contracts with any of our suppliers and instead purchase these components on a purchase order basis. As a result, we cannot force any supplier to sell us the necessary components we use in creating our products and we could face significant supply disruptions should they refuse to do so. As the majority of our bike component manufacturing occurs in Taiwan, we could experience difficulties locating qualified suppliers geographically located closer to these facilities. Furthermore, such suppliers could experience difficulties in providing us with some or all of the materials we require, which could result in disruptions in our manufacturing operations. If we experience difficulties with our suppliers or manufacturing delays caused by our suppliers, whether in connection with our manufacturing operations in the United States or in Taiwan, our business, financial condition or results of operations could be materially and adversely impacted.

We also purchase various raw materials in order to manufacture our products. The main commodity items purchased for production include aluminum, magnesium, steel and carbon. Historically, price fluctuations for these components and raw materials have not had a material impact on our business. In the future, however, if we experience material increases in the price of components or raw materials and are unable to pass on those increases to our customers, or there are shortages in the availability of such component parts or raw materials, it could negatively affect our business, financial condition or results of operations.

In addition to our various single-source suppliers, we also rely on one "sole-source" supplier, Miyaki Corporation, or Miyaki. We define a sole-source supplier as a supplier of a raw material or input for which there is no other supplier of the same product or an equivalent substitute. Miyaki is the exclusive producer of the Kashima coating for our suspension component tubes. As part of our agreement with Miyaki, we have been granted the exclusive right to use the trademark "KASHIMACOAT" on products comprising the aluminum finished parts for suspension components (e.g., tubes) and on related sales and marketing material worldwide, subject to certain exclusions. Although we believe we could obtain other coatings of comparable utility from other sources if necessary, we could no longer obtain this specific Kashima coating or use the trademark "KASHIMACOAT" if Miyaki were to stop supplying us with this coating. The need to replace the Kashima coating could temporarily disrupt our business and harm our business, financial condition or results of operations.

Regulations related to conflict minerals may force us to continue to incur additional expenses and otherwise adversely impact our business.

The SEC rules regarding disclosure of the use of tin, tantalum, tungsten and gold, known as conflict minerals, in products manufactured by public companies require ongoing due diligence to determine whether such minerals originated from the Democratic Republic of Congo ("DRC"), or an adjoining country and whether such minerals helped finance the armed conflict in the DRC. As a public company, we are required to comply with the reporting obligations annually. There are costs associated with complying with these disclosure requirements, including costs to determine the origin of conflict minerals in our products. The effect of such rules on customer, supplier and/or consumer behavior could adversely affect the sourcing, supply and pricing of materials used in our products. As a result, we may also incur costs with respect to potential changes to products, processes or sources of supply. We may face disqualification as a supplier for customers and reputational challenges if our due diligence procedures do not enable us to verify the origins for all conflict minerals used in our products or to determine if such conflict minerals are conflict-free. Accordingly, these rules could have a material adverse effect on our business, results of operations or financial condition.

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We may incur higher employee costs in the future.

We are subject to government-mandated wage and benefit laws and regulations in many varying countries and jurisdictions. For example, the State of California, where a substantial number of our employees are located, has passed legislation designed to raise the statewide minimum wage gradually until it reaches $15.00 per hour in 2022. Under the California law, signed on April 4, 2016, the minimum wage increased to $11.00 per hour effective January 1, 2018, and will gradually increase each calendar year through January 1, 2022, when it will reach $15.00 per hour. As we expand internationally, we are also subject to applicable laws in each such jurisdiction. Increases in the mandated wage in any or all of the jurisdictions in which we operate could subject us to increased costs, thereby impacting our business, financial condition, or results of operations.

We maintain a self-insured healthcare plan for our employees based in the United States. We have insurance coverage in place for individual claims above a specified amount in any year. Inflation in healthcare costs, as well as additional costs we may incur as a result of current or future federal or state healthcare legislation and regulations, could significantly increase our employee healthcare costs in the future. Continued increases in our employee costs could adversely affect our earnings, financial condition and liquidity.

We rely on increasingly complex information systems for management of our manufacturing, distribution, sales and other functions. If our information systems fail to perform these functions adequately or if we experience an interruption in our operations, our business could suffer.

All of our major operations, including manufacturing, distribution, sales and accounting, are dependent upon our complex information systems. Our information systems are vulnerable to damage or interruption from, among other things:

•earthquake, fire, flood, hurricane and other natural disasters;

•power loss, computer systems failure, internet and telecommunications or data network failure; and

•hackers, computer viruses, software bugs or glitches.

Any damage or significant disruption in the operation of such systems or the failure of our information systems to perform as expected could disrupt our operations, reduce our efficiency, delay our fulfillment of customer orders or require significant unanticipated expenditures to correct, and thereby have a negative effect on our business, financial condition or results of operations.

In 2015, we began the process of implementing a global enterprise resource planning system ("ERP"). The pilot phase of the new ERP was completed in fiscal year 2016 and additional phases were completed in 2018 and 2019. Remaining operations will be phased in over the next few fiscal years. ERP implementations are complex and time-consuming projects that involve substantial expenditures on system software and implementation activities. ERP implementations also require transformation of business and financial processes in order to reap the benefits of the ERP system. Any such transformation involves risks inherent in the conversion to a new computer system, including loss of information and potential disruption to our normal operations. Our business and results of operations may be adversely affected if we experience operating problems or cost overruns during the ERP implementation process, or if the ERP system and the associated process changes do not give rise to the benefits that we expect.

Additionally, if we do not effectively implement the ERP system as planned or the system does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected.

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We could be negatively impacted by cybersecurity attacks.

We use a variety of information technology systems in the ordinary course of business, which are potentially vulnerable to unauthorized access, computer viruses and cyber-attacks, including cyber-attacks to our information technology infrastructure and attempts by others to gain access to our propriety or sensitive information, and ranging from individual attempts to advanced persistent threats. The procedures and controls we use to monitor these threats and mitigate our exposure may not be sufficient to prevent cybersecurity incidents. The results of these incidents could include misstated financial data, theft of trade secrets or other intellectual property, liability for disclosure of confidential customer, supplier or employee information, increased costs arising from the implementation of additional security protective measures, litigation and reputational damage, which could materially adversely affect our financial condition, business or results of operations. Any remedial costs or other liabilities related to cybersecurity incidents may not be fully insured or indemnified by other means.

Additionally, security breaches could result in a violation of applicable U.S. and international privacy and other laws and subject us to governmental investigations and proceedings, which could result in our exposure to material civil or criminal liability. For example, the European Union adopted a new regulation that became effective in May 2018, called the General Data Protection Regulation (“GDPR”). GDPR requires companies to meet new requirements regarding the handling of personal data, including its use, protection and the ability of persons whose data is stored to correct or delete such data about themselves. Similarly, the California Consumer Privacy Act (“CCPA”), which took effect on January 1, 2020, imposes additional obligations on businesses to make new disclosures about data collection, use, and sharing practices and affords consumers new rights with respect to their data. It also provides a new private right of action for data breaches. Failure to meet GDPR and CCPA requirements could result in financial penalties.

Our vendors’ and commercial partners’ information technology systems may fail or suffer security breaches, which could result in a material disruption of our operations.

Despite the implementation of security measures, the information technology systems of our vendors or commercial partners are vulnerable to damage from computer viruses, unauthorized access, natural disasters, and electrical failures. Such events could cause disruptions in our operations. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data, or inappropriate disclosure of confidential or propriety information, we could be subject to litigation and reputational harm, which could materially adversely affect our financial condition, business or results of operations.

We retain certain personal information about individuals and are subject to various privacy and consumer protection laws.

We collect personal information for various purposes and through various methods, including from third parties and directly from consumers through our website, at events and sales, and via telephone and email. Certain individuals may object to the processing of this data, request the deletion of this data, or opt out of the sharing of this data, any of which may negatively impact our ability to provide effective customer service or otherwise impact our operations. Collection and use of personal information in conducting our business may be subject to federal and/or state laws and regulations in the United States and foreign jurisdictions including, in particular, various jurisdictions in Europe, and such laws and regulations may restrict our processing of such personal information and may hinder our ability to attract new customers or market to existing customers. We may incur significant expenses to comply with privacy, consumer protection, and security standards and protocols imposed by law, regulation, industry standards or contractual obligations.

Our vendors and any potential commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.

Our vendors and any potential commercial partners expose us to the risk of fraud or other misconduct. Misconduct by these parties could include intentional, reckless, and/or negligent conduct or disclosure of unauthorized activities to us that violate federal and/or state data privacy, security, and consumer protection laws and regulations in the United States and abroad. Such misconduct could result in regulatory sanctions and cause serious harm to our reputation.

Our operations may be impaired if our information technology systems fail to perform adequately or if they are the subject of a data breach or cyber-attack.

Information technology systems are critically important to operating our business. We rely on information technology systems to manage business data, communications, supply chain, order entry and fulfillment, and other business processes. The failure of any of the information technology systems to perform as anticipated could disrupt our business and could result in transaction errors, processing inefficiencies and the loss of sales and customers, which could materially adversely affect our business, financial condition, or results of operations.

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We have grown and may continue to grow in the future through acquisitions. Growth by acquisitions involves risks and we may not be able to effectively integrate businesses we acquire or we may not be able to identify or consummate any future acquisitions on favorable terms, or at all.

We have completed several acquisitions over the past several years, including our most recent acquisition of SCA in March 2020. Additionally, we intend to selectively evaluate additional acquisitions in the future. Any acquisitions that we have made and might make are subject to various risks and uncertainties and could have a negative impact on our business, financial condition or results of operations. These risks include the inability to integrate effectively the operations, products, technologies and personnel of the acquired companies (some of which may be spread out in different geographic regions), the inability to achieve anticipated cost savings or operating synergies, the earn-outs we may contractually obligate ourselves to pay, and the risk we may not be able to effectively manage our operations at an increased scale of operations resulting from such acquisitions. In the event we do complete acquisitions in the future, such acquisitions could affect our cash flows and net income as we expend funds, increase indebtedness and incur additional expenses in connection with pursuing acquisitions. We may also issue shares of our common stock or other securities from time to time as consideration for future acquisitions and investments. We may not be able to identify or consummate any future acquisitions on favorable terms, or at all.

Our operating results are subject to quarterly variations in our sales, which could make our operating results difficult to predict and could adversely affect the price of our common stock.

