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Item 2. Management’s Discussion and Analysis

2021-05-06 compared with 2020-11-05 · 113 added, 158 removed, 79 unchanged (77% of the section changed)

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OVERVIEW OF MARKETS AND RELATED INDUSTRY PERFORMANCE

Our four primary end markets each experienced sharp recoveries in the third quarter of 2020 following the production disruptions related to the COVID-19 pandemic in the second quarter of 2020.

In aggregate, we achieved our highest quarterly sales in the Company's history in the third quarter of 2020, with revenue from the RV, marine and industrial end markets increasing in the third quarter of 2020 compared to the prior year.

RV and marine original equipment manufacturers ("OEMs") experienced a strong increase in dealer demand in the third quarter of 2020, when compared to the prior year quarter, driven by increases in RV and marine retail sales against a background of low RV and marine dealer inventories.

Our industrial end market benefited in the third quarter of 2020 from increases in housing starts and an increase in home improvement activity.

Our MH end market recovered in the third quarter of 2020 from COVID-19 production disruptions in the second quarter of 2020, and OEM demand in this end market is strong despite short-term OEM labor and supply constraints experienced in the third quarter of 2020.

In addition, our team members are currently working full production schedules, having adopted CDC, state, and local best practice safety protocols.

Third Quarter and Nine Months 2020 Financial Overview

First Quarter 2021 Financial Overview

Recreational Vehicle ("RV") Industry

The RV industry is our largest market and comprised 60% and 55% of the Company’s sales in the third quarter ended September 27, 2020 and September 29, 2019, respectively, and 55% and 56% for the comparative 2020 and 2019 nine month periods.

Sales to the RV industry increased 36% in the third quarter of 2020 and decreased 5% in the first nine months of 2020, compared to the prior year periods.

According to the Recreation Vehicle Industry Association, wholesale shipments totaled 124,033 units in the third quarter of 2020, increasing 33% compared to 93,357 units in the third quarter of 2019.

Towable and motorized wholesale unit shipments increased 37% and 5%, respectively, for the third quarter of 2020 compared to the prior year quarter.

Wholesale unit shipments for the first nine months of 2020 decreased 3%, totaling 300,100 units compared to 309,938 units in the

prior year period.

Towable and motorized wholesale unit shipments decreased 1% and 20%, respectively, for the first nine months of 2020 compared to the prior year period.

Retail unit sales are estimated to have increased between 25%-30% and between 4%-6% during the third quarter and first nine months of 2020, respectively.

The increase in wholesale and retail RV shipments in the third quarter of 2020 was attributed to an increase in consumer demand in the RV industry against a background of low dealer inventory.

The decrease in wholesale shipments in the first nine months of 2020 is largely attributed to COVID-19 market disruptions.

The increase in retail unit sales for the first nine months of 2020 is largely due to the increase in consumer demand in the RV industry, partially offset by COVID-19 market disruptions.

Based on our estimates, RV dealer inventories at the end of the third quarter of 2020 were at their lowest level since 2014.

The RV industry is our primary market and comprised 59% and 55% of the Company’s sales in the first quarter ended March 28, 2021 and March 29, 2020, respectively.

Sales to the RV industry increased 57% in the first quarter of 2021 compared to the prior year quarter.

According to the Recreation Vehicle Industry Association ("RVIA"), wholesale shipments totaled approximately 148,500 units in the first quarter of 2021, an increase of 48% compared to approximately 100,400 units in the first quarter of 2020.

The increase in wholesale unit shipments in the first quarter of 2021 is attributed to an increase in RV dealer demand for RV units.

This increase in dealer demand is correlated with consumer demand for RV units, which we believe is in part correlated with changes in consumer recreation patterns, which include an increased interest in outdoor recreation.

A ccording to our estimates, RV d ealer inventories are trending at historical lows relative to what we understand to be typical inventory levels of RV dealers.

We believe that the supply-demand dynamics of historically low dealer inventory levels, combined with strong retail consumer demand, have resulted in positive momentum in our RV end market.

We estimate RV retail unit sales increased 30-35% in the first quarter of 2021 compared to the first quarter of 2020.

Marine Industry

Sales to the marine industry, which represented approximately 14% and 13% of the Company's sales in the third quarter of 2020 and 2019, respectively, increased 25% in the third quarter of 2020 compared to the prior year quarter.

Sales to the marine industry, representing 14% of sales in the first nine months of 2020 and 2019, decreased 10% in the 2020 period compared to the prior year period.

For the third quarter of 2020, overall marine wholesale unit shipments in the powerboat sector, which is the Company's primary marine market, decreased an estimated 4%, with aluminum fishing sales decreasing an estimated 7%;

pontoon sales decreasing an estimated 2%;

fiberglass sales decreasing an estimated 4% and ski and wake sales decreasing an estimated 2%.

The decrease in wholesale marine shipments in the third quarter of 2020 was attributed to marine OEM capacity constraints that were the result of an rapid transition from production shutdowns related to the COVID-19 pandemic in the late first quarter and early second quarter of 2020 to production acceleration in response to a sharp increase in consumer demand in the third quarter of 2020.

For the first nine months of 2020, overall marine wholesale unit shipments in the powerboat sector decreased an estimated 19%, with aluminum fishing sales decreasing an estimated 11%;

pontoon sales decreasing an estimated 25%;

fiberglass sales decreasing an estimated 22% and ski and wake sales decreasing an estimated 20%.

