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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-09 · 136 added, 91 removed, 89 unchanged (72% of the section changed)

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OVERVIEW OF MARKETS AND RELATED INDUSTRY PERFORMANCE

First Quarter 2024 Financial Overview

Second Quarter and Six Months 2024 Financial Overview

Recreational Vehicle ("RV") Industry

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.

The RV industry is our primary market and comprised 44% and 42% of the Company’s consolidated net sales in the second quarter ended June 30, 2024 and July 2, 2023, respectively, and 44% and 41% for the comparative six month periods, respectively.

Net sales to the RV industry increased 17% and 16% in the second quarter and first six months of 2024, respectively, compared to the prior year periods.

According to the RV Industry Association ("RVIA"), RV wholesale shipments increased 7% in the second quarter of 2024 to approximately 92,700 units compared to approximately 86,200 units in the second quarter of 2023.

While we estimate RV industry retail unit sales for second quarter of 2024 decreased approximately 10% compared to the second quarter of 2023, we estimate that industry retail sales exceeded wholesale unit shipments in the second quarter of 2024 as RV OEMs maintained lower production volumes.

RV wholesale unit shipments for the first six months of 2024 totaled approximately 178,600 units, an increase of 8% from approximately 164,800 units in the comparative prior year period.

We estimate that despite a 11% decrease in RV industry retail unit sales for the first six months of 2024 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 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.

Net sales to the marine industry, which represented approximately 16% and 25% of the Company's consolidated net sales in the second quarter ended June 30, 2024 and July 2, 2023, respectively, decreased 30% in the second quarter of 2024 compared to the prior year quarter.

For the first six months of 2024 and 2023, net sales to the marine industry represented 16% and 26% of our consolidated net sales, respectively, decreasing 33% in the first six months 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.

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 27% for the second quarter and decreased 29% for the first six months of 2024 compared to the prior year periods.

We estimate that marine industry retail powerboat unit sales decreased 10% in the second quarter and decreased 9% in the first six months of 2024 compared to the prior year periods primarily due to the current macroeconomic environment faced by the end consumer, such as economic uncertainty and higher interest rates.

Powersports Industry

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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.

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 185% in the second quarter ended June 30, 2024 compared to the prior year quarter, representing 10% and 4% of the Company's consolidated net sales in the respective periods.

Net sales to the powersports industry increased 169% in the first six months of 2024 compared to the prior year period, representing 10% and 4% of the Company's consolidated net sales in the respective periods.

The increases in net sales for these periods are primarily attributable to the acquisition of Sportech.

Manufactured Housing ("MH") Industry

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.

Net sales to the MH industry, which represented 17% and 16% of the Company’s consolidated net sales in the second quarter ended June 30, 2024 and July 2, 2023, respectively, increased 21% in the second quarter of 2024 compared to the prior year quarter.

MH net sales represented 17% and 15% of the Company's consolidated net sales for the first six months ended June 30, 2024 and July 2, 2023, respectively, and increased 19% in the first six months ended June 30, 2024 compared to the first six months of 2023.

Based on industry data from the Manufactured Housing Institute, MH industry wholesale unit shipments increased by approximately 19% and 17% in the second quarter and first six months 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 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.

Net sales to this market represented 13% of our consolidated net sales in the second quarter ended June 30, 2024 and July 2, 2023, and remained flat in the second quarter ended June 30, 2024 compared to the prior year period.

Industrial net sales represented 13% and 14% of the Company's net sales in the first six months ended June 30, 2024 and July 2, 2023, respectively, and decreased 4% in the first six months ended June 30, 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 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.

Census Bureau, combined new housing starts decreased 7% in the second quarter of 2024 compared to the prior year quarter, with single-family housing starts increasing 7%, and multifamily housing starts decreasing 34% for the same period.

For the first six months of 2024, combined new housing starts decreased 3% compared to the prior year period, with single family housing starts increasing 16% and multifamily housing starts decreasing 35%.

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

First Quarter Ended March 31, 2024 Compared to 2023

Second Quarter and Six Months Ended June 30, 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.