We have experienced, and expect to continue to experience, substantial quarterly variations in our sales and net income. Our quarterly results of operations fluctuate, in some cases significantly, as a result of a variety of other factors, including, among other things:

•the timing of new product releases or other significant announcements by us or our competitors;

•new advertising initiatives;

•fluctuations in raw materials and component costs; and

•changes in our practices with respect to building inventory.

As a result of these quarterly fluctuations, comparisons of our operating results between different quarters within a single year are not necessarily meaningful and may not be accurate indicators of our future performance. Any future quarterly fluctuations that we report may differ from the expectations of market analysts and investors, which could cause the price of our common stock to fluctuate significantly. We also believe that the seasonal nature of our business may have been overshadowed throughout the past few years due to the rapid growth in sales we have experienced during those periods.

Our beliefs regarding the future growth of the performance-defining product market are supported by qualitative data and limited sources and may not be reliable. A reduction or lack of continued growth in the popularity of high-end bikes, bikes or powered vehicles or in the number of consumers who are willing to pay premium prices for well-designed, performance-oriented equipment in the markets in which we sell our products could adversely affect our product sales and profits, financial condition or results of operations.

We generate virtually all of our revenues from sales of performance-defining products. Our beliefs regarding the outlook of the performance-defining product market come from qualitative data and limited sources, which may not be reliable. If our beliefs regarding the opportunities in the market for our products are incorrect or the number of consumers who we believe are willing to pay premium prices for well-designed, performance-oriented equipment in the markets in which we sell our products does not increase, or declines, we may fail to achieve future growth and our business, financial condition or results of operations could be negatively affected.

Failure of our internal control over financial reporting could adversely affect our business and financial results.

Our management is responsible for establishing and maintaining effective internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the "Sarbanes-Oxley Act"). Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our financial statements or fraud. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud. The identification of a material weakness could indicate a lack of controls adequate to generate accurate financial statements that, in turn, could cause a loss of investor confidence and decline in the market price of our common stock. We cannot assure you that we will be able to timely remediate any material weaknesses that may be identified in future periods or maintain all of the controls necessary for continued compliance. Likewise, we cannot assure you that we will be able to retain sufficient skilled finance and accounting personnel, especially in light of the increased demand for such personnel among publicly traded companies.

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Risks related to ownership of our common stock

The trading price of our common stock may be volatile, and you might not be able to sell your shares at or above the price you pay for the shares.

The trading price of our common stock could be volatile, and you could lose all or part of your investment in our common stock. Since our IPO in 2013, our stock price has fluctuated between $86.91 and $13.35 per share and such volatility may continue in the future. Factors affecting the trading price of our common stock could include:

•variations in our operating results or those of our competitors;

•new product or other significant announcements by us or our competitors;

•changes in our product mix;

•changes in consumer preferences;

•fluctuations in currency exchange rates;

•the gain or loss of significant customers;

•recruitment or departure of key personnel;

•changes in the estimates of our operating results or changes in recommendations by any securities analysts that elect to follow our common stock;

•changes in general economic conditions as well as conditions affecting our industry in particular; and

•sales of our common stock by us, our significant stockholders or our directors or executive officers.

In addition, in recent years, the stock market has experienced significant price fluctuations. Fluctuations in the stock market generally or with respect to companies in our industry could cause the trading price of our common stock to fluctuate for reasons unrelated to our business, operating results or financial condition. Further, some companies that have had volatile market prices for their securities have had securities class actions filed against them. A lawsuit filed against us, regardless of its merits or outcome, could cause us to incur substantial costs and could divert management’s attention.

Future issuances and sales of our shares, or the perception that such sales may occur, could cause our stock price to decline.

The issuance of additional shares of our common stock could dilute the ownership interest of our common stockholders and could depress the market price of shares of our common stock.

Our Amended and Restated Certificate of Incorporation authorizes us to issue 90,000,000 shares of common stock, 38,602,757 of which shares were outstanding as of April 3, 2020. In the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with financings, acquisitions, registration statements or otherwise.

After our IPO in 2013, we filed a registration statement under the Securities Act to register shares of our common stock that we may issue under our equity plans. As a result, all such shares can be freely sold in the public market upon issuance, subject to any vesting or contractual lock-up agreements.

We also have a number of institutional stockholders that own significant blocks of our common stock. If one or more of these stockholders were to sell large portions of their holdings in a relatively short time, for liquidity or other reasons, the prevailing price of shares of our common stock could be negatively affected.

If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about our business or us. If one or more of the analysts who covers us downgrades our stock or publishes unfavorable research about our business or our industry, our stock price would likely decline. If one or more of these analysts ceases coverage of our Company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

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Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our Company.

Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws (together, our "Charter Documents"), as well as Delaware law, contain provisions that may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Among other things, these provisions:

•authorize the issuance of "blank check" preferred stock that could be issued by our Board of Directors to discourage a takeover attempt;

•establish a classified Board of Directors, as a result of which the successors to the directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following their election;

•require that directors be removed from office only for cause;

•provide that vacancies on our Board of Directors, including newly created directorships, may be filled only by a majority vote of directors then in office;

•provide that no action be taken by stockholders by written consent;

•provide that special meetings of our stockholders may be called only by our Board of Directors, our Chairperson of the Board of Directors, our Lead Director (if we do not have a Chairperson or the Chairperson is disabled), our Chief Executive Officer or our President (in the absence of a Chief Executive Officer);

•require supermajority stockholder voting for our stockholders to effect certain amendments to our Charter Documents; and

•establish advance notice requirements for nominations for elections to our Board of Directors or for proposing other matters that can be acted upon by stockholders at stockholder meetings.

In addition, we are subject to Section 203 of the General Corporation Law of the State of Delaware ("DGCL"), which generally prohibits a Delaware corporation from engaging in a broad range of business combinations with a stockholder owning 15% or more of such corporation’s outstanding voting stock for a period of three years following the date on which such stockholder became an "interested" stockholder. In order for us to consummate a business combination with an interested stockholder within three years of the date on which the stockholder became interested, either: (i) the business combination or the transaction that resulted in the stockholder becoming interested must be approved by our Board of Directors prior to the date the stockholder became interested; (ii) the interested stockholder must own at least 85% of our outstanding voting stock at the time the transaction commences (excluding voting stock owned by directors who are also officers and certain employee stock plans); or (iii) the business combination must be approved by our Board of Directors and authorized by at least two-thirds of our stockholders (excluding the interested stockholder) at a special or annual meeting (not by written consent). This provision could have the effect of delaying or preventing a change in control, whether or not it is desired by or beneficial to our stockholders. Any delay or prevention of a change in control transaction or changes in our Board of Directors and management could deter potential acquirers or prevent the completion of a transaction in which our stockholders could receive a substantial premium over the then-current market price for their shares of our common stock.

Our Amended and Restated Certificate of Incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.

Our Amended and Restated Certificate of Incorporation provides that, with certain limited exceptions, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for: (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of our Company owed to us or our stockholders; (iii) any action asserting a claim against us arising pursuant to any provision of the DGCL or our Charter Documents; (iv) any action to interpret, apply, enforce or determine the validity of our Charter Documents; or (v) any action asserting a claim governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have received notice of and consented to the foregoing provisions. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find this choice of forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.

53

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table contains the details related to the repurchase of common stock based on the date of trade during the quarter ended April 3, 2020:

Period	Total Number of Shares Purchased (1)	Weighted Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
1/4 - 2/7	—	$	—	—
2/8 - 3/6	31,092	$	65.85	—
3/7 - 4/3	—	$	—	—
Total	31,092	$	65.85	—
(1) Shares acquired from holders of restricted stock unit awards to satisfy tax withholding obligations.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

54

ITEM 6. EXHIBITS

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Filing Date	Filed or Furnished Herewith
3.1	Amended and Restated Certificate of Incorporation	10-Q	001-36040	September 19, 2013
3.2	Amended and Restated Bylaws	10-Q	001-36040	September 19, 2013
10.1	Stock Purchase Agreement, by and among Fox Factory, Inc., Southern Rocky Holdings, LLC, and SCA Performance Holdings, Inc., dated February 11, 2020	10-K	001-36040	March 3, 2020
10.2	Commitment Letter, among Fox Factory Holding Corp., Bank of America, N.A. and BofA Securities, Inc., dated February 11, 2020	10-K	001-36040	March 3, 2020
10.3	Amended and Restated Credit Agreement, among Fox Factory Holding Corp., Bank of America, N.A. and other financial institutions party thereto, dated March 11, 2020	8-K	001-36040	March 16, 2020
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended				X
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended				X
32.1*	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended				X
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.				X
101.SCH	Inline XBRL Taxonomy Extension Schema Document				X
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document				X
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document				X
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document				X
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document				X
104	Cover page formatted as Inline XBRL and contained in Exhibit 101

* In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.

55

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FOX FACTORY HOLDING CORP.
	By:	/s/ John E. Blocher
May 6, 2020		John E. Blocher, Interim Chief Financial Officer and Interim Treasurer
		(Interim Principal Financial and Interim Accounting Officer)

56

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF DISCLOSURE IN FOX FACTORY HOLDING CORP'S

QUARTERLY REPORT FILED ON FORM 10-Q

I, Michael C. Dennison, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Fox Factory Holding Corp.:

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 6, 2020

/s/ Michael C. Dennison

Michael C. Dennison

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF DISCLOSURE IN FOX FACTORY HOLDING CORP'S

QUARTERLY REPORT FILED ON FORM 10-Q

I, John E. Blocher, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Fox Factory Holding Corp.:

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 6, 2020

/s/ John E. Blocher

John E. Blocher

Interim Chief Financial Officer and Interim Treasurer

(Interim Principal Financial Officer and Interim Treasurer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certify, pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in their capacities as officers of Fox Factory Holding Corp. (the “Company”), that, to their knowledge, the Quarterly Report on Form 10-Q of the Company for the quarter ended April 3, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the financial statements included in such report.

