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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-06 · 159 added, 108 removed, 84 unchanged (76% of the section changed)

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OVERVIEW OF MARKETS AND RELATED INDUSTRY PERFORMANCE

First Quarter 2021 Financial Overview

Second Quarter and Six Months 2021 Financial Overview

Recreational Vehicle ("RV") Industry

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.

The RV industry is our largest market and comprised 58% and 48% of the Company’s sales in the second quarter ended June 27, 2021 and June 28, 2020, respectively, and 59% and 52% for the comparative 2021 and 2020 six month periods.

Sales to the RV industry increased 192% in the second quarter of 2021 and increased 109% in the first six months of 2021, compared to the prior year periods.

According to the Recreation Vehicle Industry Association ("RVIA"), wholesale shipments totaled approximately 151,800 units in the second quarter of 2021, an increase of 101% compared to approximately 75,700 units in the second quarter of 2020.

Wholesale unit shipments for the first six months of 2021 totaled approximately 300,300 units, an increase of 71% compared to approximately 176,100 units in the prior year.

The increase in wholesale unit shipments in

the second quarter and first six months of 2021 is attributed to an increase in RV dealer demand for RV units.

In addition, the increase in the second quarter and first six months of 2021 reflects the comparison to the sharp decrease in wholesale unit shipments in the second quarter of 2020, which was a result of COVID-19-related production shutdowns at original equipment manufacturers' plants.

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

According to our estimates, RV dealer 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.

We estimate RV retail unit sales increased 30-35% in the second quarter of 2021 and increased 37-40% for the first six months of 2021 compared to the prior year periods.

Marine Industry

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.

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.

Sales to the marine industry, which represented approximately 16% and 14% of the Company's consolidated net sales in the second quarter of 2021 and 2020, respectively, increased 182% compared to the prior year quarter.

For the first six months of 2021 and 2020, sales to the marine industry represented 16% and 13% of consolidated net sales, respectively, increasing 121% in 2021 compared to the prior year.

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 estimate d 26% for the second quarter 2021 and increased an estimated 16% for the first six months of 2021 compared to the prior year periods.

Marine retail powerboat unit sales were nearly unchanged in the second quarter of 2021 and increased 8% for the first six months of 2021 compared to the prior year periods.

We estimate that marine retail sales substantially exceeded marine wholesale unit shipments in both the second quarter and six months of 2021, resulting in marine dealer inventory levels that we believe are at their lowest in at least a decade.

Manufactured Housing ("MH") Industry

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.

Sales to the MH industry, which represented 14% and 21% of the Company’s sales in the second quarter of 2021 and 2020, respectively, increased 54% in the second quarter of 2021 compared to the second quarter of 2020.

MH sales represented 14% and 20% of the Company's sales for the first six months of 2021 and 2020, respectively, and increased 28% in the first six months of 2021 compared to the prior year period.

Based on industry data from the Manufactured Housing Institute, MH wholesale unit shipments increased 31% in the second quarter of 2021 and increase d 16% for the first six months of 2021 compared to the prior year periods.

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 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.

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

Sales to this market represented 12% and 17% of our sales in the second quarter of 2021 and 2020, respectively, and increased 69% in the second quarter of 2021 compared to the prior year quarter.

Sales to the industrial market represented 11% and 15% of our sales for the first six months of 2021 and 2020, respectively, and increased 41% in the first six months of 2021 compared to the prior year period.

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

We estimate that approximately 70% of our industrial business is directly tied to the residential housing market, with the remaining 30% directly tied to the non-residential and commercial markets.

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.

Census Bureau, combined new housing starts increased 43% in the second quarter of 2021 compared to the prior year quarter, with single family housing starts increasing 42% and multifamily residential starts increasing 4 8% f or the same period.

For the first six months of 2021, combined new housing starts increased 25%, with single family housing starts increasing 31% and multifamily housing starts increasing 14% compared to 2020.

