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Item 2. Management’s Discussion and Analysis

2023-08-10 compared with 2023-05-11 · 148 added, 93 removed, 88 unchanged (73% of the section changed)

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OVERVIEW OF MARKETS AND RELATED INDUSTRY PERFORMANCE

First Quarter 2023 Financial Overview

Second Quarter and Six Months 2023 Financial Overview

Recreational Vehicle ("RV") Industry

The RV industry is our primary market and comprised 41% and 61% of the Company’s consolidated net sales in the first quarter ended April 2, 2023 and March 27, 2022, respectively.

Net sales to the RV industry decreased 55% in the first quarter of 2023 compared to the prior year period.

According to the Recreation Vehicle Industry Association ("RVIA"), RV wholesale shipments decreased 54% in the first quarter of 2023 to approximately 78,600 units from approximately 171,900 units in the first quarter of 2022.

While we estimate RV industry retail unit sales for the first quarter of 2023 decreased approximately 8% compared to the first quarter of 2022, industry retail sales still exceeded wholesale shipments in the first quarter of 2023 as RV OEMs reduced production to maintain a more balanced inventory channel in alignment with lower retail demand primarily related to macroeconomic conditions.

The RV industry is our primary market and comprised 42% and 57% of the Company’s consolidated net sales in the second quarter ended July 2, 2023 and June 26, 2022, respectively, and 41% and 59% for the comparative six month periods, respectively.

Net sales to the RV industry decreased 54% and 55% in the second quarter and first six months of 2023, respectively, compared to the prior year periods.

According to the RV Industry Association ("RVIA"), RV wholesale shipments decreased 44% in the second quarter of 2023 to approximately 86,200 units from approximately 152,700 units in the second quarter of 2022.

While we estimate RV industry retail unit sales for second quarter of 2023 decreased approximately 16% compared to the second quarter of 2022, industry retail sales exceeded wholesale unit shipments in the second quarter of 2023 as RV OEMs maintained lower production volumes.

RV wholesale unit shipments for the first six months of 2023 totaled approximately 164,800 units, a decrease of 49% from approximately 324,600 units in the comparative prior year period.

We estimate that despite a 19% decrease in RV industry retail unit sales for the first six months of 2023 compared to the prior year period, industry retail sales exceeded wholesale unit shipments resulting in improved alignment of dealer inventory levels with retail demand.

Marine Industry

Net sales to the marine industry, which represented approximately 31% and 16% of the Company's consolidated net sales in the first quarter ended April 2, 2023 and March 27, 2022, respectively, increased 25% in the first quarter of 2023 compared to the prior year period.

The increase in net sales beyond industry volumes is driven primarily by acquisitions completed in 2022, product mix, and market share gains.

Our marine revenue is generally correlated to marine industry wholesale powerboat unit shipments, which, according to Company estimates based on data published by the National Marine Manufacturers Association ("NMMA"), increased 14% for the first quarter of 2023 compared to the prior year period.

We estimate that marine industry retail powerboat unit sales decreased an estimated 19% in the first quarter of 2023 compared to the prior year period primarily due to the current macroeconomic environment faced by the end consumer.

Estimated wholesale shipments were higher than estimated retail unit sales as dealer inventories increased from recent historically low levels.

Net sales to the marine industry, which represented approximately 29% and 20% of the Company's consolidated net sales in the second quarter ended July 2, 2023 and June 26, 2022, respectively, decreased 8% in the second quarter of 2023 compared to the prior year period.

For the first six months of 2023 and 2022, net sales to the marine industry represented 30% and 18% of our consolidated net sales, respectively, increasing 6% in 2023 compared to the prior year period.

The increase in net sales beyond industry volumes is driven primarily by acquisitions completed in 2022 and 2023, product mix, and market share gains.

Our marine revenue is generally correlated to marine industry wholesale powerboat unit shipments, which, according to Company estimates based on data published by the National Marine Manufacturers Association ("NMMA"), decreased 19% for the second quarter of 2023 and were flat for the first six months of 2023 compared to the prior year periods.

We estimate that marine industry retail powerboat unit sales decreased 4% in the second quarter and first six months of 2023, compared to the prior year periods primarily due to the current macroeconomic environment faced by the end consumer,

such as rising interest rates and inflationary pressures.

Estimated retail shipments were higher than estimated wholesale unit sales and were in line with typical seasonal buying patterns of consumers for these products.

Manufactured Housing ("MH") Industry

Net sales to the MH industry, which represented 15% and 13% of the Company’s consolidated net sales in the first quarter of 2023 and 2022, respectively, decreased 23% in the first quarter of 2023 compared to the prior year period.