May 6, 2020

/s/ Michael C. Dennison

Michael C. Dennison

Chief Executive Officer

(Principal Executive Officer)

/s/ John E. Blocher

John E. Blocher

Interim Chief Financial Officer and Interim Treasurer

(Interim Principal Financial Officer and Interim Treasurer)

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Property, Plant and Equipment, net (Tables)

3 Months Ended

Apr. 03, 2020

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment, net

Property, plant and equipment, net consisted of the following:

	April 3,		January 3
	2020		2020
Building and building improvements	$	50,779	$	42,343
Information systems, office equipment and furniture	12,007		10,102
Internal-use computer software	17,708		16,860
Land	6,072		5,414
Leasehold improvements	12,457		13,841
Machinery and manufacturing equipment	68,839		57,331
Transportation equipment	5,422		5,006
Total	173,284		150,897
Less: accumulated depreciation and amortization	(45,651)		(42,518)
Property, plant and equipment, net	$	127,633	$	108,379

Long-lived Assets by Geographic Location

The Company’s long-lived assets by geographic location are as follows:

	April 3,		January 3
	2020		2020
United States	$	118,028	$	100,508
International	9,605		7,871
Total long-lived assets	$	127,633	$	108,379

XML

Condensed Consolidated Statements of Stockholders' Equity and Redeemable Non-controlling Interest - USD ($) $ in Thousands	Total	Common Stock	Treasury	Additional paid-in capital	Accumulated other comprehensive (loss) income	Retained earnings
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Adoption of new accounting standard, net of taxes	$ (228)					$ (228)
Beginning Balance (in shares) at Dec. 28, 2018		38,881,000	890,000
Beginning Balance at Dec. 28, 2018	321,205	$ 38	$ (13,754)	$ 116,019	$ (784)	219,686
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding (in shares)		180,000
Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding	(1,229)			(1,229)
Stock-based compensation expense	1,729			1,729
Foreign currency translation adjustment	(159)				(159)
Net income	18,103					18,103
Ending Balance (in shares) at Mar. 29, 2019		39,061,000	890,000
Ending Balance at Mar. 29, 2019	339,421	$ 38	$ (13,754)	116,519	(943)	237,561
Beginning Balance at Dec. 28, 2018	14,282
Increase (Decrease) in Temporary Equity [Roll Forward]
Temporary Equity, Net Income	299
Ending Balance at Mar. 29, 2019	$ 14,581
Beginning Balance (in shares) at Jan. 03, 2020	38,559	39,448,000	890,000
Beginning Balance at Jan. 03, 2020	$ 422,200	$ 39	$ (13,754)	123,274	150	312,491
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding (in shares)		45,000
Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding	(2,047)			(2,047)
Stock-based compensation expense	1,921			1,921
Foreign currency translation adjustment	(940)				(940)
Net income	$ 8,250					8,250
Ending Balance (in shares) at Apr. 03, 2020	38,603	39,493,000	890,000
Ending Balance at Apr. 03, 2020	$ 429,706	$ 39	$ (13,754)	$ 123,470	$ (790)	$ 320,741
Beginning Balance at Jan. 03, 2020	15,719
Increase (Decrease) in Temporary Equity [Roll Forward]
Temporary Equity, Net Income	488
Ending Balance at Apr. 03, 2020	$ 16,207

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Apr. 03, 2020	Jan. 03, 2020
Current assets:
Cash and cash equivalents	$ 76,182	$ 43,736
Accounts receivable (net of allowances of $1,205 and $810 at April 3, 2020 and January 3, 2020, respectively)	85,652	91,632
Inventory	156,553	128,505
Prepaids and other current assets	75,799	17,940
Total current assets	394,186	281,813
Property, plant and equipment, net	127,633	108,379
Lease right-of-use assets	20,632	17,472
Deferred tax assets	15,161	25,725
Goodwill	285,723	93,527
Intangibles, net	219,906	81,949
Other assets	5,458	451
Total assets	1,068,699	609,316
Current liabilities:
Accounts payable	88,613	55,144
Accrued expenses	40,285	35,744
Reserve for uncertain tax positions	957	925
Current portion of long-term debt	8,818	0
Total current liabilities	138,673	91,813
Line of credit	85,000	68,000
Long-term debt, less current portion	385,404	0
Other liabilities	13,709	11,584
Total liabilities	622,786	171,397
Commitments and contingencies (Refer to Note 9 - Commitments and Contingencies)
Redeemable non-controlling interest	16,207	15,719
Stockholders’ equity
Preferred stock, $0.001 par value — 10,000 authorized and no shares issued or outstanding as of April 3, 2020 and January 3, 2020	0	0
Common stock, $0.001 par value — 90,000 authorized; 39,493 shares issued and 38,603 outstanding as of April 3, 2020; 39,448 shares issued and 38,559 outstanding as of January 3, 2020	39	39
Additional paid-in capital	123,470	123,274
Treasury stock, at cost; 890 common shares as of April 3, 2020 and January 3, 2020	(13,754)	(13,754)
Accumulated other comprehensive (loss) income	(790)	150
Retained earnings	320,741	312,491
Total stockholders’ equity	429,706	422,200
Total liabilities, redeemable non-controlling interest and stockholders’ equity	$ 1,068,699	$ 609,316

XML

Description of the Business, Basis of Presentation and Summary of Significant Accounting Policies (Policies)

3 Months Ended

Apr. 03, 2020

Accounting Policies [Abstract]

Basis of Presentation

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 January 3, 2020 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on March 3, 2020. 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

The Company operates on a 52-53 week fiscal calendar. For 2020 and 2019, the Company's fiscal year will end or has ended on January 1, 2021 and January 3, 2020, respectively. The twelve month periods ended January 1, 2021 and January 3, 2020, will include or have included 52 and 53 weeks, respectively. The three month periods ended April 3, 2020 and March 29, 2019 each included 13 weeks

Principles of Consolidation

Principles of Consolidation - These condensed consolidated financial statements include the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Revenue Recognition

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.

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 revenue that are recognized when the rights are exercised by the customer. Measuring the material rights requires judgments including forecasts of future sales and product mix. At April 3, 2020, the balance of deferred revenue related to pricing provisions was $191. These amounts are expected to be recognized over the next 12 months. Revenues exclude sales tax.

Segments

Segments - The Company has determined that it has a single operating and reportable segment. The Company considers operating segments to be components of the Company for 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

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

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 recent coronavirus (“COVID-19”) outbreak. 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. The Company’s manufacturing facilities in North America have been affected by local and state “shelter-in-place” orders including the temporary suspension of non-essential operations in certain facilities. The Company is taking actions to manage costs during this time by enacting executive pay cuts and temporary furloughs, curtailing non-essential capital expenditures, and reducing expenses. 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 pandemic; government, social, business and other actions that have been and will be taken in response to the pandemic; and the effect of the pandemic on short and long-term general economic conditions.

Fair Value Measurements and Financial Instruments

Fair Value Measurements and Financial Instruments - The Financial Accounting Standards Board ("FASB") has issued Accounting Standards Codification 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.

Recent Accounting Pronouncements

Recent Accounting Pronouncements - In February 2016, the FASB issued ASU 2016-02, Leases, which supersedes the existing guidance for lease accounting. To meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases, this ASU requires lessees to recognize most leases on the balance sheet as right-of-use assets and lease liabilities.

The Company adopted this guidance as of the beginning of the first quarter of fiscal year 2019, with a cumulative effect adjustment to the opening balance of retained earnings at December 28, 2018 with no restatement of comparative periods’ financial information ("current-period adjustment method"). Additionally, the Company adopted this guidance using practical expedients with respect to the assessment of embedded leases, lease classification, and initial indirect costs for expired and existing leases. The Company also elected the practical expedient related to treating lease and non-lease components as a single lease component for all of its leases and 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. The Company did not use the hindsight practical expedient to adopt this guidance. The Company recorded a cumulative effect adjustment of $13,637 to operating lease right-of-use assets, $13,937 to operating lease liabilities, and $300 gross ($228 net of taxes) to the opening balance of the Company's retained earnings to reflect the cumulative effect of the adoption of the standard. This standard did not have a material impact on our consolidated income statements.

In June 2016, the FASB issue ASU 2016-13, Financial Instruments: Credit Losses, which adds an impairment model that is based on expected losses rather than incurred losses. Under this standard, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The Company adopted ASU 2016-13 effective in the first quarter of fiscal year 2020 using the aging method, which calculates the allowance based on how long a receivable has been outstanding, taking into account the historical credit loss rate and adjusting for both current conditions and forecasts of economic conditions into that expected credit loss rate. The adoption of ASU 2016-13 did not have a material impact on the Company's consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which clarifies the presentation of certain transactions, including but not limited to contingent consideration payments made after a business combination and debt prepayment and extinguishment costs in the cash flow statement. The Company adopted ASU 2016-16 effective in the first quarter of fiscal year 2019. The adoption of ASU 2016-15 did not have a material impact on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement, which modifies the disclosure requirements of fair value measurements in Topic 820. This standard is effective for fiscal years beginning after December 15, 2019. The Company adopted ASU 2018-13 effective in the first quarter of fiscal year 2020. The adoption of ASU 2018-13 did not have a material impact on the Company's consolidated financial statements.

XML

Related Party Transactions (Details) $ in Thousands	3 Months Ended
	Apr. 03, 2020 USD ($)
Purchase of Properties | Employees
Related Party Transaction [Line Items]
Payments made under lease	$ 28
Rental of Buildings
Related Party Transaction [Line Items]
Payments made under lease	16
Founder and Minority Stockholder
Related Party Transaction [Line Items]
Payments made under lease	$ 48

XML

Leases - Additional Information (Details)	3 Months Ended
	Apr. 03, 2020
Lessee, Lease, Description [Line Items]
Renewal term	5 years
Option to terminate, term	1 year
Weighted-average remaining lease term	4 years 6 months 10 days
Weighted-average incremental borrowing rate	3.54%
Minimum
Lessee, Lease, Description [Line Items]
Contract term	1 year
Maximum
Lessee, Lease, Description [Line Items]
Contract term	8 years

XML

Accrued Expenses (Components) (Details) - USD ($) $ in Thousands	Apr. 03, 2020	Jan. 03, 2020	Mar. 29, 2019	Dec. 28, 2018
Payables and Accruals [Abstract]
Payroll and related expenses	$ 8,932	$ 14,595
Current portion of lease liabilities	6,825	6,242
Warranty	8,719	5,649	$ 5,740	$ 6,433
Income tax payable	6,976	4,295
Other accrued expenses	8,833	4,963
Total	$ 40,285	$ 35,744