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

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

Second Quarter and Six Months Ended June 27, 2021 Compared to 2020

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

First Quarter Ended

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

Second Quarter Ended

($ in thousands) June 27, 2021 June 28, 2020 Change Amount % Change

Net sales $ 1,019,953 100.0 % $ 424,045 100.0 % $ 595,908 141 %

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Net income $ 58,985 5.8 % $ 714 0.2 % $ 58,271 8,161 %

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.

Six Months Ended

($ in thousands) June 27, 2021 June 28, 2020 Change Amount % Change

Net sales $ 1,870,436 100.0 % $ 1,013,277 100.0 % $ 857,159 85 %

Cost of goods sold 1,504,427 80.4 % 830,075 81.9 % 674,352 81 %

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.

Gross profit 366,009 19.6 % 183,202 18.1 % 182,807 100 %

Warehouse and delivery expenses 64,728 3.5 % 44,941 4.4 % 19,787 44 %

Selling, general and administrative expenses 111,597 6.0 % 67,497 6.7 % 44,100 65 %

Amortization of intangible assets 25,937 1.4 % 19,379 1.9 % 6,558 34 %

Operating income 202,262 10.8 % 51,385 5.1 % 150,877 294 %

Interest expense, net 25,759 1.4 % 21,313 2.1 % 4,446 21 %

Income taxes 31,490 1.7 % 8,171 0.8 % 23,319 285 %

Net income $ 106,498 5.7 % $ 21,901 2.2 % $ 84,597 386 %

Net sales in the second quarter of 2021 increased $596.0 million, or 141%, to $1,020.0 million from $424.0 million in the second quarter of 2020.

The net sales increase in the second quarter of 2021 reflects strong demand for our products across all end markets as well as the comparison to the second quarter of 2020, which reflects the impact to net sales of COVID-19-related production shutdowns.

The Company's RV market sales increased 192%, marine market sales increased 182%, industrial market sales increased 69% and MH market sales increased 54% when compared to the prior year quarter.

Net sales in the first six months of 2021 increased $857.1 million, or 85%, to $1,870.4 million from $1,013.3 million in the first six months of 2020.

The net sales increase in the first six months of 2021 reflects sales increases in all of our end markets, while sales in the first six months of 2020 also reflect the impact of COVID-19 as discussed above.

The Company's RV market sales increased 109%, marine market sales increased 121%, MH market sales increased 28% and industrial market sales increased 41% when compared to the prior year period.

Revenue attributable to acquisitions completed in the first six months of 2021 was $56.7 million in the second quarter of 2021 and $62.1 million for the first six months of 2021.

Revenue attributable to acquisitions completed in the first six months of 2020 was $3.3 million in the second quarter of 2020 and $3.8 million for the first six months of 2020.

The Company’s RV content per wholesale unit (on a trailing twelve-month basis) for the second quarter of 2021 increased approximately 15% to $3,543 from $3,086 for the second quarter of 2020.

Marine powerboat content per wholesale unit (on a trailing twelve-month basis) for the second quarter of 2021 increased approximatel y 60% to an estimated $2,841 from $1,775 for the second quarter of 2020.

MH content per wholesale unit (on a trailing twelve-month basis) for the second quarter of 2021 increased approximately 7% to $4,799 from $4,501 for the second quarter of 2020.

Cost of Goods Sold.

Cost of goods sold increased $465.2 million, or 133%, to $815.5 million in the second quarter of 2021 from $350.3 million in 2020.

As a percentage of net sales, cost of goods sold decreased 260 basis points during the second quarter of 2021 to 80.0% from 82.6% in 2020.

Cost of goods sold in the first six months increased $674.3 million, or 81%, to $1,504.4 million from $830.1 million in 2020.

As a percentage of net sales, cost of goods sold decreased 150 basis points during the first six months of 2021 to 80.4% from 81.9% in 2020.