The decrease in wholesale unit shipments during the first nine months of 2020 is primarily attributed to temporary OEM production shutdowns during the late first quarter and early second quarter of 2020 in addition to OEM capacity constraints in the third quarter of 2020, discussed above.

Sales to the marine industry, which represented approximately 16% and 13% of the Company's consolidated net sales in the first quarter of 2021 and 2020, respectively, increased 75% compared to the prior year quarter.

Our marine revenue is generally correlated to marine wholesale powerboat unit shipments, and according to National Marine Manufacturers Association ("NMMA") marine wholesale powerboat unit shipments increased an estimated

14% for the first quarter 2021 compared to the same period in 2020.

At the same time, marine retail powerboat unit sales increased an estimated 30-35% in the first quarter of 2021 compared to the first quarter of 2020, benefiting from increased demand for powerboats, resulting in marine dealer inventory levels that we believe are at their lowest since 2014 as retail sales continue outpacing marine wholesale unit shipments in the first quarter of 2021.

Manufactured Housing ("MH") Industry

Sales to the MH industry, which represented 15% and 19% of the Company’s sales in the third quarter of 2020 and 2019, respectively, decreased 1% in the third quarter of 2020 compared to the third quarter of 2019.

MH sales represented 18% of the Company's sales for the first nine months of 2020 and 2019 and decreased 5% in the first nine months of 2020 compared to the prior year period.

Based on industry data from the Manufactured Housing Institute, MH wholesale unit shipments decreased by approximately 2% in the third quarter of 2020 compared to the prior year quarter and decreased 2% for the first nine months of 2020 compared to the prior year period.

MH wholesale unit shipments were impacted by OEM labor and supply constraints in the third quarter of 2020 and temporary OEM plant shutdowns in the first nine months of 2020 related to the COVID-19 pandemic.

Sales to the MH industry, which represented 14% and 19% of the Company’s sales in the first quarter of 2021 and 2020, respectively, increased 7% in the first quarter of 2021 compared to the first quarter of 2020.

Based on industry data from the Manufactured Housing Institute, MH wholesale unit shipments increased 5% in the first quarter of 2021 compared to the prior year quarter.

Industrial Market

The industrial market is comprised primarily of the kitchen cabinet industry, hospitality market, retail and commercial fixtures market, office and household furniture market and regional distributors.

Sales to this market represented 11% and 13% of our sales in the third quarter of 2020 and 2019, respectively, and increased 9% in the third quarter of 2020 compared to the prior year quarter.

Sales to the industrial market represented 13% and 12% of our sales for the first nine months of 2020 and 2019, respectively, and increased 7% in the first nine months of 2020 compared to the prior year period.

Sales to this market represented 11% and 13% of our sales in the first quarter of 2021 and 2020, respectively, and increased 17% in the first quarter of 2021 compared to the prior year quarter.

Overall, our revenues in these markets are focused on the residential housing, hospitality, high-rise housing and office, commercial construction and institutional furniture markets.

We estimate that approximately 60% of our industrial business is directly tied to the residential housing market, with the remaining 40% directly tied to the non-residential and commercial markets.

Combined housing starts increased 11% in the third quarter of 2020 compared to the prior year quarter, with single family housing starts increasing 17% and multifamily residential starts decreasing 1%.

For the first nine months of 2020, combined new housing starts increased 5% compared to the prior year period, with single family housing starts increasing 6% and multifamily residential starts increasing 4%.

Our industrial products are generally among the last components installed in new unit construction and as such our related sales typically trail housing starts by four to nine months.

According to the U.S.

Census Bureau, combined new housing starts increased 10% in the first quarter of 2021 compared to the prior year quarter, with single family housing starts increasing 20% and multifamily residential starts decreasing 7% for the same period.

Our industrial products are generally among the last components installed in new unit construction and as such our related sales typically trail new housing starts by four to six months.

REVIEW OF CONSOLIDATED OPERATING RESULTS

Third Quarter and Nine Months Ended September 27, 2020 Compared to 2019

First Quarter Ended March 28, 2021 Compared to First Quarter Ended March 29, 2020

The following table sets forth the percentage relationship to net sales of certain items on the Company’s Condensed Consolidated Statements of Income.

Third Quarter Ended Nine Months Ended

September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019

First Quarter Ended

($ in thousands) March 28, 2021 March 29, 2020 Change Amount % Change

Net sales $ 850,483 100.0 % $ 589,232 100.0 % $ 261,251 44.3 %

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Gross profit 161,532 19.0 109,481 18.6 52,051 47.5 %

Warehouse and delivery 3.6 4.2 4.1 4.2

Selling, general and administrative 5.4 6.0 6.2 5.8

Warehouse and delivery expenses 29,913 3.5 24,732 4.2 5,181 20.9 %

Selling, general and administrative expenses 51,232 6.0 35,869 6.1 15,363 42.8 %

Amortization of intangible assets 11,906 1.4 9,601 1.6 2,305 24.0 %

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Net income $ 47,513 5.6 $ 21,187 3.6 $ 26,326 124.3 %

Net sales in the third quarter of 2020 increased $134.5 million, or 24%, to $700.7 million from $566.2 million in the third quarter of 2019.

The consolidated net sales increase in the third quarter of 2020 was attributed to sales increases in three of our end markets.

The Company's RV market sales increased 36%, marine market sales increased 25%, industrial market sales increased 9% and MH market sales decreased 1% when compared to the prior year quarter.

Net sales in the first nine months of 2020 decreased $73.6 million, or 4%, to $1,714.0 million from $1,787.6 million in the first nine months of 2019.