XML

Stockholders' Equity - Unvested RSU Activity (Details) shares in Thousands	3 Months Ended
	Apr. 03, 2020 $ / shares shares
Number of shares outstanding
Granted (in shares) | shares	43
Forfeited (in shares) | shares	3
Vested (in shares) | shares	81
Unvested at end of period (in shares) | shares	386
Weighted-average grant date fair value
Granted (in usd per share) | $ / shares	$ 54.94
Forfeited (in usd per share) | $ / shares	42.29
Vested (in usd per share) | $ / shares	31.15
Unvested at end of period (in usd per share) | $ / shares	$ 49.01
RSUs
Number of shares outstanding
Unvested at beginning of period (in shares) | shares	427
Weighted-average grant date fair value
Unvested at beginning of period (in usd per share) | $ / shares	$ 44.98

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Commitment and Contingencies (Details)	Nov. 30, 2017	Mar. 11, 2020
Loss Contingencies [Line Items]
Ownership interest acquired (as a percent)		100.00%
SCA
Loss Contingencies [Line Items]
Ownership interest acquired (as a percent)	80.00%
Call option to acquire remaining interest (as a percent)	20.00%
Period to exercise put option	180 days

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Label	Element	Value
Business Acquisition, Equity Interest Issued or Issuable, Value Assigned	us-gaap_BusinessAcquisitionEquityInterestIssuedOrIssuableValueAssigned	$ 322,000
Additional Paid-in Capital [Member]
Business Acquisition, Equity Interest Issued or Issuable, Value Assigned	us-gaap_BusinessAcquisitionEquityInterestIssuedOrIssuableValueAssigned	$ 322,000

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Acquisitions (Tables)

3 Months Ended

Apr. 03, 2020

Business Combinations [Abstract]

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

The Company’s allocation of the purchase price to the net tangible and intangible assets acquired and liabilities assumed is as follows:

Acquisition consideration
Cash consideration	$	329,209
Non-cash consideration	322
Total consideration at closing	$	329,531
Fair market values
Other current assets	$	15,556
Property, plant and equipment	9,953
Lease right-of-use assets	4,027
Customer relationships	129,000
Trademarks and brand	11,500
Goodwill	192,215
Total assets acquired	$	362,251
Accounts payable and accrued expenses	$	9,454
Lease liabilities	4,027
Deferred taxes	19,239
Total liabilities assumed	32,720
Purchase price allocation	$	329,531

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Revenues - Sales by Sales Channel (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 03, 2020	Mar. 29, 2019
Disaggregation of Revenue [Line Items]
Total sales	$ 184,361	$ 161,700
OEM
Disaggregation of Revenue [Line Items]
Total sales	103,748	100,505
Aftermarket
Disaggregation of Revenue [Line Items]
Total sales	$ 80,613	$ 61,195

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Stockholders' Equity

3 Months Ended

Apr. 03, 2020

Share-based Payment Arrangement [Abstract]

Stockholders' Equity

Stockholders' Equity

Equity Incentive Plans

The following table summarizes the allocation of stock-based compensation in the accompanying consolidated statements of income:

	For the three months ended
	April 3, 2020		March 29, 2019
Cost of sales	$	129	$	129
Sales and marketing	152		126
Research and development	201		165
General and administrative	1,439		1,309
Total	$	1,921	$	1,729

The following table summarizes the activity for the Company's unvested restricted stock units ("RSU") for the three months ended April 3, 2020:

	Unvested RSUs
	Number of shares outstanding	Weighted-average grant date fair value
Unvested at January 3, 2020	427	$	44.98
Granted	43	$	54.94
Canceled	(3)	$	42.29
Vested	(81)	$	31.15
Unvested at April 3, 2020	386	$	49.01

As of April 3, 2020, the Company had approximately $14,299 of unrecognized stock-based compensation expense related to RSUs, which will be recognized over the remaining weighted-average vesting period of approximately 2.62 years.

During the three months ended April 3, 2020, 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 3, 2020, stock-based compensation expense related to stock options has been fully recognized.

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Accrued Expenses

3 Months Ended

Apr. 03, 2020

Payables and Accruals [Abstract]

Accrued Expenses

Accrued Expenses

Accrued expenses consisted of the following:

	April 3,		January 3
	2020		2020
Payroll and related expenses	$	8,932	$	14,595
Current portion of lease liabilities	6,825		6,242
Warranty	8,719		5,649
Income tax payable	6,976		4,295
Other accrued expenses	8,833		4,963
Total	$	40,285	$	35,744

Activity related to warranties is as follows:

	For the three months ended
	April 3, 2020		March 29, 2019
Beginning warranty liability	$	5,649	$	6,433
Charge to cost of sales	1,054		575
Fair value of warranty assumed in acquisition	3,158		—
Costs incurred	(1,142)		(1,268)
Ending warranty liability	$	8,719	$	5,740

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Inventory

3 Months Ended

Apr. 03, 2020

Inventory Disclosure [Abstract]

Inventory

Inventory

Inventory consisted of the following:

	April 3,		January 3
	2020		2020
Raw materials	$	103,509	$	87,779
Work-in-process	12,439		7,075
Finished goods	40,605		33,651
Total inventory	$	156,553	$	128,505

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Stockholders' Equity - Additional Information (Details) $ in Thousands	3 Months Ended
	Apr. 03, 2020 USD ($) shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of stock options exercised (in shares) | shares	0
RSUs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized stock-based compensation expense related to RSUs | $	$ 14,299
Period for recognition of unrecognized stock-based compensation expense	2 years 7 months 13 days

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Fair Value Measurements and Financial Instruments - Liabilities at Fair Value on Recurring Basis (Details) - USD ($) $ in Thousands	Apr. 03, 2020	Jan. 03, 2020	Mar. 29, 2019	Dec. 28, 2018
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Credit Facility	$ 479,222	$ 68,000
Non-controlling interest subject to put provisions	16,207	15,719	$ 14,581	$ 14,282
Total liabilities measured at fair value	495,429	83,719
Level 1
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Credit Facility	0	0
Non-controlling interest subject to put provisions	0	0
Total liabilities measured at fair value	0	0
Level 2
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Credit Facility	479,222	68,000
Non-controlling interest subject to put provisions	0	0
Total liabilities measured at fair value	479,222	68,000
Level 3
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Credit Facility	0	0
Non-controlling interest subject to put provisions	16,207	15,719
Total liabilities measured at fair value	$ 16,207	$ 15,719

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Income Taxes (Tables)

3 Months Ended

Apr. 03, 2020

Income Tax Disclosure [Abstract]

Schedule of Components of Income Tax Expense (Benefit)

	For the three months ended
	April 3, 2020			March 29, 2019
Provision for income taxes	$	920		$	2,601
Effective tax rates	9.5		%	12.4		%

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Revenues - Sales by Product Category (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 03, 2020	Mar. 29, 2019
Disaggregation of Revenue [Line Items]
Total sales	$ 184,361	$ 161,700
Powered Vehicles
Disaggregation of Revenue [Line Items]
Total sales	120,526	96,708
Specialty Sports
Disaggregation of Revenue [Line Items]
Total sales	$ 63,835	$ 64,992

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Debt

3 Months Ended

Apr. 03, 2020

Debt Disclosure [Abstract]

Debt

Debt

Former Second Amended and Restated Credit Facility

In August 2013, the Company entered into a credit facility with SunTrust Bank, N.A. and other named lenders, which was periodically amended and restated (the "Second Amended and Restated Credit Facility"). The Company paid off the Second Amended and Restated Credit Facility in June 2019 upon entering into the new Credit Facility with Bank of America, N.A. ("Bank of America").

Amended and Restated Credit Facility

In June 2019, the Company entered into a credit facility with Bank of America and other named lenders, which was later amended and restated on March 11, 2020 (the "Credit Facility"). The Credit Facility, which matures on March 11, 2025, provides a senior secured revolving line of credit with a borrowing capacity of $250,000 and a maturing secured term loan of $400,000. The term loan is subject to quarterly amortization payments.

The Company paid $6,622 in debt issuance costs, of which $5,858 were allocated to the term debt and $764 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, which are included in other expense, net on the Condensed Consolidated Statements of Income for the three months ended April 3, 2020 and the remaining $157 were allocated to the line of credit. Loan fees allocated to the term debt will be amortized using the interest method and loan fees allocated to the line of credit will be amortized on a straight-line basis over the term of the Credit Facility.

The Credit Facility provides for interest at a rate either based on the London Interbank Offered Rate, or LIBOR, plus a margin ranging from 1.00% to 1.75%, or based on the base rate offered by Bank of America plus a margin ranging from 0.00% to 0.75%. At April 3, 2020, the one-month LIBOR and prime rates were 0.99% and 3.25%, respectively. At April 3, 2020, our weighted average interest rate on outstanding borrowing was 2.33%. The 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 April 3, 2020.

The Credit Facility permits 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 3, 2020.

The following table summarizes the line of credit under the Credit Facility:

	April 3,
	2020
Amount outstanding	$	85,000
Standby letters of credit	15,000
Available borrowing capacity	150,000
Total borrowing capacity	$	250,000
Maturity date	March 11, 2025

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Prepaids and Other Assets

3 Months Ended

Apr. 03, 2020

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Prepaids and Other Current Assets

Prepaids and Other Current Assets

Prepaids and other current assets consisted of the following:

	April 3,		January 3
	2020		2020
Prepaid chassis deposits	$	52,445	$	6,701
Advanced payments and prepaid contracts	9,686		5,774
Current portion of acquisition-related compensation held in escrow	4,642		—
Other current assets	9,026		5,465
Total	$	75,799	$	17,940

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Income Taxes

3 Months Ended

Apr. 03, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

	For the three months ended
	April 3, 2020			March 29, 2019
Provision for income taxes	$	920		$	2,601
Effective tax rates	9.5		%	12.4		%

For the three months ended April 3, 2020, the difference between the Company's effective tax rate of 9.5% and the 21% federal statutory rate resulted primarily from a lower tax rate on foreign derived intangible income, research and development credits, and a reduction of Switzerland withholding tax. These benefits were partially offset by state taxes, global low-tax intangible income tax and nondeductible expenses. There was a $40 excess benefit related to stock-based compensation.

For the three months ended March 29, 2019, the difference between the Company's effective tax rate of 12.4% and the 21% federal statutory rate resulted primarily from lower foreign tax rates, lower effective federal rates on foreign derived intangible income, research and development credits, and $1,825 from excess benefits related to the exercise of stock options. These benefits were partially offset by state taxes, foreign withholding taxes and the impact of nondeductible expenses.