Cost of goods sold as a percentage of net sales decreased in the second quarter and first six months of 2021 primarily as a result of (i) continued cost reduction and automation initiatives we deployed throughout 2020 and into 2021, (ii) volume-driven efficiencies as a result of leveraging fixed overhead, (iii) a recovery from the production inefficiencies experienced while operating in a COVID-19 environment, and (iv) synergies and different cost profiles from our 2021 and 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 $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”.

Gross profit increased $130.8 million, or 177%, to $204.5 million in the second quarter of 2021 from $73.7 million in 2020.

As a percentage of net sales, gross profit increased 260 basis points to 20.0% in the second quarter of 2021 from 17.4% in the same period in 2020.

Gross profit increased $182.8 million, or 100%, to $366.0 million in the first six months of 2021 from $183.2 million in 2020.

As a percentage of net sales, gross profit increased 150 basis points to 19.6% in the second quarter of 2021 from 18.1% in the same period in 2020.

The increase in gross profit as a percentage of net sales in the second quarter and six months ended June 27, 2021 compared to the same periods in 2020 reflects the impact of the factors discussed above under “Cost of Goods Sold”.

Warehouse and Delivery Expenses .

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.

Warehouse and delivery expenses increased $14.6 million, or 72%, to $34.8 million in the second quarter of 2021 from $20.2 million in the second quarter of 2020.

As a percentage of net sales, warehouse and delivery expenses improved 140 basis points to 3.4% in the second quarter of 2021 compared to 4.8% in the second quarter of 2020.

Warehouse and delivery expenses increased $19.8 million, or 44%, to $64.7 million in the first six months of 2021 from $44.9 million in the first six months of 2020.

As a percentage of net sales, warehouse and delivery expenses improved 110 basis points to 3.5% in the first six months of 2021 compared to 4.4% in the prior year period.

The increases in warehouse and delivery expenses are attributable to the significant increases in sales.

However, the decreases as a percentage of sales are primarily attributable to leveraging certain fixed warehousing costs and the lower proportion of MH sales in the second quarter and first six months of 2021 as compared to 2020, which have higher warehouse and delivery costs as a percentage of net sales.

In addition, the second quarter and first six months of 2020 reflect operating inefficiencies associated with COVID-19 disruptions.

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

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.

SG&A expenses increased $28.8 million, or 91%, to $60.4 million in the second quarter of 2021 from $31.6 million in the prior year quarter.

As a percentage of net sales, SG&A expenses were 5.9% in the second quarter of 2021 compared to 7.5% in the second quarter of 2020.

SG&A expenses increased $44.1 million, or 63%, to $111.6 million in the first six months of 2021 from $67.5 million in the first six months of 2020.

As a percentage of net sales, SG&A expenses were 5.9% in the first six months of 2021 compared to 6.7% in the first six months of 2020.

The increase in SG&A expenses in the second quarter and six months of 2021 compared to 2020 is primarily due to (i) the increase in net sales;

(ii) increases in the breadth and depth of corporate resources to support the size and growth of the Company and (iii) the comparison to the prior year, which includes SG&A cost reduction measures in the second quarter of 2020.

As a percentage of sales, SG&A expenses decreased 160 basis points for the second quarter of 2021 compared to the second quarter of 2020 and decreased 70 basis points for the first six months of 2021 when compared to the prior year period.

These improvements are attributable to the fixed nature of certain SG&A costs.

Amortization of Intangible Assets.

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.

Amortization of intangible assets increased $4.2 million, or 44%, to $14.0 million in the second quarter of 2021 from $9.8 million in the prior year quarter.

Amortization of intangible assets increased $6.5 million, or 34%, to $25.9 million in the first six months of 2021 from $19.4 million in the first six months of 2020.

The increases in the second quarter and first six months of 2021 compared to the prior year periods primarily reflects the impact of businesses acquired in 2020 and 2021.