The consolidated net sales decrease in the first nine months of 2020 was attributed to sales decreases in three of our end markets.

The Company's RV market sales decreased 5%, marine market sales decreased 10% and MH market sales decreased 5% while industrial market sales increased 7% when compared to the prior year period.

During the nine months ended September 27, 2020, all four of our end markets were impacted by business disruptions and associated lost production and shipping days due to the COVID-19 pandemic, which primarily affected our end markets in the second quarter of 2020.

Revenue attributable to acquisitions completed in 2020 was $19.6 million and $23.3 million for the third quarter and first nine months of 2020, respectively.

Revenue attributable to acquisitions completed in the first nine months of 2019 was immaterial for both the third quarter and first nine months of 2019.

The Company’s RV content per wholesale unit (on a trailing twelve-month basis) for the third quarter of 2020 was relative1y flat at $3,140 versus $3,132 for the third quarter of 2019.

Estimated marine content per wholesale powerboat unit (on a trailing twelve-month basis) for the third quarter of 2020 increased 16% to $1,915 for the third quarter of 2020 from $1,651 for the third quarter of 2019.

Beginning in the third quarter of 2020, we calculate marine content per unit based on estimated wholesale powerboat unit shipments, which we believe better represents the relationship between our sales and marine OEM production, rather than based on estimated retail powerboat unit sales.

Estimated MH content per wholesale unit (on a trailing twelve-month basis) for the third quarter of 2020 increased 4% to $4,503 from $4,327 for the third quarter of 2019.

Net sales in the first quarter of 2021 increased $261.3 million, or 44%, to $850.5 million from $589.2 million in the first quarter of 2020.

Net sales in the first quarter of 2020 reflect COVID-19-related production shutdowns in our end markets in the second half of March 2020.

The consolidated net sales increase in the first quarter of 2021 was primarily attributed to sales increases to the RV and marine markets.

The Company's RV

market sales increased 57%, marine market sales increased 75%, industrial market sales increased 16% and MH market sales increased 7% when compared to the prior year quarter.

Net sales in the first quarter of 2021 attributable to acquisitions completed in that quarter were approximately $5.4 million, and net sales in the first quarter of 2020 attributable to acquisitions completed in that quarter were immaterial.

The Company’s RV content per wholesale unit (on a trailing twelve-month basis) for the first quarter of 2021 increased approximately 6% to $3,288 from $3,112 for the first quarter of 2020.

Marine powerboat content per wholesale unit (on a trailing twelve-month basis) for the first quarter of 2021 increased approximately 44% to an estimated $2,426 from $1,687 for the first quarter of 2020.

MH content per wholesale unit (on a trailing twelve-month basis) for the first quarter of 2021 increased approximately 1.5% to $4,611 from $4,543 for the first quarter of 2020.

Cost of Goods Sold.

Cost of goods sold increased $105.3 million, or 23%, to $567.2 million in the third quarter of 2020 from $461.9 million in 2019, primarily reflecting the increase in net sales in the quarter.

As a percentage of net sales, cost of goods sold decreased during the third quarter of 2020 to 80.9% from 81.6% in 2019.

This percentage decrease is largely attributed to an increase in sales relative to certain fixed components of cost of goods sold, synergies achieved and realized in the first quarter of 2020 from acquisitions completed in 2018 and 2019 and a decrease in commodity cost inputs.

Cost of goods sold decreased $66.8 million, or 5%, to $1,397.3 million in the first nine months of 2020 from $1,464.1 million in 2019, primarily reflecting the decrease in net sales in the period.

As a percentage of net sales, cost of goods sold decreased during the first nine months of 2020 to 81.5% from 81.9% in 2019.

Cost of goods sold as a percentage of net sales decreased in the first nine months of 2020 primarily as a result of (i) cost reductions we initiated in the third quarter of 2019, (ii) synergies achieved and realized in the first nine months of 2020 from our 2018 and 2019 acquisitions and (iii) decreases in commodity cost inputs.

These decreases in cost of goods sold were partially offset by additional costs incurred and production and labor inefficiencies related to business disruption of our end markets as a result of the COVID-19 pandemic.

Cost of goods sold increased $209.2 million, or 44%, to $689.0 million in the first quarter of 2021 from $479.8 million in 2020.

As a percentage of net sales, cost of goods sold decreased 40 basis points during the first quarter of 2021 to 81.0% from 81.4% in 2020.

Cost of goods sold as a percentage of net sales decreased primarily as a result of (i) continued cost reduction and automation initiatives we deployed throughout 2020, (ii) volume-driven efficiencies as a result of leveraging fixed overhead and (iii) synergies and different cost profiles from our 2020 acquisitions, partially offset by an increase in labor and certain commodity cost inputs.

In general, the Company's cost of goods sold percentage can be impacted from quarter-to-quarter by demand changes in certain market sectors that can result in fluctuating costs of certain raw materials and commodity-based components that are utilized in the production of our products.

Gross Profit.

Gross profit increased $29.2 million, or 28%, to $133.5 million in the third quarter of 2020 from $104.3 million in 2019.

As a percentage of net sales, gross profit increased to 19.1% in the third quarter of 2020 from 18.4% in the same period in 2019.

Gross profit decreased $6.8 million, or 2%, to $316.7 million in the first nine months of 2020 from $323.5 million in 2019.

As a percentage of net sales, gross profit increased to 18.5% in the first nine months of 2020 from 18.1% in the same period in 2019.