We do not expect the results from any ongoing income tax audit to have a material impact on our consolidated financial condition, results of operations, or cash flows.

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Leases (Tables)

3 Months Ended

Apr. 03, 2020

Leases [Abstract]

Lease Costs

Operating lease costs consisted of the following:

	For the three months ended
	April 3, 2020		March 29, 2019
Operating lease cost	$	1,576	$	1,420
Other lease costs (1)	274		183
Total	$	1,850	$	1,603
(1) Includes short-term leases and variable lease costs. The Company elected a policy 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 Disclosure

Supplemental balance sheet information related to the Company's operating leases is as follows:

	Balance Sheet Classification	April 3, 2020
Operating lease right-of-use assets	Lease right-of-use assets	$	20,632
Current lease liabilities	Accrued expenses	$	6,825
Non-current lease liabilities	Other liabilities	$	13,709

Maturity of Lease Liabilities

Maturities of lease liabilities by fiscal year for the Company's operating leases are as follows:

For fiscal year	Total future payments
2020 (excluding the 3 months ended April 3, 2020)	$	5,276
2021	5,387
2022	3,766
2023	3,376
2024	1,722
Thereafter	2,722
Total lease payments	22,249
Less: imputed interest	(1,715)
Present value of lease liabilities	20,534
Less: current portion	(6,825)
Lease liabilities less current portion	$	13,709

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Apr. 03, 2020	Mar. 29, 2019
OPERATING ACTIVITIES:
Net income	$ 8,738	$ 18,402
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	5,829	4,039
Stock-based compensation	1,921	1,729
Deferred taxes and uncertain tax positions	(8,649)	716
Amortization of loan fees	389	68
Changes in operating assets and liabilities, net of effects of acquisition of business:
Accounts receivable	14,391	(4,904)
Inventory	(22,479)	(17,030)
Income taxes	916	(878)
Prepaids and other assets	(61,695)	(7,293)
Accounts payable	30,345	20,660
Accrued expenses and other liabilities	(3,191)	(6,764)
Net cash (used in) provided by operating activities	(33,485)	8,745
INVESTING ACTIVITIES:
Purchases of property and equipment	(12,841)	(7,297)
Acquisition of businesses, net of cash acquired	(329,209)	0
Net cash used in investing activities	(342,050)	(7,297)
FINANCING ACTIVITIES:
Proceeds from line of credit	156,000	26,000
Payments on line of credit	(139,000)	(13,000)
Proceeds from issuance of debt, net of origination fees of $6,622	393,379	0
Repayment of debt	0	(2,813)
Repurchases from stock compensation program, net	(2,047)	(1,229)
Net cash provided by financing activities	408,332	8,958
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(351)	(76)
CHANGE IN CASH AND CASH EQUIVALENTS	32,446	10,330
CASH AND CASH EQUIVALENTS—Beginning of period	43,736	27,958
CASH AND CASH EQUIVALENTS—End of period	76,182	38,288
Cash paid during the period for:
Income taxes	9,280	6,243
Cash paid for interest, net of capitalized interest	729	702
Cash paid for amounts included in the measurement of lease liabilities	1,602	1,430
Non-cash operating activities:
Right-of-use assets obtained in exchange for lease obligations	4,336	2,543
Capital expenditures included in accounts payable	$ 2,088	$ 1,688

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Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Apr. 03, 2020	Jan. 03, 2020
Statement of Financial Position [Abstract]
Accounts receivable, allowance for doubtful accounts	$ 1,205	$ 810
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	90,000,000	90,000,000
Common stock, shares issued (in shares)	39,493	39,448
Common stock, shares outstanding (in shares)	38,603	38,559
Treasury stock, shares (in shares)	890	890

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Revenues (Tables)

3 Months Ended

Apr. 03, 2020

Revenue from Contract with Customer [Abstract]

Disaggregation of Revenues

The following table summarizes total sales by product category:

	For the three months ended
	April 3, 2020		March 29, 2019
Powered Vehicles	$	120,526	$	96,708
Specialty Sports	63,835		64,992
Total sales	$	184,361	$	161,700

The following table summarizes total sales by sales channel:

	For the three months ended
	April 3, 2020		March 29, 2019
OEM	$	103,748	$	100,505
Aftermarket	80,613		61,195
Total sales	$	184,361	$	161,700

The following table summarizes total sales generated by geographic location of the customer:

	For the three months ended
	April 3, 2020		March 29, 2019
North America	$	130,622	$	109,632
Asia	22,878		23,386
Europe	28,959		27,536
Rest of the world	1,902		1,146
Total sales	$	184,361	$	161,700

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Acquisitions - Additional Information (Details) - USD ($) $ in Thousands	Mar. 11, 2020	Nov. 30, 2017
Business Acquisition [Line Items]
Ownership interest acquired (as a percent)	100.00%
Business acquisition, executive compensation of acquiree management	$ 1,750
Minimum
Business Acquisition [Line Items]
Useful life	5 years
Maximum
Business Acquisition [Line Items]
Useful life	10 years
SCA
Business Acquisition [Line Items]
Ownership interest acquired (as a percent)		80.00%
Total consideration at closing	$ 329,531
Goodwill	192,215
Performance-based retention incentives	10,589
Transaction costs	10,579
Costs associated with performance-based incentives	143
Business acquisition, additional financing costs	$ 6,622

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Property, Plant and Equipment, net (Long-lived Assets by Geographic Location) (Details) - USD ($) $ in Thousands	Apr. 03, 2020	Jan. 03, 2020
Property, Plant and Equipment [Line Items]
Total long-lived assets	$ 127,633	$ 108,379
United States
Property, Plant and Equipment [Line Items]
Total long-lived assets	118,028	100,508
International
Property, Plant and Equipment [Line Items]
Total long-lived assets	$ 9,605	$ 7,871

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Leases - Maturity of Lease Liabilities (Details) - USD ($) $ in Thousands	Apr. 03, 2020	Jan. 03, 2020
Leases [Abstract]
2020 (excluding the 3 months ended April 3, 2020)	$ 5,276
2021	5,387
2022	3,766
2023	3,376
2024	1,722
Thereafter	2,722
Total lease payments	22,249
Less: imputed interest	(1,715)
Present value of lease liabilities	20,534
Less: current portion	(6,825)	$ (6,242)
Lease liabilities less current portion	$ 13,709

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Income Taxes - Additional Information (Details) - USD ($)	3 Months Ended
	Apr. 03, 2020	Mar. 29, 2019
Income Tax Contingency [Line Items]
Effective tax rates	9.50%	12.40%
Federal statutory rate	21.00%
Excess benefits related to exercise of awards	$ 40,000
Excess tax benefit, exercise of stock options	$ 1,825

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Stockholders' Equity - Equity Incentive Plans (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 03, 2020	Mar. 29, 2019
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Allocated share-based compensation expense	$ 1,921	$ 1,729
Cost of sales
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Allocated share-based compensation expense	129	129
Sales and marketing
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Allocated share-based compensation expense	152	126
Research and development
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Allocated share-based compensation expense	201	165
General and administrative
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Allocated share-based compensation expense	$ 1,439	$ 1,309

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Debt - Future Payments for Long-term Debt (Details) - USD ($) $ in Thousands	Apr. 03, 2020	Jan. 03, 2020
Debt Disclosure [Abstract]
2020 (remaining nine months)	$ 7,500
2021	10,000
2022	17,500
2023	20,000
2024	20,000
Thereafter	325,000
Total	400,000
Debt issuance cost	5,778
Long-term debt, net of issuance cost	394,222
Less: current portion	(8,818)	$ 0
Long-term debt less current portion	$ 385,404	$ 0

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Fair Value Measurements and Financial Instruments

3 Months Ended

Apr. 03, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements and Financial Instruments

Fair Value Measurements and Financial Instruments

The following table presents the Company's hierarchy for its assets, liabilities and redeemable non-controlling interest measured at fair value on a recurring basis as of the following periods:

	April 3, 2020								January 3, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Liabilities:
Credit Facility	$	—	$	479,222	$	—	$	479,222	$	—	$	68,000	$	—	$	68,000
Non-controlling interest subject to put provisions	—		—		16,207		16,207		—		—		15,719		15,719
Total liabilities measured at fair value	$	—	$	479,222	$	16,207	$	495,429	$	—	$	68,000	$	15,719	$	83,719

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 3, 2020.

The Company used Level 2 inputs to determine the fair value of its Credit Facility. As of April 3, 2020, the carrying amount of the principal under the Company’s Credit Facility approximated fair value because it had a variable interest rate that reflected market changes in interest rates and changes in the Company’s net leverage ratio.

The Company has potential obligations to purchase the non-controlling interests held by third parties in the Tuscany subsidiary. These obligations are in the form of put provisions and are exercisable at the third-party owners' discretion within the specified periods outlined in the put provision within the Tuscany stockholders' agreement. If these put provisions were exercised, the Company would be required to purchase the third-party owners' non-controlling interests at the appraised fair value. The initial non-controlling interest value was implicit in the purchase price and is revalued each quarter, with the adjustment being recorded directly as a component of retained earnings. The methodology the Company uses to estimate the fair value of the non-controlling interests subject to these put provisions is based on an average multiple of earnings before income taxes, depreciation and amortization ("EBITDA"), taking into consideration historical earnings and other factors. The estimated fair value is then compared to the carrying value based on the initial valuation and the cumulative net earnings attributable to the non-controlling interest. At April 3, 2020, the estimated fair value was lower than the carrying value and, in accordance with applicable guidance, the non-controlling interest has been adjusted to the carrying value. The estimated fair values of the non-controlling interests subject to put provisions can fluctuate and the implicit multiple of earnings at which these non-controlling interest obligations may ultimately be settled could vary significantly from our future estimates depending upon market conditions.

The following table provides a reconciliation of the beginning and ending balances for the Company's redeemable non-controlling interest measured at fair value using Level 3 inputs:

	Redeemable Non-Controlling Interest (level 3 measurement)
Balance at January 3, 2020	$	15,719
Net income attributable to non-controlling interest	488
Balance at April 3, 2020	$	16,207

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Leases

3 Months Ended

Apr. 03, 2020

Leases [Abstract]

Leases

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 1 to 8 years, some of which include options to extend the lease term for up to 5 years, and some of which include options to terminate the leases within 1 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 4.53 years and the weighted-average incremental borrowing rate was 3.54% as of April 3, 2020.