Based on industry data from the Manufactured Housing Institute, MH industry wholesale unit shipments decreased 29% in the first quarter of 2023 compared to the prior year period primarily driven by persistent inflation and elevated interest rates that caused OEMs to adjust production based on anticipated lower consumer demand.

Net sales to the MH industry, which represented 16% and 13% of the Company’s consolidated net sales in the second quarter of 2023 and 2022, respectively, decreased 28% in the second quarter of 2023 compared to the prior year period.

MH net sales represented 15% and 13% of the Company's consolidated net sales for the first six months of 2023 and 2022, respectively, and decreased 26% in the first six months of 2023 compared to the first six months of 2022.

Based on industry data from the Manufactured Housing Institute, MH industry wholesale unit shipments decreased 29% in the second quarter of 2023 and decreased 29% in the first six months of 2023 compared to the prior year periods primarily driven by persistent inflation and elevated interest rates that caused OEMs to adjust production based on anticipated lower consumer demand.

Industrial Market

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.

Net sales to this market represented 13% and 10% of our consolidated net sales in the first quarter of 2023 and 2022, respectively, and decreased 3% in the first quarter of 2023 compared to the prior year period.

Net sales to this market represented 13% and 10% of our consolidated net sales in the second quarter of 2023 and 2022, respectively, and decreased 15% in the second quarter of 2023 compared to the prior year period.

Industrial net sales represented 14% and 10% of the Company's net sales in the first six months of 2023 and 2022, respectively, and decreased 9% in the first six months of 2023 compared to the first six months of 2022.

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

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According to the U.S.

Census Bureau, combined new housing starts decreased 18% in the first quarter of 2023 compared to the prior year quarter, due to industry headwinds from elevated interest rates, persistent inflation and decreased housing affordability, particularly in the single-family market.

Single-family housing starts decreased 29% compared to the prior year period, while multifamily housing starts increased 5% for the same period.

Census Bureau, combined new housing starts decreased 11% in the second quarter of 2023 compared to the prior year quarter, with single-family housing starts decreasing 14%, and multifamily housing starts decreasing 6% for the same period.

For the first six months of 2023, combined new housing starts decreased 15%, with single family housing starts decreasing 21% and multifamily housing starts decreasing 2% 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

First Quarter Ended April 2, 2023 Compared to 2022

Second Quarter and Six Month Ended July 2, 2023 Compared to 2022

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) April 2, 2023 March 27, 2022 Amount Change % Change

Second Quarter Ended

(In thousands) July 2, 2023 June 26, 2022 Amount Change % Change

Net sales $ 920,685 100.0 % $ 1,475,693 100.0 % $ (555,008) (38) %

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Net income $ 42,357 4.6 % $ 116,524 7.9 % $ (74,167) (64) %

Net sales in the first quarter of 2023 decreased $442.1 million, or 33%, to $900.1 million from $1,342.2 million in the first quarter of 2022.

The net sales decrease in the first quarter of 2023 reflects growth in our marine end market, market share gains, and the contribution of acquisitions completed in 2022 that partially offset a $454 million decline in RV revenues in the quarter resulting from the continued reduction of production by our RV OEM customers and a $40 million decline in manufactured housing net sales due to industry headwinds from elevated financing rates and persistent inflation.

The Company's RV market sales decreased 55%, marine market sales increased 25%, MH market sales decreased 23% and industrial market sales decreased 3% when compared to the prior year quarter.

Revenue attributable to acquisitions completed in the first three months of 2022 was $8.4 million in the first quarter of 2022 .

There were no acquisitions completed in the first three months of 2023.

The Company’s RV content per wholesale unit (on a trailing twelve-month basis) for the first quarter of 2023 increased approximately 22% to $5,349 fr om $4,367 for the first quarter of 2022 .

Marine powerboat content per wholesale unit (on a trailing twelve-month basis) for the first quarter of 2023 increased approximately 27% to an estimated $5,266 from $4,144 for the first quarter of 2022.

MH content per wholesale unit (on a trailing twelve-month b asis) for the first quarter of 2023 increased approximately 16% to $6,366 from $5,487 for the first quarter of 2022 .

These increases in content per wholesale unit reflect market share gains, contributions from businesses acquired in 2022, and favorable pricing.

Six Months Ended

(In thousands) July 2, 2023 June 26, 2022 Amount Change % Change

Net sales $ 1,820,785 100.0 % $ 2,817,868 100.0 % $ (997,083) (35) %

Cost of goods sold 1,416,573 77.8 % 2,195,419 77.9 % (778,846) (35) %

Cost of goods sold decreased $340.9 million, or 33%, to $705.9 million in the first quarte r of 2023 from $1,046.8 million in 2022.