First Quarter Ended

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

Second Quarter Ended

($ in thousands) June 30, 2024 July 2, 2023 Amount Change % Change

Net sales $ 1,016,624 100.0 % $ 920,685 100.0 % $ 95,939 10 %

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Net income $ 47,884 4.7 % $ 42,357 4.6 % $ 5,527 13 %

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.

Six Months Ended

($ in thousands) June 30, 2024 July 2, 2023 Amount Change % Change

Net sales $ 1,950,116 100.0 % $ 1,820,785 100.0 % $ 129,331 7 %

Cost of goods sold 1,513,967 77.6 % 1,416,573 77.8 % 97,394 7 %

Gross profit 436,149 22.4 % 404,212 22.2 % 31,937 8 %

Warehouse and delivery expenses 76,188 3.9 % 71,876 3.9 % 4,312 6 %

Selling, general and administrative expenses 168,834 8.7 % 160,941 8.8 % 7,893 5 %

Amortization of intangible assets 47,096 2.4 % 39,586 2.2 % 7,510 19 %

Operating income 144,031 7.4 % 131,809 7.2 % 12,222 9 %

Interest expense, net 40,433 2.1 % 36,744 2.0 % 3,689 10 %

Income taxes 20,621 1.1 % 22,535 1.2 % (1,914) (8) %

Net income $ 82,977 4.3 % $ 72,530 4.0 % $ 10,447 14 %

Net sales in the second quarter of 2024 increased $95.9 million, or 10%, to $1.02 billion compared to $920.7 million in the second quarter of 2023.

Net sales in the second 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 $66.2 million, or 17%, in the quarter resulting from an increase in production by our RV OEM customers.

Marine market sales decreased $68.7 million, or 30%, attributable to a 27% wholesale shipment decline compared to the prior year quarter.

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.

Powersports market sales increased $67.4 million, or 185%, compared to the prior year quarter, primarily due to the acquisition of Sportech.

MH market sales increased $30.6 million, or 21% compared to the prior year quarter, primarily due to an increase in industry wholesale unit volumes of approximately 19%.

Industrial market sales increased $0.4 million, or 0.3% 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.

Net sales in the first six months of 2024 increased $129.3 million, or 7%, to $1.95 billion from $1.82 billion in the first six months of 2023.

Net sales in the first six months of 2024 increased as a result of an increase in RV and MH market

sales due to industry volume growth along with growth in powersports market sales due to the acquisition of Sportech in January 2024, partially offset by industry volume declines in our marine end market when compared to 2023.

The Company's RV market sales increased 16%, marine market sales decreased 33%, powersports market sales increased 169%, MH market sales increased 19% and industrial market sales decreased 4% in the first six months of 2024 when compared to the prior year period.

Revenue attributable to acquisitions completed in the first six months of 2024 was $79.6 million in the second quarter of 2024 and $137.7 million for the first six months of 2024.

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

Cost of Goods Sold.

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.

Cost of goods sold increased $74.6 million, or 10%, to $785.3 million in the second quarte r of 2024 compared to $710.7 million in the second quarter of 2023.

As a percentage of net sales, cost of goods sold remained flat during the second quarter of 2024 at 77.2% compared to the second quarter of 2023.

Cost of goods sold increased $97.4 million, or 7%, to $1.51 billion in the first six months of 2024 from $1.42 billion in the first six months of 2023.

As a percentage of net sales, cost of goods sold decreased 20 basis points during the first six months of 2024 to 77.6% from 77.8% in the prior year period.

Cost of goods sold as a percentage of net sales remained flat in the second quarter of 2024 primarily as a result of a 40 basis point decrease in labor as a percentage of net sales, offset by a 40 basis point increase in material costs as a percentage of net sales.

For the first six months of 2024, cost of goods sold decreased 20 basis points as a result of a 10 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 40 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 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".

Gross profit increased $21.3 million, or 10%, to $231.3 million in the second quarter of 2024 compared to $210.0 million in the prior year period.

As a percentage of net sales, gross profit remained flat during the second quarter of 2024 at 22.8%.

Gross profit increased $31.9 million, or 8%, to $436.1 million in the first six months of 2024 compared to $404.2 million in the prior year period.