Operating lease costs consisted of the following:

	For the three months ended
	April 3, 2020		March 29, 2019
Operating lease cost	$	1,576	$	1,420
Other lease costs (1)	274		183
Total	$	1,850	$	1,603
(1) Includes short-term leases and variable lease costs. The Company elected a policy 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 Classification	April 3, 2020
Operating lease right-of-use assets	Lease right-of-use assets	$	20,632
Current lease liabilities	Accrued expenses	$	6,825
Non-current lease liabilities	Other liabilities	$	13,709

Maturities of lease liabilities by fiscal year for the Company's operating leases are as follows:

For fiscal year	Total future payments
2020 (excluding the 3 months ended April 3, 2020)	$	5,276
2021	5,387
2022	3,766
2023	3,376
2024	1,722
Thereafter	2,722
Total lease payments	22,249
Less: imputed interest	(1,715)
Present value of lease liabilities	20,534
Less: current portion	(6,825)
Lease liabilities less current portion	$	13,709

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Fair Value Measurements and Financial Instruments (Tables)

3 Months Ended

Apr. 03, 2020

Fair Value Disclosures [Abstract]

Liabilities Measured at Fair Value on Recurring Basis

The following table presents the Company's hierarchy for its assets, liabilities and redeemable non-controlling interest measured at fair value on a recurring basis as of the following periods:

	April 3, 2020								January 3, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Liabilities:
Credit Facility	$	—	$	479,222	$	—	$	479,222	$	—	$	68,000	$	—	$	68,000
Non-controlling interest subject to put provisions	—		—		16,207		16,207		—		—		15,719		15,719
Total liabilities measured at fair value	$	—	$	479,222	$	16,207	$	495,429	$	—	$	68,000	$	15,719	$	83,719

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation

The following table provides a reconciliation of the beginning and ending balances for the Company's redeemable non-controlling interest measured at fair value using Level 3 inputs:

	Redeemable Non-Controlling Interest (level 3 measurement)
Balance at January 3, 2020	$	15,719
Net income attributable to non-controlling interest	488
Balance at April 3, 2020	$	16,207

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Description of the Business, Basis of Presentation and Summary of Significant Accounting Policies - Revenue Recognition (Details) $ in Thousands	Apr. 03, 2020 USD ($)
Accounting Policies [Abstract]
Deferred revenue	$ 191

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Revenues - Sales by Geographic Location (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 03, 2020	Mar. 29, 2019
Disaggregation of Revenue [Line Items]
Total sales	$ 184,361	$ 161,700
North America
Disaggregation of Revenue [Line Items]
Total sales	130,622	109,632
Asia
Disaggregation of Revenue [Line Items]
Total sales	22,878	23,386
Europe
Disaggregation of Revenue [Line Items]
Total sales	28,959	27,536
Rest of the world
Disaggregation of Revenue [Line Items]
Total sales	$ 1,902	$ 1,146

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Revenues

3 Months Ended

Apr. 03, 2020

Revenue from Contract with Customer [Abstract]

Revenues

Revenues

The following table summarizes total sales by product category:

	For the three months ended
	April 3, 2020		March 29, 2019
Powered Vehicles	$	120,526	$	96,708
Specialty Sports	63,835		64,992
Total sales	$	184,361	$	161,700

The following table summarizes total sales by sales channel:

	For the three months ended
	April 3, 2020		March 29, 2019
OEM	$	103,748	$	100,505
Aftermarket	80,613		61,195
Total sales	$	184,361	$	161,700

The following table summarizes total sales generated by geographic location of the customer:

	For the three months ended
	April 3, 2020		March 29, 2019
North America	$	130,622	$	109,632
Asia	22,878		23,386
Europe	28,959		27,536
Rest of the world	1,902		1,146
Total sales	$	184,361	$	161,700

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Debt (Tables)

3 Months Ended

Apr. 03, 2020

Debt Disclosure [Abstract]

Summary of Second Amended and Restated Credit Facility

The following table summarizes the line of credit under the Credit Facility:

	April 3,
	2020
Amount outstanding	$	85,000
Standby letters of credit	15,000
Available borrowing capacity	150,000
Total borrowing capacity	$	250,000
Maturity date	March 11, 2025

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Prepaids and Other Current Assets (Tables)

3 Months Ended

Apr. 03, 2020

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Accrued Expenses

Accrued expenses consisted of the following:

	April 3,		January 3
	2020		2020
Payroll and related expenses	$	8,932	$	14,595
Current portion of lease liabilities	6,825		6,242
Warranty	8,719		5,649
Income tax payable	6,976		4,295
Other accrued expenses	8,833		4,963
Total	$	40,285	$	35,744

Schedule of Accrued Expenses

Prepaids and other current assets consisted of the following:

	April 3,		January 3
	2020		2020
Prepaid chassis deposits	$	52,445	$	6,701
Advanced payments and prepaid contracts	9,686		5,774
Current portion of acquisition-related compensation held in escrow	4,642		—
Other current assets	9,026		5,465
Total	$	75,799	$	17,940

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Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Apr. 03, 2020	Mar. 29, 2019
Statement of Comprehensive Income [Abstract]
Net income	$ 8,738	$ 18,402
Other comprehensive loss
Foreign currency translation adjustments, net of tax effects	(940)	(159)
Other comprehensive loss	(940)	(159)
Comprehensive income	7,798	18,243
Less: comprehensive income attributable to non-controlling interest	488	299
Comprehensive income attributable to FOX stockholders	$ 7,310	$ 17,944

XML

Cover - shares	3 Months Ended
	Apr. 03, 2020	May 04, 2020	Jan. 03, 2020
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Apr. 03, 2020
Document Transition Report	false
Entity File Number	001-36040
Entity Registrant Name	Fox Factory Holding Corp.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	26-1647258
Entity Address, Address Line One	6634 Hwy 53
Entity Address, City or Town	Braselton
Entity Address, State or Province	GA
Entity Address, Postal Zip Code	30517
City Area Code	831
Local Phone Number	274-6500
Title of 12(b) Security	Common Stock, par value $0.001 per share
Trading Symbol	FOXF
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Shell Company	false
Common stock, shares outstanding (in shares)	38,603		38,559
Amendment Flag	false
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Entity Central Index Key	0001424929
Current Fiscal Year End Date	--01-01
Entity Common Stock, Shares Outstanding		38,602,757

XML

Acquisitions

3 Months Ended

Apr. 03, 2020

Business Combinations [Abstract]

Acquisitions

Acquisitions

On March 11, 2020, the Company, through Fox Factory, Inc., acquired 100% of the issued and outstanding stock of SCA Performance Holdings, Inc. ("SCA") from Southern Rocky Holdings, LLC for $329,531, net of cash acquired and exclusive of vehicle inventory. SCA is a leading OEM authorized specialty vehicle manufacturer for light duty trucks and SUVs with headquarters in Trussville, Alabama. SCA operates under three aftermarket brands: SCA Performance, Rocky Ridge Trucks, and Rocky Mountain Truckworks. The Company believes the acquisition will be complementary to FOX’s Tuscany business, expanding its North American geographic manufacturing footprint and broadening its product offering in a growing segment of the automotive industry. This transaction was accounted for as a business combination.

The Company also agreed to an additional $10,589 of contingent retention incentives for key SCA management, of which $9,283 is cash and $1,306 is stock, to be held in escrow and payable over the next two years. The Company recognized $143 in costs associated with such retention incentives during the three months ended April 3, 2020. Additionally, the Company agreed to pay $1,750 in transaction compensation to key SCA management concurrently with the closing.

The purchase price of SCA has been preliminarily allocated to the assets acquired and liabilities assumed based on their estimated respective fair values as of March 11, 2020 with the excess purchase price allocated to goodwill. The Company’s allocation of the purchase price to the net tangible and intangible assets acquired and liabilities assumed is as follows:

Acquisition consideration
Cash consideration	$	329,209
Non-cash consideration	322
Total consideration at closing	$	329,531
Fair market values
Other current assets	$	15,556
Property, plant and equipment	9,953
Lease right-of-use assets	4,027
Customer relationships	129,000
Trademarks and brand	11,500
Goodwill	192,215
Total assets acquired	$	362,251
Accounts payable and accrued expenses	$	9,454
Lease liabilities	4,027
Deferred taxes	19,239
Total liabilities assumed	32,720
Purchase price allocation	$	329,531

The Company incurred $10,579 of acquisition costs in conjunction with the SCA acquisition, including $1,750 of transaction compensation during the three months ended April 3, 2020 and $602 of transaction costs during the three months ended January 3, 2020. These costs are classified as general and administrative expenses in the accompanying condensed consolidated statements of income. Additional debt issuance costs of $6,622 were incurred in association with financing the transaction and will be amortized over the term of the Credit Facility. Refer to Note 8 - Debt for further details.

The primary areas of the preliminary purchase price allocations that have not been finalized relate to the finalization of working capital and the valuation of real estate, intangible assets and related deferred tax liabilities. Upon completion of the fair value assessment, the Company anticipates that the ultimate intangible assets may differ from the preliminary assessment outlined above. Any change in the finalization of working capital will reduce or increase the cash consideration. Any changes to the preliminary estimates of the fair value of the real estate and intangible assets will be adjusted to goodwill during the measurement period, with subsequent changes in estimates recorded in the statement of operations.

The preliminarily values assigned to the identifiable intangible assets were determined by discounting the estimated future cash flows associated with these assets to their present value. The goodwill of $192,215 reflects the strategic fit of SCA with the Company’s operations. The Company will amortize the acquired customer relationships assets over their expected useful lives of 5-10 years. Trademarks, brand names and goodwill are expected to have an indefinite life, and will be subject to impairment testing. The goodwill is not deductible for income tax purposes. SCA previously purchased intangibles and goodwill in asset acquisitions with a remaining net tax basis approximating $77,989 which the Company may deduct for income tax purposes.

The following unaudited pro forma financial information shows the combined results of operations of the Company and SCA, as if the acquisition had occurred as of the beginning of the periods presented. The pro forma results include the effects of the amortization of purchased intangible assets and acquired inventory valuation step-up, interest expense on the term debt secured to finance the acquisition, and the net tax benefit of the above adjustments calculated at the statutory federal tax rate of 21%. SCA was operated as a C Corporation for federal taxation purposes. A pro forma adjustment has been made to reflect the income taxes that would have been recorded at the federal statutory rate based on SCA’s net income. The pro forma results for the three months ended April 3, 2020 exclude transaction costs associated with the acquisition and the results for the three months ended March 29, 2019 have been adjusted to include these charges. This pro forma data is presented for informational purposes only and does not purport to be indicative of the results of future operations or of the results that would have occurred had the acquisition taken place in the periods noted below.

