What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-02 compared with 2022-11-01 · 151 added, 223 removed, 202 unchanged (65% of the section changed)

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specialty products and structural products.

Specialty products include items such as engineered wood, siding, millwork, outdoor living, specialty lumber and industrial products.

Specialty products include items such as engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products.

Structural products include items such as lumber, plywood, oriented strand board, rebar, and remesh.

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This distribution channel, however, requires the lowest amount of committed capital and fixed costs.

With a strong market position, a broad geographic coverage footprint, where our locations are in approximately 75 percent of the highest growth metropolitan statistical areas, combined with the strength of a locally focused sales force, we distribute a comprehensive range of products from over 750 suppliers.

Our suppliers include some of the leading manufacturers in the industry, such as Allura, Arauco, Fiberon, Georgia-Pacific, Huber Engineered Woods, James Hardie, Louisiana-Pacific, Oldcastle APG, Ply Gem, Roseburg, Royal and Weyerhaeuser.

We supply products to a broad base of over 15,000 customers including national home centers, pro dealers, cooperatives, specialty distributors, regional and local dealers and industrial manufacturers.

We have a strong market position and a broad geographic coverage footprint servicing all 50 states, where we maintain locations that serve 75 percent of the highest growth metropolitan statistical areas as it relates to forecasted housing starts and repair and remodel spend.

With the strength of a locally focused sales force, we distribute a comprehensive range of products from over 750 suppliers.

Our suppliers include some of the leading manufacturers in the industry, such as Allura, Arauco, Fiberon, Georgia-Pacific, Huber Engineered Woods, Louisiana-Pacific, Oldcastle APG, Ply Gem, Roseburg, Royal and Weyerhaeuser.

We supply products to a broad base of customers including national home centers, pro dealers, cooperatives, specialty distributors, regional and local dealers and industrial manufacturers.

Many of our customers serve residential and commercial builders, contractors and remodelers in their respective geographic areas and local markets.

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Our position in this distribution model for building products provides easy access to the marketplace for our suppliers and a value proposition of rapid delivery on an as-needed basis to our customers from our network of warehouse facilities.

On October 3, 2022, we announced and closed on our acquisition of Vandermeer Forest Products, Inc.

(“Vandermeer”).

Vandermeer is a premier wholesale distributor of building products.

Vandermeer was founded in 1972 and serves more than 250 customers across the Pacific Northwest, Alaska, Hawaii, British Columbia and Alberta from distribution facilities in Kent, Spokane, and Marysville, Washington.

The acquisition of Vandermeer adds three distribution branches in Washington state and provides direct access to Seattle and Portland, two of the top 15 metropolitan statistical areas in the United States.

Additionally, we now have coast-to-coast reach and serve all 50 states.

Vandermeer’s product offering and sales mix is similar to ours, with specialty products contributing to the majority of its revenue and gross profit.

We believe this acquisition aligns to our specialty products strategy, establishes a meaningful growth platform in the Pacific Northwest, increases our market penetration in key specialty product categories, such as siding and engineered wood, and strengthens strategic supplier relationships.

Industry Overview

Our products are available across large and attractive end markets, including residential repair and remodel and residential new construction, which together account for approximately 85 percent of the end market mix for our addressable building material market served via two-step distribution based on our estimates.

We estimate the remaining approximately 15 percent of end market mix is accounted for by commercial construction.

We also estimate the remaining 15 percent is accounted for by commercial construction.

Certain developments have led to a more challenging macro-economic environment, such as broad-based inflation, the rapid rise in mortgage rates, and home price appreciation.

These developments have impacted the U.S.

housing market, including the residential repair and remodel and residential new construction end markets.

Such developments have caused a recent slowdown in the U.S.

housing market, including the residential repair and remodel and residential new construction end markets, and have contributed to a recent slowdown in the U.S.

housing industry.

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Residential Repair and Remodel

We estimate that residential repair and remodel spending accounts for approximately 45 percent of the end market mix for our addressable building material market served via two-step distribution.

Repair and remodel sales tend to be less cyclical than new construction, particularly for exterior products that are exposed to the elements and where maintenance is less likely to be deferred for long periods of time.

We estimate that demand from the residential repair and remodel market (“R&R”) accounts for approximately 45 percent of our annual sales.

Historically, R&R demand has tended to be less cyclical when compared to the residential new construction

market, particularly for exterior products that are exposed to the elements and where maintenance is less likely to be deferred for long periods of time.

We believe R&R demand is driven by a myriad of factors including, but not limited to:

home prices and affordability;

raw materials prices;

the pace of new household formation;

savings rates;

employment conditions;

and emerging trends, such as the increased popularity of home-based remote working environments.

With mortgage rates having risen to multi-year highs, we believe many homeowners who secured a lower interest mortgage will be inclined to stay longer in existing homes, which could benefit R&R demand over the near-to-medium term.

According to the Joint Center For Housing Studies’ LIRA Index, R&R demand is expected to return to more normalized levels, following several consecutive years of elevated R&R activity fueled by pandemic-induced changes in housing and lifestyle decisions.

However, the total market size of the U.S.

R&R market remains significant, with total U.S.

homeowner improvements and repairs spending expected to be approximately $484.0 billion by the end of 2023, up from $363.0 billion at the end of 2020.

Further, as the median age of U.S.

housing stock increases over time, we anticipate U.S.

R&R spending will also increase.

According to the U.S.

Census Bureau and Department of Housing and Urban Development, the median home age in the U.S.

increased from 23 years in 1985 to 39 years in 2019 and approximately 80 percent of the current housing stock was built prior to 1999.

Census Bureau and the U.S.

Department of Housing and Urban Development, the median age of a home in the U.S.

increased from 23 years in 1985 to 39 years in 2019.

Moreover, approximately 80 percent of the current housing stock was built prior to 1999.

We believe the increasing average age of the nation’s approximate 142 million existing homes will continue to drive demand for repair and remodel projects.

The October 20, 2022 Leading Indicator of Remodeling Activity, published by the Joint Center for Housing Studies, projects year-over-year increases in spending on home improvement projects will shrink from 16.1 percent in 2022 to 6.5 percent by the third quarter of 2023.

Home improvement spending has also benefited from the increase in remote working environments, as homeowners are spending more time at home and are investing more in their homes as a result.

Outdoor and exterior projects make heavy use of outdoor living products like composite decking and fencing, and other aesthetically focused exterior products like siding and trim, which are key and growing product categories for us.

We expect that current factors, including the overall age of the U.S.

housing stock and rising home prices supporting increased home equity values, will drive repair and remodel spending.

