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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-08 · 155 added, 121 removed, 104 unchanged (73% of the section changed)

6 unchanged sentences

OVERVIEW OF MARKETS AND RELATED INDUSTRY PERFORMANCE

Second Quarter and Six Months 2024 Financial Overview

Third Quarter and Nine Months Ended 2024 Financial Overview

Recreational Vehicle ("RV") Industry

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.

The RV industry is our primary market and comprised 43% and 44% of the Company's net sales in the third quarter and nine months ended September 29, 2024, respectively, and 46% and 43% in the third quarter and nine months ended October 1, 2023, respectively.

Net sales to the RV industry in the third quarter and nine months ended September 29, 2024 decreased 1% and increased 10%, respectively, compared to the prior year periods.

According to the RV Industry Association ("RVIA"), RV wholesale unit shipments in the third quarter of 2024 totaled approximately 77,800 units, an increase of 6% from approximately 73,300 units in the third quarter of 2023.

While we estimate RV industry retail unit sales in the third quarter of 2024 decreased by approximately 8% compared to the third quarter of 2023, we estimate that industry retail unit sales exceeded wholesale unit shipments in the third quarter of 2024 as RV OEMs maintained lower production volumes.

RV wholesale unit shipments for the first nine months of 2024 totaled approximately 256,400 units, an increase of 8% from approximately 238,100 units, compared to the first nine months of 2023.

While we estimate RV industry retail unit sales in the first nine months of 2024 decreased by approximately 10% compared to the first nine months of 2023, we estimate that industry retail unit sales exceeded wholesale unit shipments which resulted in improved alignment of dealer inventory levels with current retail demand.

Marine Industry

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 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.

Net sales to the marine industry comprised 15% and 16% of the Company's net sales in the third quarter and nine months ended September 29, 2024, respectively, and 20% and 24% in the third quarter and nine months ended October 1, 2023, respectively.

Net sales to the marine industry in the third quarter and nine months ended September 29, 2024 decreased 21% and 29%, respectively, compared to the prior year periods.

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

Our marine revenue is generally correlated to marine industry wholesale powerboat unit shipments.

According to Company estimates based on data published by the National Marine Manufacturers Association ("NMMA"), wholesale powerboat unit shipments decreased 23% and 27% in the third quarter and first nine months of 2024, respectively, compared to the prior year periods.

We estimate that marine industry retail powerboat unit sales decreased 8% in both the third quarter and first nine months of 2024, respectively, 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

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

Through acquisitions completed in recent 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 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.

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 204% in the third quarter ended September 29, 2024 compared to the prior year quarter, representing 10% and 3% of the Company's consolidated net sales in the respective periods.

Net sales to the powersports industry increased 179% in the first nine months of 2024 compared to the prior year period, representing 9% and 3% of the Company's consolidated net sales in the respective periods.

The increases in net sales for these periods are primarily attributable to the Company's acquisition of Sportech in January 2024.

Manufactured Housing ("MH") Industry

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.

Net sales to the MH industry comprised 19% and 18% of the Company's net sales in the third quarter and nine months ended September 29, 2024, respectively, and 17% and 16% in the third quarter and nine months ended October 1, 2023, respectively.

Net sales to the MH industry in the third quarter and the first nine months of September 29, 2024 increased 22% and 20%, respectively, compared to the prior year periods.

According to Company estimates based on industry data from the Manufactured Housing Institute, MH industry wholesale unit shipments increased 17% in both the third quarter and first nine months of 2024 compared to the prior year periods, 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 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.

Net sales to the industrial market comprised 13% of the Company's net sales in both the third quarter and nine months ended September 29, 2024, and 14% in both the third quarter and nine months ended October 1, 2023.

Net sales to the industrial market in the third quarter and the first nine months of September 29, 2024 increased 2% and decreased 2%, respectively, compared to the prior year periods.

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

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According to the U.S.

Census Bureau, combined new housing starts decreased 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%.

Census Bureau, combined new housing starts decreased 3% in the third quarter of 2024 compared to the prior year quarter, reflecting decreases in multifamily housing starts and single-family housing starts of 11% and 1%, respectively.

For the first nine months of 2024, combined new housing starts decreased 3% compared to the prior year period, reflecting a decrease in multifamily housing starts of 29%, partially offset by an increase in single-family housing starts of 10%.