Operating Income.

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.

Operating income increased $83.2 million, or 687%, to $95.3 million in the second quarter of 2021 from $12.1 million in 2020.

As a percentage of net sales, operating income increased 640 basis points to 9.3% in the second quarter of 2021 versus 2.9% in the same period in 2020.

Operating income increased $150.9 million, or 294%, to $202.3 million in the first six months of 2021 from $51.4 million in 2020.

As a percentage of net sales, operating income increased 570 basis points to 10.8% in the first six months of 2021 versus 5.1% 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 $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.

Interest expense increased $3.8 million, or 35%, to $14.6 million in the second quarter of 2021 from $10.8 million in the prior year.

Interest expense increased $4.5 million, or 21%, to $25.8 million in the first six months of 2021 from $21.3 million in the prior year.

The increase in interest expense reflects (i) increased borrowings related to 2020 and 2021 acquisitions and (ii) the Company's issuance of its 4.75% Senior Notes due 2029 (the "4.75% Senior Notes") in April 2021 (as described in Note 9 in the Notes to Condensed Consolidated Financial Statements), 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 $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.

Income tax expense increased $21.1 million in the second quarter of 2021 to $21.7 million from $0.6 million in the prior year period.

Income tax expense increased $23.3 million in the first six months of 2021, to $31.5 million from $8.2 million in the prior year period.

The increase in income tax expense is due primarily to an increase in pretax income.

The effective tax rate in the second quarter of 2021 and 2020 was 26.9% and 44.4%, respectively.

The higher 2020 rate primarily reflects the impact of $2.2 million in permanent tax differences due to certain Coronavirus Aid Relief and Economic Security Act payroll tax credits.

The effective tax rates in the first six months of 2021 and 2020 were 22.8% and 27.2%, respectively.

The 2021 rate includes the impact of the recognition of excess tax benefits on share-based compensation that was recorded as a reduction to income tax expense in the amount of $5.7 million, while the 2020 rate reflects the impact of the permanent tax differences mentioned above.

Use of Financial Metrics

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

First Quarter Ended March 28, 2021 Compared to 2020

Second Quarter Ended June 27, 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.

First Quarter Ended

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

Second Quarter Ended

(thousands) June 27, 2021 June 28, 2020 Amount Change % Change

Manufacturing $ 745,083 $ 297,688 $ 447,395 150%

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Distribution 31,201 6,938 24,263 346%

Six Months Ended

(thousands) June 27, 2021 June 28, 2020 Amount Change % Change

Manufacturing $ 1,359,647 $ 724,527 $ 635,120 88%

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.

Distribution 543,559 303,822 239,737 79%

Manufacturing 271,486 127,904 143,582 113%

Distribution 100,698 52,388 48,310 92%

Operating Income

Manufacturing 177,857 68,114 109,743 161%

Distribution 52,376 16,906 35,470 207%

Manufacturing

Sales increased $447.4 million, or 150%, to $745.1 million in the second quarter of 2021 from $297.7 million in the prior year quarter.

For the first six months of 2021, sales increased $635.1 million, or 88%, to $1,359.6 million from $724.5 million in the prior year period.

This segment accounted for approximately 72% and 69% of the Company’s sales for the second quarter of 2021 and 2020, respectively, and 71% and 70% for the first six months of 2021 and 2020, respectively.

The sales increase in the second quarter of 2021 compared to 2020 was attributed to sales increases in all four of the Company's end markets, where sales to each of the RV and marine end markets increased 185 %, MH increased 88% and industrial increased 73%.

The sales increase for the first six months of 2021 compared to the prior year period was also attributed to sales increases in all four end markets, where RV end market sales increased 98%, marine increased 122 %, MH increased 52% and industrial increased 42%.

Net sales in the second quarter and first six months of 2021 attributable to acquisitions completed in the first six months of 2021 were approximately $41.9 million and $46.7 million, respectively, and net sales in the second quarter and first six months of 2020 attributable to acquisitions completed in the first six months of 2020 were $3.3 million and $3.8 million, respectively.