As a percentage of net sales, cost of goods sold increased 40 basis points during the first quarter of 2023 to 78.4% from 78.0% in the prior year period.

Cost of goods sold as a percentage of net sales increased in the first quarter of 2023 primarily as a result of reduced industry volume mentioned above that provided less favorable fixed cost absorption when compared to the prior period.

This industry volume-driven impact was partially offset by (i) continued cost reduction and automation initiatives we deployed throughout 2022 and into 2023 that had a positive impact on material costs, (ii) improved labor efficiencies as a result of investment in human capital and improved retention rates, and (iii) synergies and different cost profiles from acquisitions completed in 2022.

For the first quarter of 2023, these factors contributed to a 320 basis point increase in overhead as a percentage of net sales, partially offset by a 20 basis point decrease in labor as a percentage of net sales and a 260 basis point decrease in material costs as a percentage of net sales.

Gross profit 404,212 22.2 % 622,449 22.1 % (218,237) (35) %

Warehouse and delivery expenses 71,876 3.9 % 85,216 3.0 % (13,340) (16) %

Selling, general and administrative expenses 160,941 8.8 % 166,045 5.9 % (5,104) (3) %

Amortization of intangible assets 39,586 2.2 % 35,406 1.3 % 4,180 12 %

Operating income 131,809 7.2 % 335,782 11.9 % (203,973) (61) %

Interest expense, net 36,744 2.0 % 29,688 1.1 % 7,056 24 %

Income taxes 22,535 1.2 % 76,897 2.7 % (54,362) (71) %

Net income $ 72,530 4.0 % $ 229,197 8.1 % $ (156,667) (68) %

Net sales in the second quarter of 2023 decreased $555.0 million, or 38%, to $920.7 million from $1,475.7 million in the second quarter of 2022.

The net sales decrease in the second quarter of 2023 reflects revenue decreases from each of our four end markets, partially offset by the contribution of acquisitions completed in 2022 and 2023.

The Company's RV market sales decreased $454 million, or 54%, in the quarter resulting from the continued reduction of production by our RV OEM customers.

Marine market sales decreased $21.9 million, or 8%, attributable to a wholesale shipment decline compared to the prior year quarter.

MH market sales decreased $56.4 million, or 28%, due to industry headwinds from elevated financing rates and persistent inflation.

Industrial market sales decreased $22.8 million, or 15%, which is in line with new housing start trends when compared to the prior year quarter.

Net sales in the first six months of 2023 decreased $997.1 million, or 35%, to $1,820.8 million from $2,817.9 million in the first six months of 2022.

The net sales decrease in the first six months of 2023 reflects a $907.5 million decline in RV revenues in the quarter resulting from the continued reduction of production by our RV OEM customers and a $96.6 million decline in MH net sales due to industry headwinds from elevated financing rates and persistent inflation, partially offset by growth in our marine end market, market share gains, and the contribution of acquisitions completed in 2022 and 2023.

The Company's RV market sales decreased 55%, marine market sales increased 6%, MH market sales decreased 26% and industrial market sales decreased 9% in the first six months of 2023 when compared to the prior year period.

Revenue attributable to acquisitions completed in the first six months of 2023 was $2.3 million in both the second quarter and first six months of 2023.

Revenue attributable to acquisitions completed in the first six months of 2022 was $40.8 million in the second quarter of 2022 and $49.2 million in the first six months of 2022 .

The Company’s RV content per wholesale unit (on a trailing twelve-month basis) for the second quarter of 2023 increased approximately 6% to $5,054 fr om $4,749 for the second quarter of 2022 .

Marine powerboat content per wholesale unit (on a trailing twelve-month basis) for the second quarter of 2023 increased approximately 15% to an estimated $5,330 from $4,648 for the second quarter of 2022.

MH content per wholesale unit (on a trailing twelve-month b asis) for the second quarter of 2023 increased approximately 10% to $6,393 from $5,800 for the second quarter of 2022 .

These increases in content per wholesale unit reflect market share gains, contributions from businesses acquired in 2022 and 2023, and favorable pricing impacts.

Cost of Goods Sold.

Cost of goods sold decreased $437.9 million, or 38%, to $710.7 million in the second quarte r of 2023 from $1,148.6 million in the comparative 2022 period.

As a percentage of net sales, cost of goods sold decreased 60 basis points during the second quarter of 2023 to 77.2% from 77.8% in the prior year period.