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

Second Quarter and Six Months Ended June 30, 2024 Compared to 2023

Third Quarter and Nine Months Ended September 29, 2024 Compared to Third Quarter and Nine Months Ended October 1, 2023

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

Second Quarter Ended

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

Third Quarter Ended Amount Change % Change

($ in thousands) September 29, 2024 October 1, 2023

Net sales $ 919,444 100.0 % $ 866,073 100.0 % $ 53,371 6 %

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Net income $ 40,866 4.4 % $ 39,550 4.6 % $ 1,316 3 %

Six Months Ended

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

Nine Months Ended Amount Change % Change

($ in thousands) September 29, 2024 October 1, 2023

Net sales $ 2,869,560 100.0 % $ 2,686,858 100.0 % $ 182,702 7 %

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Net income $ 123,843 4.3 % $ 112,080 4.2 % $ 11,763 10 %

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 $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.

Net sales in the third quarter of 2024 increased $53.3 million, or 6%, to $919.4 million compared to $866.1 million in the third quarter of 2023.

Net sales in the third quarter of 2024 increased due to increased sales to the powersports, MH and industrial markets, partially offset by decreased sales to the marine and RV markets.

Sales to the powersports market increased $58.6 million, or 204%, compared to the prior year quarter, primarily attributable to the Company’s acquisition of Sportech in the first quarter of 2024.

Sales to the MH market increased $31.7 million, or 22%, compared to the prior year quarter, primarily due to an increase in estimated wholesale MH industry unit shipments of approximately 17%.

Sales to the industrial market increased $2.3 million, or 2%, 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.

Sales to the marine market decreased $35.7 million, or 21%, primarily attributable to a decrease in estimated wholesale units of 23% compared to the prior year quarter.

The Company's sales to the RV market decreased $3.6 million, or 1%, to $396.5 million in the third quarter of 2024 from $400.1 million in the third quarter of 2023, resulting from decreased production by our RV OEM customers.

Net sales in the first nine months of 2024 increased $182.7 million, or 7%, to $2.87 billion from $2.69 billion in the first nine months of 2023.

Net sales in the first nine months of 2024 increased due to increased sales to the powersports, RV and MH markets, partially offset by decreased sales to the marine and industrial markets.

Sales to the powersports

market increased $175.8 million, or 179%, in the first nine months of 2024 compared to the first nine months of 2023, primarily attributable to the Company’s acquisition of Sportech in the first quarter of 2024.

Sales to the RV market increased $116.6 million, or 10%, compared to the first nine months of 2023, due to industry volume growth.

Sales to the MH market increased $85.1 million, or 20%, compared to the first nine months of 2023, primarily due to an increase in estimated wholesale MH industry unit shipments of approximately 17%.

Sales to the marine market decreased $187.0 million, or 29%, compared to the first nine months of 2023, primarily attributable to a decrease in estimated wholesale units of 27% compared to the first nine months of 2023.

Sales to the industrial market decreased $7.8 million, or 2%, compared to the first nine months of 2023.

Revenue attributable to acquisitions completed in the first nine months of 2024 was $78.6 million and $216.4 million in the third quarter and the first nine months of 2024, respectively.

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 the first nine months of 2023, respectively.

Cost of Goods Sold.

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.

Cost of goods sold increased $39.9 million, or 6%, to $706.9 million in the third quarter of 2024 compared to $667.0 million in the third quarter of 2023.

As a percentage of net sales, cost of goods sold decreased 10 basis points in the third quarter of 2024 to 76.9% compared to 77.0% in the third quarter of 2023.

Cost of goods sold as a percentage of net sales decreased in the third quarter of 2024 primarily as a result of acquisitions completed in 2023 and 2024 which had a positive impact on material costs, partially offset by increased manufacturing overhead and labor costs, resulting from different cost profiles of acquired businesses.

The decrease in cost of goods sold as a percentage of net sales in the third quarter of 2024 primarily reflected a 100 basis point decrease in materials as a percentage of net sales, partially offset by increases of 70 and 20 basis points in overhead and labor, respectively.

Cost of goods sold increased $137.4 million, or 7%, to $2.22 billion in the first nine months of 2024 from $2.08 billion in the first nine months of 2023.

As a percentage of net sales, cost of goods sold decreased 10 basis points in the first nine months of 2024 to 77.4% compared to 77.5% in the first nine months of 2023.

Cost of goods sold as a percentage of net sales decreased in the first nine months of 2024 primarily as a result of continued cost reduction and automation initiatives we deployed throughout 2023 and into 2024 that had a positive impact on material and labor costs, partially offset by increased manufacturing overhead costs, resulting from different cost profiles of acquired businesses.

The decrease in cost of goods sold as a percentage of net sales in the first nine months of 2024 primarily reflected decreases in materials and labor costs of 40 and 20 basis points, respectively, partially offset by increased overhead cost of 50 basis points.

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 $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".