Gross Profit .

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.

Gross profit increased $101.6 million, or 208%, to $150.6 million in the second quarter of 2021 from $49.0 million in the second quarter of 2020.

For the first six months of 2021, gross profit increased $143.6 million, or 113%, to $271.5 million from $127.9 million in the prior year period.

As a percentage of sales, gross profit increased to 20.2% in the second quarter of 2021 from 16.4% in the second quarter of 2020 and increased to 20.0% in the first six months of 2021 from 17.7% in the prior year period.

Gross profit margin increased during the second quarter of 2021 compared to second quarter of 2020 primarily due to (i) a 550 basis point improvement in manufacturing overhead expense as a percentage of sales, as certain of these costs are fixed in nature and (ii) a 60 basis point improvement in direct labor as a percentage of sales.

These two improvements as a percentage of net sales were partially offset by a 220 basis point increase in materials as a percentage of sales.

Gross profit margin increased during the first six months of 2021 compared to the same period in 2020 primarily due to (i) a 350 basis point improvement in manufacturing overhead expense as a percentage of sales, as certain of these costs are fixed in nature and (ii) a 70 basis point improvement in direct labor as a percentage of sales.

These two improvements as a percentage of net sales were partially offset by a 180 basis point increase in materials as a percentage of sales.

Operating Income.

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.

Operating income increased $77.0 million, or 344%, to $99.4 million in the second quarter of 2021 from $22.4 million in the prior year quarter.

For the first six months of 2021, operating income increased $109.8 million, or 161%, to $177.9 million from $68.1 million the prior year period.

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

Sales increased $159.8 million, or 121%, to $292.4 million in the second quarter of 2021 from $132.6 million in the prior year quarter.

For the first six months of 2021, sales increased $239.8 million, or 79%, to $543.6 million from $303.8 million in the prior year period.

This segment accounted for approximately 28% and 31% of the Company’s sales for the second quarter of 2021 and 2020, respectively, and 29% and 30% of sales for the first six months of 2021 and 2020.

The sales increase in the second quarter of 2021 compared to the second quarter of 2020 was attributed to a 207% increase in our RV market sales, a 142% increase in marine market sales, a 38 % increase in industrial market sales, and a 31 % increase in MH market sales.

The sales increase in the first six months of 2021 compared to the same period in 2020 was attributed to a 134% increase in RV market sales, a 115% increase in marine market sales, a 12% increase in MH market sales and a 35% increase in industrial market sales.

Net sales in the second quarter and first six months of 2021 attributable to acquisitions completed in the first six months of 2021 were approximately $14.8 million and $15.4 million, respectively, with no corresponding amount of net sales in the second quarter or first six months of 2020 attributable to acquisitions completed in the first six months of 2020.

Gross Profit.

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.

Gross profit increased $33.4 million, or 142%, to $56.6 million in the second quarter of 2021 from $23.2 million in the second quarter of 2020.

For the first six months of 2021, gross profit increased $48.3 million, or 92%, to $100.7 million from $52.4 million the prior year period.

As a percentage of sales, gross profit increased to 19.3% in the

second quarter of 2021 from 17.5% in the second quarter of 2020, and to 18.5% from 17.2% for the comparable six month periods.

The increase in gross profit margin in the second quarter and first six months of 2021 compared to the second quarter and first six months of 2020 is primarily attributed to the higher margin profile of a 2020 acquisition.

Operating Income.

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.

Operating income increased $24.3 million, or 346%, to $31.2 million in the second quarter of 2021 from $6.9 million in the prior year quarter.

For the first six months of 2021, operating income increased $35.5 million or 207%, to $52.4 million from $16.9 million the prior year period.

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

LIQUIDITY AND CAPITAL RESOURCES

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.

