FOX FACTORY HOLDING CORP, 10-Q filed on 8/5/2015
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2015
Jul. 30, 2015
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Jun. 30, 2015 
 
Document Fiscal Year Focus
2015 
 
Document Fiscal Period Focus
Q2 
 
Trading Symbol
FOXF 
 
Entity Registrant Name
Fox Factory Holding Corp 
 
Entity Central Index Key
0001424929 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
36,951,699 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2015
Dec. 31, 2014
Current assets:
 
 
Cash and cash equivalents
$ 6,188 
$ 4,212 
Accounts receivable (net of allowances of $379 and $348 at June 30, 2015 and December 31, 2014, respectively)
51,676 
39,221 
Inventory
78,808 
59,191 
Prepaids and other current assets
10,304 
6,257 
Deferred tax assets
7,344 
4,298 
Total current assets
154,320 
113,179 
Property, plant and equipment, net
22,436 
19,759 
Goodwill
59,181 
58,745 
Intangibles, net
61,425 
65,184 
Other assets
1,231 
1,570 
Total assets
298,593 
258,437 
Current liabilities:
 
 
Accounts payable
44,267 
30,371 
Accrued expenses
20,055 
12,128 
Liability reserve for uncertain tax positions
9,287 
7,785 
Current portion of long-term debt
2,837 
2,837 
Current portion of contingent consideration
7,150 
7,704 
Total current liabilities
83,596 
60,825 
Line of credit
20,000 
0 
Long-term debt, less current portion
45,744 
47,163 
Deferred rent
726 
681 
Deferred tax liabilities
7,152 
7,414 
Contingent consideration, less current portion
6,300 
13,548 
Total liabilities
163,518 
129,631 
Commitments and contingencies (Note 7)
   
   
Stockholders’ equity
 
 
Preferred stock, $0.001 par value—10,000 authorized and no shares issued or outstanding as of June 30, 2015 and December 31, 2014
0 
0 
Common stock, $0.001 par value—90,000 authorized; 37,258 shares issued and 36,952 outstanding as of June 30, 2015; 37,117 shares issued and 37,078 outstanding as of December 31, 2014
37 
37 
Additional paid-in capital
95,804 
97,006 
Accumulated other comprehensive loss
(468)
(406)
Retained earnings
39,702 
32,169 
Total stockholders’ equity
135,075 
128,806 
Total liabilities and stockholders’ equity
$ 298,593 
$ 258,437 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Jun. 30, 2015
Dec. 31, 2014
Statement of Financial Position [Abstract]
 
 
Accounts receivable, allowance for doubtful accounts
$ 379 
$ 348 
Preferred stock, par value
$ 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
$ 0.001 
$ 0.001 
Common stock, shares authorized
90,000,000 
90,000,000 
Common stock, shares issued
37,258,000 
37,117,000 
Common stock, shares outstanding
36,952,000 
37,078,000 
Condensed Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Income Statement [Abstract]
 
 
 
 
Sales
$ 97,171 
$ 86,374 
$ 164,959 
$ 142,482 
Cost of sales
67,303 
59,421 
116,308 
98,512 
Gross profit
29,868 
26,953 
48,651 
43,970 
Operating expenses:
 
 
 
 
Sales and marketing
6,140 
5,118 
11,437 
8,962 
Research and development
4,158 
3,625 
7,560 
6,760 
General and administrative
4,855 
4,678 
9,496 
8,608 
Amortization of purchased intangibles
1,839 
1,674 
3,679 
3,035 
Fair value adjustment of contingent consideration and acquisition related compensation
2,339 
122 
4,403 
122 
Total operating expenses
19,331 
15,217 
36,575 
27,487 
Income from operations
10,537 
11,736 
12,076 
16,483 
Other expense, net:
 
 
 
 
Interest expense
414 
321 
744 
431 
Other expense (income), net
2 
(125)
(13)
(157)
Other expense, net
416 
196 
731 
274 
Income before income taxes
10,121 
11,540 
11,345 
16,209 
Provision (benefit) for income taxes
3,358 
(41)
3,812 
1,687 
Net income
$ 6,763 
$ 11,581 
$ 7,533 
$ 14,522 
Earnings per share:
 
 
 
 
Basic (in dollars per share)
$ 0.18 
$ 0.32 
$ 0.20 
$ 0.40 
Diluted (in dollars per share)
$ 0.18 
$ 0.31 
$ 0.20 
$ 0.38 
Weighted average shares used to compute earnings per share:
 
 
 
 
Basic (in shares)
36,921 
36,648 
36,986 
36,534 
Diluted (in shares)
37,827 
37,812 
37,883 
37,734 
Condensed Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Statement of Comprehensive Income [Abstract]
 
 
 
 
Net income
$ 6,763 
$ 11,581 
$ 7,533 
$ 14,522 
Other comprehensive (loss) income:
 
 
 
 
Foreign currency translation adjustments, net of tax effects
4 
3 
(62)
9 
Other comprehensive (loss) income
4 
3 
(62)
9 
Comprehensive income
$ 6,767 
$ 11,584 
$ 7,471 
$ 14,531 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
OPERATING ACTIVITIES:
 
 
Net income
$ 7,533 
$ 14,522 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
5,789 
4,535 
Cost of goods on acquired inventory step up
1,084 
348 
Provision for doubtful accounts
25 
22 
Stock-based compensation
2,412 
1,922 
Excess tax benefit from exercise of stock options
(471)
(1,662)
(Gain) loss on disposal of property and equipment
(46)
3 
Deferred taxes
(3,028)
(1,865)
Amortization of loan fees
99 
87 
Change in fair value of contingent consideration
52 
0 
Changes in operating assets and liabilities:
 
 
Accounts receivable
(12,380)
(4,044)
Inventory
(20,593)
(12,185)
Income taxes payable
4,621 
1,000 
Prepaids and other assets
(3,851)
(2,592)
Accounts payable
13,852 
5,987 
Accrued expenses
5,186 
(1,895)
Deferred rent
45 
(130)
Net cash provided by operating activities
329 
4,053 
INVESTING ACTIVITIES:
 
 
Acquisition of businesses
(765)
(40,770)
Purchases of property and equipment
(4,593)
(2,244)
Acquisition of other assets
0 
(1,401)
Proceeds from sale of property and equipment
82 
0 
Net cash used in investing activities
(5,276)
(44,415)
FINANCING ACTIVITIES:
 
 
Proceeds from line of credit
34,000 
13,000 
Payments on line of credit
(14,000)
(21,000)
Payment of contingent consideration liability
(7,854)
 
Proceeds from issuance of debt, net of origination fees of $278
0 
49,722 
Repurchase of common stock
(3,993)
0 
Repayment of debt
(1,419)
(4,625)
Proceeds (repurchases) from stock compensation, net
(92)
1,750 
Excess tax benefit from exercise of stock options
471 
1,662 
Net cash provided by financing activities
7,113 
40,509 
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
(190)
26 
CHANGE IN CASH AND CASH EQUIVALENTS
1,976 
173 
CASH AND CASH EQUIVALENTS—Beginning of period
4,212 
1,683 
CASH AND CASH EQUIVALENTS—End of period
6,188 
1,856 
Cash paid during the period for:
 
 
Income taxes
4,565 
2,506 
Interest
$ 641 
$ 342 
Condensed Consolidated Statements of Cash Flows (Parenthetical) (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Statement of Cash Flows [Abstract]
 