The changes in gross profit as a percentage of net sales in the third quarter and first nine months of 2020 compared to the same periods in 2019 reflect the impact of the factors discussed above under “Cost of Goods Sold”.

Gross profit increased $52.0 million, or 48%, to $161.5 million in the first quarter of 2021 from $109.5 million in 2020.

As a percentage of net sales, gross profit increased 40 basis points to 19.0% in the first quarter of 2021 from 18.6% in the same period in 2020.

The increase in gross profit as a percentage of net sales in the first quarter of 2021 compared to the same period in 2020 reflects the impact of the factors discussed above under “Cost of Goods Sold”.

Warehouse and Delivery Expenses .

Warehouse and delivery expenses increased $1.4 million, or 6%, to $25.3 million in the third quarter of 2020 from $23.9 million in the third quarter of 2019, primarily reflecting the increase in net sales in the quarter.

As a percentage of net sales, warehouse and delivery expenses were 3.6% in the third quarter of 2020 compared to 4.2% in the third quarter of 2019.

Warehouse and delivery expenses decreased $4.0 million, or 5%, to $70.2 million in the first nine months of 2020 from $74.2 million in the first nine months of 2019, primarily reflecting the decrease in net sales in the period.

As a percentage of net sales, warehouse and delivery expenses were 4.1% in the first nine months of 2020 compared to 4.2% in the same period in 2019.

The decrease in warehouse and delivery expenses as a percentage of net sales for the third quarter and first nine months of 2020 primarily reflects the fixed nature of certain of these expenses and operating efficiencies as net sales increased in the third quarter of 2020 compared to the prior year period.

Warehouse and delivery expenses increased $5.2 million, or 21%, to $29.9 million in the first quarter of 2021 from $24.7 million in the first quarter of 2020.

As a percentage of net sales, warehouse and delivery expenses improved 70 basis points to 3.5% in the first quarter of 2021 compared to 4.2% in the first quarter of 2020.

This decrease as a percentage of sales is primarily attributable to the lower proportion of MH sales in the first quarter of 2021 as compared to 2020, which have higher warehouse and delivery costs as a percentage of net sales.

Selling, General and Administrative ("SG&A") Expenses .

SG&A expenses increased $4.4 million, or 13%, to $38.2 million in the third quarter of 2020 from $33.8 million in the prior year quarter.

As a percentage of net sales, SG&A expenses were 5.4% in the third quarter of 2020 compared to 6.0% in the third quarter of 2019.

SG&A expenses increased $1.3 million, or 1%, to $105.7 million in the first nine months of 2020 from $104.4 million in the prior year period.

As a percentage of net sales, SG&A expenses were 6.2% in the first nine months of 2020 compared to 5.8% in the prior year period.

The increase in SG&A expenses in the third quarter of 2020 compared to 2019 is primarily due an increase in general and administrative expenses as the Company expanded resources to support end market demand.

The decrease in SG&A expenses as a percentage of net sales in the third quarter of 2020 is primarily attributed to the increase in net sales compared to the prior year period.

The increase in SG&A expenses in the first nine months of 2020 as a percentage of revenue is attributed to the decline in net sales from the impact of COVID-19, discussed above.

SG&A expenses increased $15.4 million, or 43%, to $51.2 million in the first quarter of 2021 from $35.9 million in the prior year quarter.

As a percentage of net sales, SG&A expenses were 6.0% in the first quarter of 2021 compared to 6.1% in the first quarter of 2020.

The increase in SG&A expenses in the first quarter of 2021 compared to 2020 is primarily due to (i) the increase in net sales and (ii) increases in the breadth and depth of corporate resources to support the size and growth of the Company.

Amortization of Intangible Assets.

Amortization of intangible assets increased $1.0 million, or 11%, to $10.2 million in the third quarter of 2020 from $9.2 million in the prior year quarter and increased $3.2 million, or 12%, to $29.6 million in the first nine months of 2020 from $26.4 million in the prior year period.

The increase in the third quarter and first nine months of 2020 compared to the prior year periods primarily reflects the impact of businesses acquired in 2019 and 2020.

Amortization of intangible assets increased $2.3 million, or 24%, to $11.9 million in the first quarter of 2021 from $9.6 million in the prior year quarter.

The increase in the first quarter of 2021 compared to the prior year quarter primarily reflects the impact of businesses acquired in 2020.

Operating Income.

Operating income increased $22.4 million, or 60%, to $59.8 million in the third quarter of 2020 from $37.4 million in 2019.

As a percentage of net sales, operating income was 8.5% in the third quarter of 2020 versus 6.6% in the same period in 2019.

Operating income decreased $7.3 million, or 6%, to $111.2 million in the first nine months of

2020 from $118.5 million in 2019.

As a percentage of net sales, operating income was 6.5% in the first nine months of 2020 versus 6.6% in the same period in 2019.

Operating income related to the 2020 acquisitions for the third quarter and nine months ended September 27, 2020 was approximately $2.1 million and $2.2 million, respectively.

The change in operating income and operating income percentage is primarily attributable to the items discussed above.

Operating income increased $29.2 million, or 74%, to $68.5 million in the first quarter of 2021 from $39.3 million in 2020.

As a percentage of net sales, operating income increased 140 basis points to 8.1% in the first quarter of 2021 versus 6.7% in the same period in 2020.

The change in operating income and operating margin is primarily attributable to the items discussed above.

Interest Expense, Net.

Interest expense increased $1.9 million, or 22%, to $10.5 million in the third quarter of 2020 from $8.6 million in the prior year.