As a percentage of net sales, gross profit increased 20 basis points to 22.4% in the first six months of 2024 compared to 22.2% in the prior year period.

Gross profit as a percentage of net sales was unchanged in the second quarter of 2024 compared to the same period in 2023 and increased 20 basis points for the first six months of 2024 compared to the prior year period, reflecting the items discussed above in "Cost of Goods Sold".

Warehouse and Delivery Expenses .

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.

Warehouse and delivery expenses increased $2.7 million, or 8%, to $38.7 million in the second quarter of 2024 compared to $36.0 million in the second quarter of 2023.

As a percentage of net sales, warehouse and delivery expenses were 3.8% and 3.9%, respectively, in the second quarter periods presented.

Warehouse and delivery expenses increased $4.3 million, or 6%, to $76.2 million in the first six months of 2024 from $71.9 million in the first six months of 2023.

As a percentage of net sales, warehouse and delivery expenses remained flat during the first six months of 2024 at 3.9% compared to the prior year period.

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

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.

SG&A expenses increased $5.1 million, or 6%, to $83.6 million in the second quarter of 2024 compared to $78.5 million in the prior year quarter.

As a percentage of net sales, SG&A expenses were 8.2% in the second quarter of 2024 compared to 8.5% in the second quarter of 2023.

The increase in SG&A expenses in the second quarter of 2024 compared to 2023 is primarily attributed to increases in wages and incentive compensation, while the decrease in SG&A expenses as a percentage of net sales reflects the increase in net sales combined with the fixed nature of certain expenses.

SG&A expenses increased $7.9 million, or 5%, to $168.8 million in the first six months of 2024 from $160.9 million in the prior year quarter.

As a percentage of net sales, SG&A expenses were 8.7% in the first six months of 2024 compared

to 8.8% in the first six months of 2023.

The increase in SG&A expenses in the first six months of 2024 compared to 2023 is primarily attributed to the $5.0 million of transaction costs associated with the acquisition of Sportech.

Amortization of Intangible Assets.

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.

Amortization of intangible assets increased $4.5 million, or 22%, to $24.3 million in the second quarter of 2024 compared to $19.8 million in the prior year quarter.

Amortization of intangible assets increased $7.5 million, or 19%, to $47.1 million in the first six months of 2024 from $39.6 million in the prior year period.

The increases in the second quarter and first six months of 2024 compared to the comparable prior year periods primarily reflect the impact of the Sportech acquisition as well as the acquisitions completed in 2023.

Operating Income.

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.

Operating income increased $9.1 million, or 12%, to $84.7 million in the second quarter of 2024 compared to $75.6 million in 2023.

As a percentage of net sales, operating income increased 10 basis points to 8.3% in the second quarter of 2024 compared to 8.2% in the same period in 2023.

For the first six months of 2024, operating income increased $12.2 million, or 9%, to $144.0 million from $131.8 million in the same period in 2023.

As a percentage of net sales, operating income increased 20 basis points to 7.4% in the first six months of 2024 versus 7.2% 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 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.

Interest expense increased $2.0 million, or 11%, to $20.3 million in the second quarter of 2024 compared to $18.3 million in the prior year quarter.

Interest expense increased $3.7 million, or 10%, to $40.4 million in the first six months of 2024 from $36.7 million in the prior year period.

These increases primarily reflect higher debt levels and higher interest rates on our term loan and revolver balances.

Income Taxes.

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

Our MD&A includes financial metrics, such as RV, marine and MH content per unit, which we believe are important measures of the Company's business performance.

Content per unit metrics are generally calculated using our market sales divided by Company estimates of industry unit volume, which are derived from third-party industry data.

These metrics should not be considered alternatives to U.S.

Our computations of content per unit may differ from similarly titled measures used by others.

These metrics should not be considered in isolation or as substitutes for an analysis of our results as reported under U.S.

Income tax expense increased $1.5 million in the second quarter of 2024 to $16.5 million compared to $15.0 million in the prior year quarter.