Residential New Construction

We estimate that residential new home construction (including single-family and multi-family homes) accounts for approximately 40 percent of the end market mix for our addressable building material market served via two-step distribution.

The pace of housing starts, with which a portion of our business is correlated, is driven by demographic and population shifts, mortgage interest rates, which is approaching the 40-year average, the ability of builders to obtain skilled labor, and builders’ economic outlook.

We estimate that demand from the residential new construction market, including single-family and multi-family units, accounts for approximately 40 percent of our annual sales.

We believe demand for residential new construction is driven by a myriad of factors including, but not limited to:

mortgage rates, which recently reached multi-year highs;

lending standards;

home affordability;

employment conditions;

savings rates;

the rate of population growth and new household formation;

builder activity levels;

the level of existing home inventory on the market;

and consumer sentiment.

According to the U.S.

Census Bureau and the U.S.

Department of Housing and Urban Development, during the third quarter of fiscal 2022, single family housing starts in the United States were approximately 20 percent lower compared to the second quarter of fiscal 2022 and approximately 13 percent higher than that of the first quarter of fiscal 2020, prior to the COVID-19 pandemic, indicating a market slow down following two years of favorable market conditions.

As of the end of the third quarter of fiscal 2022, the month’s supply of inventory of new homes was eight months, above the 20-year average of six months.

Department of Housing and Urban Development, during the first quarter of fiscal 2023, single family housing starts in the United States, seasonally adjusted, were approximately 29 percent lower compared to the first quarter of fiscal 2022 and approximately 13 percent lower than that of the first quarter of fiscal 2020, prior to the COVID-19 pandemic, indicating a market slow down following two years of favorable market conditions.

As of the end of the first quarter of fiscal 2023, the month’s supply of inventory of new homes was eight months, above the 20-year average of six months.

For most of the last decade, housing production has lagged population growth and household formation.

We believe our scale, national footprint, strategic supplier relationships, key national customer relationships, and breadth of market leading products and brands position us to serve the residential new construction end market and navigate the changes in the macro-economic environment.

We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors common in the building products distribution industry, such as weather conditions and other seasonal factors.

As a result, our quarterly sales volumes may trend higher in quarters when weather conditions and other seasonal factors are more favorable, reflecting an increase in activity in the residential repair and remodel and residential new home construction markets.

Conversely, when weather conditions and other seasonal factors are less favorable, we may experience declines in sales volumes.

The first and fourth quarters have historically been our lower volume quarters due to the impact of unfavorable weather on the residential repair and remodel and residential new home construction markets, among other factors.

Our second and third quarters have historically been higher volume quarters compared to the first and fourth quarters, reflecting an increase in repair and remodel and residential new home construction activities due to more favorable seasonal conditions.

Our historical patterns of seasonality were impacted by the COVID-19 pandemic which caused supply and demand imbalances impacting our sales volumes.

During the first quarter of 2023, we experienced some seasonal impacts to our sales volumes from weather conditions.

While there is continued uncertainty surrounding certain macro-economic environment developments that may impact our seasonality trends, we expect to return to more normalized seasonality trends in the near term given recent easing supply constraints and increased manufacturing output.

Commodity Markets

Our operating results are sensitive to fluctuations in commodity markets, specifically commodity markets for wood-based commodities that we classify as structural products.

When prices fluctuate in the commodity markets which impact us, we may immediately adjust the end price of our products to compensate for the changes in market prices, which is common for businesses with inventories impacted by commodity price fluctuations.

When prices fluctuate in the commodity markets which impact us, we may immediately adjust the end price of our products to compensate for the changes in market prices, which is common for

businesses with inventories impacted by commodity price fluctuations.

When we change our prices in response to market fluctuations, we will often see immediate impacts in our operating results.

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Conversely, when market prices decrease, the impact can be negative because we are adjusting the selling prices for inventory often purchased at higher market prices.

See Note 2 to the condensed consolidated financial statements and Results of Operations below for discussion of the impact of fluctuations in commodity markets on results for the periods presented.

See Note 3, Inventories , to the condensed consolidated financial statements and Results of Operations below for discussion of the impact of fluctuations in commodity markets on results for the periods presented.

Supply Constraints

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Migrate sales mix toward higher-margin specialty product categories.

The Company intends to pursue a revenue mix increasingly weighted toward higher-margin, specialty product categories such as engineered wood, siding, millwork, outdoor living, specialty lumber and industrial products.

Additionally, the Company intends to expand its value-added service offerings designed to simplify complex customer sourcing requirements, together with marketing, inventory and pricing services afforded by the Company’s national platform.

The Company is pursuing a revenue mix increasingly weighted toward higher-margin, specialty product categories such as engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products.

Additionally, the Company is expanding its value-added service offerings designed to simplify complex customer sourcing requirements and provide enhanced service capabilities afforded by the Company’s national platform.

Maintain a disciplined capital structure and pursue high-return investments that increase the value of the Company.

The Company intends to maintain a disciplined capital structure while at the same time investing in its business to modernize its tractor fleet and distribution facilities and to improve operational performance.

The Company is maintaining a disciplined capital structure while at the same time investing in its business to modernize its distribution facilities, as well as its tractor and trailer fleet, and to improve operational performance.

The Company also continues to evaluate potential acquisition targets that complement its existing capabilities, grow its specialty products business, increase customer exposure, expand its geographic reach, or a combination thereof.

Through October 3, 2022, we have taken the following capital allocation actions, all of which were funded with cash on hand:

• During the three and nine month periods ending October 1, 2022, we invested $12.2 million and $19.1 million, respectively, in capital for our business to improve operational performance and productivity.

• During the first nine months of fiscal 2022, we repurchased 882,346 shares of our common stock for $66.4 million under our share repurchase program, including shares purchased through the ASR Agreement, as defined below, at an average price of $75.28 per share.

• On October 3, 2022, we announced and closed on the acquisition of Vandermeer for $67.0 million, which aligns to our specialty products strategy, establishes a meaningful growth platform in a new geographic area, the Pacific Northwest, increases market penetration in key specialty product categories, and strengthens strategic supplier relationships.

We invested $9.0 million in our business during the first quarter of fiscal 2023 to improve operational performance and productivity.