For the first nine months of 2020, interest expense increased $5.6 million, or 21%, to $31.8 million from $26.2 million in the prior year period.

The increase in interest expense in the third quarter and first nine months of 2020 reflects increased borrowings related to 2019 and 2020 acquisitions and an increase in the Company's overall average interest rate resulting from the issuance of $300 million aggregate principal amount of 7.5% senior notes in the third quarter of 2019.

Interest expense increased $0.7 million, or 7%, to $11.2 million in the first quarter of 2021 from $10.5 million in the prior year.

The increase in interest expense reflects increased borrowings related to 2020 acquisitions, partially offset by a decrease in variable interest rates on the unhedged portions of the Company's term loan and revolving credit facility.

Income Taxes.

Income tax expense increased $4.5 million, or 60%, to $12.0 million in the third quarter of 2020 from $7.5 million in the prior year period.

For the first nine months of 2020, income tax expense decreased $2.5 million, or 11%, to $20.2 million for the first nine months of 2020 from $22.7 million in the prior year period.

The effective tax rate in the third quarter of 2020 and 2019 was 24.3% and 26.0%, respectively, and the effective tax rate for the comparable nine month periods was 25.4% and 24.6%, respectively.

The effective tax rate in the third quarter of 2020 reflects the impact of certain federal and state income tax benefits, and the effective tax rate in the first nine months of 2020 reflects $2.2 million of permanent tax differences due to certain Coronavirus Aid, Relief, and Economic Security Act payroll tax credits.

In addition, the effective tax rate for the first nine months of 2019 includes the impact of the recognition of excess tax benefits on share-based compensation that was recorded as a reduction to income tax expense upon realization in the amount of $0.9 million.

Income tax expense increased $2.2 million, or 29%, to $9.8 million from $7.6 million in the prior year period.

The increase in income tax expense is due primarily to an increase in pretax income partially offset by a decrease in the effective tax rate in the first quarter of 2021 compared to the prior year quarter.

The effective tax rate in the first quarter of 2021 and 2020 was 17.1% and 26.4%, respectively.

The effective tax rate for the first quarter of 2021 includes the impact of the recognition of excess tax benefits on share-based compensation that was recorded as a reduction to income tax expense upon realization in the amount of $5.7 million, with no corresponding amount for the same period in 2020.

Use of Financial Metrics

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The Company does not measure profitability at the customer market (RV, marine, MH and industrial) level.

Third Quarter and Nine Months Ended September 27, 2020 Compared to 2019

First Quarter Ended March 28, 2021 Compared to 2020

In the discussion that follows, sales attributable to the Company’s reportable segments include intersegment sales and gross profit includes the impact of intersegment operating activity.

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A reconciliation of consolidated operating income is presented in Note 15 of the Notes to Condensed Consolidated Financial Statements.

Third Quarter Ended Nine Months Ended

(thousands) September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019

First Quarter Ended

(thousands) March 28, 2021 March 29, 2020 Amount Change % Change

Manufacturing $ 614,564 $ 426,839 $ 187,725 44%

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Manufacturing

Sales increased $98.5 million, or 24%, to $506.3 million in the third quarter of 2020 from $407.8 million in the prior year quarter.

For the first nine months of 2020, sales decreased $53.0 million, or 4%, to $1,230.8 million from $1,283.8 million in the prior year period.

This segment accounted for approximately 71% of the Company’s consolidated net sales for the third quarter of 2020 and 2019, and 70% of the Company's consolidated net sales for the first nine months of 2020 and 2019.

The sales increase in the third quarter of 2020 largely reflected sales increases in the RV, marine, and industrial markets compared to the prior year quarter.

The sales decrease for the first nine months of 2020 was primarily attributed to sales decreases in our primary end markets as a result of business disruptions and lost production and shipping days due to the COVID-19 pandemic that occurred primarily in the second quarter of 2020.

Sales increased $187.8 million, or 44%, to $614.6 million in the first quarter of 2021 from $426.8 million in the prior year quarter.

This segment accounted for approximately 71% of the Company’s consolidated net sales for the first quarter of 2021 and 2020.

The sales increase in the first quarter of 2021 compared to 2020 was attributed to sales increases in all four of the Company' end markets:

RV increased 45%, marine increased 75%, MH increased 24% and industrial increased 15%.

Net sales in the first quarter of 2021 attributable to acquisitions completed in that quarter were approximately $4.8 million, and net sales in the first quarter of 2020 attributable to acquisitions completed in that quarter were immaterial.

Gross Profit .

Gross profit increased $23.8 million, or 32%, to $97.5 million in the third quarter of 2020 from $73.7 million in the third quarter of 2019.

For the first nine months of 2020, gross profit decreased $5.8 million, or 2%, to $225.4 million from $231.2 million in 2019.

As a percentage of sales, gross profit increased to 19.3% in the third quarter of 2020 from 18.1% in the third quarter of 2019 and increased to 18.3% in the first nine months of 2020 from 18.0% in the prior year period.

Gross profit as a percentage of net sales increased during the third quarter of 2020 primarily due to an increase in net sales relative to certain fixed components of costs of goods sold as well as a decrease in commodity cost inputs.

Gross profit as a percentage of net sales increased in first nine months of 2020 compared to the prior year period primarily due to a decrease in commodity cost inputs, partially offset by operational and labor inefficiencies as a result of business disruptions from the COVID-19 pandemic incurred in the second quarter of 2020.