Income tax expense decreased $1.9 million in the first six months of 2024 to $20.6 million from $22.5 million in the prior year period.

The increase in income taxes in the second quarter of 2024 compared to the prior year quarter relates primarily to the increase in income before income taxes, and the decrease in income tax expense in the first six months of 2024 compared to the prior year period 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 $5.6 million compared to $1.8 million excess tax benefits on share-based compensation in the first six months of 2023, partially offset by the increase in income before income taxes.

SEGMENT REPORTING

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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

Second Quarter and Six Months Ended June 30, 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.

The table below presents information about the sales, gross profit and operating income of the Company’s reportable segments.

A reconciliation of consolidated operating income is presented in Note 11 "Segment Information" of the Notes to Condensed Consolidated Financial Statements.

First Quarter Ended

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

A reconciliation of consolidated net sales and operating income is presented in Note 11 "Segment Information" of the Notes to Condensed Consolidated Financial Statements.

Second Quarter Ended

($ in thousands) June 30, 2024 July 2, 2023 Amount Change % Change

Manufacturing $ 774,231 $ 704,291 $ 69,940 10%

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Distribution $ 30,158 $ 25,840 $ 4,318 17%

Six Months Ended

($ in thousands) June 30, 2024 July 2, 2023 Amount Change % Change

Manufacturing $ 1,488,741 $ 1,413,106 $ 75,635 5%

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.

Distribution $ 503,739 $ 444,905 $ 58,834 13%

Manufacturing $ 334,918 $ 316,655 $ 18,263 6%

Distribution $ 108,189 $ 96,599 $ 11,590 12%

Operating Income

Manufacturing $ 196,202 $ 182,369 $ 13,833 8%

Distribution $ 53,878 $ 44,146 $ 9,732 22%

Manufacturing

Sales increased $69.9 million, or 10%, to $774.2 million in the second quarter of 2024 compared to $704.3 million in the prior year quarter.

For the first six months of 2024, sales increased $76 million, or 5%, to $1.49 billion from $1.41 billion in the prior year period.

The manufacturing segment accounted for approximately 74% of the Company’s sales for the second quarter of 2024 and 2023.

The sales increase in the second quarter of 2024 compared to 2023 was attributed to sales increases in the Company's RV, powersports and MH end markets, partially offset by a sales decrease in the marine end market.

For the second quarter of 2024 compared to the same prior year period, the Company's RV end market sales increased 21%, the marine end market sales decreased 32%, the powersports end market sales increased 207%, the MH end market sales increased 19% and industrial end market sales were flat.

For the first six months of 2024 compared to the same prior year period, the Company's RV end market sales increased 19%, the marine end market sales decreased 34%, the powersports end market sales increased 190%, the MH end market sales increased 13% and industrial end market sales decreased 4%.

Net sales in the second quarter and first six months of 2024 attributable to acquisitions completed in the first six months of 2024 were approximately $79.6 million and $137.7 million, respectively, and there were no acquisitions completed in the first six months of 2023.

Gross Profit .

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.

Gross profit increased $17.1 million, or 11%, to $178.7 million in the second quarter of 2024 compared to $161.6 million in the second quarter of 2023.

For the first six months of 2024, gross profit increased $18.2 million, or 6%, to $334.9 million compared to $316.7 million in the first six months of 2023.

As a percentage of sales, gross profit increased to 23.1% in the second quarter of 2024 compared to 22.9% in the second quarter of 2023, and was 22.5% in the first six months of 2024 compared to 22.4% in the first six months of 2023.

The increase in gross profit as a percentage of sales in the second quarter of 2024 compared to the same quarter in 2023 is attributable to decreases in labor as a percentage of sales.

Gross profit as a percentage of sales increased during the first six months of 2024 compared to first six months of 2023 due to decreases in manufacturing material and labor costs as a percentage of sales, partially offset by an increase in manufacturing overhead as a percentage of sales.

Operating Income.

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.

Operating income increased $13.6 million to $108.8 million in the second quarter of 2024 compared to $95.2 million in the prior year quarter.

For the first six months of 2024, operating income increased $13.8 million, or 8%, to $196.2 million compared to $182.4 million in the first six months of 2023.