Factors That Affect Operating Results

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compliance costs associated with federal, state, and local environmental protection laws;

the COVID-19 pandemic and other contagious illness outbreaks and their potential effects on our industry;

global pandemics, such as COVID-19, and other widespread public health crises and their potential effects on our business;

fluctuations in our operating results;

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the covenants of the instruments governing our indebtedness limiting the discretion of our management in operating the business;

variable interest rate risk under certain indebtedness;

the fact that we have consummated certain sale leaseback transactions with resulting long-term non-cancelable leases, many of which are or will be finance leases;

the potential to incur more debt;

the fact that we have consummated certain sale leaseback transactions

with resulting long-term non-cancelable leases, many of which are or will be finance leases;

the fact that we lease many of our distribution centers, and we would still be obligated under these leases even if we close a leased distribution center;

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increases in petroleum prices;

shareholder activism;

changes in insurance-related deductible/retention reserves based on actual loss experience;

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the risk that our cash flows and capital resources may be insufficient to service our existing or future indebtedness;

variable interest rate risk under certain indebtedness;

changes in, or interpretation of, accounting principles;

significant stock price fluctuation;

the possibility that we could be the subject of securities class action litigation due to stock price volatility;

unfavorable securities or industry analyst publications;

activities of activist shareholders;

indebtedness terms that limit our ability to pay dividends on common stock;

and changes in, or interpretation of, accounting principles.

and indebtedness terms that limit our ability to pay dividends on common stock.

Results of Operations

The following table sets forth our results of operations for the third quarter of fiscal 2022 and fiscal 2021:

Third Quarter of Fiscal 2022 % of

Sales Third Quarter of Fiscal 2021 % of

(In thousands) (In thousands)

Net sales $ 1,060,761 100.0% $ 970,842 100.0%

Gross profit 189,376 17.9% 153,327 15.8%

Selling, general, and administrative 91,678 8.6% 76,176 7.8%

Depreciation and amortization 6,688 0.6% 6,884 0.7%

Amortization of deferred gains on real estate (983) (0.1)% (984) (0.1)%

Gains from sales of property — 0.0% — 0.0%

Other operating expenses 1,267 0.1% 212 0.0%

Operating income 90,726 8.6% 71,039 7.3%

Interest expense, net 10,444 1.0% 8,313 0.9%

Other expense (income), net (361) (0.0)% (704) (0.1)%

Income before provision for income taxes 80,643 7.6% 63,430 6.5%

Provision for income taxes 21,134 2.0% 16,232 1.7%

Net income $ 59,509 5.6% $ 47,198 4.9%

The following table sets forth our results of operations for the first nine month periods of fiscal 2022 and fiscal 2021:

First Nine Months of Fiscal 2022 % of

Sales First Nine Months of Fiscal 2021 % of

The following table sets forth our results of operations for the first quarter of fiscal 2023 and fiscal 2022:

First Quarter of Fiscal 2023 % of

Sales First Quarter of Fiscal 2022 % of

(In thousands) (In thousands)

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Amortization of deferred gains on real estate (984) (0.1)% (984) (0.1)%

Gains from sales of property (144) 0.0% (1,287) (0.0)%

Other operating expenses 3,116 0.4% 838 0.1%

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Interest expense, net 7,687 1.0% 11,293 0.9%

Other expense (income), net 916 0.0% (1,335) (0.0)%

Other expense, net 594 0.1% 1,138 0.1%

Income before provision for income taxes 24,234 3.0% 180,731 13.9%

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Net income $ 17,812 2.2% $ 133,409 10.2%

The following table sets forth net sales by product category for the three and nine month periods ending October 1, 2022 and October 2, 2021:

Three Months Ended Nine Months Ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Net sales by product category (In thousands) (In thousands)

Specialty products $ 724,323 $ 641,024 $ 2,280,090 $ 1,878,835

Structural products 336,438 329,818 1,322,355 1,425,389

Total net sales $ 1,060,761 $ 970,842 $ 3,602,445 $ 3,304,224

Percentage of total net sales by product category

The following table sets forth net sales by product category for the three-month periods ending April 1, 2023 and April 2, 2022:

Three Months Ended

April 1, 2023 April 2, 2022

Net sales by product category ($ in thousands)

Specialty products $ 567,838 71 % $ 767,907 59 %

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Total net sales $ 797,904 100 % $ 1,302,305 100 %

The following table sets forth gross profit and gross margin percentages by product category for the three and nine month periods ending October 1, 2022 and October 2, 2021:

Three Months Ended Nine Months Ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Gross profit by product category (In thousands) (In thousands)

The following table sets forth gross profit and gross margin percentages by product category for the three-month periods of fiscal 2023 and 2022:

Three Months Ended

April 1, 2023 April 2, 2022

Gross profit by product category ($ in thousands)

Specialty products $ 106,627 $ 184,099

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Total gross margin % 16.7 % 22.3 %

Non-GAAP Financial Measures

To provide investors with additional information regarding our financial results, we prepare certain financial measures that are not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”).

We use these supplemental non-GAAP measures to evaluate financial performance and analyze the underlying trends in our business.

We believe these non-GAAP measures are useful because they permit investors to better understand changes over comparative periods by providing financial results that are unaffected by certain items that may not be indicative of ongoing operating performance.

While we believe that these non-GAAP measures are useful to investors when evaluating our business, they are not prepared and presented in accordance with GAAP, and therefore should be considered supplemental in nature.

These non-GAAP measures should not be considered in isolation or as a substitute for other financial performance measures presented in accordance with GAAP.

The following table presents a reconciliation of gross profit, the most directly comparable financial measure as measured in accordance with GAAP, to gross profit, excluding the impact of our lower of cost or net realizable value reserve for the three and nine month periods ending October 1, 2022 and October 2, 2021:

Three Months Ended Nine Months Ended

Structural products October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

(In thousands) (In thousands)

Net sales $ 336,438 $ 329,818 $ 1,322,355 $ 1,425,389

Gross profit, as reported 37,948 5,634 166,054 163,668

lower of cost or net realizable value reserve 4,087 — 4,087 —

release of lower of cost or net realizable value reserve $ (9,776) $ (16,693) $ — $ —

Gross profit, excluding reserve $ 32,259 $ (11,059) $ 170,141 $ 163,668

Gross margin %, excluding reserve 9.6 % (3.4) % 12.9 % 11.5 %

Third Quarter of Fiscal 2022 Compared to Third Quarter of Fiscal 2021

For the third quarter of fiscal 2022, we generated net sales of $1.1 billion, an increase of $89.9 million when compared to the third quarter of fiscal 2021 and overall gross margin percentage increased from 15.8 percent to 17.9 percent year over year.

Our third quarter net income was $59.5 million, or $6.38 per diluted share, versus $47.2 million, or $4.74 per diluted share, in the prior-year period.

Improvements in pricing of our specialty and structural products was the primary contributor to the increase in our overall sales and profitability year over year.