Gross profit increased $13.4 million, or 7%, to $212.5 million in the third quarter of 2024 compared to $199.1 million in the prior year period.

As a percentage of net sales, gross profit increased 10 basis points to 23.1% in the first nine months of 2024 compared to 23.0% in the prior year period.

Gross profit increased $45.4 million, or 8%, to $648.7 million in the first nine months of 2024 compared to $603.3 million in the prior year period.

As a percentage of net sales, gross profit increased 10 basis points to 22.6% in the first nine months of 2024 compared to 22.5% 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 2024 compared to the same periods in 2023 reflects the impact of the factors discussed above under "Cost of Goods Sold".

Warehouse and Delivery Expenses .

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.

Warehouse and delivery expenses increased $0.2 million, or 1%, to $37.9 million in the third quarter of 2024 compared to $37.7 million in the third quarter of 2023.

As a percentage of net sales, warehouse and delivery expenses decreased 20 basis points to 4.1% in third quarter of 2024 compared to 4.3% the third quarter of 2023.

Warehouse and delivery expenses increased $4.6 million, or 4%, to $114.1 million in the first nine months of 2024 compared to $109.5 million in the first nine months of 2023.

As a percentage of net sales, warehouse and delivery expenses decreased 10 basis points to 4.0% in the first nine months of 2024 compared to 4.1% in the first nine months of 2023.

The increase in warehouse and delivery expenses in the third quarter and first nine months of 2024 compared to the same periods in 2023 is primarily attributable to the increase in sales, and the decrease as a percentage of net sales is primarily attributable to the fixed nature of certain expenses.

Selling, General and Administrative ("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.

SG&A expenses increased $4.9 million, or 7%, to $75.8 million in the third quarter of 2024 compared to $70.9 million in the prior year quarter.

The increase in SG&A expenses in the third quarter of 2024 compared to the prior year quarter is primarily related to increased professional fees and insurance expenses, partially offset by decreased wages and incentive compensation.

In the third quarter of 2024, SG&A expenses as a percentage of net sales of 8.2%, remained flat compared to the third quarter of 2023.

SG&A expenses increased $12.8 million, or 6%, to $244.6 million in the first nine months of 2024 compared to $231.8 million in the prior year period.

The increase in SG&A expenses in the first nine months of 2024 compared to 2023 is primarily attributable to $5.0 million of transaction costs associated with the acquisition of Sportech, increased technology expenses, wages and incentive compensation, partially offset by decreased insurance expenses.

As a percentage of net sales, SG&A expenses decreased 10 basis points to 8.5% in the first nine months of 2024 compared to 8.6% in the first nine months of 2023.

The decrease in SG&A expenses as a percentage of net sales in the first nine months of 2024 compared to the prior year period is primarily attributable to increased net sales and the fixed-cost nature of certain SG&A expenses.

Amortization of Intangible Assets.

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.

Amortization of intangible assets increased $4.9 million, or 25%, to $24.4 million in the third quarter of 2024 compared to $19.5 million in the prior year quarter.

Amortization of intangible assets increased $12.4 million, or 21%, to $71.5 million in the first nine months of 2024 compared to $59.1 million in the prior year period.

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

Operating Income.

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.

Operating income increased $3.3 million, or 5%, to $74.4 million in the third quarter of 2024 compared to $71.1 million in the third quarter of 2023.

As a percentage of net sales, operating income decreased 10 basis points to 8.1% in the third quarter of 2024 compared to 8.2% in the same period in 2023.

The increase in operating income is primarily attributable to increased net sales and the items discussed above.

The decrease to operating income as a percentage of net sales is primarily attributable to the items discussed above.

For the first nine months of 2024, operating income increased $15.5 million, or 8%, to $218.4 million from $202.9 million in the first nine months of 2023.

Operating income as a percentage of net sales was 7.6% in both the first nine months of 2024 and the first nine months of 2023.

The increase in operating income is primarily attributable to increased net sales and the items discussed above.

Interest Expense, Net.

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.

Interest expense increased $3.2 million, or 19%, to $20.1 million in the third quarter of 2024 compared to $16.9 million in the prior year quarter.

Interest expense increased $6.9 million, or 13%, to $60.5 million in the first nine months of 2024 from $53.6 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 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.

Income tax expense decreased $1.1 million in the third quarter of 2024 to $13.5 million compared to $14.6 million in the prior year quarter.

Income tax expense decreased $3.1 million in the first nine months of 2024 to $34.1 million compared to $37.2 million in the prior year period.

The effective tax rates were 24.8% and 21.6% in the third quarter and first nine months of 2024, respectively, and 27.0% and 24.9% in the third quarter and first nine months of 2023, respectively.