Our liquidity at June 27, 2021 consisted of cash and cash equivalents of $58.4 million as well as $409.8 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 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.

Net cash provided by operating activities increased $39.0 million to $78.4 million in the first six months of 2021 from $39.4 million in the first six months of 2020.

The increase is primarily attributable to (i) an $86.9 million increase in net income, (ii) a $14.0 million increase in depreciation and amortization, and (iii) $15.9 million increase in deferred income taxes.

These increases in sources of cash from operations were offset by an increase in use of cash for net working capital of $78.1 million, associated primarily with investments in inventory to support customer needs, growth of accounts receivable in line with net sales, and an acceleration of payments for certain inventory-related payables to maintain or enhance vendor prioritization in a dynamic supply chain environment.

Investing Activities

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.

Net cash used in investing activities increased $245.9 million to $280.9 million in the first six months of 2021 from $35.0 million in the first six months of 2020 primarily due to an increase in cash used in business acquisitions of $228.8 million and a $15.1 million increase in capital expenditures.

Financing Activities

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.

Net cash provided by financing activities increased $248.5 million to $215.8 million in the first six months of 2021 from a $32.7 million use of cash in the first six months of 2020.

The increase is primarily due to (i) proceeds of $350.0 million from the Company's issuance of its 4.75% Senior Notes, (ii) an additional $58.8 million in term loan borrowings and (iii) $3.9 million in additional proceeds from the exercise of stock options.

These sources of cash were partially offset by (i) an additional $140.0 million in net revolver repayments, (ii) a $12.0 million increase in taxes paid for share-based payment arrangements, (iii) a $7.5 million increase in stock repurchases and dividends to shareholders and (iv) $5.7 million increase in payments of deferred financing costs.

Summary of Liquidity and Capital Resources

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:

• The term loan is due in consecutive quarterly installments in the following amounts:

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

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 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:

At June 27, 2021, the Company's existing cash and cash equivalents, cash generated from operations, and available borrowings under its 2021 Credit Facility (as defined herein) 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 ability to access unused borrowing capacity under the 2021 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 that established the 2021 Credit Facility (the "2021 Credit Agreement").

As of and for the June 27, 2021 reporting date, the Company was in compliance with its financial covenants as required under the terms of its 2021 Credit Agreement.

The required maximum consolidated secured net leverage ratio and the required minimum consolidated fixed charge coverage ratio, as such ratios are defined in the 2021 Credit Agreement, compared to the actual amounts as of June 27, 2021 and for the fiscal period then ended are as follows:

Required Actual

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

Consolidated secured net leverage ratio (12-month period) 2.75 0.43

Consolidated fixed charge coverage ratio (12-month period) 1.50 6.92

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 addition, as of June 27, 2021, the Company's consolidated total net leverage ratio (12-month period) was 2.26.

While this ratio was a covenant under the Company’s previous credit agreement and is not a covenant under the 2021 Credit Agreement, it is used in the determination of the applicable borrowing margin under the 2021 Credit Agreement.

Working capital requirements vary from period to period depending on manufacturing volumes primarily related to the RV, MH, marine and 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.

On April 20, 2021, we completed the issuance of $350 million aggregate principal amount of our 4.75% Senior Notes in a private placement exempt from registration under the Securities Act of 1933, as amended.

The 4.75% Senior Notes, which were issued 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 then-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 "2021 Credit Facility").

The maturity date for borrowings under the 2021 Credit Facility was extended to April 2026.

The 2021 Credit Facility replaced the Company’s previously existing credit facility that was due to mature in September 2024.

CRITICAL ACCOUNTING POLICIES

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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.

Accordingly, the Company’s sales and profits have 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.

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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.

We evaluated all subsequent events and transactions that occurred after the balance sheet date through the date of issuance of the Form 10-Q, and there were none that required recognition or disclosure in the condensed consolidated financial statements.

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

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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.

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