Gross profit increased $42.0 million, or 53%, to $120.9 million in the first quarter of 2021 from $78.9 million in the first quarter of 2020.

As a percentage of sales, gross profit increased to 19.7% in the first quarter of 2021 from 18.5% in the first quarter of 2020.

Gross profit margin increased during the first quarter of 2021 compared to the prior year quarter primarily due to a 180 basis point improvement in manufacturing overhead and expenses as a percent of sales as certain of these costs are fixed in nature and a 60 basis point improvement in direct labor, partially offset by a 120 basis point increase in materials as a percent of sales, for a net 120 basis point improvement in the first quarter of 2021 as compared to 2020.

Operating Income.

Operating income increased $20.9 million, or 49%, to $63.3 million in the third quarter of 2020 from $42.4 million in the prior year quarter.

For the first nine months of 2020, operating income decreased $4.2 million, or 3%, to $131.4 million from $135.6 million in the prior year.

The overall increase in operating income in the third quarter of 2020 and the overall decrease in operating income in the first nine months of 2020 primarily reflects the items discussed above.

Sales increased $40.6 million, or 24%, to $208.1 million in the third quarter of 2020 from $167.5 million in the prior year quarter.

For the first nine months of 2020, sales decreased $19.4 million, or 4%, to $511.9 million from $531.3 million in the prior year period.

This segment accounted for approximately 29% of the Company’s consolidated net sales for the third quarter of 2020 and 2019, and 30% of consolidated net sales for the first nine months of 2020 and 2019.

The sales increase in the third quarter of 2020 was primarily attributed to sales increases in our RV, marine, and industrial markets.

The decrease in sales in the first nine months of 2020 was primarily attributed to sales decreases in our primary end

markets as a result of business disruptions and lost production and shipping days due to the COVID-19 pandemic, primarily in the second quarter of 2020.

Operating income increased $32.7 million, or 72%, to $78.4 million in the first quarter of 2020 from $45.7 million in the prior year quarter.

The overall increase in operating income in the first quarter of 2021 primarily reflects the items discussed above.

Sales increased $79.8 million, or 47%, to $251.1 million in the first quarter of 2021 from $171.3 million in the prior year quarter.

This segment accounted for approximately 29% of the Company’s consolidated net sales for the first quarter of 2021 and 2020.

The sales increase in the first quarter of 2021 compared to 2020 was attributed to an 84% increase in our RV market sales, a 71% increase in marine market sales and a 31% increase in industrial market sales, partially offset by a 4% decrease in MH market sales.

Net sales in the first quarter of 2021 attributable to acquisitions completed in that quarter were approximately $0.6 million, with no corresponding amount of net sales in the first quarter of 2020 attributable to acquisitions completed in that quarter.

Gross Profit.

Gross profit increased $8.3 million, or 30%, to $36.3 million in the third quarter of 2020 from $28.0 million in the third quarter of 2019.

For the first nine months of 2020, gross profit increased $0.9 million, or 1%, to $88.6 million from $87.7 million in 2019.

As a percentage of sales, gross profit increased to 17.4% in the third quarter of 2020 from 16.7% in the third quarter of 2019 and increased to 17.3% in the first nine months of 2020 from 16.5% in the prior year period.

As a percentage of sales, gross profit increased during the third quarter of 2020 compared to the prior year quarter primarily due to realized synergies from certain 2018 and 2019 acquisitions.

For the first nine months of 2020, gross profit as a percentage of sales increased primarily due to realized synergies from certain 2018 and 2019 acquisitions, partially offset by additional costs and operational inefficiencies as a result of business disruptions from the COVID-19 pandemic primarily in the second quarter of 2020.

Gross profit increased $15.0 million, or 51%, to $44.2 million in the first quarter of 2021 from $29.2 million in the first quarter of 2020.

As a percentage of sales, gross profit increased to 17.6% in the first quarter of 2021 from 17.0% in the first quarter of 2020.

The increase in gross profit margin in the first quarter of 2021 compared to the first quarter of 2020 is primarily attributed to the higher profitability of a 2020 acquisition compared to the rest of the Distribution segment.

Operating Income.

Operating income increased $7.4 million, or 82%, to $16.4 million in the third quarter of 2020 from $9.0 million in the prior year quarter.

For the first nine months of 2020, operating income increased $5.2 million, or 19%, to $33.3 million from $28.1 million in the prior year.

The overall increase in operating income in the third quarter and first nine months of 2020 primarily reflects the items discussed above.

Operating income increased $11.2 million, or 112%, to $21.2 million in the first quarter of 2021 from $10.0 million in the prior year quarter.

The improvement in operating income in the first quarter of 2021 primarily reflects the items discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Our liquidity at September 27, 2020 consisted of cash and cash equivalents of $62.3 million and $410.3 million of unused borrowing availability under our credit facility.

Our liquidity at March 28, 2021 consisted of cash and cash equivalents of $6.2 million as well as $296.8 million of availability under our credit facility.

Operating Activities

Cash flows from operating activities are one of the Company's primary sources of liquidity, representing the net income the Company earned in the reported periods, adjusted for non-cash items and changes in operating assets and liabilities.

Net cash provided by operating activities decreased $9.2 million to $112.8 million in the first nine months of 2020 from $122.0 million in the first nine months of 2019 primarily due to (i) a decrease of net income of $10.4 million due to disruptions in our end markets as a result of the COVID-19 pandemic;

(ii) an increase in the use of cash from working capital of $4.8 million and (iii) a decrease of deferred income tax liabilities of $3.3 million.