 
Issuance of debt, origination fees
$ 0 
$ 273 
Description of Business, Basis of Presentation and Summary of Significant Accounting Policies
Description of 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 and manufactures performance ride dynamics products primarily for bicycles, side-by-side vehicles, on-road and off-road vehicles and trucks, all-terrain vehicles, snowmobiles, specialty vehicles and applications, and motorcycles. The Company acts both as a tier one supplier to leading action sports original equipment manufacturers and provides aftermarket products to retailers 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 wholly owned 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 in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. 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 year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K as filed with the SEC. In management’s opinion, the unaudited interim 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 the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.
Initial Public Offering- On August 13, 2013, the Company completed the initial public offering (“IPO”) of its common stock pursuant to a registration statement on Form S-1. In the IPO, the Company sold 2,857 shares of common stock and the selling stockholders sold a total of 7,000 shares of common stock (including the shares sold pursuant to the exercise of the option granted to the underwriters) at an initial public offering price to the public of $15.00 per share. The Company received net proceeds from the IPO of approximately $36,122 from its sale of 2,857 shares of common stock after deducting underwriting discounts, commissions and offering expenses. The Company did not receive any proceeds from the sale of shares by the selling stockholders. The Company used the net proceeds it received to pay down related party debt. In July 2014, certain selling stockholders completed a secondary offering of the Company's common stock.
Principles of Consolidation- These condensed consolidated financial statements include the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Summary of Significant Accounting Policies - Self-Insurance. Beginning in January 2015, the Company is partially self-insured for its U.S. employee health and welfare benefits.  The Company’s liability for self-insurance is based on claims filed and an estimate of claims incurred but not yet reported. The Company considers a number of factors, including historical claims information, when determining the amount of the accrual. Costs related to the administration of the plan and related claims are expensed as incurred. The Company has third-party insurance coverage to limit exposure for individually significant claims.  The estimate for claims incurred as of June 30, 2015 is $573 and is recorded within accrued expenses on the condensed consolidated balance sheets. 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 December 31, 2014 that have had a material impact on our condensed consolidated financial statements and related notes.

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.
Recent Accounting Pronouncements- In May 2014, the Financial Accounting Standards Board ("FASB") and International Accounting Standards Board issued their converged standard on revenue recognition, Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers". This standard outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that revenue is recognized when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. Transfer of control is not the same as transfer of risks and rewards, as it is considered in current guidance. We will apply the new guidance to determine whether revenue should be recognized over time or at a point in time. This standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2016, with no early adoption permitted, and the Company can choose to apply this standard retrospectively for each prior reporting period presented or retrospectively with the cumulative effect of initially applying the standard recognized at the date of the initial application in retained earnings. In July 2015, the FASB affirmed a proposal to defer the effective date of ASU 2014-09. ASU 2014-09 will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, but entities will be permitted to early adopt the standard as of the original effective date. The Company has not yet developed an expectation of the impact that adoption will have on its consolidated financial statements.

Reclassifications- We have reclassified certain prior period amounts within our condensed consolidated balance sheet for the year ended December 31, 2014, the condensed consolidated statements of income for the three and six months ended June 30, 2014, and the condensed consolidated statement of cash flows for the six months ended June 30, 2014 to conform to our current year presentation.
Inventory
Inventory
Inventory
Inventory consisted of the following:
 
As of  
 June 30,
 
As of  
 December 31,
 
2015
 
2014
Raw materials
$
56,104

 
$
39,655

Work-in-process
2,612

 
1,568

Finished goods
20,092

 
17,968

Total inventory
$
78,808

 
$
59,191

Property and Equipment, net
Property and Equipment, net
Property, Plant and Equipment, net
Property, plant and equipment consisted of the following:
 
As of  
 June 30,
 
As of  
 December 31,
 
2015
 
2014
Machinery and manufacturing equipment
$
20,879

 
$
17,739

Information systems, office equipment and furniture
6,184

 
5,297

Transportation equipment
2,072

 
2,041

Building and land
3,469

 
3,469

Leasehold improvements
6,490

 
5,971

Total
39,094

 
34,517

Less: accumulated depreciation and amortization
(16,658
)
 
(14,758
)
Property, plant and equipment, net
$
22,436

 
$
19,759

Intangibles, net
Intangibles, net
Intangibles, net
Intangible assets, excluding goodwill, are comprised of the following:
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net
carrying
amount
 
Weighted
average life
(years)
June 30, 2015:
 
 
 
 
 
 
 
Customer relationships
$
36,511

 
$
(10,646
)
 
$
25,865

 
13
Core technology
33,700

 
(30,534
)
 
3,166

 
8
Patents
835

 
(467
)
 
368

 
5
Total
71,046

 
(41,647
)
 
29,399

 
 
Trademarks and brands, not subject to amortization
 
 
 
 
32,026

 
 
Total
 
 
 
 
$
61,425

 
 
December 31, 2014:
 
 
 
 
 
 
 
Customer relationships
$
36,555

 
$
(9,144
)
 
$
27,411

 
13
Core technology
33,700

 
(28,438
)
 
5,262

 
8
Patents
835

 
(394
)
 
441

 
5
Total
71,090

 
(37,976
)
 
33,114

 
 
Trademarks and brands, not subject to amortization
 
 
 
 
32,070

 
 
Total
 
 
 
 
$
65,184

 
 

 
For the three months 
 ended June 30,
 
For the six months 
 ended June 30,
 
2015
 
2014
 
2015
 
2014
Amortization of intangibles
$
1,839

 
$
1,674

 
$
3,679

 
$
3,035



Future amortization expense for finite-lived intangibles as of June 30, 2015 is as follows:
For the years ending December 31,
Amortization Expense
2015 (remaining six months)
$
3,680

2016
2,747

2017
2,685

2018
2,686

2019
2,613

Thereafter
14,988

Total expected future amortization
$
29,399


Goodwill activity consisted of the following:
 
Balance as of December 31, 2014
$
58,745

Acquisitions
567

Currency translation and other adjustments
(131
)
Balance as of June 30, 2015
$
59,181

Accrued Expenses
Accrued Expenses
Accrued Expenses
Accrued expenses consisted of the following:
 
As of  
 June 30,
 
As of  
 December 31,
 
2015
 
2014
Payroll and related expenses
$
10,096

 
$
5,626

Warranty
4,324

 
4,215

Income tax payable
4,087

 
1,405

Other accrued expenses
1,548

 
882

Total
$
20,055

 
$
12,128


Activity related to warranties is as follows:
 
For the three months 
 ended June 30,
 
For the six months 
 ended June 30,
 
2015
 
2014
 
2015
 
2014
Beginning warranty liability
$
4,170

 
$
3,778

 
$
4,215

 
$
3,857

Charge to cost of sales
697

 
978

 
1,103

 
1,717

Fair value of warranty assumed in acquisition
—

 
—

 
—

 
192

Costs incurred
(543
)
 
(876
)
 
(994
)
 
(1,886
)
Ending warranty liability
$
4,324

 
$
3,880

 
$
4,324

 
$
3,880

Debt
Debt
Debt
Amended and Restated 2013 Credit Facility
In August 2013, the Company entered into a credit facility with Sun Trust Bank and other named lenders (the "2013 Credit Facility"). The 2013 Credit Facility provided a revolving line of credit. On March 31, 2014, the Company amended and restated the 2013 Credit Facility (the “Amended and Restated 2013 Credit Facility”). The Amended and Restated 2013 Credit Facility provided a maturing secured term loan in the principal amount of $50,000, (the "Term Loan"), subject to quarterly amortization payments, and extended the term of the 2013 Credit Facility through March 31, 2019. The proceeds of the Term Loan were used, in part, to fund the acquisition of Sport Truck USA, Inc. ("Sport Truck") and to pay down the revolving line of credit provided under the 2013 Credit Facility. On December 12, 2014, the Company entered into the First Amendment to the Amended and Restated 2013 Credit Facility (the "First Amendment"). The First Amendment increased the Term Loan principal amount by $30,000 to a total of $56,750, subject to quarterly amortization payments, and extended the maturity of the Amended and Restated 2013 Credit Facility through December 12, 2019. The additional proceeds of the Term Loan made available through the First Amendment were used to partially fund the acquisition of Race Face Performance Products, Inc. and Easton Cycling (together "Race Face/Easton"). On May 29, 2015 the Company entered into a Second Amendment to the Amended and Restated 2013 Credit Facility solely to revise the definition of "Continuing Director" contained therein.
The Amended and Restated 2013 Credit Facility provides for interest at either a rate based on the London Interbank Offered Rate, or LIBOR, plus a margin ranging from 1.50% to 2.50%, or based on the prime rate offered by SunTrust Bank plus a margin ranging from 0.50% to 1.50%. At June 30, 2015, the one month LIBOR and prime rates were 0.19% and 3.25%, respectively. The Amended and Restated 2013 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 also requires that the Company satisfy customary financial ratios. The Company was in compliance with the covenants as of June 30, 2015.
The following table summarizes the line of credit under the Amended and Restated 2013 Credit Facility:
 
As of June 30,
 
2015
Amount outstanding
$
20,000

Available borrowing capacity
$
40,000

Maximum borrowing capacity
$
60,000

Interest rate at June 30, 2015
2.35
%
Maturity date
December 12, 2019
 
 

As of June 30, 2015, future principal payments for long-term debt, including the current portion, are summarized as follows:
Fiscal Year
 
2015 (remaining six months)
$
1,419

2016
2,837

2017
4,256

2018
4,256

2019
35,813

Total
48,581

Less: current portion
(2,837
)
Long-term debt less current portion
$
45,744

Commitments and Contingencies
Commitments and Contingencies
Commitments and Contingencies
Operating Leases—The Company has operating lease agreements for administrative, research and development, manufacturing and sales and marketing facilities and equipment that expire at various dates. The Company recognizes rent expense on a straight-line basis over the lease term and records the difference between cash rent payments and the recognition of rent expense as a deferred rent liability.
Indemnification Agreements—In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company or intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. While the outcome of these matters cannot be predicted with certainty, the Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on the Company’s results of operations, financial position or liquidity.

Other Commitments—In connection with the acquisition of businesses, the Company has agreed to pay up to $36,945 in additional consideration and acquisition related compensation through 2017, contingent upon the achievement of certain financial performance goals and in some cases continued employment through 2016. A portion of the obligation is denominated in Canadian dollars. See Note 9 - Fair Value Measurements and Note 13 - Acquisitions. No other material contractual obligation has changed since the Company's Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC on March 2, 2015.
Stockholders' Equity
Stockholders' Equity
Stockholders' Equity
Share Repurchase Program
On November 3, 2014, the Company's Board of Directors authorized the repurchase of up to an aggregate of $40,000 in shares of our common stock under our stock repurchase program. Shares of common stock repurchased under this program are deemed issued but not outstanding. During the six months ended June 30, 2015, the Company repurchased 268 shares for a total of $3,993. At June 30, 2015, $35,436 remains available for repurchase under this plan. The repurchase program will expire on December 31, 2015 unless extended by the Board of Directors.
Equity Incentive Plans
During the six months ended June 30, 2015 and 2014, 53 and 421 shares of common stock, respectively, were issued due to the exercise of stock options, resulting in proceeds to the Company of approximately $170 and $1,750, respectively.  There were no stock options granted or forfeited during the six months ended June 30, 2015. There were no options granted and there were 19 options forfeited during the six months ended June 30, 2014.

The following table summarizes the allocation of stock-based compensation in the accompanying consolidated statements of income:
 
For the three months 
 ended June 30,
 
For the six months 
 ended June 30,
 
 
2015
 
2014
 
2015
 
2014
 
Cost of sales
20

 
12

 
31

 
20

 
Sales and marketing
126

 
81

 
208

 
116

 
Research and development
49

 
30

 
72

 
42

 
General and administrative
1,165

 
978

 
2,101

 
1,744

 
Total
$
1,360

 
$
1,101

 
$
2,412

 
$
1,922

 

The following table summarizes the activity for the Company's unvested restricted stock units ("RSU") for the six months ended June 30, 2015.
 
Unvested RSUs
 
Number of shares outstanding
 
Weighted-average grant date fair value
Unvested at December 31, 2014
780

 
17.30

Granted
227

 
16.68

Forfeited
(1
)
 
17.12

Vested
(105
)
 
17.16

Unvested at June 30, 2015
901

 
$
17.16


As of June 30, 2015, the Company had approximately $13,073 of unrecognized stock-based compensation expense related to RSUs, which will be recognized over the remaining weighted-average vesting period of approximately 2.82 years. Additionally, as of June 30, 2015, the Company had approximately $513 of unrecognized stock-based compensation expense related to stock options, which will be recognized over the remaining weighted-average vesting period of approximately 1.93 years.
Fair Value Measurements
Fair Value Measurements
Fair Value Measurements
The FASB's Accounting Standards Codification 820, "Fair Value Measurements and Disclosures" 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).
As of June 30, 2015, the carrying amount of the principal under the Company’s Amended and Restated 2013 Credit Facility approximates fair value because it has a variable interest rate that reflects market changes in interest rates and changes in the Company’s net leverage ratio. As of June 30, 2015, the Company used Level 2 inputs to determine the fair value of its Amended and Restated 2013 Credit Facility.
The Company measured its contingent consideration liability arising from the acquisition of Sport Truck using Level 3 unobservable inputs (see Note 13 - Acquisitions). The fair value of the contingent consideration liability associated with the achievement of adjusted EBITDA targets is estimated at each balance sheet date by applying a Black-Scholes model to the Company's most recent financial projection.  The unobservable inputs to the valuation model that have the most significant effect on the estimated fair value of the Company's contingent consideration liability are the projected financial results, the probabilities that actual results will exceed the projection and the volatility surrounding the expected results.  The Company estimated the probabilities of actual results exceeding the projection during various years of the earn-out at values ranging from 70% to 75% as of June 30, 2015, compared to an overall estimate of 75% for all annual periods at the acquisition date. Additionally, volatility was measured at 35% as of June 30, 2015, compared to 41% at the acquisition date. The change in fair value is recorded as a component of fair value adjustment of contingent consideration and acquisition related compensation in the accompanying condensed consolidated statements of income for the three and six months ended June 30, 2015.

The following table provides a reconciliation of the beginning and ending balances for the Company's contingent consideration liability measured at fair value using Level 3 inputs:
 
Contingent consideration liability (level 3 measurement)
Balance at December 31, 2014
$
21,252

Change in fair value
52

Payment of contingent liability
(7,854
)
Balance at June 30, 2015
$
13,450

Income Taxes
Income Taxes
Income Taxes
 
For the three months 
 ended June 30,
 
For the six months 
 ended June 30,
 
2015
 
2014
 
2015
 
2014
Provision for income taxes
$
3,358

 
$
(41
)
 
$
3,812

 
$
1,687

Effective tax rates
33.2
%
 
(0.4
)%
 
33.6
%
 
10.4
%


For the three and six months ended June 30, 2015, the difference between the Company's effective tax rate and the 35% federal statutory rate resulted primarily from the benefit from domestic production activity deduction and tax credits, partially offset by state taxes.

For the three and six months ended June 30, 2014, the difference between the Company's effective tax rate and the 35% federal statutory rate resulted primarily from a second quarter discrete tax benefit of $3,848, or $0.10 per basic and fully diluted share for the three months ended June 30, 2014 and $0.11 and $0.10 per basic and fully diluted share, respectively, for the six months ended June 30, 2014, related to the reapportionment of income amongst the jurisdictions where the Company does business. The Company periodically evaluates opportunities to enhance tax efficiencies and to minimize tax liabilities through operating, legal and administrative strategies. The reapportionment benefit relates to tax years 2009 through 2013 and resulted from the Company's examination of evolving laws, existing court cases, and its business practices. The tax benefit includes the impact of a reduction in the rate used to measure the Company's net deferred tax liability and unrecognized tax benefit. The benefit was accounted for as a change in estimate. The effective tax rate for the three and six months ended June 30, 2014 was also benefited by the domestic production activity deduction, partially offset by 2014 state taxes.

As of June 30, 2015, the Company had $9,287 of unrecognized tax benefits, of which approximately $8,397, if recognized, would favorably impact the effective tax rate. The Company regularly engages in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. The Company believes it is reasonably possible that certain federal, foreign, and state tax matters may be concluded in the next 12 months. Specific positions that may be resolved include issues involving the deductibility of amortization and depreciation deductions which were incurred as a result of the acquisition of the Company in 2008. The Company estimates that it is reasonably possible that the unrecognized tax benefits at June 30, 2015 could be reduced by approximately $1,323 in the next twelve months.

The Company's federal tax returns for 2011 forward are subject to examination by tax authorities.  The Company’s 2011 and 2012 state tax returns are currently under examination by the California Franchise Tax Board, and 2009 and 2013 forward California tax returns are subject to future examination.
Earnings Per Share
Earnings Per Share
Earnings Per Share
Basic earnings per share ("EPS") amounts are computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted EPS amounts are computed by dividing net income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. Potentially dilutive common shares include shares issuable upon the exercise of outstanding stock options and vesting of restricted stock units, which are reflected in diluted earnings per share by application of the treasury stock method.
The following table presents the calculation of basic and diluted earnings per share:
 
For the three months 
 ended June 30,
 
For the six months 
 ended June 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
6,763

 
$
11,581

 
$
7,533

 
$
14,522

Weighted average shares used to compute basic earnings per share
36,921

 
36,648

 
36,986

 
36,534

Dilutive effect of employee stock plans
906

 
1,164

 
897

 
1,200

Weighted average shares used to compute diluted earnings per share
37,827

 
37,812

 
37,883

 
37,734

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.18

 
$
0.32

 
$
0.20

 
$
0.40

Diluted
$
0.18

 
$
0.31

 
$
0.20

 
$
0.38


The Company did not exclude any potentially dilutive shares from the calculation of diluted earnings per share for the three and six months ended June 30, 2015 and 2014, as none of these shares would have been antidilutive.
Segments
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 in which separate financial information is available that is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance. The chief operating decision maker for the Company is the Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance.
The following table summarizes total sales generated by geographic location of the customer:
 
For the three months 
 ended June 30,
 
For the six months 
 ended June 30,
 
2015
 
2014
 
2015
 
2014
United States
$
40,562

 
$
39,143

 
$
73,355

 
$
63,176

Asia
36,390

 
28,099

 
48,735

 
39,430

Europe
14,461

 
15,036

 
29,526

 
31,230

Rest of the world
5,758

 
4,096

 
13,343

 
8,646

Total sales
$
97,171

 
$
86,374

 
$
164,959

 
$
142,482


The Company’s long-lived assets by geographic location are as follows:
 
As of  
 June 30,
 
As of  
 December 31,
 
2015
 
2014
United States
$
19,745

 
$
16,579

International
2,691

 
3,180

Total long-lived assets
$
22,436

 
$
19,759



The following table summarizes total sales by product category:
 
For the three months 
 ended June 30,
 
For the six months 
 ended June 30,
 
2015
 
2014
 
2015
 
2014
Bikes
$
61,557

 
$
49,653

 
$
97,179

 
$
83,339

Power vehicles
35,614

 
36,721

 
67,780

 
59,143

Total sales
$
97,171

 
$
86,374

 
$
164,959

 
$
142,482

Acquisitions
Acquisitions
Acquisitions
Sport Truck, USA, Inc.
On March 31, 2014, the Company acquired certain assets and assumed certain liabilities of Sport Truck. The transaction was accounted for as a business combination. The Company paid cash of $40,770, plus the effective settlement of trade receivables in the amount of $473. In addition, certain members of Sport Truck’s executive management team agreed to refund up to $1,432 of the proceeds from the sale, on a graduated basis, if they terminate employment prior to March 31, 2017. As a result, such payments have been excluded from the acquisition consideration, and will be recognized as compensation expense over the expected three year service period. In the three and six months ended June 30, 2015, the Company recognized $122 and $240 of acquisition related compensation expense, respectively, related to the arrangement, which is recorded as a component of fair value adjustment of contingent consideration and acquisition related compensation in the accompanying condensed consolidated statements of income. As of June 30, 2015, prepaid compensation of $476 and $351 is included in prepaids and other current assets and other assets, respectively, in the accompanying condensed consolidated balance sheet.
The Company agreed to total contingent consideration of up to $29,295 upon achievement of adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") targets of the acquired business through 2016, subject to adjustments defined in the asset purchase agreement. Performance compared to the targets is measured annually over a three year period, and payment of the contingent consideration will be made upon final determination of the adjusted EBITDA for each year. The estimated acquisition date fair value of the contingent consideration was $19,035, based on a Black-Scholes model, and is included in the computation of total consideration. As of June 30, 2015, $7,854 of contingent consideration has been paid under this arrangement. See Note 9 - Fair Value Measurements.
The Company’s allocation of the purchase price to the net tangible and intangible assets acquired and liabilities assumed is as follows:
Fair market values
 
Tangible assets acquired and liabilities assumed
$
13,046

Intangible assets
35,270

Goodwill
11,962

Total
$
60,278


The 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 $11,962 reflects the strategic fit of Sport Truck with the Company’s operations. Sport Truck is well-aligned with the Company’s mission of improving vehicle performance, delivering best in-class service, and entering into strategic and adjacent markets. The Company will amortize the acquired customer relationships asset over its expected useful life of 15 years. Trademarks, brand names and goodwill are expected to have an indefinite life, and will be subject to impairment testing. The goodwill is expected to be deductible for income tax purposes.
The Company incurred $222 and $1,247 of transaction costs in conjunction with the Sport Truck acquisition for the three and six months ended June 30, 2014, and $0 and $34 for the three and six months ended 2015, respectively which is included in general and administrative expense in the accompanying condensed consolidated statements of income.
Race Face Performance and Easton Cycling Businesses
On December 12, 2014, the Company acquired certain assets and assumed certain liabilities of Race Face/Easton, which was engaged in the design, manufacture, and global distribution of performance mountain and road bike wheels and other performance cycling components including cranks, bars, stems, and seat posts. In connection with the acquisition, the Company paid approximately $30,168. The acquisition was financed with debt and includes a potential earn-out opportunity of up to a maximum of CAD $19,500, or approximately $15,795 US dollars at the exchange rate in effect at June 30, 2015, contingent upon continued employment and the achievement of certain performance-based financial targets through October 2016. In the three and six months ended June 30, 2015, the Company recognized $2,221 and $4,111, respectively, of acquisition related compensation related to the earn-out opportunity, which is recorded as a component of fair value adjustment of contingent consideration and acquisition related compensation in the accompanying condensed consolidated statements of income. The Company incurred $135 and $540 of acquisition related costs in conjunction with the Race Face/Easton acquisition for the three and six months ended June 30, 2015, respectively, which is included in general and administrative expense in the accompanying condensed consolidated statements of income.
The allocation of the purchase price to the assets acquired and liabilities assumed is preliminary, subject to the completion of the Company's validation of working capital and completion of its intangible valuation procedures, with the assistance of specialists. Goodwill acquired is expected to be deductible for income tax purposes.
Related Party Agreement
Related Party Agreement
Related Party Agreement
In September 2014, the Company entered into an agreement with Compass Group Diversified Holdings, LLC ("Compass") to assist with compliance requirements pursuant to the Sarbanes-Oxley Act of 2002, as amended. Compass purchased a controlling interest in the Company in January, 2008, and beneficially owned approximately 40.9% of our outstanding common stock at June 30, 2015. Fees for services provided under this arrangement are estimated to be approximately $100 annually. The agreement will terminate on March 31, 2016 unless terminated earlier by either party.

Fox Factory, Inc. has a triple-net building lease for its manufacturing and office facilities in Watsonville, California. The building is owned by Robert Fox, a founder and minority stockholder of the Company. The term of the lease ends June 30, 2018, with monthly rental payments, which are adjusted annually for a cost-of-living increase based upon the consumer price index. Payments made under this lease were $301 and $602 for the three and six months ended June 30, 2015, respectively, and $293 and $586 for the three and six months ended June 30, 2014, respectively.
Description of Business, Basis of Presentation and Summary of Significant Accounting Policies (Policies)
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 in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. 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 year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K as filed with the SEC. In management’s opinion, the unaudited interim 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 the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.
Principles of Consolidation 
Principles of Consolidation- These condensed consolidated financial statements include the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Summary of Significant Accounting Policies - Self Insurance 
Summary of Significant Accounting Policies - Self-Insurance. Beginning in January 2015, the Company is partially self-insured for its U.S. employee health and welfare benefits.  The Company’s liability for self-insurance is based on claims filed and an estimate of claims incurred but not yet reported. The Company considers a number of factors, including historical claims information, when determining the amount of the accrual. Costs related to the administration of the plan and related claims are expensed as incurred. The Company has third-party insurance coverage to limit exposure for individually significant claims.  The estimate for claims incurred as of June 30, 2015 is $573 and is recorded within accrued expenses on the condensed consolidated balance sheets. 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 December 31, 2014 that have had a material impact on our condensed consolidated financial statements and related notes.

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.
Recent Accounting Pronouncements 
Recent Accounting Pronouncements- In May 2014, the Financial Accounting Standards Board ("FASB") and International Accounting Standards Board issued their converged standard on revenue recognition, Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers". This standard outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that revenue is recognized when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. Transfer of control is not the same as transfer of risks and rewards, as it is considered in current guidance. We will apply the new guidance to determine whether revenue should be recognized over time or at a point in time. This standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2016, with no early adoption permitted, and the Company can choose to apply this standard retrospectively for each prior reporting period presented or retrospectively with the cumulative effect of initially applying the standard recognized at the date of the initial application in retained earnings. In July 2015, the FASB affirmed a proposal to defer the effective date of ASU 2014-09. ASU 2014-09 will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, but entities will be permitted to early adopt the standard as of the original effective date. The Company has not yet developed an expectation of the impact that adoption will have on its consolidated financial statements.
Reclassifications 
Reclassifications- We have reclassified certain prior period amounts within our condensed consolidated balance sheet for the year ended December 31, 2014, the condensed consolidated statements of income for the three and six months ended June 30, 2014, and the condensed consolidated statement of cash flows for the six months ended June 30, 2014 to conform to our current year presentation.
Inventory (Tables)
Inventory
Inventory consisted of the following:
 
As of  
 June 30,
 
As of  
 December 31,
 
2015
 
2014
Raw materials
$
56,104

 
$
39,655

Work-in-process
2,612

 
1,568

Finished goods
20,092

 
17,968

Total inventory
$
78,808

 
$
59,191

Property and Equipment, net (Tables)
Property and Equipment
Property, plant and equipment consisted of the following:
 
As of  
 June 30,
 
As of  
 December 31,
 
2015
 
2014
Machinery and manufacturing equipment
$
20,879

 
$
17,739

Information systems, office equipment and furniture
6,184

 
5,297

Transportation equipment
2,072

 
2,041

Building and land
3,469

 
3,469

Leasehold improvements
6,490

 
5,971

Total
39,094

 
34,517

Less: accumulated depreciation and amortization
(16,658
)
 
(14,758
)
Property, plant and equipment, net
$
22,436

 
$
19,759

Intangibles, net (Tables)
Intangible Assets Excluding Goodwill 
Intangible assets, excluding goodwill, are comprised of the following:
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net
carrying
amount
 
Weighted
average life
(years)
June 30, 2015:
 
 
 
 
 
 
 
Customer relationships
$
36,511

 
$
(10,646
)
 
$
25,865

 
13
Core technology
33,700

 
(30,534
)
 
3,166

 
8
Patents
835

 
(467
)
 
368

 
5
Total
71,046

 
(41,647
)
 
29,399

 
 
Trademarks and brands, not subject to amortization
 
 
 
 
32,026

 
 
Total
 
 
 
 
$
61,425

 
 
December 31, 2014:
 
 
 
 
 
 
 
Customer relationships
$
36,555

 
$
(9,144
)
 
$
27,411

 
13
Core technology
33,700

 
(28,438
)
 
5,262

 
8
Patents
835

 
(394
)
 
441

 
5
Total
71,090

 
(37,976
)
 
33,114

 
 
Trademarks and brands, not subject to amortization
 
 
 
 
32,070

 
 
Total
 
 
 
 
$
65,184

 
 
Schedule of Finite-Lived Intangible Assets, Amortization Expense 
 
For the three months 
 ended June 30,
 
For the six months 
 ended June 30,
 
2015
 
2014
 
2015
 
2014
Amortization of intangibles
$
1,839

 
$
1,674

 
$
3,679

 
$
3,035

Schedule of Goodwill 
Goodwill activity consisted of the following:
 
Balance as of December 31, 2014
$
58,745

Acquisitions
567

Currency translation and other adjustments
(131
)
Balance as of June 30, 2015
$
59,181

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense 
Future amortization expense for finite-lived intangibles as of June 30, 2015 is as follows:
For the years ending December 31,
Amortization Expense
2015 (remaining six months)
$
3,680

2016
2,747

2017
2,685

2018
2,686

2019
2,613

Thereafter
14,988

Total expected future amortization
$
29,399

Accrued Expenses (Tables)
Accrued Expenses 
Accrued expenses consisted of the following:
 
As of  
 June 30,
 
As of  
 December 31,
 
2015
 
2014
Payroll and related expenses
$
10,096

 
$
5,626

Warranty
4,324

 
4,215

Income tax payable
4,087

 
1,405

Other accrued expenses
1,548

 
882

Total
$
20,055

 
$
12,128

Activity Related to Warranties 
Activity related to warranties is as follows:
 
For the three months 
 ended June 30,
 
For the six months 
 ended June 30,
 
2015
 
2014
 
2015
 
2014
Beginning warranty liability
$
4,170

 
$
3,778

 
$
4,215

 
$
3,857

Charge to cost of sales
697

 
978

 
1,103

 
1,717

Fair value of warranty assumed in acquisition
—

 
—

 
—

 
192

Costs incurred
(543
)
 
(876
)
 
(994
)
 
(1,886
)
Ending warranty liability
$
4,324

 
$
3,880

 
$
4,324

 
$
3,880

Debt (Tables)
Summary of Amended & Restated 2013 Credit Facility 
The following table summarizes the line of credit under the Amended and Restated 2013 Credit Facility:
 
As of June 30,
 
2015
Amount outstanding
$
20,000

Available borrowing capacity
$
40,000

Maximum borrowing capacity
$
60,000

Interest rate at June 30, 2015
2.35
%
Maturity date
December 12, 2019
 
 

Schedule of Future Principal Payments 
As of June 30, 2015, future principal payments for long-term debt, including the current portion, are summarized as follows:
Fiscal Year
 
2015 (remaining six months)
$
1,419

2016
2,837

2017
4,256

2018
4,256

2019
35,813

Total
48,581

Less: current portion
(2,837
)
Long-term debt less current portion
$
45,744

Stockholders' Equity (Tables)
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 June 30,
 
For the six months 
 ended June 30,
 
 
2015
 
2014
 
2015
 
2014
 
Cost of sales
20

 
12

 
31

 
20

 
Sales and marketing
126

 
81

 
208

 
116

 
Research and development
49

 
30

 
72

 
42

 
General and administrative
1,165

 
978

 
2,101

 
1,744

 
Total
$
1,360

 
$
1,101

 
$
2,412

 
$
1,922

 

Income Taxes (Tables)
Schedule of Components of Income Tax Expense (Benefit)
 
For the three months 
 ended June 30,
 
For the six months 
 ended June 30,
 
2015
 
2014
 
2015
 
2014
Provision for income taxes
$
3,358

 
$
(41
)
 
$
3,812

 
$
1,687

Effective tax rates
33.2
%
 
(0.4
)%
 
33.6
%
 
10.4
%
Earnings Per Share (Tables)
Calculation of Basic and Diluted Earnings Per Share
The following table presents the calculation of basic and diluted earnings per share:
 
For the three months 
 ended June 30,
 
For the six months 
 ended June 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
6,763

 
$
11,581

 
$
7,533

 
$
14,522

Weighted average shares used to compute basic earnings per share
36,921

 
36,648

 
36,986

 
36,534

Dilutive effect of employee stock plans
906

 
1,164

 
897

 
1,200

Weighted average shares used to compute diluted earnings per share
37,827

 
37,812

 
37,883

 
37,734

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.18

 
$
0.32

 
$
0.20

 
$
0.40

Diluted
$
0.18

 
$
0.31

 
$
0.20

 
$
0.38

Segments (Tables)
Summary of Total Sales by Geographic Location of Customer 
The following table summarizes total sales generated by geographic location of the customer:
 
For the three months 
 ended June 30,
 
For the six months 
 ended June 30,
 
2015
 
2014
 
2015
 
2014
United States
$
40,562

 
$
39,143

 
$
73,355

 
$
63,176

Asia
36,390

 
28,099

 
48,735

 
39,430

Europe
14,461

 
15,036

 
29,526

 
31,230

Rest of the world
5,758

 
4,096

 
13,343

 
8,646

Total sales
$
97,171

 
$
86,374

 
$
164,959

 
$
142,482

Long-lived Assets by Geographic Location 
The Company’s long-lived assets by geographic location are as follows:
 
As of  
 June 30,
 
As of  
 December 31,
 
2015
 
2014
United States
$
19,745

 
$
16,579

International
2,691

 
3,180

Total long-lived assets
$
22,436

 
$
19,759

Revenue from External Customers by Products and Services 
The following table summarizes total sales by product category:
 
For the three months 
 ended June 30,
 
For the six months 
 ended June 30,
 
2015
 
2014
 
2015
 
2014
Bikes
$
61,557

 
$
49,653

 
$
97,179

 
$
83,339

Power vehicles
35,614

 
36,721

 
67,780

 
59,143

Total sales
$
97,171

 
$
86,374

 
$
164,959

 
$
142,482

Acquisitions (Tables)
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed
The Company’s allocation of the purchase price to the net tangible and intangible assets acquired and liabilities assumed is as follows:
Fair market values
 
Tangible assets acquired and liabilities assumed
$
13,046

Intangible assets
35,270

Goodwill
11,962

Total
$
60,278

Description of Business, Basis of Presentation and Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified
0 Months Ended
Jun. 30, 2015
Aug. 13, 2013
Initial public offering (IPO)
Aug. 13, 2013
Initial public offering (IPO)
Shares Offered By Selling Stockholders
Description of Business and Basis of Presentation [Line Items]
 
 
 
Initial public offering (IPO), number of common shares issued
 
2,857 
7,000 
Initial public offering (IPO), price per share
 
$ 15.00 
 
Proceeds from initial public offering (IPO)
 
$ 36,122 
 
Self insurance reserve
$ 573 
 
 
Inventory (Detail) (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2015
Dec. 31, 2014
Inventory Disclosure [Abstract]
 
 
Raw materials
$ 56,104 
$ 39,655 
Work-in-process
2,612 
1,568 
Finished goods
20,092 
17,968 
Total inventory
$ 78,808 
$ 59,191 
Property and Equipment (Detail) (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2015
Dec. 31, 2014
Property, Plant and Equipment [Line Items]
 
 
Property, plant and equipment gross
$ 39,094 
$ 34,517 
Accumulated depreciation and amortization
(16,658)
(14,758)
Net property and equipment
22,436 
19,759 
Machinery and manufacturing equipment
 
 
Property, Plant and Equipment [Line Items]
 
 
Property, plant and equipment gross
20,879 
17,739 
Information systems, office equipment and furniture
 
 
Property, Plant and Equipment [Line Items]
 
 
Property, plant and equipment gross
6,184 
5,297 
Transportation equipment
 
 
Property, Plant and Equipment [Line Items]
 
 
Property, plant and equipment gross
2,072 
2,041 
Building and land
 
 
Property, Plant and Equipment [Line Items]
 
 
Property, plant and equipment gross
3,469 
3,469 
Leasehold improvements
 
 
Property, Plant and Equipment [Line Items]
 
 
Property, plant and equipment gross
$ 6,490 
$ 5,971 
Intangible Assets Excluding Goodwill (Detail) (USD $)
In Thousands, unless otherwise specified
6 Months Ended 12 Months Ended
Jun. 30, 2015
Dec. 31, 2014
Intangible Asset Excluding Goodwill [Line Items]
 
 
Gross carrying amount
$ 71,046 
$ 71,090 
Accumulated amortization
(41,647)
(37,976)
Net carrying amount
29,399 
33,114 
Intangible assets, excluding goodwill
61,425 
65,184 
Trademarks and brands, not subject to amortization
 
 
Intangible Asset Excluding Goodwill [Line Items]
 
 
Intangible assets, not subject to amortization
32,026 
32,070 
Customer relationships
 
 
Intangible Asset Excluding Goodwill [Line Items]
 
 
Gross carrying amount
36,511 
36,555 
Accumulated amortization
(10,646)
(9,144)
Net carrying amount
25,865 
27,411 
Weighted average life (years)
13 years 
13 years 
Core technology
 
 
Intangible Asset Excluding Goodwill [Line Items]
 
 
Gross carrying amount
33,700 
33,700 
Accumulated amortization
(30,534)
(28,438)
Net carrying amount
3,166 
5,262 
Weighted average life (years)
8 years 
8 years 
Total
 
 
Intangible Asset Excluding Goodwill [Line Items]
 
 
Gross carrying amount
835 
835 
Accumulated amortization
(467)
(394)
Net carrying amount
$ 368 
$ 441 
Weighted average life (years)
5 years 
5 years 
Intangibles, Net - Additional Information (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Finite-Lived Intangible Assets, Net [Abstract]
 
 
 
 
Amortization of intangibles
$ 1,839 
$ 1,674 
$ 3,679 
$ 3,035 
Intangibles, net Intangibles, net - Future Amortization Expense (Details) (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2015
Dec. 31, 2014
Goodwill and Intangible Assets Disclosure [Abstract]
 
 
2015 (remaining six months)
$ 3,680 
 
2016
2,747 
 
2017
2,685 
 
2018
2,686 
 
2019
2,613 
 
Thereafter
14,988 
 
Net carrying amount
$ 29,399 
$ 33,114 
Intangibles, net - Rollforward Activity (Details) (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2015
Finite-lived Intangible Assets [Roll Forward]
 
Balance as of December 31, 2014
$ 58,745 
Acquisitions
567 
Currency translation and other adjustments
(131)
Balance as of June 30, 2015
$ 59,181 
Accrued Expenses (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Mar. 31, 2015
Dec. 31, 2014
Mar. 31, 2014
Dec. 31, 2013
Payables and Accruals [Abstract]
 
 
 
 
 
 
 
 
Standard Product Warranty Accrual, Additions from Business Acquisition
$ 0 
$ 0 
$ 0 
$ 192 
 
 
 
 
Payroll and related expenses
10,096 
 
10,096 
 
 
5,626 
 
 
Warranty
4,324 
3,880 
4,324 
3,880 
4,170 
4,215 
3,778 
3,857 
Income tax payable
4,087 
 
4,087 
 
 
1,405 
 
 
Other accrued expenses
1,548 
 
1,548 
 
 
882 
 
 
Total
$ 20,055 
 
$ 20,055 
 
 
$ 12,128 
 
 
Activity Related to Warranties (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Movement in Standard Product Warranty Accrual [Roll Forward]
 
 
 
 
Beginning warranty liability
$ 4,170 
$ 3,778 
$ 4,215 
$ 3,857 
Charge to cost of sales
697 
978 
1,103 
1,717 
Costs incurred
(543)
(876)
(994)
(1,886)
Ending warranty liability
$ 4,324 
$ 3,880 
$ 4,324 
$ 3,880 
Debt - Additional Information (Detail) (USD $)
6 Months Ended 6 Months Ended
Jun. 30, 2014
Amended and Restated 2013 Credit Facility
Term Loan
Jun. 30, 2015
Amended and Restated 2013 Credit Facility
London Interbank Offered Rate (LIBOR)
Jun. 30, 2015
Amended and Restated 2013 Credit Facility
London Interbank Offered Rate (LIBOR)
Minimum
Jun. 30, 2015
Amended and Restated 2013 Credit Facility
London Interbank Offered Rate (LIBOR)
Maximum
Jun. 30, 2015
Amended and Restated 2013 Credit Facility
Prime Rate
Jun. 30, 2015
Amended and Restated 2013 Credit Facility
Prime Rate
Minimum
Jun. 30, 2015
Amended and Restated 2013 Credit Facility
Prime Rate
Maximum
Dec. 12, 2014
Amended and Restated 2013 Credit Facility, First Amendment
Term Loan
Debt Instrument [Line Items]
 
 
 
 
 
 
 
 
Term loan amount
$ 50,000,000 
 
 
 
 
 
 
$ 56,750,000 
Additional borrowing amount
 
 
 
 
 
 
 
$ 30,000,000 
Basis spread on variable rate
 
 
1.50% 
2.50% 
 
0.50% 
1.50% 
 
LIBOR rate
 
0.19% 
 
 
 
 
 
 
Prime interest rate
 
 
 
 
3.25% 
 
 
 
Summary of Amended & Restated 2013 Credit Facility (Detail) (USD $)
Jun. 30, 2015
Dec. 31, 2014
Debt Disclosure [Abstract]
 
 
Amount outstanding
$ 20,000,000 
$ 0 
Available borrowing capacity
40,000,000 
 
Maximum borrowing capacity
$ 60,000,000 
 
Interest rate at June 30, 2015
2.35% 
 
Future Payments for Long-term Debt (Detail) (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2015
Dec. 31, 2014
Debt Disclosure [Abstract]
 
 
2015 (remaining six months)
$ 1,419 
 
2016
2,837 
 
2017
4,256 
 
2018
4,256 
 
2019
35,813 
 
Total
48,581 
 
Less: current portion
(2,837)
(2,837)
Long-term debt less current portion
$ 45,744 
$ 47,163 
Commitment and Contingencies - Additional Information (Detail) (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2015
Commitments and Contingencies Disclosure [Abstract]
 
Contingent consideration
$ 36,945 
Stockholders' Equity - Share Repurchase Program (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Jun. 30, 2015
Nov. 3, 2014
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
 
 
Share repurchase program, authorized amount
 
$ 40,000 
Shares repurchased during period (in shares)
268 
 
Shares repurchased during period, amount
3,993 
 
Remaining authorized amount available for repurchase
$ 35,436 
 
Stockholders' Equity - Equity Incentive Plans (Detail) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
 
 
 
 
Stock issued due to exercise of stock options
 
 
53,000 
421,000 
Proceeds from the exercise of stock options, net of shares repurchased for tax withholding
 
 
$ 170 
$ 1,750 
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
 
 
 
 
Allocated share-based compensation expense
1,360 
1,101 
2,412 
1,922 
Restricted Stock Units
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
Unrecognized stock-based compensation expense related to RSUs
13,073 
 
13,073 
 
Period for recognition of unrecognized stock-based compensation expense
 
 
2 years 9 months 25 days 
 
Stock Option
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
Options granted (in shares)
 
 
0 
0 
Options forfeited in period (in shares)
 
 
0 
19,000 
Period for recognition of unrecognized stock-based compensation expense
 
 
1 year 11 months 4 days 
 
Unrecognized stock-based compensation expense related to stock options
513 
 
513 
 
Cost of sales
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
 
 
 
 
Allocated share-based compensation expense
20 
12 
31 
20 
Sales and marketing
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
 
 
 
 
Allocated share-based compensation expense
126 
81 
208 
116 
Research and development
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
 
 
 
 
Allocated share-based compensation expense
49 
30 
72 
42 
General and administrative
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
 
 
 
 
Allocated share-based compensation expense
$ 1,165 
$ 978 
$ 2,101 
$ 1,744 
Stockholders' Equity - Unvested RSU Activity (Details) (Restricted Stock Units, USD $)
In Thousands, except Per Share data, unless otherwise specified
6 Months Ended
Jun. 30, 2015
Restricted Stock Units
 
Number of shares outstanding
 
Unvested at December 31, 2014 (in shares)
780 
Granted (in shares)
227 
Forfeited (in shares)
1 
Vested (in shares)
105 
Unvested at June 30, 2015 (in shares)
901 
Weighted-average grant date fair value
 
Unvested at December 31, 2014 (in usd per share)
$ 17.30 
Granted (in usd per share)
$ 16.68 
Forfeited (in usd per share)
$ 17.12 
Vested (in usd per share)
$ 17.16 
Unvested at June 30, 2015 (in usd per share)
$ 17.16 
Fair Value Measurements - Additional Information (Details) (USD $)
In Thousands, unless otherwise specified
0 Months Ended 6 Months Ended
Mar. 31, 2014
Jun. 30, 2015
Jun. 30, 2014
Fair Value Disclosures [Abstract]
 
 
 
Earn out percentage, lower limit
 
70.00% 
 
Earn out percentage, upper limit
 
75.00% 
 
Earn out percentage
 
 
75.00% 
Expected volatility rate (as a percent)
41.00% 
35.00% 
 
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
 
 
 
Balance at December 31, 2014
 
$ 21,252 
 
Change in fair value
 
52 
 
Payment of contingent liability
 
(7,854)
 
Balance at June 30, 2015
 
$ 13,450 
 
Income Taxes - Additional Information (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Income Tax Disclosure [Abstract]
 
 
 
 
Provision for income taxes
$ 3,358 
$ (41)
$ 3,812 
$ 1,687 
Effective tax rates (as a percent)
33.20% 
(0.40%)
33.60% 
10.40% 
Discrete tax benefit
 
 
 
3,848 
Discrete tax benefit per basic and diluted share (in dollars per share)
 
$ 0.10 
 
 
Discrete tax benefit per basic share (in dollars per share)
 
 
 
$ 0.11 
Discrete tax benefit per diluted share (in dollars per share)
 
 
 
$ 0.10 
Federal statutory rate (as a percent)
 
 
35.00% 
35.00% 
Unrecognized tax benefits
9,287 
 
9,287 
 
Unrecognized tax benefits that would impact effective tax rate
8,397 
 
8,397 
 
Possible reduction in unrecognized tax benefit over fiscal year
$ 1,323 
 
$ 1,323 
 
Calculation of Basic and Diluted Earnings Per Share (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Earnings Per Share [Abstract]
 
 
 
 
Net income
$ 6,763 
$ 11,581 
$ 7,533 
$ 14,522 
Weighted average shares used to compute basic earnings per share (in shares)
36,921 
36,648 
36,986 
36,534 
Dilutive effect of employee stock plans (in shares)
906 
1,164 
897 
1,200 
Weighted average shares used to compute diluted earnings per share (in shares)
37,827 
37,812 
37,883 
37,734 
Basic (in dollars per share)
$ 0.18 
$ 0.32 
$ 0.20 
$ 0.40 
Diluted (in dollars per share)
$ 0.18 
$ 0.31 
$ 0.20 
$ 0.38 
Earnings Per Share - Additional Information (Detail)
6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Earnings Per Share [Abstract]
 
 
Anti-dilutive shares excluded from calculation of diluted earnings per share
0 
0 
Summary of Total Sales by Geographic Location of Customer (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
segment
Jun. 30, 2014
Segment Reporting [Abstract]
 
 
 
 
Number of operating segments
 
 
1 
 
Number of reportable segments
 
 
1 
 
Segment Reporting Information [Line Items]
 
 
 
 
Sales
$ 97,171 
$ 86,374 
$ 164,959 
$ 142,482 
United States
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
Sales
40,562 
39,143 
73,355 
63,176 
Asia
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
Sales
36,390 
28,099 
48,735 
39,430 
Europe
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
Sales
14,461 
15,036 
29,526 
31,230 
Rest of the World [Member]
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
Sales
$ 5,758 
$ 4,096 
$ 13,343 
$ 8,646 
Long-lived Assets by Geographic Location (Detail) (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2015
Dec. 31, 2014
Segment Reporting Information [Line Items]
 
 
Long-lived assets
$ 22,436 
$ 19,759 
United States
 
 
Segment Reporting Information [Line Items]
 
 
Long-lived assets
19,745 
16,579 
International
 
 
Segment Reporting Information [Line Items]
 
 
Long-lived assets
$ 2,691 
$ 3,180 
Segments Sales by Product Type (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Segment Reporting Information [Line Items]
 
 
 
 
Sales
$ 97,171 
$ 86,374 
$ 164,959 
$ 142,482 
Bikes
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
Sales
61,557 
49,653 
97,179 
83,339 
Power vehicles
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
Sales
$ 35,614 
$ 36,721 
$ 67,780 
$ 59,143 
Acquisitions - Additional Information (Details)
In Thousands, unless otherwise specified
6 Months Ended 0 Months Ended 3 Months Ended 6 Months Ended 0 Months Ended 3 Months Ended 6 Months Ended 6 Months Ended 12 Months Ended 6 Months Ended
Jun. 30, 2015
USD ($)
Jun. 30, 2014
USD ($)
Dec. 31, 2014
USD ($)
Mar. 31, 2014
Sport Truck USA, Inc.
USD ($)
Jun. 30, 2015
Sport Truck USA, Inc.
USD ($)
Jun. 30, 2014
Sport Truck USA, Inc.
USD ($)
Jun. 30, 2015
Sport Truck USA, Inc.
USD ($)
Jun. 30, 2014
Sport Truck USA, Inc.
USD ($)
Mar. 31, 2015
Sport Truck USA, Inc.
USD ($)
Dec. 12, 2014
Race Face Performance and Easton Cycling
USD ($)
Jun. 30, 2015
Race Face Performance and Easton Cycling
USD ($)
Jun. 30, 2015
Race Face Performance and Easton Cycling
USD ($)
Dec. 12, 2014
Race Face Performance and Easton Cycling
USD ($)
Dec. 12, 2014
Race Face Performance and Easton Cycling
CAD ($)
Jun. 30, 2015
Prepaids and Other Current Assets
Sport Truck USA, Inc.
USD ($)
Dec. 31, 2014
Prepaids and Other Current Assets
Sport Truck USA, Inc.
USD ($)
Jun. 30, 2015
Customer relationships
Dec. 31, 2014
Customer relationships
Jun. 30, 2015
Customer relationships
Sport Truck USA, Inc.
Business Acquisition [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash consideration
$ 765 
$ 40,770 
 
$ 40,770 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Settlement of pre-existing accounts
 
 
 
473 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration, asset
 
 
 
 
 
1,432 
 
1,432 
 
 
 
 
 
 
476 
351 
 
 
 
Contingent consideration, asset, period for recognition
 
 
 
3 years 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration, maximum
36,945 
 
 
 
 
 
 
 
29,295 
 
 
 
 
 
 
 
 
 
 
Goodwill
59,181 
 
58,745 
 
 
11,962 
 
11,962 
 
 
 
 
 
 
 
 
 
 
 
Useful life of finite-lived intangibles
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13 years 
13 years 
15 years 
Payments for Contingent Consideration Liability
7,854 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Transaction costs
 
 
 
 
0 
0 
34 
1,247 
 
 
135 
540 
 
 
 
 
 
 
 
Acquisition related compensation expense
 
 
 
 
122 
 
240 
 
 
 
2,221 
4,111 
 
 
 
 
 
 
 
Business Combination, Consideration Transferred
 
 
 
 
 
 
 
 
 
30,168 
 
 
 
 
 
 
 
 
 
Contingent consideration at fair value
 
 
 
 
$ 0 
$ 19,035 
$ 0 
$ 19,035 
 
 
 
 
$ 15,795 
$ 19,500 
 
 
 
 
 
Acquisitions - Assets Acquired and Liabilities Assumed (Details) (Sport Truck USA, Inc., USD $)
In Thousands, unless otherwise specified
Jun. 30, 2014
Sport Truck USA, Inc.
 
Fair market values
 
Tangible assets acquired and liabilities assumed
$ 13,046 
Intangible assets
35,270 
Goodwill
11,962 
Total
$ 60,278 
Related Party Agreement (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Compass Group Diversified Holdings, LLC
 
 
 
 
Related Party Transaction [Line Items]
 
 
 
 
Ownership interest (as a percent)
40.90% 
 
40.90% 
 
Annual fees for services
 
 
$ 100 
 
Founder and Minority Stockholder |
Related Party Transactions
 
 
 
 
Related Party Transaction [Line Items]
 
 
 
 
Payments made under lease
$ 301 
$ 293 
$ 602 
$ 586