Net sales of specialty products, which includes products such as engineered wood, siding, millwork, outdoor living, specialty lumber and industrial products, increased $83.3 million to $724.3 million in the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021.

Strategic pricing of our specialty products throughout the third quarter of fiscal 2022 resulted in improved revenue and gross profit growth, with volume relatively flat, when compared to the prior-year period.

Specialty products gross profit increased $3.7 million to $151.4 million, with a year-over-year decline of 210 basis points in specialty gross margin to 20.9 percent for the third quarter of fiscal 2022 compared to 23.0 percent in the third quarter of fiscal 2021.

The decrease in specialty gross margin percentage over the prior-year period is primarily attributable to price volatility during the third quarter of fiscal 2022 related to easing supply constraints across certain of our specialty products, particularly millwork.

Net sales of structural products, which includes products such as lumber, plywood, oriented strand board, rebar, and remesh, increased $6.6 million to $336.4 million in the third quarter of fiscal 2022.

The increase in the average framing lumber commodity price of our structural products resulted in the increase of revenue and gross profit for the third quarter of fiscal 2022, with volume relatively flat compared to the prior-year period.

Our structural gross margin percentage for the third quarter of fiscal 2022 was 11.3 percent, up from 1.7 percent in the prior-year period, also primarily attributable to the increase in the average framing lumber commodity price of our structural products, as well as our continued improvement in managing structural inventory.

Our structural gross margin percentage for the third quarter of fiscal 2022 includes the $5.7 million favorable impact of the partial release of our reserve recorded in the second quarter of fiscal 2022.

Our structural gross margin percentage for the third quarter of fiscal 2021 includes the $16.7 million favorable impact of the full release of our reserve recorded in the second quarter of fiscal 2021.

Excluding the net impact of the lower of cost or net realizable value reserve, our structural gross margin percentage for the third quarter of fiscal 2022 and 2021 would have been 9.6 percent and (3.4) percent, respectively.

Our selling, general, and administrative expenses increased 20.4 percent, or $15.5 million, compared to the third quarter of fiscal 2021.

The increase in selling, general, and administrative expenses is due primarily to an increase of $8.8 million related to key growth and productivity initiatives, an increase in logistical expenses of $5.1 million related to inflation in our delivery costs, including third-party delivery services and fuel costs, and $1.6 million related to higher variable incentive compensation, such as sales commissions and stock compensation.

Depreciation and amortization expense decreased $0.2 million compared to the third quarter of fiscal 2021.

The decrease in depreciation and amortization is due to a lower base of amortizable and depreciable assets throughout the third quarter of fiscal 2022 when compared to the prior-year period.

Other operating expenses increased $1.1 million compared to the third quarter of fiscal 2021 primarily due to restructuring related costs, including severance, incurred in the third quarter of fiscal 2022.

Interest expense, net, increased by 25.6 percent, or $2.1 million, compared to the third quarter of fiscal 2021.

The increase is primarily due to capital structure mix changes, as our senior secured notes carry a higher interest rate than our former revolving credit facility.

Our effective tax rate was 26.2 percent and 25.6 percent for the third quarter of fiscal 2022 and 2021, respectively.

Our effective tax rate for both periods was impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation.

Our effective tax rate for the third quarter of fiscal 2021 also benefited from the partial release of our valuation allowance for state net operating loss carryforwards.

For the third quarter of fiscal 2022, our net income increased by 26.1 percent, or $12.3 million, compared to the prior-year period due primarily to an increase in gross profit driven by improvements primarily related to price.

This was partially offset by some increases in our operating expenses along with higher interest expense and higher income tax expense.

First Nine Months of Fiscal 2022 Compared to First Nine Months of Fiscal 2021

For the first nine months of fiscal 2022, we generated net sales of $3.6 billion, an increase of $298.2 million when compared to the first nine months of fiscal 2021, and overall gross margin percentage increased from 17.7 percent to 18.9 percent year over year.

Our net income for the first nine months of fiscal 2022 was $264.2 million, or $27.82 per diluted share, versus $222.5 million, or $22.91 per diluted share, in the prior-year period.

Strategic pricing of our specialty products is the primary contributor to the increase in our overall sales and profitability year over year.

Net sales of specialty products, which includes products such as engineered wood, siding, millwork, outdoor living, specialty lumber and industrial products, increased $401.3 million to $2.3 billion in the first nine months of fiscal 2022.

Strategic pricing of our specialty products during the first nine months of fiscal 2022 resulted in improved revenue and gross profit growth, partially offset by slightly lower volume when compared to the prior-year period, where we saw historically strong demand.

Specialty products gross profit increased $94.6 million to $515.8 million, with a year-over-year improvement of 20 basis points in specialty gross margin to 22.6 percent for the first nine months of fiscal 2022 compared to 22.4 percent in the first nine months of fiscal 2021.

The increase in specialty gross margin percentage over the prior-year period is primarily attributable to benefits from strategic pricing for our specialty products.

Net sales of structural products, which includes products such as lumber, plywood, oriented strand board, rebar, and remesh, decreased $103.0 million to $1.3 billion in the first nine months of fiscal 2022.

The decrease in wood-based commodity prices of our structural products and slightly lower volume are the primary contributors to the decrease in net sales for the first nine months of fiscal 2022.

While our structural gross profit was generally consistent, our structural gross margin percentage for the first nine months of fiscal 2022 increased to 12.6 percent from 11.5 percent in the prior-year period, primarily attributable to strategic structural product management.

Our structural gross margin percentage for the first nine months of fiscal 2022 was also impacted by a lower of cost or net realizable value reserve of $4.1 million, net recorded during the nine-month period in response to the decline in wood-based commodity prices.

Excluding the impact of the lower of cost or net realizable value reserve, our structural gross margin percentage for the first nine months of fiscal 2022 would have been 12.9 percent, which is an improvement of 140 basis points compared to the prior-year period.

Our selling, general, and administrative expenses increased 14.9 percent, or $35.6 million, compared to the first nine months of fiscal 2021.

The increase in sales, general, and administrative expenses is due primarily to increases in logistical expenses of $15.6 million related to inflation in our delivery costs, including third-party delivery services and fuel costs, $14.6 million related to key growth and productivity initiatives, and $5.4 million related to higher variable incentive compensation, such as sales commissions and stock compensation.

Depreciation and amortization expense decreased $1.5 million compared to the first nine months of fiscal 2021.

The decrease in depreciation and amortization is due to a lower base of amortizable and depreciable assets throughout the first nine months of fiscal 2022 when compared to the prior-year period.