These decreases in operating cash flows were partially offset by an increase of depreciation and amortization of $6.5 million and other items of $2.8 million.

Net cash provided by operating activities increased $37.1 million to $50.3 million in the first quarter of 2021 from $13.2 million in the first quarter of 2020.

The increase is primarily attributable to (i) a $26.3 million increase in net income, (ii) a $5.3 million increase in depreciation and amortization and (iii) $4.6 million less deployed into working capital as compared to the same quarter in the prior year.

Investing Activities

Net cash used in investing activities increased $105.3 million to $145.4 million in the first nine months of 2020 from $40.1 million in the first nine months of 2019 primarily due to an increase in cash used in business acquisitions of $101.0 million and a decrease in proceeds from sale of property, plant, and equipment and other investing activities of $4.4 million.

Net cash used in investing activities increased $13.2 million to $45.0 million in the first quarter 2021 from $31.8 million in the first quarter of 2020 primarily due to an increase in cash used in business acquisitions of $4.6 million and an increase in capital expenditures and other investing activities of $8.6 million.

Financing Activities

Net cash flows used by financing activities increased $72.2 million to $44.4 million in first nine months of 2020 from a source of cash of $27.8 million in the first nine months of 2019 primarily due to (i) the issuance of $300 million of senior notes in the first nine months of 2019 with no comparable amount in the first nine months of 2020;

(ii) cash dividends paid to shareholders of $17.3 million in the first nine months of 2020 with no corresponding amount in the prior year period and (iii) an increase in stock repurchases under our buyback program of $16.7 million.

These increases in cash used in financing activities were partially offset by (i) a decrease in repayments on our revolving credit facility and term loan of $251.1 million;

(ii) a decrease in payment of deferred financing costs of $7.2 million and (iii) a decrease in the payment of contingent consideration from a business acquisition and other financing activities of $3.5 million.

Net cash flows used by financing activities increased $17.6 million to $43.8 million in the first quarter of 2021 from $26.2 million in the first quarter of 2020 primarily due to $27.0 million in net repayments on the Company's credit facility and an $11.7 million increase in tax payments for share-based payment arrangements.

Partially offsetting these increases in use of cash were (i) a $15.6 million decrease in stock repurchases in the current quarter compared to the prior year quarter, (ii) $4.2 million in proceeds from the exercise of stock options with no corresponding amount in the prior year quarter and (iii) $2.1 million in payments of contingent consideration and deferred financing costs in the prior year quarter with no corresponding amount in the current year quarter.

Summary of Liquidity and Capital Resources

The Company's existing cash and cash equivalents, cash generated from operations, and available borrowings under its credit facility are expected to be sufficient to meet anticipated cash needs for working capital and capital expenditures for at least the next 12 months, exclusive of any acquisitions, based on its current cash flow budgets and forecast of short-term and long-term liquidity needs.

The Company's credit facility consists of a $550 million senior secured revolver and a $100 million senior secured term loan.

The maturity date for borrowings under the credit agreement that established the credit facility is September 17, 2024.

Upon the satisfaction of certain conditions, and obtaining incremental commitments from its lenders, the Company may be able to increase the borrowing capacity of the credit facility by up to $250 million.

Borrowings under the credit facility are secured by substantially all personal property assets of the Company and any domestic subsidiary guarantors.

At March 28, 2021, the Company's existing cash and cash equivalents, cash generated from operations, and available borrowings under its credit facility are expected to be sufficient to meet anticipated cash needs for working capital and capital expenditures for at least the next 12 months, exclusive of any acquisitions, based on its current cash flow budgets and forecast of short-term and long-term liquidity needs.

See Note 17 of the Notes to Condensed Consolidated Financial Statements for a description of changes to our debt arrangements subsequent to March 28, 2021.

At March 28, 2021, the Company's senior credit facility consisted of a $550 million senior secured revolver and a $100 million senior secured term loan.

The maturity date for borrowings under the credit agreement that established the credit facility was September 17, 2024.

Borrowings under the senior credit facility were secured by substantially all personal property assets of the Company and any domestic subsidiary guarantors.

Pursuant to the credit agreement:

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(i) through and including June 30, 2021, $1,250,000 and (ii) beginning September 30, 2021, and each quarter thereafter, $2,500,000, with the remaining balance due at maturity;

• The interest rates for borrowings under the revolver and the term loan are the Prime Rate or LIBOR

plus a margin, which ranges from 0.00% to 0.75% for Prime Rate loans and from 1.00% to 1.75% for LIBOR

loans depending on the Company’s consolidated total leverage ratio.

• The interest rates for borrowings under the revolver and the term loan are the Prime Rate or LIBOR plus a margin, which ranges from 0.00% to 0.75% for Prime Rate loans and from 1.00% to 1.75% for LIBOR loans depending on the Company’s consolidated total leverage ratio.

The Company is required to pay fees on unused but committed portions of the revolver, which range from 0.15% to 0.225%.

On July 27, 2017, the Financial Conduct Authority, which regulates the London Interbank Offered Rate ("LIBOR"), announced that it intends to phase out LIBOR by the end of 2021.

We expect that widespread use of LIBOR as a reference borrowing rate will transition to alternative interest rates in the near future.

Since interest rates on loans made under our credit facility may be based on LIBOR based loans, the phasing out of LIBOR may adversely affect interest rates under our credit facility and result in higher borrowing costs.