Cost of goods sold decreased $778.8 million, or 35%, to $1,416.6 million in the first six months of 2023 from $2,195.4 million in the first six months of 2022.

As a percentage of net sales, cost of goods sold decreased 10 basis points during the first six months of 2023 to 77.8% from 77.9% in the prior year period.

Cost of goods sold as a percentage of net sales decreased in the second quarter and first six months of 2023 primarily as a result of (i) continued cost reduction and automation initiatives we deployed throughout 2022 and into 2023 that had a positive impact on material costs, (ii) improved labor efficiencies as a result of investment in human capital and improved retention rates, and (iii) synergies and different cost profiles from acquisitions completed in 2022 and 2023, partially offset by reduced industry volumes resulting in less favorable fixed cost absorption when compared to the prior year periods.

For the second quarter of 2023, these factors contributed to a 340 basis point decrease in material costs as a percentage of net sales and a 50 basis point decrease in labor as a percentage of net sales, partially offset by a 330 basis point increase in overhead as a percentage of net sales.

For the first six months of 2023, these factors contributed to a 300 basis point decrease in material costs as a percentage of net sales and a 40 basis point decrease in labor as a percentage of net sales, partially offset by a 330 basis point increase in overhead as a percentage of net sales.

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 production.

Gross Profit.

Gross profit decreased $101.1 million, or 34%, to $194.2 million in the first quarter of 2023 from $295.3 million in the prior year period.

As a percentage of net sales, gross profit decreased 40 basis points to 21.6% in the first quarter of 2023 from 22.0% in the same period in the prior year period.

The decrease in gross profit as a percentage of net sales in the first quarter of 2023 compared to the same period in 2022 reflects the impact of the factors discussed above under “Cost of Goods Sold”.

Gross profit decreased $117.1 million, or 36%, to $210.0 million in the second quarter of 2023 from $327.1 million in the prior year period.

As a percentage of net sales, gross profit increased 60 basis points to 22.8% in the second quarter of 2023 from 22.2% in the same period in the prior year period.

Gross profit decreased $218.2 million, or 35%, to $404.2 million in the first six months of 2023 from $622.4 million in the prior year period.

As a percentage of net sales, gross profit increased 10 basis points to 22.2% in the first six months of 2023 from 22.1% in the same period in the prior year period.

The increase in gross profit as a percentage of net sales in the second quarter and first six months of 2023 compared to the same periods in 2022 reflects the impact of the factors discussed above under “Cost of Goods Sold”.

Warehouse and Delivery Expenses .

Warehouse and delivery expenses decreased $5.4 million, or 13%, to $35.8 million in the first quarter of 2023 from $41.2 million in the first quarter of 2022.

As a percentage of net sales, warehouse and delivery expenses increased 90 basis points to 4.0% in the first quarter of 2023 compared to 3.1% in the first quarter of 2022.

The decrease in warehouse and delivery expenses in the first quarter of 2023 compared to the same period in 2022 is attributable to the decrease in sales.

The increase as a percentage of net sales in the first quarter of 2023 as compared to the same 2022 period is primarily attributable to elevated fuel prices, increased insurance rates, and the fixed-cost nature of some warehouse and delivery expenses.

Warehouse and delivery expenses decreased $8.0 million, or 18%, to $36.0 million in the second quarter of 2023 from $44.0 million in the second quarter of 2022.

As a percentage of net sales, warehouse and delivery expenses increased 90 basis points to 3.9% in the second quarter of 2023 compared to 3.0% in the second quarter of 2022.

Warehouse and delivery expenses decreased $13.3 million, or 16%, to $71.9 million in the first six months of 2023 from $85.2 million in the first six months of 2022.

As a percentage of net sales, warehouse and delivery expenses increased 90 basis points to 3.9% in the first six months of 2023 compared to 3.0% in the first six months of 2022.

The decrease in warehouse and delivery expenses in the second quarter and first six months of 2023 compared to the same periods in 2022 is attributable to the decrease in sales.

The increase as a percentage of net sales in the second quarter and first six months of 2023 as compared to the same 2022 periods is primarily attributable to increased property and casualty insurance rates and the fixed-cost nature of certain warehouse and delivery expenses.

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

SG&A expenses increased $6.8 million, or 9%, to $82.4 million in the first quarter of 2023 from $75.6 million in the prior year quarter.

As a percentage of net sales, SG&A expenses were 9.2% in the first quarter of 2023 compared to 5.6% in the first quarter of 2022.

The increase in SG&A expenses in the first quarter of 2023 compared to 2022 is primarily due to continued investments to increase the breadth and depth of corporate resources, specifically human capital, technology and other initiatives to support the size and growth of the Company.