The decrease in gains from sales of property in the amount of $1.1 million is due to the sale of our Birmingham property during the first nine months of fiscal 2021, which resulted in a larger gain as compared to the sale of assets previously held for sale during the same period in 2022.

Other operating expenses increased $1.5 million compared to the first nine months of fiscal 2021 primarily due to restructuring related costs, including severance, incurred in the first nine months of fiscal 2022.

Interest expense, net, decreased by 2.1 percent, or $0.7 million, compared to the first nine months of fiscal 2021.

The decrease is primarily due to $5.8 million in debt issuance costs expensed in the first nine months of fiscal 2021 related to the extinguishment of our former term loan facility, offset by an increase due to capital structure mix changes, as our senior secured notes carry a higher interest rate than our former revolving credit facility.

Other expense (income), net, increased $2.3 million compared to the first nine months of fiscal 2021 primarily due to an increase in other non-operating expenses.

Our effective tax rate was 25.4 percent and 24.7 percent for the first nine months of fiscal 2022 and 2021, respectively.

Our effective tax rate for both periods was impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation.

Each period also includes a benefit from the vesting of restricted stock units

during the first nine months of fiscal 2022 and 2021.

Our effective tax rate for the nine months ended October 2, 2021 also benefited from the partial release of our valuation allowance for state net operating loss carryforwards.

For the first nine months of fiscal 2022, our net income increased by 18.7 percent, or $41.7 million, compared to the prior-year period due primarily to an increase in gross profit driven by strategic pricing related to our specialty products, in conjunction with lower interest expense.

This was partially offset by increases in our operating expenses and income tax expense.

First Quarter of Fiscal 2023 Compared to First Quarter of Fiscal 2022

For the first quarter of fiscal 2023, we generated net sales of $797.9 million, a decrease of $504.4 million when compared to the first quarter of fiscal 2022 and the overall gross margin percentage decreased from 22.3 percent to 16.7 percent year over year.

The decline in overall profitability compared to the prior year was primarily due to lower sales volume for our specialty products, particularly our engineered wood products, and year-over-year declines in the average composite prices of our structural products.

Net sales of specialty products, which includes products such as engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products, decreased $200.1 million to $567.8 million in the first quarter of fiscal 2023.

The decline was due to lower sales volume, primarily related to engineered wood products.

Specialty products gross profit decreased $77.5 million to $106.6 million, with a year-over-year decline of 520 basis points in specialty gross margin to 18.8 percent for the first quarter of fiscal 2023, compared to 24.0 percent in the first quarter of fiscal 2022.

The decrease in specialty gross margin percentage over the prior-year period is attributable to lower sales volume, primarily related to engineered wood products, as well as modest declines in pricing for our specialty products given the change in market conditions.

Net sales of structural products, which includes products such as lumber, plywood, oriented strand board, rebar, and remesh, decreased $304.3 million to $230.1 million in the first quarter of fiscal 2023 due to the decline in the average composite price of framing lumber and structural panels, as well as lower structural panels volume.

Our structural gross margin percentage for the first quarter of fiscal 2023 was 11.7 percent, down from 20.0 percent in the prior-year period, primarily attributable to year-over-year declines in the average composite price of framing lumber and structural panels.

Our selling, general, and administrative expenses, which includes approximately $2.0 million of incremental operating expenses related to our Vandermeer acquisition, remained relatively flat overall compared to the first quarter of fiscal 2022.

Depreciation and amortization expense increased 14.4 percent, compared to the first quarter of fiscal 2022.

The increase in depreciation and amortization is due to a higher base of amortizable and depreciable assets throughout the first quarter of fiscal 2023 when compared the prior-year period, resulting from our continued focus on capital investment and increased intangible assets related to our Vandermeer acquisition.

Other operating expenses increased $2.3 million compared to the first quarter of fiscal 2022 primarily due to restructuring related costs, including severance, incurred in the first quarter of fiscal 2023 due to our leadership transition.

Interest expense, net, decreased by 31.9 percent, or $3.6 million, compared to the first quarter of fiscal 2022.

The decrease is primarily due to the generation of higher interest income on our cash on hand.

Our effective tax rates were 26.5 percent and 26.2 percent for the first quarter of fiscal 2023 and 2022, respectively.

Our effective tax rate for both periods was impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, slightly offset by a benefit from the vesting of restricted stock units, which occurred during each period.

Our net income for the first quarter of fiscal 2023 was $17.8 million, or $1.94 per diluted share, versus $133.4 million, or $13.19 per diluted share, in the prior-year period due primarily to a decrease in gross profit driven by lower specialty sales volume, particularly for our engineered wood products, and declines in pricing related to our specialty and structural products, in conjunction with higher operating expenses.

This was offset by lower interest expense and income tax expense.

Liquidity and Capital Resources

We expect our primary sources of liquidity to be cash flows from sales and operating activities in the normal course of our operations and availability of our revolving credit facility, as needed.

We expect that these sources will be sufficient to fund our ongoing cash requirements for the foreseeable future.

We expect our primary sources of liquidity to be cash flows from sales and operating activities in the normal course of our operations and availability from our revolving credit facility, as needed.

We expect that these sources will be sufficient to fund our ongoing cash requirements for at least the next 12 months and into the foreseeable future.

Senior Secured Notes

In October 2021, we completed a private offering of $300 million of our six percent senior secured notes due 2029 (the “2029 Notes”), and in connection therewith we entered into an indenture (the “Indenture”) with the guarantors party thereto and Truist Bank, as trustee and collateral agent.

In October 2021, we entered into an indenture (the “Indenture”) with the guarantors party thereto and Truist Bank, as trustee and collateral agent, in connection with a private offering of $300 million of our six percent senior secured notes due 2029 (the “2029 Notes”).

The 2029 Notes were issued to investors at 98.625 percent of their principal amount and will mature on November 15, 2029.

The majority of net proceeds from the offering of the 2029 Notes were used to repay borrowings under our revolving credit facility, as defined below.

The majority of net proceeds from the offering of the 2029 Notes were used to repay borrowings under our revolving credit facility.

As of April 1, 2023 and December 31, 2022, the fair value of our 2029 Notes was approximately $276.8 million and $283.6 million, respectively, which are designated as Level 2 in the fair value hierarchy.

Our valuation technique is based primarily on observable market prices in less active markets.

Revolving Credit Facility

In April 2018, we entered into a revolving credit facility with Wells Fargo Bank, National Association, as administrative agent (“the Agent”), and certain other financial institutions party thereto.