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

Sales increased $30.5 million, or 13%, to $265.2 million in the second quarter of 2024 compared to $234.7 million in the prior year quarter.

For the first six months of 2024, sales increased $58.8 million, or 13%, to $503.7 million compared to $444.9 million in the prior year period.

This segment accounted for approximately 26% of the Company’s sales for the second quarter of 2024 and 2023, and 25% and 24% of the Company's sales for the first six months of 2024 and 2023, respectively.

The sales increase in the second quarter of 2024 compared to the second quarter of 2023 was attributed to a 9% increase in our RV end market sales, a 2% increase in marine end market sales, a 24% increase in MH end market sales, and a 4% increase in industrial end market sales, partially offset by a 9% decrease in powersports end market sales.

The sales increase in the first six months of 2024 compared to the first six months of 2023 was attributed to a 11% increase in our RV end market sales and a 24% increase in MH end market sales as a result of increases in industry wholesale unit shipments in the respective industries, partially offset by an 8% decrease in industrial end market sales, a 5% decrease in marine end market sales, and a 12% decrease in powersports end market sales.

Gross Profit.

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.

Gross profit increased $5.6 million, or 11%, to $58.1 million in the second quarter of 2024 compared to $52.5 million in the second quarter of 2023.

For the first six months of 2024, gross profit increased $11.6 million, or 12%, to $108.2 million compared to $96.6 million in the first six months of 2023.

As a percentage of sales, gross profit was 21.9% and 21.5%, respectively, in the second quarter and first six months of 2024 compared to 22.4% and 21.7%, respectively, in the second quarter and first six months of 2023, as increases in material costs as a percentage of sales were partially offset by decreases in distribution labor as a percentage of sales, attributable to a decrease in utilization of outsourced labor.

Operating Income.

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.

Operating income increased $4.4 million, or 17%, to $30.2 million in the second quarter of 2024 compared to $25.8 million in the prior year quarter.

For the first six months of 2024, operating income increased $9.8 million, or 22%, to $53.9 million compared to $44.1 million in the first six months of 2023.

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

LIQUIDITY AND CAPITAL RESOURCES

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.

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 revolving credit and term loan facility (the “2021 Credit Facility”) as discussed in Note 8 "Debt" of the Notes to Condensed Consolidated Financial Statements.

Our liquidity at June 30, 2024 consisted of cash and cash equivalents of $44.0 million and $475.0 million of availability under the 2021 Credit Facility.

As of June 30, 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.

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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:

As of and for the reporting period ended June 30, 2024, the Company was in compliance with its financial covenants as required under the terms of the credit agreement that established the 2021 Credit Facility (the “2021 Credit Agreement”).

The required maximum consolidated secured net leverage ratio and the required minimum consolidated fixed charge coverage ratio, as such ratios are defined in the 2021 Credit Agreement, compared to the actual amounts as of June 30, 2024 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 3.34

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.

In addition, as of June 30, 2024, the Company's consolidated total net leverage ratio (12-month period) was 2.62, 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 $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.

Net cash provided by operating activities was $172.7 million in the first six months of 2024 compared to $178.4 million in the first six months of 2023.

The decrease in operating cash flows is primarily attributable to a $3.3 million use of cash for working capital compared to a $23.4 million source of cash in the prior year period, partially offset by a $10.5 million increase in net income and a $10.3 million increase in depreciation and amortization compared to the first six months of 2023.

Investing Activities

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.

Net cash used in investing activities increased $321.3 million to $386.8 million in the first six months of 2024 compared to $65.5 million in the first six months of 2023 due to an increase in cash used in business acquisitions, which were $330.7 million in the first six months of 2024, primarily due to the acquisition of Sportech, compared to $26.8 million in the first six months of 2023.

Financing Activities

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.

Net cash provided by financing activities was $246.7 million in the first six months of 2024 compared to $101.7 million use of cash in the first six months of 2023 primarily due to an increase in cash provided from net borrowings of $352.8 million under the Revolver due 2027 to fund the acquisition of Sportech.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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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 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.

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 to 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.

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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