As a percentage of sales, SG&A expenses increased 360 basis points for the first quarter of 2023 compared to the first quarter of 2022.

This increase primarily reflects these continued investments, the decrease in net sales and the fixed-cost nature of certain SG&A expenses.

SG&A expenses decreased $12.0 million, or 13%, to $78.5 million in the second quarter of 2023 from $90.5 million in the prior year quarter.

As a percentage of net sales, SG&A expenses were 8.5% in the second quarter of 2023 compared to 6.1% in the second quarter of 2022.

SG&A expenses decreased $5.1 million, or 3%, to $160.9 million in the first six months of 2023 from $166.0 million in the prior year quarter.

As a percentage of net sales, SG&A expenses were 8.8% in the first six months of 2023 compared to 5.9% in the first six months of 2022.

The decrease in SG&A expenses in the second quarter and first six months of 2023 compared to 2022 is primarily attributed to decreases in incentive compensation, professional fees, and prior period adjustments to the fair value of contingent consideration, partially offset by increases in software and insurance expenditures.

As a percentage of sales, SG&A expenses increased 240 and 290 basis points for the second quarter and first six months of 2023, respectively, compared to the same periods in 2022.

This increase primarily reflects the decrease in net sales and the fixed-cost nature of certain SG&A expenses.

In addition, certain acquisitions completed in 2022 have higher sales and marketing expenses as a percentage of sales than our other businesses.

Additionally, SG&A in the first quarter of 2022 includes a $5.5 million pre-tax gain on sale of property.

Additionally, SG&A in the first six months of 2022 includes a $5.5 million pre-tax gain on sale of property.

Amortization of Intangible Assets.

Amortization of intangible assets increased $2.9 million, or 17%, to $19.8 million in the first quarter of 2023 from $16.9 million in the prior year quarter.

The increase in the first quarter of 2023 compared to the prior year period primarily reflects the impact of businesses acquired in 2022.

Amortization of intangible assets increased $1.3 million, or 7%, to $19.8 million in the second quarter of 2023 from $18.5 million in the prior year quarter.

Amortization of intangible assets increased $4.2 million, or 12%, to $39.6 million in the first six months of 2023 from $35.4 million in the prior year period.

The increase in the second quarter and first six months of 2023 compared to the prior year periods primarily reflects the impact of businesses acquired in 2022 and 2023.

Operating Income.

Operating income decreased $105.6 million, or 65%, to $56.2 million in the first quarter of 2023 from $161.8 million in 2022.

As a percentage of net sales, operating income decreased 590 basis points to 6.2% in the first quarter of 2023 versus 12.1% in the same period in 2022.

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

Operating income decreased $98.4 million, or 57%, to $75.6 million in the second quarter of 2023 from $174.0 million in 2022.

As a percentage of net sales, operating income decreased 360 basis points to 8.2% in the second quarter of 2023 versus 11.8% in the same period in 2022.

For the first six months of 2023, operating income decreased $204.0 million, or 61%, to $131.8 million from $335.8 million in the same period in 2022.

As a percentage of net sales, operating income decreased 470 basis points to 7.2% in the first six months of 2023 versus 11.9% in the same period in 2022.

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

Interest Expense, Net.

Interest expense increased $3.6 million, or 24%, to $18.5 million in the first quarter of 2023 from $14.9 million in the prior year period.

This increase primarily reflects the increase in interest rates on our variable rate debt, as well as repayment of our 1.00% Convertible Senior Notes due 2023 at maturity through borrowings under our revolving credit facility, which has a comparatively higher interest rate.

Interest expense increased $3.5 million, or 23%, to $18.3 million in the second quarter of 2023 from $14.8 million in the prior year period.

Interest expense increased $7.0 million, or 24%, to $36.7 million in the first six months of 2023 from $29.7 million in the prior year period.

Income Taxes.

Income tax expense decreased $26.6 million in the first quarter of 2023 to $7.6 million from $34.2 million in the prior year period.

Income tax expense decreased $27.7 million in the second quarter of 2023 to $15.0 million from $42.7 million in the prior year period.

Income tax expense decreased $54.4 million in the first six months of 2023 to $22.5 million from $76.9 million in the prior year period.

The decrease in income tax expense is driven primarily by the decrease in income before income taxes.

Additionally, the first quarter of 2023 and 2022 rates include 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 $2.3 million and $4.0 million, respectively.

Additionally, the first six months of 2023 and 2022 rates include 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 $1.8 million and $4.0 million, respectively.