The Company is currently evaluating its options under our credit facility, but at this time we cannot reasonably estimate the impact to our financial statements from the phasing out of LIBOR.

At September 27, 2020, the Company had $410.3 million of unused borrowing availability under its credit facility.

At March 28, 2021, the Company had $296.8 million of unused borrowing availability under its senior credit facility.

The ability to access unused borrowing capacity under the credit facility as a source of liquidity is dependent on maintaining compliance with the financial covenants as specified under the terms of the credit agreement.

As of and for the September 27, 2020 reporting date, the Company was in compliance with its financial covenants as required under the terms of its credit agreement.

The required maximum consolidated total leverage ratio and the required minimum consolidated fixed charge coverage ratio, as such ratios are defined in the credit agreement, compared to the actual amounts as of September 27, 2020 and for the fiscal period then ended are as follows:

As of and for the March 28, 2021 reporting date, the Company was in compliance with its financial covenants as required under the terms of its credit agreement.

The required maximum consolidated total leverage ratio and the required minimum consolidated fixed charge coverage ratio, as such ratios are defined in the credit agreement, compared to the actual amounts as of March 28, 2021 and for the fiscal period then ended are as follows:

Required Actual

Maximum consolidated total leverage ratio (12-month period) 4.00 2.24

Minimum consolidated fixed charge coverage ratio (12-month period) 1.50 5.76

Working capital requirements vary from period to period depending on manufacturing volumes, the timing of deliveries, and the payment cycles of customers.

Consolidated total leverage ratio (12-month period) 4.00 2.30

Consolidated fixed charge coverage ratio (12-month period) 1.50 5.84

Working capital requirements vary from period to period depending on manufacturing volumes primarily related to the RV, MH and marine industries as well as the industrial markets we serve, the timing of deliveries, and the payment cycles of customers.

In the event that operating cash flow is inadequate and one or more of the Company's capital resources were to become unavailable, the Company would seek to revise its operating strategies accordingly.

The Company will continue to assess its liquidity position and potential sources of supplemental liquidity in view of operating performance, current economic and capital market conditions, and other relevant circumstances.

On April 20, 2021, we completed the issuance of $350 million aggregate principal amount of senior notes due 2029 in a private placement exempt from registration under the Securities Act of 1933.

The notes, which were priced at par, carry an interest rate of 4.75%.

Following the completion of the offering, the Company amended and restated the credit agreement governing its existing $650 million senior secured credit facility to establish a new $700 million senior secured credit facility consisting of a $550 million revolving credit facility and a $150 million term loan facility.

The maturity date for borrowings under the new senior secured credit facility was extended to April 2026.

The new senior secured credit facility replaced the Company’s previously existing credit facility that

was due to mature in September 2024.

In addition to being used to repay a portion of existing borrowings, the net proceeds resulting from these transactions were used for general corporate purposes, including in connection with the acquisitions completed subsequent to the end of the first quarter, and will support the Company's strategic objectives and other general business needs.

CRITICAL ACCOUNTING POLICIES

There have been no material changes to our critical accounting policies which are summarized in the MD&A in our Annual Report on Form 10-K for the year ended December 31, 2020.

Operations in the RV, marine and MH industries historically have been seasonal and at their highest levels when the weather is moderate.

Accordingly, the Company’s sales and profits had generally been the highest in the third quarter and lowest in the fourth quarter.

Manufacturing operations in the RV, marine and MH industries historically have been seasonal and at their highest levels when the weather is moderate.

Accordingly, the Company’s sales and profits had generally been the highest in the second quarter and lowest in the fourth quarter.

Seasonal industry trends in the past several years have included the impact related to the addition of major RV manufacturer open houses for dealers in the August/September timeframe as well as marine open houses in the January/February timeframe, resulting in dealers delaying certain restocking purchases until new product lines are introduced at these shows.

In addition, current and future seasonal industry trends may be different than in prior years due to the impact of national and regional economic conditions and consumer confidence on retail sales of RVs and other products for which the Company sells its components, timing of dealer orders, fluctuations in dealer inventories, and from time to time, the impact of severe weather conditions on the timing of industry-wide wholesale shipments.

In addition, current and future seasonal industry trends may be different than in prior years due to the impact of national and regional economic conditions and consumer confidence on retail sales of RVs and other products for which the Company sells its components, timing of dealer orders, fluctuations in dealer inventories, the impact of the COVID-19 pandemic on consumer buying patterns, and from time to time, the impact of severe weather conditions on the timing of industry-wide wholesale shipments.

Subsequent Events

We evaluated all subsequent events and transactions that occurred after the balance sheet date through the date of issuance of the Form 10-Q that required recognition or disclosure in the condensed consolidated financial statements.

See Note 17 of the Notes to Condensed Consolidated Financial Statements for further discussion of events occurring after March 28, 2021 until the filing date of this Form 10-Q.

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

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There can be no assurance that any forward-looking statement will be realized or that actual results will not be significantly different from that set forth in such forward-looking statement.

Information about certain risks that could affect our business and cause actual results to differ from those expressed or implied in the forward-looking statements are contained in the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and in the Company's Forms 10-Q for subsequent quarterly periods, which are filed with the SEC and are available on the SEC’s website at www.sec.gov.

The Company does not undertake to publicly update or revise any forward-looking statements.

Information about certain risks that could affect our

business and cause actual results to differ from those expressed or implied in the forward-looking statements are contained in the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, and in the Company's Forms 10-Q for subsequent quarterly periods, which are filed with the SEC and are available on the SEC’s website at www.sec.gov.

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