In August 2021, we entered into a second amendment to our revolving credit facility to, among other things, extend the maturity date of the facility to August 2, 2026, and reduce the interest rate on borrowings under the facility (as amended, the “Revolving Credit Facility”).

As amended, the Revolving Credit Facility provides for a senior secured asset-based revolving loan and letter of credit facility of up to $350 million.

The Borrowers’ obligations under the Revolving Credit Facility are secured by a security interest in substantially all of our and our subsidiaries’ assets (other than real property), including inventories, accounts receivable, and proceeds from those items.

Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to (i) London Inter-bank Offered Rate (“LIBOR”) plus a margin ranging from 1.25 percent to 1.75 percent, with the margin determined based upon average excess availability for the immediately preceding fiscal quarter for loans based on LIBOR, or (ii) the Agent’s base rate plus a margin ranging from 0.25 percent to 0.75 percent, with the margin based upon average excess availability for the immediately preceding fiscal quarter for loans based on the base rate.

Borrowings under the Revolving Credit Facility are subject to availability under the Borrowing Base (as that term is defined in the revolving credit agreement).

Our Revolving Credit Facility, entered into with Wells Fargo Bank, National Association, as administrative agent (“the Agent”), and certain other financial institutions party thereto, provides for a senior secured asset-based revolving loan and letter of credit facility of up to $350.0 million.

Our obligations under the Revolving Credit Facility are secured by a security interest in substantially all of our and our subsidiaries’ assets (other than real property), including inventories, accounts receivable, and proceeds from those items.

Borrowings under our Revolving Credit Facility bear interest at a rate per annum equal to (i) LIBOR plus a margin ranging from 1.25 percent to 1.75 percent, with the margin determined based upon average excess availability for the immediately preceding fiscal quarter for loans based on LIBOR, or (ii) the Agent’s base rate plus a margin ranging from 0.25 percent to 0.75 percent, with the margin based upon average excess availability for the immediately preceding fiscal quarter for loans based on the base rate.

Our Revolving Credit Facility includes available interest rate options based on LIBOR, which will be discontinued as an available rate option after June 30, 2023.

Under the terms of the facility, LIBOR will be replaced with the Secured Overnight Financing Rate (“SOFR”) with respect to the applicable variable rate interest options thereunder, with effect on or before June 30, 2023.

Borrowings under our Revolving Credit Facility are subject to availability under the Borrowing Base (as that term is defined in the revolving credit agreement).

The Borrowers are required to repay revolving loans thereunder to the extent that such revolving loans exceed the Borrowing Base then in effect.

The Revolving Credit Facility may be prepaid in whole or in part from time to time without penalty or premium, but including all breakage costs incurred by any lender thereunder.

As of October 1, 2022, we had zero outstanding borrowings and excess availability, including cash in qualified accounts, was $575.8 million under our Revolving Credit Facility.

As of January 1, 2022, we had zero outstanding borrowings and excess availability, including cash in qualified accounts, was $431.7 million under our Revolving Credit Facility.

Our average effective interest rate under the facility was zero percent and 2.6 percent for the quarters ended October 1, 2022 and January 1, 2022, respectively.

The Revolving Credit Facility contains certain financial and other covenants, and our right to borrow under the Revolving Credit Facility is conditioned upon, among other things, our compliance with these covenants.

We were in compliance with all covenants under the Revolving Credit Facility as of October 1, 2022.

Term Loan Facility

On April 2, 2021, we repaid the remaining outstanding principal balance of our former term loan facility, and, as a result, as of January 1, 2022 and October 1, 2022, we had zero outstanding borrowings under the term loan facility, which has been extinguished.

In connection with our repayment of the outstanding principal balance in full on April 2, 2021, we expensed $5.8 million of debt issuance costs in the first quarter of fiscal 2021 that we were amortizing in connection with our former term loan

These costs are included within interest expense, net on the condensed consolidated statements of operations and reported separately as an adjustment to net income in our condensed consolidated statements of cash flows.

There were no prepayment premiums associated with the repayment of indebtedness for the three month period ended October 2, 2021.

Prepayment premiums were $0.9 million for the nine month period ended October 2, 2021.

Our Revolving Credit Facility may be prepaid in whole or in part from time to time without penalty or premium, but including all breakage costs incurred by any lender thereunder.

As of April 1, 2023, we had zero outstanding borrowings and excess availability, including cash in qualified accounts, of $722.7 million under our Revolving Credit Facility.

As of December 31, 2022, we had zero outstanding borrowings and excess availability, including cash in qualified accounts, of $645.4 million under our Revolving Credit Facility.

Available borrowing capacity under our Revolving Credit Facility was $346.5 million on April 1, 2023 and December 31, 2022.

Our average effective interest rate under the facility was zero percent for the quarters ended April 1, 2023 and April 2, 2022.

Our Revolving Credit Facility contains certain financial and other covenants, and our right to borrow under the Revolving Credit Facility is conditioned upon, among other things, our compliance with these covenants.

We were in compliance with all covenants under our Revolving Credit Facility as of April 1, 2023.

Finance Lease Commitments

Our finance lease liabilities consist of leases related to equipment and vehicles, and real estate, with the majority of those finance lease commitments relating to real estate financing transactions that we have completed in recent years.

Our finance lease commitments totaled $272.7 million as of October 1, 2022.

Of the $272.7 million of finance lease commitments as of October 1, 2022, $243.9 million related to real estate and $28.8 million related to equipment.

For the three and nine months ended October 1, 2022, we recognized $3.3 million and $6.0 million, respectively, in new finance leases for tractors acquired as a component of our fleet investment plan.

For the three and nine months ended October 2, 2021, we recognized zero and $10.5 million, respectively, in new finance leases for tractors acquired to support our fleet investment plan in fiscal 2021.

Our finance lease liabilities consist of leases related to equipment and vehicles, and to real estate, with the majority of those finance lease commitments relating to the real estate financing transactions that we completed in recent years.

Our total finance lease commitments totaled $270.8 million and $273.1 million as of April 1, 2023 and December 31, 2022, respectively.

Of the $270.8 million of finance lease commitments as of April 1, 2023, $243.6 million related to real estate and $27.2 million related to equipment.

Of the $273.1 million of finance lease commitments as of December 31, 2022, $243.8 million related to real estate and $29.3 million related to equipment.

Interest Rates

Our Revolving Credit Facility includes available interest rate options based on LIBOR.

Certain LIBOR rates were discontinued after 2021, while other rates will be discontinued in 2023.

and other countries are currently working to replace LIBOR with alternative reference rates.

