Fox(FOXF) - 2023 Q1 - Quarterly Report

Financial Performance - For the three months ended March 31, 2023, total sales increased by approximately $21.9 million, or 5.8%, compared to the same period in 2022, reaching$ 399.9 million[117] - Powered Vehicle product sales rose by $72.9 million, or 35.0%, driven by increased demand in the OEM channel and strong performance in upfitting product lines[117] - Specialty Sports product sales decreased by$ 51.0 million, or 30.0%, attributed to a return to seasonality and pre-pandemic market conditions[117] - Income from operations for the three months ended March 31, 2023, increased by approximately $0.5 million, or 0.9%, totaling$ 54.7 million[122] - Net income for the three months ended March 31, 2023, was $41.8 million, a decrease from$ 48.1 million in the same period in 2022[113] - For the three months ended March 31, 2023, net income decreased by $6.3 million, or 13.1%, to$ 41.8 million compared to $48.1 million for the same period in 2022[127] Costs and Expenses - Cost of sales for the three months ended March 31, 2023, increased by approximately$ 8.9 million, or 3.5%, totaling $266.6 million[118] - Gross margin improved by 150 basis points to 33.3% compared to 31.8% for the same period in 2022, due to lower materials costs and increased efficiencies[119] - Total operating expenses increased to$ 78.6 million, up $12.5 million or 18.9% from$ 66.1 million in the prior year[120] - Research and development expenses rose by approximately $2.7 million, or 21.4%, reflecting investments in personnel to support future growth and product innovation[121] - Provision for income taxes increased significantly to$ 9.4 million from $2.4 million in the prior year, reflecting a higher effective tax rate[113] - Interest expense increased by$ 1.5 million to $3.5 million, a rise of 75.0%, primarily due to higher outstanding borrowings and interest rates[123] Cash Flow and Financing - Net cash used in operating activities was$ 66.8 million for the three months ended March 31, 2023, compared to $143.1 million in the same period of 2022[130] - Cash used in investing activities increased significantly to$ 144.3 million, primarily due to the acquisition of Custom Wheel House for $130.9 million[136] - Net cash provided by financing activities was$ 157.8 million, largely from the 2022 Credit Facility, which included net proceeds of $160.0 million[138] - As of March 31, 2023, the company held$ 45.7 million of its $91.9 million cash and cash equivalents in foreign accounts, which may be repatriated[129] - The company’s weighted-average interest rate on outstanding borrowings was 5.38% as of March 31, 2023[144] - The company expects that cash on hand and cash flow from operations will be sufficient to fund operations for the next 12 months[130] Acquisitions and Growth - The acquisition of Custom Wheel House in February 2023 is expected to enhance the company's product offerings and market position[136] - The company has completed several acquisitions, including SCA in March 2020 and Custom Wheel House, LLC in February 2023, and intends to evaluate additional acquisitions in the future[219] Risks and Challenges - The company faces risks related to global public health issues, including the ongoing COVID-19 pandemic, which could negatively impact its operations and financial results[161] - The company is dependent on a limited number of suppliers, which could lead to increased material costs and supply chain disruptions[166] - The company relies on a sole-source supplier, Miyaki Corporation, for a specific coating, and any disruption in supply could adversely affect its operations[168] - The company has experienced and may continue to experience adverse effects from geopolitical conflicts, including tensions between Taiwan and China and the war in Ukraine[165] - The company may face challenges in passing on increased costs of raw materials to customers, which could negatively impact its financial condition[167] - Disruptions in supply chains, such as labor disputes at ports, could adversely affect the company's operating results[183] Market and Competition - The company faces intense competition from manufacturers with greater financial and marketing resources, which could negatively impact its market position[173] - Economic conditions significantly affect consumer spending on the company's discretionary products, with potential adverse impacts from inflation and recessions[174] - The company’s growth in the powered vehicle category relies on expanding product sales and market growth for powered vehicles requiring performance-defining products[178] - The company must maintain its premium brand image to ensure continued selection by OEM dealers and distributors, which is critical for sales[176] Operational and Compliance Issues - The company is subject to extensive laws and regulations relating to safety, environmental, and other standards, which may require additional expenses or modifications to product offerings[239] - Compliance with environmental laws and regulations may result in significant fines, penalties, and costs that could negatively affect the company's financial condition[247] - The company faces risks related to climate change, including potential disruptions to the supply chain and increased costs due to extreme weather conditions[244] - The SEC's proposed rules for climate-related disclosures may impose additional costs and affect the company's operations and financial condition[243] Employee and Talent Management - The company is dependent on attracting and retaining qualified talent, particularly in engineering and management roles, to sustain product quality and innovation[186] - The company is subject to government-mandated wage and benefit laws, which could increase employee costs and impact financial condition[211] - Inflation in healthcare costs and potential changes in federal or state healthcare legislation could significantly increase employee healthcare costs[212] Information Systems and Cybersecurity - The company relies on complex information systems for operations, and any failure or disruption could negatively affect business performance[213] - Cybersecurity attacks pose a risk to the company's information systems, potentially leading to financial and reputational damage[216] Stock and Market Performance - The stock price has fluctuated between$ 190.29 and $35.54 per share from April 3, 2020, to March 31, 2023, indicating significant volatility[255] - The company completed a follow-on offering of approximately 2.8 million shares of common stock in June 2020, which could dilute existing shareholders' ownership[257] - The trading price of the company's common stock could be influenced by fluctuations in the stock market and changes in consumer preferences[256] Internal Controls and Governance - As of March 31, 2023, the company's disclosure controls and procedures were effective at the reasonable assurance level[150] - There were no changes in internal control over financial reporting that materially affected the company's financial reporting[151] - Internal control failures over financial reporting could adversely affect the company's financial results and investor confidence[265]