	For the three months ended
	April 3, 2020		March 29, 2019
Pro forma sales	$	203,709	$	177,258
Pro forma net income attributable to FOX stockholders	$	15,570	$	8,810
Pro forma basic earnings per share	$	0.40	$	0.23
Pro forma diluted earnings per share	$	0.40	$	0.23
Total SCA revenues included in the condensed consolidated statements of income	$	6,548
Total SCA pre-tax income included in the condensed consolidated statements of income	$	68

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Prepaids and Other Current Assets (Details) - USD ($) $ in Thousands	Apr. 03, 2020	Jan. 03, 2020
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Prepaid chassis deposits	$ 52,445	$ 6,701
Advanced payments and prepaid contracts	9,686	5,774
Current portion of acquisition-related compensation held in escrow	4,642	0
Other current assets	9,026	5,465
Total	$ 75,799	$ 17,940

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Leases - Lease Costs (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 03, 2020	Mar. 29, 2019
Leases [Abstract]
Operating lease cost	$ 1,576	$ 1,420
Other lease costs	274	183
Total	$ 1,850	$ 1,603

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Accrued Expenses (Activity Related to Warranties) (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 03, 2020	Mar. 29, 2019
Movement in Standard Product Warranty Accrual [Roll Forward]
Beginning warranty liability	$ 5,649	$ 6,433
Charge to cost of sales	1,054	575
Fair value of warranty assumed in acquisition	3,158	0
Costs incurred	(1,142)	(1,268)
Ending warranty liability	$ 8,719	$ 5,740

XML

Acquisitions - Unaudited Pro Forma (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Apr. 03, 2020	Mar. 29, 2019
Business Acquisition [Line Items]
Pro forma sales	$ 203,709	$ 177,258
Pro forma net income attributable to FOX stockholders	$ 15,570	$ 8,810
Pro forma basic earnings per share (in USD per share)	$ 0.40	$ 0.23
Pro forma diluted earnings per share (in USD per share)	$ 0.40	$ 0.23
Total SCA pre-tax income included in the condensed consolidated statements of income	$ 68
SCA
Business Acquisition [Line Items]
Pro forma sales	$ 6,548

XML

Inventory (Tables)

3 Months Ended

Apr. 03, 2020

Inventory Disclosure [Abstract]

Inventory

Inventory consisted of the following:

	April 3,		January 3
	2020		2020
Raw materials	$	103,509	$	87,779
Work-in-process	12,439		7,075
Finished goods	40,605		33,651
Total inventory	$	156,553	$	128,505

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Condensed Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Apr. 03, 2020	Mar. 29, 2019
Sales	$ 184,361	$ 161,700
Cost of sales	127,746	110,643
Gross profit	56,615	51,057
Operating expenses:
Sales and marketing	12,063	9,262
Research and development	8,029	7,303
General and administrative	22,413	11,180
Amortization of purchased intangibles	2,543	1,493
Total operating expenses	45,048	29,238
Income from operations	11,567	21,819
Other expense, net:
Interest expense	1,847	829
Other expense (income)	62	(13)
Other expense, net	1,909	816
Income before income taxes	9,658	21,003
Provision for income taxes	920	2,601
Net income	8,738	18,402
Less: net income attributable to non-controlling interest	488	299
Net income attributable to FOX stockholders	$ 8,250	$ 18,103
Earnings per share:
Basic (in dollars per share)	$ 0.21	$ 0.48
Diluted (in dollars per share)	$ 0.21	$ 0.46
Weighted average shares used to compute earnings per share:
Basic (in shares)	38,571	38,041
Diluted (in shares)	39,151	39,097

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Related Party Transactions

3 Months Ended

Apr. 03, 2020

Related Party Transactions [Abstract]

Related Party Agreements

Related Party Transactions

On May 3, 2019, the Company acquired substantially all of the assets of Air Ride Technologies, Inc., d/b/a Ridetech, which has a building lease for its manufacturing and offices in Jasper, Indiana. The building is owned by a former owner of Ridetech, who is now an employee of the Company. The lease is effective through April 1, 2024, with monthly rent payments of $16. Rent expense under this lease was $48 for the three months ended April 3, 2020.

On March 11, 2020, the Company acquired 100% of the issued and outstanding stock of SCA Performance Holdings, Inc. ("SCA"), which has a building lease for its manufacturing and offices in Trussville, Alabama. The building is owned by a former owner of SCA, who is now an employee of the Company. The lease is effective through April 13, 2028, with monthly rent payments of $28. Rent expense under this lease was $28 for the three months ended April 3, 2020. Refer to Note 14 - Acquisitions for further details of this acquisition.

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Description of the Business, Basis of Presentation and Summary of Significant Accounting Policies

3 Months Ended

Apr. 03, 2020

Accounting Policies [Abstract]

Description of the Business, Basis of Presentation and Summary of Significant Accounting Policies

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 January 3, 2020 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on March 3, 2020. 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.

The Company operates on a 52-53 week fiscal calendar. For 2020 and 2019, the Company's fiscal year will end or has ended on January 1, 2021 and January 3, 2020, respectively. The twelve month periods ended January 1, 2021 and January 3, 2020, will include or have included 52 and 53 weeks, respectively. The three month periods ended April 3, 2020 and March 29, 2019 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 January 3, 2020, as filed with the SEC on March 3, 2020 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.

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 revenue that are recognized when the rights are exercised by the customer. Measuring the material rights requires judgments including forecasts of future sales and product mix. At April 3, 2020, the balance of deferred revenue related to pricing provisions was $191. These amounts are expected to be recognized over the next 12 months. Revenues exclude sales tax.

Segments - The Company has determined that it has a single operating and reportable segment. The Company considers operating segments to be components of the Company for 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 recent coronavirus (“COVID-19”) outbreak. 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. The Company’s manufacturing facilities in North America have been affected by local and state “shelter-in-place” orders including the temporary suspension of non-essential operations in certain facilities. The Company is taking actions to manage costs during this time by enacting executive pay cuts and temporary furloughs, curtailing non-essential capital expenditures, and reducing expenses. 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 pandemic; government, social, business and other actions that have been and will be taken in response to the pandemic; and the effect of the pandemic on short and long-term general economic conditions.

Fair Value Measurements and Financial Instruments - The Financial Accounting Standards Board ("FASB") has issued Accounting Standards Codification 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 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.

Recent Accounting Pronouncements - In February 2016, the FASB issued ASU 2016-02, Leases, which supersedes the existing guidance for lease accounting. To meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases, this ASU requires lessees to recognize most leases on the balance sheet as right-of-use assets and lease liabilities.

The Company adopted this guidance as of the beginning of the first quarter of fiscal year 2019, with a cumulative effect adjustment to the opening balance of retained earnings at December 28, 2018 with no restatement of comparative periods’ financial information ("current-period adjustment method"). Additionally, the Company adopted this guidance using practical expedients with respect to the assessment of embedded leases, lease classification, and initial indirect costs for expired and existing leases. The Company also elected the practical expedient related to treating lease and non-lease components as a single lease component for all of its leases and 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. The Company did not use the hindsight practical expedient to adopt this guidance. The Company recorded a cumulative effect adjustment of $13,637 to operating lease right-of-use assets, $13,937 to operating lease liabilities, and $300 gross ($228 net of taxes) to the opening balance of the Company's retained earnings to reflect the cumulative effect of the adoption of the standard. This standard did not have a material impact on our consolidated income statements.

In June 2016, the FASB issue ASU 2016-13, Financial Instruments: Credit Losses, which adds an impairment model that is based on expected losses rather than incurred losses. Under this standard, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The Company adopted ASU 2016-13 effective in the first quarter of fiscal year 2020 using the aging method, which calculates the allowance based on how long a receivable has been outstanding, taking into account the historical credit loss rate and adjusting for both current conditions and forecasts of economic conditions into that expected credit loss rate. The adoption of ASU 2016-13 did not have a material impact on the Company's consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which clarifies the presentation of certain transactions, including but not limited to contingent consideration payments made after a business combination and debt prepayment and extinguishment costs in the cash flow statement. The Company adopted ASU 2016-16 effective in the first quarter of fiscal year 2019. The adoption of ASU 2016-15 did not have a material impact on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement, which modifies the disclosure requirements of fair value measurements in Topic 820. This standard is effective for fiscal years beginning after December 15, 2019. The Company adopted ASU 2018-13 effective in the first quarter of fiscal year 2020. The adoption of ASU 2018-13 did not have a material impact on the Company's consolidated financial statements.

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Accrued Expenses (Tables)

3 Months Ended

Apr. 03, 2020

Payables and Accruals [Abstract]

Accrued Expenses

Accrued expenses consisted of the following:

	April 3,		January 3
	2020		2020
Payroll and related expenses	$	8,932	$	14,595
Current portion of lease liabilities	6,825		6,242
Warranty	8,719		5,649
Income tax payable	6,976		4,295
Other accrued expenses	8,833		4,963
Total	$	40,285	$	35,744

Activity Related to Warranties

Activity related to warranties is as follows:

	For the three months ended
	April 3, 2020		March 29, 2019
Beginning warranty liability	$	5,649	$	6,433
Charge to cost of sales	1,054		575
Fair value of warranty assumed in acquisition	3,158		—
Costs incurred	(1,142)		(1,268)
Ending warranty liability	$	8,719	$	5,740

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Debt - Additional Information (Details) - USD ($) $ in Thousands		3 Months Ended
	May 11, 2016	Apr. 03, 2020
Debt Instrument [Line Items]
Credit facility		$ 250,000
Debt issuance costs		6,622
Unamortized debt issuance costs		$ 434
Weighted average interest rate on outstanding borrowings		2.33%
Other Expense
Debt Instrument [Line Items]
Unamortized debt issuance costs		$ 277
Revolving Credit Facility
Debt Instrument [Line Items]
Credit facility		25,000
Debt issuance costs		764
Unamortized debt issuance costs		157
Standby letters of credit		$ 15,000
LIBOR
Debt Instrument [Line Items]
Basis spread on variable rate (as a percent)		0.99%
LIBOR | Minimum
Debt Instrument [Line Items]
Basis spread on variable rate (as a percent)	1.00%
LIBOR | Maximum
Debt Instrument [Line Items]
Basis spread on variable rate (as a percent)	1.75%
Prime Rate
Debt Instrument [Line Items]
Basis spread on variable rate (as a percent)		3.25%
Prime Rate | Minimum
Debt Instrument [Line Items]
Basis spread on variable rate (as a percent)	0.00%
Prime Rate | Maximum
Debt Instrument [Line Items]
Basis spread on variable rate (as a percent)	0.75%
Term Loan
Debt Instrument [Line Items]
Term loan amount		$ 400,000
Debt issuance costs		$ 5,858