The consequences of these developments with respect to LIBOR cannot be entirely predicted;

however, we do not believe that the discontinuation of LIBOR as a reference rate in our loan agreement will have a material adverse effect on our financial position or materially affect our interest expense.

Our Revolving Credit Facility includes available interest rate options based on LIBOR, which will be discontinued as an available rate option after June 30, 2023.

Under the terms of our Revolving Credit Facility, LIBOR will be replaced with SOFR with respect to the applicable variable rate interest options thereunder, with effect on or before June 30, 2023.

There can be no assurances as to whether SOFR will be a more or less favorable reference rate than LIBOR, and the consequences of replacing LIBOR with SOFR cannot be entirely predicted.

However, at this time, we do not believe that the replacement of LIBOR by SOFR as a reference rate in our revolving credit facility will have a material adverse effect on our financial position or materially affect our interest expense.

Sources and Uses of Cash

Operating Activities

Net cash provided by operating activities for the first nine months of fiscal 2022 was $246.0 million, compared to net cash provided by operating activities of $126.9 million in the first nine months of fiscal 2021.

The increase in cash provided by operating activities during the first nine months of fiscal 2022 was primarily a result of working capital changes, including the reduction of inventory and accounts receivable, which resulted in $46.8 million and $30.4 million, respectively, more cash provided by operating activities in the current-year period compared to the prior-year period, and the $41.7 million increase in net income for the current-year period compared to the prior-year period.

Net cash provided by operating activities for the first three months of fiscal 2023 was $89.0 million, compared to net cash provided by operating activities of $2.2 million in the first three months of fiscal 2022.

The increase in cash provided by operating activities during the first three months of fiscal 2023 was primarily a result of higher cash generated from changes in working capital components, including the decrease in inventory and increase in accounts payable, offset by the increase in accounts receivable in the current-year period.

This was partially offset by a decrease in net income for the current-year period compared to the prior-year period.

Investing Activities

Net cash used in investing activities for the first nine months of fiscal 2022 was $18.4 million, compared to net cash used in investing activities of $2.8 million in the first nine months of fiscal 2021.

The increase in net cash used in investing activities was primarily due to higher capital investments during the first nine months of fiscal 2022.

Net cash used in investing activities for the first three months of fiscal 2023 was $9.0 million compared to net cash used in investing activities of $2.5 million in the first three months of fiscal 2022.

The increase in net cash used in investing activities was primarily due to higher spend on property and equipment in the current year-period compared to the prior-year period.

Financing Activities

Net cash used in financing activities totaled $83.4 million for the first nine months of fiscal 2022, compared to net cash used in financing activities of $124.0 million for the first nine months of fiscal 2021.

The decrease in net cash used in financing activities is primarily due to the net repayment of $65.1 million on our revolving credit facility and the $43.2 million repayment of the remaining outstanding balance on our term loan facility during the first nine months of fiscal 2021, with no such transactions completed in the first nine months of fiscal 2022.

This is partially offset by $66.4 million spent repurchasing our common stock under our announced share repurchase program, including the ASR Agreement, as defined below, during the first nine months of fiscal 2022, with no such transactions completed in the first nine months of fiscal 2021.

Net cash used in financing activities totaled $2.7 million for the first three months of fiscal 2023, compared to net cash used in financing activities of $10.5 million for the first three months of fiscal 2022.

The decrease in net cash used in financing activities is primarily due to the repurchase our common stock under our announced share repurchase program during the first three months of fiscal 2022, with no such transactions completed in the first three months of fiscal 2023.

Stock Repurchase Program

On August 23, 2021, our Board of Directors approved a stock repurchase program pursuant to which we were authorized to repurchase up to $25.0 million of our common stock.

During the first quarter of fiscal 2022, we repurchased 81,331 shares of our common stock under this program at an average price of $79.03 per share.

On May 3, 2022, our Board of Directors increased our share repurchase authorization to $100.0 million and we entered into an Accelerated Share Repurchase Agreement (“ASR Agreement”) with Jefferies LLC to repurchase $60.0 million of our common stock.

Under the ASR Agreement, we received initial delivery of 553,584 shares of common stock on May 3, 2022 representing approximately 65 percent of the total number of shares of common stock initially underlying the ASR Agreement, based on our closing stock price of $70.45 on May 2, 2022.

Final settlement of the shares of common stock repurchased under the ASR Agreement occurred on September 15, 2022 based on the average of the daily volume-weighted average price of our common stock during the repurchase period under the ASR Agreement, less a discount and other adjustments pursuant to the terms and conditions of the ASR Agreement.

At settlement, we received an additional 247,431 shares of common stock.

Under our ASR Agreement, we repurchased a total of 801,015 shares of our common stock at an average price of $74.90 per share.

As of October 1, 2022, we have repurchased a total of 882,346 shares for $66.4 million under our share repurchase program, including shares purchased through the ASR Agreement, at an average price of $75.28 per share and we have a remaining authorization amount of $33.6 million.

As of April 1, 2023, we have a remaining authorization amount of $33.6 million under our $100.0 million share repurchase program.

With the remaining availability under the stock repurchase program, we may repurchase our common stock at any time or from time to time, without prior notice, subject to prevailing market conditions and other considerations.

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Operating working capital is an important measurement we use to determine the efficiencies of our operations and our ability to readily convert assets into cash.

Operating working capital is defined as the sum of cash, receivables, and inventory, less accounts payable.

Operating working capital is defined as the sum of receivables and inventory, less accounts payable.

Management of working capital helps us monitor our progress in meeting our goals to enhance working capital assets.

Selected financial information

October 1, 2022 January 1, 2022 October 2, 2021

April 1, 2023 December 31, 2022 April 2, 2022

(In thousands)

Current assets:

Cash and cash equivalents $ 229,364 $ 85,203 $ 186

Receivables, less allowance for doubtful accounts $ 298,888 $ 251,555 $ 497,056

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Operating working capital $ 531,166 $ 584,242 $ 829,539

Operating working capital of $917.7 million as of October 1, 2022, compared to $733.3 million as of January 1, 2022, increased by approximately $184.4 million.

The increase in operating working capital is primarily driven by an increase in cash due to our improved operating performance, including increased net income, as well as an increase in inventory, which continues to be affected by the inflationary environment for building products, and an increase in accounts receivable from our continued increase in net sales.

The net increase in current assets was partially offset by an increase in accounts payable, also affected by the inflationary environment for building products.

Operating working capital of $917.7 million as of October 1, 2022, compared to $571.2 million as of October 2, 2021, increased by $346.5 million.