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 April 2, 2023 Compared to 2022

Second Quarter and Six Month Ended July 2, 2023 Compared to 2022

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 12 of the Notes to Condensed Consolidated Financial Statements.

First Quarter Ended

(thousands) April 2, 2023 March 27, 2022 Amount Change % Change

Second Quarter Ended

(In thousands) July 2, 2023 June 26, 2022 Amount Change % Change

Manufacturing $ 704,291 $ 1,108,944 $ (404,653) (36)%

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Distribution 25,840 43,641 (17,801) (41)%

Six Months Ended

(In thousands) July 2, 2023 June 26, 2022 Amount Change % Change

Manufacturing $ 1,413,106 $ 2,107,529 $ (694,423) (33)%

Sales decreased $289.8 million, or 29%, to $708.8 million in the first quarter of 2023 from $998.6 million in the prior year quarter.

This segment accounted for approximately 77% and 73% of the Company’s sales for the first quarter of 2023 and 2022, respectively.

The sales decrease in the first quarter of 2023 compared to 2022 was attributed to sales decreases in the Company's RV, MH and industrial markets due to reduced industry wholesale unit shipments in the RV and MH industries and previous slowing of housing starts, partially offset by growth in our marine market sales resulting from market share gains and acquisitions completed in 2022.

The Company's RV end-market sales decreased 56%, the marine end-market sales increased 26% , the MH end-market sales decreased 24% and industrial end-market sales decreased 2%.

Net sales in the first quarter of 2022 attributable to acquisitions completed in the first three months of 2022 was approximately $8.4 million.

There were no acquisitions completed in the first three months of 2023.

Distribution 444,905 759,368 (314,463) (41)%

Manufacturing 316,655 495,511 (178,856) (36)%

Distribution 96,599 151,323 (54,724) (36)%

Operating Income

Manufacturing 182,369 351,229 (168,860) (48)%

Distribution 44,146 89,607 (45,461) (51)%

Manufacturing

Sales decreased $404.6 million, or 36%, to $704.3 million in the second quarter of 2023 from $1,108.9 million in the prior year quarter.

For the first six months of 2023, sales decreased $694.4 million, or 33%, to $1,413.1 million from $2,107.5 million in the prior year period.

This segment accounted for approximately 75% and 74% of the Company’s sales for the second quarter of 2023 and 2022, respectively, and 76% and 74% of the Company's sales for the first six months of 2023 and 2022, respectively.

The sales decrease in the second quarter of 2023 compared to 2022 was attributed to sales decreases in each of the Company's four end-markets due to reduced industry wholesale unit shipments in the RV, marine and MH industries and previous slowing of housing starts, partially offset by acquisitions completed in 2022 and 2023.

For the second quarter of 2023 compared to the same prior year period, the Company's RV end-market sales decreased 56%, the marine end-market sales decreased 8% , the MH end-market sales decreased 34% and industrial end-market sales decreased 15%.

For the first six months of 2023 compared to the same prior year period, the Company's RV end-market sales decreased 56%, the marine end-market sales increased 7%, the MH end-market sales decreased 30% and industrial end-market sales decreased 9%.

Net sales in the second quarter and first six months of 2022 attributable to acquisitions completed in the first six months of 2022 were approximately $40.8 million and $49.2 million, respectively.

Gross Profit .

Gross profit decreased $81.2 million, or 34%, to $155.1 million in the first quarter of 2023 from $236.3 million in the first quarter of 2022.

As a percentage of sales, gross profit decreased to 21.9% in the first quarter of 2023 from 23.7% in the first quarter of 2022.

Gross profit as a percentage of sales decreased during the first quarter of 2023 compared to first quarter of 2022 due to a 420 basis point increase in manufacturing overhead as a percentage of sales and a 100 basis point increase in manufacturing labor as a percentage of sales, partially offset by a 340 basis point decrease in manufacturing material expense as a percentage of sales.

Gross profit decreased $97.6 million, or 38%, to $161.6 million in the second quarter of 2023 from $259.2 million in the second quarter of 2022.

For the first six months of 2023, gross profit decreased $178.8 million, or 36%, to $316.7 million from $495.5 million in the first six months of 2022.

As a percentage of sales, gross profit decreased to 22.9% in the second quarter of 2023 from 23.4% in the second quarter of 2022, and decreased to 22.4% in the first six months of 2023 from 23.5% in the first six months of 2022.

Gross profit as a percentage of sales decreased during the second quarter of 2023 compared to second quarter of 2022 due to a 430 basis point increase in manufacturing overhead as a percentage of sales and a 130 basis point increase in manufacturing labor as a percentage of sales, partially offset by a 510 basis point decrease in manufacturing material expense as a percentage of sales.

Gross profit as a percentage of sales decreased during the first six months of 2023 compared to first six months of 2022 due to a 420 basis point increase in manufacturing overhead as a percentage of sales and a 120 basis point increase in manufacturing labor as a percentage of sales, partially offset by a 430 basis point decrease in manufacturing material expense as a percentage of sales.

Operating Income.

Operating income decreased $83.3 million, or 49%, to $87.2 million in the first quarter of 2023 from $170.5 million in the prior year quarter.

The overall decrease in operating income in the first quarter of 2023 primarily reflects the items discussed above.

Sales decreased $155.5 million, or 43%, to $210.2 million in the first quarter of 2023 from $365.7 million in the prior year quarter.

This segment accounted for approximately 23% and 27% of the Company’s sales for the first quarter of 2023 and 2022, respectively.

The sales decrease in the first quarter of 2023 compared to the first quarter of 2022 was attributed to a 54% decrease in our RV market sales and a 22% decrease in MH market sales as a result of reduced industry wholesale unit shipments in the respective industries, as well as a 9% decrease in industrial sales, partially offset by a 10% increase in marine market sales.

None of the net sales in the first quarter of 2023 or 2022 were attributable to acquisitions completed in the first three months of 2023 or 2022.

Operating income decreased $85.5 million, or 47%, to $95.2 million in the second quarter of 2023 from $180.7 million in the prior year quarter.

For the first six months of 2023, operating income decreased $168.8 million, or 48%, to $182.4 million from $351.2 million in the first six months of 2022.

The overall decrease in operating income in the second quarter and first six months of 2023 primarily reflects the items discussed above.

Sales decreased $158.9 million, or 40%, to $234.7 million in the second quarter of 2023 from $393.6 million in the prior year quarter.

For the first six months of 2023, sales decreased $314.5 million, or 41%, to $444.9 million from $759.4 million in the prior year period.

This segment accounted for approximately 25% and 26% of the Company’s sales for the second quarter of 2023 and 2022, respectively, and 24% and 26% of the Company's sales for the first six months of 2023 and 2022, respectively.

The sales decrease in the second quarter of 2023 compared to the second quarter of 2022 was attributed to a 51% decrease in our RV market sales and a 22% decrease in MH market sales as a result of reduced industry wholesale unit shipments in the respective industries, as well as a 27% decrease in industrial sales, and a 1% decrease in marine market sales.

The sales decrease in the first six months of 2023 compared to the first six months of 2022 was attributed to a 53% decrease in our RV market sales and a 22% decrease in MH market sales as a result of reduced industry wholesale unit shipments in the respective industries, as well as a 18% decrease in industrial sales, partially offset by a 4% increase in marine market sales.

Net sales in the second quarter and first six months of 2023 attributable to acquisitions completed in the first six months of 2023 was approximately $2.3 million.

None of the net sales in the second quarter and first six months of 2022 were attributable to acquisitions completed in the first six months of 2022.

Gross Profit.

Gross profit decreased $31.7 million, or 42%, to $44.1 million in the first quarter of 2023 from $75.8 million in the first quarter of 2022.

As a percentage of sales, gross profit increased to 21.0% in the first quarter of 2023 from 20.7% in the first quarter of 2022.

Gross profit as a percentage of sales increased during the first quarter of 2023 compared to first quarter of 2022 primarily due to a 260 basis point decrease in distribution labor as a percentage of sales primarily attributable to a decrease in utilization of outsourced labor, partially offset by a 230 basis point increase in distribution material expense as a percentage of sales as a result of increased material costs.

Gross profit decreased $23.1 million, or 30%, to $52.5 million in the second quarter of 2023 from $75.6 million in the second quarter of 2022.

For the first six months of 2023, gross profit decreased $54.7 million, or 36%, to $96.6 million from $151.3 million in the first six months of 2022.

As a percentage of sales, gross profit increased to 22.4% in the second quarter of 2023 from 19.2% in the second quarter of 2022, and increased to 21.7% in the first six months of 2023 from 19.9% in the first six months of 2022.

Gross profit as a percentage of sales increased during the second quarter of 2023 compared to second quarter of 2022 primarily due to a 500 basis point decrease in distribution labor as a percentage of sales primarily attributable to a decrease in utilization of outsourced labor, partially offset by a 180 basis point increase in distribution material expense as a percentage of sales as a result of increased material costs.

Gross profit as a percentage of sales increased during the first six months of 2023 compared to the first six months of 2022 primarily due to a 390 basis point decrease in distribution labor as a percentage of sales primarily attributable to a decrease in utilization of outsourced labor, partially offset by a 210 basis point increase in distribution material expense as a percentage of sales as a result of increased material costs.

Operating Income.

Operating income decreased $27.7 million, or 60%, to $18.3 million in the first quarter of 2023 from $46.0 million in the prior year quarter.

The decrease in operating income in the first quarter of 2023 primarily reflects the items discussed above.

Operating income decreased $17.8 million, or 41%, to $25.8 million in the second quarter of 2023 from $43.6 million in the prior year quarter.

For the first six months of 2023, operating income decreased $45.5 million, or 51%, to $44.1 million from $89.6 million in the first six months of 2022.

The decrease in operating income in the second quarter and first six months of 2023 primarily reflects the items discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Our liquidity at April 2, 2023 consisted of cash and cash equivalents of $30.8 million and $457.9 million of availability under our credit facility.

Our liquidity at July 2, 2023 consisted of cash and cash equivalents of $33.9 million and $573.0 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 used in operating activities was $1.0 million in the f i rst quarter of 2023 compared to net cash used in operating activities of $23.0 million in the f i rst quarter of 2022.

The change in operating cash flows is primarily attributable to a $93.7 million reduction in cash used for working capital, substantially offset by an $82.5 million reduction in net income.

Net cash provided by operating activities was $178.4 million in the first six months of 2023 compared to $74.3 million in the first six months of 2022.

The change in operating cash flows is primarily attributable to a $23.4 million source of cash from working capital working compared to a $227.7 million use of cash in the prior year period, partially offset by a $156.7 million reduction in net income.

Investing Activities

Net cash used in investing activities decreased $119.5 million to $23.6 million in the f i rst quarter of 2023 from $143.1 million in the f i rst quarter of 2022 primarily due to a decrease in cash used in business acquisitions of $131.1 million.

Net cash used in investing activities decreased $122.1 million to $65.5 million in the first six months of 2023 from $187.6 million in the first six months of 2022 primarily due to a decrease in cash used in business acquisitions of $123.6 million.

Financing Activities

Net cash provided by financing activities was $32.5 million in the f i rst quarter of 2023 compared to $107.2 million in the f i rst quarter of 2022.

In the first quarter of 2023, borrowings under our revolving credit facility, net of revolver and term loan repayments and the repayment of our 1.00% Convertible Senior Notes due 2023 at maturity, were $55.3 million, compared to borrowings under our revolving credit facility, net of revolver repayments, of $154.0 million in the first quarter of 2022.

In addition, there was a $21.1 million decrease in stock repurchases in the first quarter of 2023 compared to the prior year quarter.

Net cash used in financing activities was $101.7 million in the first six months of 2023 compared to net cash provided by financing activities of $67.4 million in the first six months of 2022.

In the first six months of 2023, revolver and term loan repayments and the repayment of our 1.00% Convertible Senior Notes due 2023 at maturity, net of borrowings under our revolving credit facility, were $61.5 million, compared to borrowings under our revolving credit facility, net of revolver and term loan repayments, of $138.1 million in the first six months of 2022.

In addition, there was a $28.6 million decrease in stock repurchases in the first six months of 2023 compared to the prior year period.

Summary of Liquidity and Capital Resources

At April 2, 2023, the Company's existing cash and cash equivalents, cash generated from operations, and available borrowings under its current 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.

At July 2, 2023, the Company's existing cash and cash equivalents, cash generated from operations, and available borrowings under its current 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 ability to access unused borrowing capacity under the Company's senior 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 governing the credit facility (the "2021 Credit Agreement").

As of and for the reporting period ended April 2, 2023, 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 April 2, 2023 and for the fiscal period then ended are as follows:

As of and for the reporting period ended July 2, 2023, 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 July 2, 2023 and for the fiscal period then ended are as follows:

Required Actual

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Consolidated fixed charge coverage ratio (12-month period) 1.50 2.84

In addition, as of April 2, 2023, the Company's consolidated total net leverage ratio (12-month period) was 2.34, which is used to determine 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 addition, as of July 2, 2023, the Company's consolidated total net leverage ratio (12-month period) was 2.60, which is used to determine 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, marine, MH, 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.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

There have been no new accounting pronouncements issued but not yet adopted or effective that we believe will have a significant impact on our consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

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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 15 of the Notes to Condensed Consolidated Financial Statements for further discussion of events occurring after April 2, 2023 until the filing date of this Form 10-Q.

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

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Any projections of financial performance or statements concerning expectations as to future developments should not be construed in any manner as a guarantee that such results or developments will, in fact, occur.

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.

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

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

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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