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Property, Plant and Equipment, net (Property, Plant and Equipment) (Details) - USD ($) $ in Thousands	Apr. 03, 2020	Jan. 03, 2020
Property, Plant and Equipment [Line Items]
Property, plant and equipment gross	$ 173,284	$ 150,897
Less: accumulated depreciation and amortization	(45,651)	(42,518)
Property, plant and equipment, net	127,633	108,379
Building and building improvements
Property, Plant and Equipment [Line Items]
Property, plant and equipment gross	50,779	42,343
Information systems, office equipment and furniture
Property, Plant and Equipment [Line Items]
Property, plant and equipment gross	12,007	10,102
Internal-use computer software
Property, Plant and Equipment [Line Items]
Property, plant and equipment gross	17,708	16,860
Land
Property, Plant and Equipment [Line Items]
Property, plant and equipment gross	6,072	5,414
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property, plant and equipment gross	12,457	13,841
Machinery and manufacturing equipment
Property, Plant and Equipment [Line Items]
Property, plant and equipment gross	68,839	57,331
Transportation equipment
Property, Plant and Equipment [Line Items]
Property, plant and equipment gross	$ 5,422	$ 5,006

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Leases - Supplemental Balance Sheet Information (Details) - USD ($) $ in Thousands	Apr. 03, 2020	Jan. 03, 2020
Leases [Abstract]
Operating lease right-of-use assets	$ 20,632	$ 17,472
Current lease liabilities	6,825	$ 6,242
Non-current lease liabilities	$ 13,709

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Acquisitions - Allocation of Purchase Price (Details) - SCA $ in Thousands	Mar. 11, 2020 USD ($)
Acquisition consideration
Cash consideration	$ 329,209
Non-cash consideration	322
Total consideration at closing	329,531
Fair market values
Other current assets	15,556
Property, plant and equipment	9,953
Lease right-of-use assets	4,027
Goodwill	192,215
Total assets acquired	362,251
Accounts payable and accrued expenses	9,454
Lease liabilities	4,027
Deferred taxes	19,239
Total liabilities assumed	32,720
Purchase price allocation	329,531
Customer relationships
Fair market values
Finite-lived intangible assets	129,000
Trademarks and brand
Fair market values
Finite-lived intangible assets	$ 11,500

XML

Fair Value Measurements and Financial Instruments - Reconciliation of Contingent Consideration (Details) - Level 3 $ in Thousands	3 Months Ended
	Apr. 03, 2020 USD ($)
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at January 3, 2020	$ 15,719
Net income attributable to non-controlling interest	488
Balance at April 3, 2020	$ 16,207

XML

Debt - Summary of Amended and Restated Credit Facility (Details) $ in Thousands	Apr. 03, 2020 USD ($)
Debt Disclosure [Abstract]
Amount outstanding	$ 85,000
Available borrowing capacity	150,000
Total borrowing capacity	$ 250,000

XML

Income Taxes - Components (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 03, 2020	Mar. 29, 2019
Income Tax Disclosure [Abstract]
Provision for income taxes	$ 920	$ 2,601
Effective tax rates	9.50%	12.40%

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Commitments and Contingencies

3 Months Ended

Apr. 03, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

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 due to 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 - A lawsuit was filed on December 17, 2015 by SRAM Corporation (“SRAM”) in the U.S. District Court, Northern District of Illinois, against the Company’s wholly-owned subsidiary, RFE Canada Holding Corp. (“RFE Canada”). The lawsuit alleges patent infringement of U.S. Patent number 9,182,027 ("027 Patent") and violation of the Lanham Act. SRAM filed a second lawsuit in the same court against RFE Canada on May 16, 2016, alleging patent infringement of U.S Patent number 9,291,250 ("'250 Patent"). The Company believes that the lawsuits are without merit and intends vigorously to defend itself. As such, the Company has filed, before the U. S. Patent and Trademark Appeals Board ("PTAB"), for Interparties Reviews ("IPR") of the '027 Patent and separately the same for the '250 Patent. In April 2018, the PTAB issued opinions in the ‘027 Patent petition cases stating that the Company has not shown the claims of the ‘027 Patent to be obvious. Regarding the PTAB ‘027 opinions, the Company has filed an Appeal to the Court of Appeals for the Federal Circuit ("CAFC"). The CAFC found in favor of the Company and has vacated and remanded all of the PTAB findings with the exception of their finding that the ‘027 patent met the prima facia test for obviousness, which was affirmed. SRAM has appealed to the CAFC to rehear the case en banc. The CAFC has declined to rehear the case and has issued the final remand order sending the case back to the PTAB. The PTAB has issued an opinion in the ‘250 Patent petition case stating that the Company has not shown the claims of the ‘250 Patent to be obvious. The Company has appealed that PTAB opinion to the CAFC and the CAFC ruling is pending.

In a separate action, the Company filed a lawsuit on January 29, 2016 in the U.S. District Court, Northern District of California against SRAM. That lawsuit alleges SRAM’s infringement of two separate Company owned patents, specifically U.S. Patent numbers 6,135,434 and 6,557,674. The Company filed a second lawsuit on July 1, 2016 in the U.S. District Court, Northern District of California against SRAM alleging infringement of the Company’s U.S. Patent numbers 8,226,172 and 8,974,009. These lawsuits have been moved to U.S. District Court, District of Colorado and are otherwise proceeding. The U.S. District Court, Northern District of Illinois, has again stayed the SRAM lawsuits against the Company pending outcome of the remanded ‘027 PTAB issue.

Due to the inherent uncertainties of litigation, the Company is not able to predict either the outcome or a range of reasonably possible losses, if any, at this time. Accordingly, no amounts have been recorded in the consolidated financial statements for the settlement of these matters. Were an unfavorable ruling to occur, or if factors indicate that a loss is probable and reasonably estimable, the Company's business, financial condition or results of operations could be materially and adversely affected. The Company is involved in other legal matters that arise in the ordinary course of business. Based on information currently available, management does not believe that the ultimate resolution of these 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 an 80% interest in the business of Flagship, Inc. ("Tuscany"). The stockholders' agreement provides the Company with a call option (the "Call Option") to acquire the remaining 20% of Tuscany any time from November 30, 2019 through November 30, 2024 at a value that approximates fair market value. In addition, if the Call Option has not been exercised as of November 30, 2024, the non-controlling owners shall be entitled to exercise a put option on November 30, 2024 and for a 180-day period thereafter, which would require the Company to purchase all of the remaining shares held by the non-controlling owners at a price that approximates fair market value.

On July 24, 2019 the Company entered into a standard form of agreement between with design-builder Carroll Daniel Construction Company to provide design and construction services related to an approximately 336,000 square foot facility located in Gainesville, Georgia. The Company plans to use the facility for the manufacture of its products including vehicle shock absorbers. This agreement was amended on December 23, 2019. The agreement contains several design and construction milestone dates that began in June 2019. The Company expects to pay a total of approximately $36,500 under the terms of this agreement. Any additional costs will be addressed as they arise until the completion of the facility, which is currently expected to occur on or around August 31, 2020.

Other Contingencies -

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Property, Plant and Equipment, net

3 Months Ended

Apr. 03, 2020

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment, net

Property, Plant and Equipment, net

Property, plant and equipment, net consisted of the following:

	April 3,		January 3
	2020		2020
Building and building improvements	$	50,779	$	42,343
Information systems, office equipment and furniture	12,007		10,102
Internal-use computer software	17,708		16,860
Land	6,072		5,414
Leasehold improvements	12,457		13,841
Machinery and manufacturing equipment	68,839		57,331
Transportation equipment	5,422		5,006
Total	173,284		150,897
Less: accumulated depreciation and amortization	(45,651)		(42,518)
Property, plant and equipment, net	$	127,633	$	108,379

The Company’s long-lived assets by geographic location are as follows:

	April 3,		January 3
	2020		2020
United States	$	118,028	$	100,508
International	9,605		7,871
Total long-lived assets	$	127,633	$	108,379

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Inventory (Details) - USD ($) $ in Thousands	Apr. 03, 2020	Jan. 03, 2020
Inventory Disclosure [Abstract]
Raw materials	$ 103,509	$ 87,779
Work-in-process	12,439	7,075
Finished goods	40,605	33,651
Total inventory	$ 156,553	$ 128,505

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Stockholders' Equity (Tables)

3 Months Ended

Apr. 03, 2020

Share-based Payment Arrangement [Abstract]

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs

The following table summarizes the allocation of stock-based compensation in the accompanying consolidated statements of income:

	For the three months ended
	April 3, 2020		March 29, 2019
Cost of sales	$	129	$	129
Sales and marketing	152		126
Research and development	201		165
General and administrative	1,439		1,309
Total	$	1,921	$	1,729

Schedule of Nonvested Restricted Stock Units Activity

The following table summarizes the activity for the Company's unvested restricted stock units ("RSU") for the three months ended April 3, 2020:

	Unvested RSUs
	Number of shares outstanding	Weighted-average grant date fair value
Unvested at January 3, 2020	427	$	44.98
Granted	43	$	54.94
Canceled	(3)	$	42.29
Vested	(81)	$	31.15
Unvested at April 3, 2020	386	$	49.01

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Description of the Business, Basis of Presentation and Summary of Significant Accounting Policies - Recent Accounting Pronouncements (Details) - USD ($) $ in Thousands	Dec. 29, 2018	Apr. 03, 2020	Jan. 03, 2020
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Operating lease right-of-use assets		$ 20,632	$ 17,472
Operating lease liabilities		$ 20,534
ASU 2016-02
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Cumulative effect on retained earnings, before tax	$ 300
Cumulative effect on retained earnings, net of taxes	228
Operating lease right-of-use assets	13,637
Operating lease liabilities	$ 13,937