Additionally, lower accounts payable contributed to higher operating working capital due to timing of cash disbursements.

Operating working capital of $531.2 million as of April 1, 2023, compared to $584.2 million as of December 31, 2022, decreased on a net basis by approximately $53.1 million.

The decrease in operating working capital is primarily driven by the decrease in inventory, which reflects our strategic inventory management efforts, and the increase in accounts payable due to timing of cash disbursements.

This was partially offset by the increase in accounts receivable from net sales.

Operating working capital of $531.2 million as of April 1, 2023, compared to $829.5 million as of April 2, 2022, decreased on a net basis by approximately $298.4 million.

The decrease in operating working capital is primarily driven by the decrease in accounts receivable due to the decrease in net sales and improved collection efforts, as well as the decrease in inventory, which reflects our strategic inventory management efforts and a deflationary pricing environment.

This was partially offset by the decrease in accounts payable due to the decrease in inventory and the timing of cash disbursements.

Investments in Property and Equipment

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The gross value of these assets are included in property and equipment, at cost on our condensed consolidated balance sheet.

For the first nine months of fiscal 2022, we invested $25.1 million in long-lived assets primarily related to investments in our distribution branches and to a lesser extent, upgrading our fleet, which includes $19.1 million in cash investments and $6.0 million in new finance leases recognized for tractors acquired as a component of our fleet investment plan.

For the first quarter ended April 1, 2023, we invested $9.0 million in cash investments in long-lived assets primarily related to investments in our distribution facilities and to a lesser extent, upgrading our fleet.

Critical Accounting Policies

The preparation of our consolidated financial statements and related disclosures in conformity with GAAP requires our management to make judgments and estimates that affect the amounts reported in our condensed consolidated financial statements and accompanying notes.

There have been no material changes to our critical accounting policies from the information provided in Item 7 of our Annual Report on Form 10-K for the fiscal year ended January 1, 2022.

There have been no material changes to our critical accounting policies from the information provided in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Forward-Looking Statements

This report contains forward-looking statements.

Forward-looking statements include, without limitation, any statement that predicts, forecasts, indicates or implies future results, performance, liquidity levels or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,” “plan,” “will be,” “will likely continue,” “will likely result” or words or phrases of similar meaning.

Forward-looking statements include, without limitation, any statement that predicts, forecasts, indicates or implies future results, performance, liquidity levels or achievements, and may contain the words “believe,” “anticipate,” “could,” “expect,” “estimate,” “intend,” “may,” “project,” “plan,” “should,” “will,” “will be,” “will likely continue,” “will likely result,” “would” or words or phrases of similar meaning.

Forward-looking statements involve risks and uncertainties that may cause our business, strategy, or actual results to differ materially from the forward-looking statements.

The forward-looking statements in this report include statements about the COVID-19 pandemic, its duration and effects, and its potential effects on our business and results of operations;

anticipated effects of adopting certain accounting standards;

The forward-looking statements in this report include statements about anticipated effects of adopting certain accounting standards;

estimated future annual amortization expense;

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Forward-looking statements involve risks and uncertainties that may cause our business, strategy, or actual results to differ materially from the forward-looking statements.

These risks and uncertainties include those discussed under the heading “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended January 1, 2022, and those discussed elsewhere in this report (including Item 1A of Part II of this report) and in future reports that we file with the SEC.

These risks and uncertainties include those discussed under the heading “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, and those discussed elsewhere in this report (including Item 1A of Part II of this report) and in future reports that we file with the SEC.

We operate in a changing environment in which new risks can emerge from time to time.

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• loss of key products or key suppliers and manufacturers could affect our financial health;

• our dependence on international suppliers and manufacturers for certain products exposes us to risks that could affect our financial condition;

• our strategy includes pursuing acquisitions, and we may be unsuccessful in making and integrating mergers, acquisitions and investments, and completing divestitures;

• our dependence on international suppliers and manufacturers for certain products exposes us to risks that could affect our financial condition and expose us to certain additional risks;

• our strategy includes pursuing acquisitions, and we may be unsuccessful in making and integrating mergers, acquisitions and investments;

• we may incur business disruptions resulting from a variety of possible causes;

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• we are subject to federal, state, and local environmental protection laws and may have to incur significant costs to comply with these laws and regulations in the future;

• the ongoing effect of the COVID-19 pandemic and other widespread public health crises may adversely affect our business and results from operations;

• the effect of global pandemics, such as COVID-19, and other widespread public health crises and governmental rules and regulations and our policies related to such may adversely affect our business and results from operations;

• our future operating results may fluctuate significantly, and our current operating results may not be a good indication of our future performance;

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• the instruments governing our indebtedness contain various covenants limiting the discretion of our management in operating our business, including requiring us to maintain a minimum level of excess liquidity;

• borrowings under our revolving credit facility bear interest at a variable rate, which subjects us to interest rate risk, which could cause our debt service obligations to increase significantly;

• despite our current levels of debt, we may still incur more debt, which would increase the risks described in these risk factors relating to indebtedness;

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• we may not have or be able to raise the funds necessary to finance a required repurchase of our senior secured notes;

• constraints, volatility or disruptions in the capital markets or other factors affecting the amount and timing of share repurchases;

• whether or not the Company will continue, and the timing of, any open market repurchases;

• a lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may increase our future borrowing costs and reduce our access to capital;

• a change in our product mix could adversely affect our results of operations;

• if petroleum or energy prices increase, our results of operations could be adversely affected;

• if the cost of fuel, third-party freight or other energy prices increase or availability of third-party freight providers is reduced, our results of operations could be adversely affected;

• we establish insurance-related deductible/retention reserves based on historical loss development factors, which could lead to adjustments in the future based on actual development experience;

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• our cash flows and capital resources may be insufficient to make required payments on our indebtedness or future indebtedness;

• borrowings under our revolving credit facility bears interest at a variable rate, which subjects us to interest rate risk, which could cause our debt service obligations to increase significantly;

• changes in, or interpretation of, accounting principles could result in unfavorable accounting changes;

• our stock price may fluctuate significantly;

• we could be the subject of securities class action litigation due to stock price volatility, which could divert management’s attention and adversely affect our results of operations;

• 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 activities of activist stockholders could have a negative impact on our business and results of operations;

• the terms of our revolving credit facility and senior secured notes place restrictions on our ability to pay dividends on our common stock, so any returns to stockholders may be limited to the value of their stock.

• changes in, or interpretation of, accounting principles could result in unfavorable accounting changes.

Given these risks and uncertainties, we caution you not to place undue reliance on forward-looking statements.

We expressly disclaim any obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis