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Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2023-11-09 · 102 added, 163 removed, 78 unchanged (77% of the section changed)

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OVERVIEW OF MARKETS AND RELATED INDUSTRY PERFORMANCE

Third Quarter and Nine Months 2023 Financial Overview

First Quarter 2024 Financial Overview

Recreational Vehicle ("RV") Industry

The RV industry is our primary market and comprised 46% and 47% of the Company’s consolidated net sales in the third quarter ended October 1, 2023 and September 25, 2022, respectively, and 43% and 55% for the comparative nine months periods, respectively.

Net sales to the RV industry decreased 24% and 47% in the third quarter and first nine months of 2023, respectively, compared to the prior year periods.

According to the RV Industry Association ("RVIA"), RV wholesale shipments decreased 20% in the third quarter of 2023 to approximately 73,300 units from approximately 91,700 units in the third quarter of 2022.

While we estimate RV industry retail unit sales for third quarter of 2023 decreased approximately 38% compared to the third quarter of 2022, industry retail sales exceeded wholesale unit shipments in the third quarter of 2023 as RV OEMs maintained lower production volumes.

RV wholesale unit shipments for the first nine months of 2023 totaled approximately 238,100 units, a decrease of 43% from approximately 416,200 units in the comparative prior year period.

We estimate that despite a 24% decrease in RV industry retail unit sales for the first nine 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.

The RV industry is our primary market and comprised 45% and 41% of the Company’s consolidated net sales in the first quarter ended March 31, 2024 and April 2, 2023, respectively.

Net sales to the RV industry increased 15% in the first quarter of 2024 compared to the prior year period.

According to the RV Industry Association ("RVIA"), RV wholesale shipments increased 9% in the first quarter of 2024 to approximately 85,900 units compared to approximately 78,600 units in the first quarter of 2023.

While we estimate RV industry retail unit sales for first quarter of 2024 decreased approximately 14% compared to the first quarter of 2023, we estimate that industry retail sales exceeded wholesale unit shipments in the first quarter of 2024 as RV OEMs maintained lower production volumes.

Marine Industry

Net sales to the marine industry, which represented approximately 24% and 24% of the Company's consolidated net sales in the third quarter ended October 1, 2023 and September 25, 2022, respectively, decreased 24% in the third quarter of 2023 compared to the prior year period.

For the first nine months of 2023 and 2022, net sales to the marine industry represented 28% and 20% of our consolidated net sales, respectively, decreasing 4% in the first nine months of 2023 compared to the prior year period.

The decrease in net sales was primarily due to a reduction in OEM production levels and inventory decreases at marine dealers, which were offset in part by the contribution from acquisitions completed in 2022 and 2023.

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 23% for the third quarter of 2023 and decreased 4% for the first nine months of 2023 compared to the prior year periods.

We estimate that marine industry retail powerboat unit sales increased 1% in the third quarter and first nine 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.

In both the third quarter and first nine months of 2023,

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

Net sales to the marine industry, which represented approximately 17% and 26% of the Company's consolidated net sales in the first quarter ended March 31, 2024 and April 2, 2023, respectively, decreased 35% in the first quarter of 2024 compared to the prior year period.

The decrease in net sales was in line with the decrease in wholesale powerboats volumes.

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 34% for the first quarter of 2024 compared to the prior year period.

We estimate that marine industry retail powerboat unit sales decreased 10% in the first quarter of 2024 compared to the prior year period primarily due to the current macroeconomic environment faced by the end consumer, such as economic uncertainty and higher interest rates.

Powersports Industry

Through acquisitions the past two years, the Company entered the powersports end market.

Powersports is a category of motorsports which includes vehicles such as motorcycles, all-terrain vehicles (ATV's), utility vehicles (UTV's), snowmobiles, scooters, golf carts and other personal transportation vehicles, and other related categories.

Previously, our sales to the powersports end market were included in the Company’s marine end market sales.

Effective with the first quarter of 2024, powersports net sales are being reported separately after the January 2024 acquisition of Sportech, LLC (“Sportech”), as discussed in Note 5 "Acquisitions" of the Notes to Condensed Consolidated Financial Statements.

Net sales to the powersports industry increased 152% in the first quarter of 2024 compared to the prior year period, representing 9% and 4% of the Company's consolidated net sales in the respective periods.

The increase in net sales is primarily attributable to the acquisition of Sportech.

Manufactured Housing ("MH") Industry

Net sales to the MH industry, which represented 17% and 16% of the Company’s consolidated net sales in the third quarter ended October 1, 2023 and September 25, 2022, respectively, decreased 17% in the third quarter of 2023 compared to the prior year period.

MH net sales represented 16% and 14% of the Company's consolidated net sales for the first nine months of 2023 and 2022, respectively, and decreased 23% in the first nine months of 2023 compared to the first nine months of 2022.

Based on industry data from the Manufactured Housing Institute, MH industry wholesale unit shipments decreased 19% in the third quarter of 2023 and decreased 26% in the first nine 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.

Net sales to the MH industry, which represented 16% and 15% of the Company’s consolidated net sales in the first quarter ended March 31, 2024 and April 2, 2023, respectively, increased 17% in the first quarter of 2024 compared to the prior year period.

Based on industry data from the Manufactured Housing Institute, MH industry wholesale unit shipments increased 13% in the first quarter of 2024 compared to the prior year period primarily driven by OEMs increasing production from significantly reduced levels in 2023 in anticipation of a recovery in demand.

Industrial Market

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

Net sales to this market represented 13% of our consolidated net sales in each of the third quarter ended October 1, 2023 and September 25, 2022, and decreased 19% in the third quarter ended October 1, 2023 compared to the prior year period.

Industrial net sales represented 13% and 11% of the Company's net sales in the first nine months of 2023 and 2022, respectively, and decreased 13% in the first nine months of 2023 compared to the prior year period.

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.

Net sales to this market represented 13% of our consolidated net sales in the first quarter ended March 31, 2024 and April 2, 2023, and decreased 8% in the first quarter ended March 31, 2024 compared to the prior year period.

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.

We estimate that, in general, approximately 70% to 80% of our industrial business is directly tied to the residential housing market, with the remaining 20% to 30% tied to the non-residential and commercial markets.

According to the U.S.

Census Bureau, combined new housing starts decreased 6% in the third quarter of 2023 compared to the prior year quarter, with single-family housing starts increasing 7%, and multifamily housing starts decreasing 28% for the same period.

For the first nine months of 2023, combined new housing starts decreased 12%, with single-family housing starts decreasing 13% and multifamily housing starts decreasing 11% for the same period.

Census Bureau, combined new housing starts increased 1% in the first quarter of 2024 compared to the prior year quarter, with single-family housing starts increasing 27%, and multifamily housing starts decreasing 37% 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.

RESULTS OF OPERATIONS

Third Quarter and Nine Months Ended October 1, 2023 Compared to 2022

First Quarter Ended March 31, 2024 Compared to 2023

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

Third Quarter Ended

($ in thousands) October 1, 2023 September 25, 2022 Amount Change % Change

Net sales $ 866,073 100.0 % $ 1,112,089 100.0 % $ (246,016) (22) %

Cost of goods sold 666,954 77.0 % 875,638 78.7 % (208,684) (24) %

Gross profit 199,119 23.0 % 236,451 21.3 % (37,332) (16) %

Warehouse and delivery expenses 37,664 4.3 % 39,997 3.6 % (2,333) (6) %

Selling, general and administrative expenses 70,873 8.2 % 84,924 7.6 % (14,051) (17) %

Amortization of intangible assets 19,507 2.3 % 18,769 1.7 % 738 4 %

Operating income 71,075 8.2 % 92,761 8.3 % (21,686) (23) %

Interest expense, net 16,879 1.9 % 15,302 1.4 % 1,577 10 %

Income taxes 14,646 1.7 % 18,640 1.7 % (3,994) (21) %

Net income $ 39,550 4.6 % $ 58,819 5.3 % $ (19,269) (33) %

Nine Months Ended

($ in thousands) October 1, 2023 September 25, 2022 Amount Change % Change

First Quarter Ended

($ in thousands) March 31, 2024 April 2, 2023 Amount Change % Change

Net sales $ 933,492 100.0 % $ 900,100 100.0 % $ 33,392 4 %

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Net income $ 35,093 3.8 % $ 30,173 3.4 % $ 4,920 16 %

Net sales in the third quarter of 2023 decreased $246.0 million, or 22%, to $866.1 million from $1,112.1 million in the third quarter of 2022.

Net sales in the third quarter of 2023 decreased as a result of lower wholesale unit shipments in our end markets and lower pricing passed on to our customers to reflect changes in certain commodity costs, partially offset by market share gains.

The Company's RV market sales decreased $123.5 million, or 24%, in the quarter resulting from the continued reduction of production by our RV OEM customers.

Net sales in the first quarter of 2024 increased $33.4 million, or 4%, to $933.5 million compared to $900.1 million in the first quarter of 2023.

Net sales in the first quarter of 2024 increased as a result of higher wholesale unit shipments in our RV and housing end markets and market share gains and the revenue contribution of acquisitions completed in the first quarter of 2024, partially offset by lower wholesale shipments in our marine end market and lower pricing passed on to our customers to reflect changes in certain commodity costs.

The Company's RV market sales increased $54.0 million, or 15%, in the quarter resulting from an increase in production by our RV OEM customers.

Marine market sales decreased $82.7 million, or 35%, attributable to a 34% wholesale shipment decline compared to the prior year quarter.

MH market sales decreased $29.7 million, or 17%, due to industry headwinds from elevated financing rates and persistent inflation.

Industrial market sales decreased $26.9 million, or 19% when compared to the prior year quarter, which is in line with housing start trends in the prior two quarters.

Net sales in the first nine months of 2023 decreased $1,243.1 million, or 32%, to $2,686.9 million from $3,930.0 million in the first nine months of 2022.

The net sales decrease in the first nine months of 2023 reflects a $1,031.0 million decline in RV revenues resulting from the continued reduction of production by our RV OEM customers, a $126.3 million decline in MH revenues due to industry headwinds from elevated financing rates and persistent inflation and a $32.9 million decline in marine revenues due to a reduction in OEM production levels and inventory decreases at the marine dealers, which were partially offset by the contribution from acquisitions completed in 2022 and 2023.

The Company's RV market sales decreased 47%, marine market sales decreased 4%, MH market sales decreased 23% and industrial market sales decreased 13% in the first nine months of 2023 when compared to the prior year period.

Revenue attributable to acquisitions completed in the first nine months of 2023 was $7.3 million and $9.8 million in the third quarter and first nine months of 2023, respectively.

Revenue attributable to acquisitions completed in the first nine months of 2022 was $38.0 million and $87.3 million in the third quarter and first nine months of 2022, respectively.

The Company’s RV content per wholesale unit (on a trailing twelve-month basis) for the third quarter of 2023 decreased approximately 2% to $4,957 fr om $5,065 for the third quarter of 2022 .

Marine powerboat content per wholesale unit (on a trailing twelve-month basis) for the third quarter of 2023 increased approximately 3% to an estimated $5,009 from $4,860 for the third quarter of 2022.

MH content per wholesale unit (on a trailing twelve-month b asis) for the third quarter of 2023 increased approximately 7% to $6,444 from $6,029 for the third quarter of 2022 .

The decrease in content per wholesale unit in the RV market reflects pricing impacts.

The increases in content per wholesale unit in the marine powerboat and MH markets primarily reflect product mix shifts by certain OEM customers, market share gains, and contributions from businesses acquired in 2022 and 2023.

Powersports market sales increased $49.9 million, or 152%, compared to the prior year period, primarily due to the acquisition of Sportech.

MH market sales increased $22.7 million, or 17% compared to the prior year period, primarily due to a 13% increase in industry wholesale unit volumes.

Industrial market sales decreased $10.6 million, or 8% when compared to the prior year quarter, which is in line with housing start trends in the prior two quarters given the timing at which our products are installed in relation to housing starts.

Revenue attributable to acquisitions completed in the first three months of 2024 was $58.1 million in the first quarter of 2024.

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 2024 decreased approximately 9% to $4,859 compared to $5,349 for the first quarter of 2023 .

Marine powerboat content per wholesale unit (on a trailing twelve-month basis) for the first quarter of 2024 decreased appro ximately 9% to an estim ated $4,049 compared to $4,433 for the first quarter of 2023.

MH content per wholesale unit (on a trailing twelve-month b asis) for the first quarter of 2024 increased approximately 1% to $6,422 compared to $6,366 for the first quarter of 2023 .

The decreases in content per wholesale unit in the RV market and in the marine powerboat primarily reflect the impact of lower pricing.

The increase in content per wholesale unit in the MH markets primarily reflects product mix shifts by certain OEM customers, market share gains, and contributions from businesses acquired in 2022 and 2023.

Cost of Goods Sold.

Cost of goods sold decreased $208.6 million, or 24%, to $667.0 million in the third quarte r of 2023 from $875.6 million in the comparative 2022 period.

As a percentage of net sales, cost of goods sold decreased 170 basis points during the third quarter of 2023 to 77.0% from 78.7% in the prior year period.

Cost of goods sold decreased $987.6 million, or 32%, to $2,083.5 million in the first nine months of 2023 from $3,071.1 million in the first nine months of 2022.

As a percentage of net sales, cost of goods sold decreased 60 basis points during the first nine months of 2023 to 77.5% from 78.1% in the prior year period.

Cost of goods sold as a percentage of net sales decreased in the third quarter and first nine 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 and labor 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 third quarter of 2023, these factors contributed to a 290 basis point decrease in material costs as a percentage of net sales and a 120 basis point decrease in labor as a percentage of net sales, partially offset by a 240 basis point increase in overhead as a percentage of net sales.

For the first nine months of 2023, these factors contributed to a 300 basis point decrease in material costs as a percentage of net sales and a 60 basis point decrease in labor as a percentage of net sales, partially offset by a 300 basis point increase in overhead as a percentage of net sales.

Cost of goods sold increased $22.7 million, or 3%, to $728.6 million in the first quarte r of 2024 compared to $705.9 million in the first quarter of 2023.

As a percentage of net sales, cost of goods sold decreased 30 basis points during the first quarter of 2024 to 78.1% compared to 78.4% in the prior year period.

Cost of goods sold as a percentage of net sales decreased in the first quarter of 2024 primarily as a result of a 70 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 80 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 $37.4 million, or 16%, to $199.1 million in the third quarter of 2023 from $236.5 million in the prior year period.

As a percentage of net sales, gross profit increased 170 basis points to 23.0% in the third quarter of 2023 from 21.3% in the same period in the prior year period.

Gross profit decreased $255.6 million, or 30%, to $603.3 million in the first nine months of 2023 from $858.9 million in the prior year period.

As a percentage of net sales, gross profit increased 60 basis points to 22.5% in the first nine months of 2023 from 21.9% in the same period in the prior year period.

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

Gross profit increased $10.7 million, or 5%, to $204.9 million in the first quarter of 2024 compared to $194.2 million in the prior year period.

As a percentage of net sales, gross profit increased 30 basis points to 21.9% in the first quarter of 2024 compared to 21.6% in the prior year period.

The increase in gross profit as a percentage of net sales in the first quarter of 2024 compared to the same period in 2023 reflects the items discussed above in "Cost of Goods Sold".

Warehouse and Delivery Expenses .

Warehouse and delivery expenses decreased $2.3 million, or 6%, to $37.7 million in the third quarter of 2023 from $40.0 million in the third quarter of 2022.

As a percentage of net sales, warehouse and delivery expenses increased 70 basis points to 4.3% in the third quarter of 2023 compared to 3.6% in the third quarter of 2022.

Warehouse and delivery expenses decreased $15.7 million, or 13%, to $109.5 million in the first nine months of 2023 from $125.2 million in the first nine months of 2022.

As a percentage of net sales, warehouse and delivery expenses increased 90 basis points to 4.1% in the first nine months of 2023 compared to 3.2% in the first nine months of 2022.

The decrease in warehouse and delivery expenses in the third quarter and first nine 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 third quarter and first nine months of 2023 as compared to the same 2022 periods is primarily attributable to increased property and casualty insurance rates, the fixed-cost nature of certain warehouse and delivery expenses, and the impact from acquisitions.

Warehouse and delivery expenses increased $1.6 million, or 4%, to $37.4 million in the first quarter of 2024 compared to $35.8 million in the first quarter of 2023.

As a percentage of net sales, warehouse and delivery expenses were 4.0% in both periods presented.

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

SG&A expenses decreased $14.0 million, or 17%, to $70.9 million in the third quarter of 2023 from $84.9 million in the prior year quarter.

As a percentage of net sales, SG&A expenses were 8.2% in the third quarter of 2023 compared to 7.6% in the third quarter of 2022.

SG&A expenses decreased $19.2 million, or 8%, to $231.8 million in the first nine months of 2023 from $251.0 million in the prior year quarter.

As a percentage of net sales, SG&A expenses were 8.6% in the first nine months of 2023 compared to 6.4% in the first nine months of 2022.

The decrease in SG&A expenses in the third quarter and first nine months of 2023 compared to 2022 is primarily attributed to decreases in incentive compensation, professional fees, and 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 60 basis points and 220 basis points for the third quarter and first nine 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 expenses in the first nine months of 2022 include a $5.5 million pre-tax gain on sale of property, as noted above.

SG&A expenses increased $2.8 million, or 3%, to $85.2 million in the first quarter of 2024 compared to $82.4 million in the prior year quarter.

As a percentage of net sales, SG&A expenses were 9.1% in the first quarter of 2024 compared to 9.2% in the first quarter of 2023.

The increase in SG&A expenses in the first quarter of 2024 compared to 2023 is primarily attributed to the $5.0 million of transaction costs associated with the acquisition of Sportech, which more than offset a $2.2 million decrease in other SG&A expenses.

Amortization of Intangible Assets.

Amortization of intangible assets increased $0.7 million, or 4%, to $19.5 million in the third quarter of 2023 from $18.8 million in the prior year quarter.

Amortization of intangible assets increased $4.9 million, or 9%, to $59.1 million in the first nine months of 2023 from $54.2 million in the prior year period.

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

Amortization of intangible assets increased $3.0 million, or 15%, to $22.8 million in the first quarter of 2024 compared to $19.8 million in the prior year quarter.

The increase in the first quarter of 2024 compared to the prior year period primarily reflects the impact of the Sportech acquisition as well as the acquisitions completed in 2023.

Operating Income.

Operating income decreased $21.7 million, or 23%, to $71.1 million in the third quarter of 2023 from $92.8 million in 2022.

As a percentage of net sales, operating income decreased 10 basis points to 8.2% in the third quarter of 2023 versus 8.3% in the same period in 2022.

For the first nine months of 2023, operating income decreased $225.6 million, or 53%, to $202.9 million from $428.5 million in the same period in 2022.

As a percentage of net sales, operating income decreased 330 basis points to 7.6% in the first nine months of 2023 versus 10.9% in the same period in 2022.

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

Operating income increased $3.1 million, or 6%, to $59.3 million in the first quarter of 2024 compared to $56.2 million in 2023.

As a percentage of net sales, operating income increased 20 basis points to 6.4% in the first quarter of 2024 compared to 6.2% in the same period in 2023.

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

Interest Expense, Net.

Interest expense increased $1.6 million, or 10%, to $16.9 million in the third quarter of 2023 from $15.3 million in the prior year period.

Interest expense increased $8.6 million, or 19%, to $53.6 million in the first nine months of 2023 from $45.0 million in the prior year period.

These increases primarily reflect 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, partially offset by decreases in average borrowings compared to the prior year periods.

Interest expense increased $1.6 million, or 9%, to $20.1 million in the first quarter of 2024 compared to $18.5 million in the prior year period.

This increase primarily reflects higher debt levels and higher interest rates on our term loan and revolver balances.

Income Taxes.

Income tax expense decreased $4.0 million in the third quarter of 2023 to $14.6 million from $18.6 million in the prior year period.

Income tax expense decreased $58.3 million in the first nine months of 2023 to $37.2 million from $95.5 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 nine 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 $2.3 million and $4.0 million, respectively.

Income tax expense decreased $3.4 million in the first quarter of 2024 to $4.2 million compared to $7.6 million in the prior year period.

The decrease in income tax expense is driven primarily by 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 $6.0 million compared to $2.3 million excess tax benefits on share-based compensation in the first quarter of 2023.

Use of Financial Metrics

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The Company regularly evaluates the performance of the Manufacturing and Distribution segments and allocates resources to them based on a variety of indicators including sales and operating income.

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

Third Quarter and Nine Months Ended October 1, 2023 Compared to 2022

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

First Quarter Ended March 31, 2024 Compared to 2023

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 11 "Segment Information" of the Notes to Condensed Consolidated Financial Statements.

Third Quarter Ended

($ in thousands) October 1, 2023 September 25, 2022 Amount Change % Change

Manufacturing $ 659,493 $ 846,891 $ (187,398) (22)%

Distribution $ 226,859 $ 286,538 $ (59,679) (21)%

Manufacturing $ 144,194 $ 182,362 $ (38,168) (21)%

Distribution $ 50,187 $ 56,150 $ (5,963) (11)%

Operating Income

Manufacturing $ 80,777 $ 109,462 $ (28,685) (26)%

Distribution $ 24,026 $ 27,228 $ (3,202) (12)%

Nine Months Ended

($ in thousands) October 1, 2023 September 25, 2022 Amount Change % Change

First Quarter Ended

($ in thousands) March 31, 2024 April 2, 2023 Amount Change % Change

Manufacturing $ 714,510 $ 708,815 $ 5,695 1%

6 unchanged sentences

Manufacturing

Sales decreased $187.4 million, or 22%, to $659.5 million in the third quarter of 2023 from $846.9 million in the prior year quarter.

For the first nine months of 2023, sales decreased $881.8 million, or 30%, to $2,072.6 million from $2,954.4 million in the prior year period.

The manufacturing segment accounted for approximately 74% and 75% of the Company’s sales for the third quarter of 2023 and 2022, respectively, and 76% and 74% of the Company's sales for the first nine months of 2023 and 2022, respectively.

The sales decrease in the third 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 slowing of housing starts, partially offset by acquisitions completed in 2022 and 2023.

For the third quarter of 2023 compared to the same prior year period, the Company's RV end market sales decreased 23%, the marine end market sales decreased 25% , the MH end market sales decreased 22% and industrial end market sales decreased 18%.

For the first nine months of 2023 compared to the same prior year period, the Company's RV end market sales decreased 48%, the marine end market sales decreased 4%, the MH end market sales decreased

27% and industrial end market sales decreased 12%.

Net sales attributable to acquisitions completed in the first nine months of 2023 were approximately $1.6 million for both the third quarter and the first nine months of 2023.

Net sales attributable to acquisitions completed in the first nine months of 2022 were approximately $38.0 million and $87.3 million in the third quarter and first nine months of 2022, respectively.

Sales increased $5.7 million, or 1%, to $714.5 million in the first quarter of 2024 compared to $708.8 million in the prior year quarter.

The manufacturing segment accounted for approximately 75% and 77% of the Company’s sales for the first quarter of 2024 and 2023, respectively.

The sales increase in the first quarter of 2024 compared to 2023 was attributed to sales increases in the Company's RV, powersports and MH end markets, partially off by sales in the marine and industrial end markets.

For the first quarter of 2024 compared to the same prior year period, the Company's RV end market sales increased 16%, the marine end market sales decreased 36%, the powersports end market sales increased 170%, the MH end market sales increased 8% and industrial end market sales decreased 7%.

Net sales attributable to acquisitions completed in the first quarter of 2024 were approximately $58.1 million, and there were no acquisitions completed in the first quarter of 2023.

Gross Profit .

Gross profit decreased $38.2 million, or 21%, to $144.2 million in the third quarter of 2023 from $182.4 million in the third quarter of 2022.

For the first nine months of 2023, gross profit decreased $217.1 million, or 32%, to $460.8 million from $677.9 million in the first nine months of 2022.

As a percentage of sales, gross profit increased to 21.9% in the third quarter of 2023 from 21.5% in the third quarter of 2022, and decreased to 22.2% in the first nine months of 2023 from 22.9% in the first nine months of 2022.

Gross profit as a percentage of sales increased during the third quarter compared to the same period in 2022 due to decrease in manufacturing material cost as a percentage of sales, partially offset by increases in manufacturing overhead and labor costs as a percentage of sales.

Gross profit as a percentage of sales decreased during the first nine months of 2023 compared to the same period in 2022 due to an increase in manufacturing overhead and labor costs as a percentage of sales, partially offset by a decrease in manufacturing material costs as a percentage of sales.

These fluctuations are a result of changes in certain commodity input costs, reduced sales volumes, and differing cost and margin profiles of acquisitions completed in 2022 and 2023.

Gross profit increased $1.6 million, or 1%, to $156.7 million in the first quarter of 2024 compared to $155.1 million in the first quarter of 2023.

As a percentage of sales, gross profit was 21.9% in the first quarter of 2024 and 2023.

Gross profit as a percentage of sales was unchanged in the first quarter of 2024 compared to the same period in 2023 due to a decrease in manufacturing material cost as a percentage of sales, substantially offset by increases in manufacturing overhead and labor costs as a percentage of sales.

Operating Income.

Operating income decreased $28.7 million, or 26%, to $80.8 million in the third quarter of 2023 from $109.5 million in the prior year quarter.

For the first nine months of 2023, operating income decreased $197.6 million, or 43%, to $263.1 million from $460.7 million in the first nine months of 2022.

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

Sales decreased $59.6 million, or 21%, to $226.9 million in the third quarter of 2023 from $286.5 million in the prior year quarter.

For the first nine months of 2023, sales decreased $374.1 million, or 36%, to $671.8 million from $1,045.9 million in the prior year period.

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

The sales decrease in the third quarter of 2023 compared to the third quarter of 2022 was attributed to a 25% decrease in our RV end-market sales and a 12% decrease in MH end-market sales as a result of reduced industry wholesale unit shipments in the respective industries, as well as a 35% decrease in industrial end-market sales, and a 18% decrease in marine end-market sales.

The sales decrease in the first nine months of 2023 compared to the first nine months of 2022 was attributed to a 46% decrease in our RV end-market sales and a 19% decrease in MH end-market sales as a result of reduced industry wholesale unit shipments in the respective industries, as well as a 24% decrease in industrial end-market sales, partially offset by a 3% increase in marine end-market sales.

Net sales in the third quarter and first nine months of 2023 attributable to acquisitions completed in the first nine months of 2023 was approximately $5.7 million and $8.2 million, respectively.

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

Operating income increased $0.3 million to $87.5 million in the first quarter of 2024 compared to $87.2 million in the prior year quarter.

The overall increase in operating income in the first quarter of 2024 primarily reflects the items discussed above.

Sales increased $28.3 million, or 13%, to $238.5 million in the first quarter of 2024 compared to $210.2 million in the prior year quarter.

This segment accounted for approximately 25% and 23% of the Company’s sales for the first quarter of 2024 and 2023, respectively.

The sales increase in the first quarter of 2024 compared to the first quarter of 2023 was attributed to a 13% increase in our RV end market sales and a 25% increase in MH end market sales as a result of increases in industry wholesale unit shipments in the respective industries, partially offset by a 19% decrease in industrial end market sales, and a 14% decrease in marine end market sales.

Gross Profit.

Gross profit decreased $6.0 million, or 11%, to $50.2 million in the third quarter of 2023 from $56.2 million in the third quarter of 2022.

For the first nine months of 2023, gross profit decreased $60.7 million, or 29%, to $146.8 million from $207.5 million in the first nine months of 2022.

As a percentage of sales, gross profit increased to 22.1% in the third quarter of 2023 from 19.6% in the third quarter of 2022, and increased to 21.9% in the first nine months of 2023 from 19.8% in the first nine months of 2022.

Gross profit as a percentage of sales increased during the third quarter and first nine months of 2023 compared to the same periods in 2022 primarily due to a decrease in distribution labor as a percentage of sales, attributable to a decrease in utilization of outsourced labor, partially offset by increased material costs.

Gross profit increased $6.0 million, or 14%, to $50.1 million in the first quarter of 2024 compared to $44.1 million in the first quarter of 2023.

As a percentage of sales, gross profit was 21.0% in both periods presented, as a decrease in distribution labor as a percentage of sales, attributable to a decrease in utilization of outsourced labor, was substantially offset by increased material costs.

Operating Income.

Operating income decreased $3.2 million, or 12%, to $24.0 million in the third quarter of 2023 from $27.2 million in the prior year quarter.

For the first nine months of 2023, operating income decreased $48.6 million, or 42%, to $68.2 million from $116.8 million in the first nine months of 2022.

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

Operating income increased $5.4 million, or 30%, to $23.7 million in the first quarter of 2024 compared to $18.3 million in the prior year quarter.

The increase in operating income in the first quarter of 2024 primarily reflects the impact of increased sales and the items discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Our liquidity at October 1, 2023 consisted of cash and cash equivalents of $16.5 million and $683.1 million of availability under our credit facility.

The Company's primary sources of liquidity are cash flows from operations, which includes selling its products and collecting receivables, available cash reserves and borrowing capacity available under the 2021 Credit Facility as discussed in Note 8 "Debt" of the Notes to Condensed Consolidated Financial Statements.

Our liquidity at March 31, 2024 consisted of cash and cash equivalents of $17.6 million and $395.0 million of availability under the 2021 Credit Facility.

As of March 31, 2024, the Company's existing cash and cash equivalents, cash generated from operations, and available borrowings under its 2021 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.

Principal uses of cash are to support working capital demands, meet debt service requirements and support the Company's capital allocation strategy, which includes acquisitions, capital expenditures, dividends and repurchases of the Company’s common stock, among others.

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

In January 2024, the Company utilized available borrowing capacity under the Revolver due 2027 and cash on hand to fund its acquisition of Sportech, as discussed in Note 5 "Acquisitions" of the Notes to Condensed Consolidated Financial Statements.

As of and for the reporting period ended March 31, 2024, 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 March 31, 2024 and for the fiscal period then ended are as follows:

Required Actual

Consolidated secured net leverage ratio (12-month period) 2.75 0.95

Consolidated fixed charge coverage ratio (12-month period) 1.50 3.10

In addition, as of March 31, 2024, the Company's consolidated total net leverage ratio (12-month period) was 2.81, which is used to determine the applicable borrowing margin under the 2021 Credit Agreement.

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 was $293.8 million in the first nine months of 2023 compared to $229.8 million in the first nine months of 2022.

The change in operating cash flows is primarily attributable to a $56.1 million source of cash from working capital compared to a $170.8 million use of cash in the prior year period, partially offset by a $175.9 million reduction in net income.

Net cash provided by operating activities was $35.2 million in the first three months of 2024 compared to a $1.0 million use of cash in the first three months of 2023.

The change in operating cash flows is primarily attributable to a $27.4 million decrease in cash used for working capital compared to the prior year period and a $4.9 million increase in net income compared to the first quarter of 2023.

Investing Activities

Net cash used in investing activities decreased $133.4 million to $75.5 million in the first nine months of 2023 from $208.9 million in the first nine months of 2022 primarily due to a decrease in cash used in business acquisitions of $126.9 million.

Net cash used in investing activities increased $347.1 million to $370.7 million in the first quarter of 2024 compared to $23.6 million in the first quarter of 2023 due to an increase in cash used in business acquisitions, which were $329.6 million in the first quarter of 2024, primarily due to the acquisition of Sportech compared to $0.5 million in the first quarter of 2023.

Financing Activities

Net cash used in financing activities was $224.8 million in the first nine months of 2023 compared to $90.5 million used in the first nine months of 2022.

In the first nine 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 $173.4 million, compared to net repayments on our revolver and term loan of $3.8 million in the first nine months of 2022.

This increase in outflows was partially offset by a $34.8 million decrease in stock repurchases in the first nine months of 2023 compared to the prior year period.

Summary of Liquidity and Capital Resources

At October 1, 2023, the Company's existing cash and cash equivalents, cash generated from operations, and available borrowing capacity 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 October 1, 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 October 1, 2023 and for the fiscal period then ended are as follows:

Required Actual

Consolidated secured net leverage ratio (12-month period) 2.75 0.44

Consolidated fixed charge coverage ratio (12-month period) 1.50 2.88

In addition, as of October 1, 2023, the Company's consolidated total net leverage ratio (12-month period) was 2.50, 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.

Net cash provided by financing activities increased $309.2 million to $341.7 million in the first quarter of 2024 compared to $32.5 million the first quarter of 2023 primarily due to an increase in cash provided from net borrowings of $317.8 million under the Revolver due 2027 to fund the acquisition of Sportech.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

See Note 2, “Summary of Significant Accounting Policies” to the accompanying condensed consolidated financial statements in Item 1.

See Note 1, “Basis of Presentation and Significant Accounting Policies” to the accompanying Condensed Consolidated Financial Statements in Item 1.

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.

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

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

Accordingly, the Company’s sales and profits had generally been the highest in the

second quarter and lowest in the fourth quarter.

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

In addition, recent seasonal industry trends have been, and future trends may be, different than in prior years due to volatile economic conditions, interest rates, access to financing, cost of fuel, national and regional economic conditions and consumer confidence on retail sales of RVs and marine units and other products for which the Company sells its components, as well as fluctuations in RV and marine dealer inventories, increased volatility in demand from RV and marine dealers, the timing of dealer orders, and from time to time, the impact of severe weather conditions on the timing of industry-wide wholesale shipments.

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

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What changed 10-Q

Item 2. Management’s Discussion and Analysis