The decrease in income tax expense in the third quarter and first nine months of 2024 compared to the same periods in 2023 is primarily related to increased excess tax benefits on share-based compensation.

SEGMENT REPORTING

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

Second Quarter and Six Months Ended June 30, 2024 Compared to 2023

Third Quarter and Nine Months Ended September 29, 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 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

Third Quarter Ended Amount Change % Change

($ in thousands) September 29, 2024 October 1, 2023

Manufacturing $ 685,296 $ 659,493 $ 25,803 4%

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Distribution $ 23,400 $ 24,026 $ (626) (3)%

Six Months Ended

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

Nine Months Ended Amount Change % Change

($ in thousands) September 29, 2024 October 1, 2023

Manufacturing $ 2,139,598 $ 2,072,599 $ 66,999 3%

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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.

Manufacturing segment sales increased $25.8 million, or 4%, to $685.3 million in the third quarter of 2024 compared to $659.5 million in the prior year quarter.

For the first nine months of 2024, sales increased $67.0 million, or 3%, to $2.14 billion compared to $2.07 billion in the prior year period.

The manufacturing segment accounted for approximately 74% of the Company’s sales for both the third quarter of 2024 and 2023, and 74% of the Company's sales for both the first nine months of 2024 and 2023.

Manufacturing segment sales in the third quarter of 2024 compared to the prior year quarter increased due to increased sales to the powersports, MH and industrial markets, partially offset by decreased sales to the marine market.

Sales to the powersports market increased 225% compared to the prior year quarter, primarily attributable to the Company’s acquisition of Sportech in the first quarter of 2024.

Sales to the MH market increased 15% compared to the prior year quarter, primarily due to an increase in estimated wholesale MH industry unit shipments of approximately 17%.

Sales to the industrial market increased 1% 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.

Sales to the marine market decreased 23%, primarily attributable to a decrease in estimated wholesale units of 23% compared to the prior year quarter.

Manufacturing segment sales in the first nine months of 2024 compared to the same prior year period increased due to increased sales to the powersports, RV and MH markets, partially offset by decreased sales to the marine and industrial markets.

Sales to the powersports market increased 200% in the first nine months of 2024, compared to the first nine months of 2023, primarily attributable to the Company’s acquisition of Sportech in the first quarter of 2024.

Sales to the RV market increased 12% compared to the first nine months of 2023, due to industry volume growth.

Sales to the MH market increased 14% compared to the first nine months of 2023, primarily due to an increase in estimated wholesale MH industry unit shipments of approximately 17%.

Sales to the marine market decreased 31% compared to the first nine months of 2023, primarily attributable to a decrease in estimated wholesale unit shipments of 27% compared to the first nine months of 2023.

Sales to the industrial market decreased 2% compared to the first nine months of 2023.

Manufacturing segment sales attributable to acquisitions completed in the first nine months of 2024 were $73.9 million and $211.7 million in the third quarter and the first nine months of 2024, respectively.

Gross Profit .

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.

Manufacturing segment gross profit increased $9.6 million, or 7%, to $153.8 million in the third quarter of 2024 compared to $144.2 million in the third quarter of 2023.

As a percentage of sales, gross profit increased 50 basis points to 22.4% in the third quarter of 2024 compared to 21.9% in the prior year quarter.

The increase in gross profit as a percentage of sales in the third quarter of 2024 compared to the same quarter in 2023 is attributable to decreased manufacturing overhead costs, partially offset by increased material and labor costs.

Manufacturing segment gross profit increased $27.9 million, or 6%, to $488.7 million in the first nine months of 2024 compared to $460.8 million in the first nine months of 2023.

As a percentage of sales, gross profit increased 60 basis points to 22.8% in the first nine months of 2024 compared to 22.2% in the prior year period.

The increase in gross profit as a percentage of sales in the first nine months of 2024 compared to the same period in 2023 is attributable to decreased material and labor costs as a percentage of sales, partially offset by increased manufacturing overhead costs as a percentage of sales.

Operating Income.

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.

Operating income increased $5.6 million to $86.4 million in the third quarter of 2024 compared to $80.8 million in the prior year quarter.

For the first nine months of 2024, operating income increased $19.5 million, or 7%, to $282.6 million compared to $263.1 million in the first nine months of 2023.

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

Sales increased $12.2 million, or 5%, to $239.1 million in the third quarter of 2024 compared to $226.9 million in the prior year quarter.

For the first nine months of 2024, sales increased $75.5 million, or 11%, to $747.3 million compared to $671.8 million in the prior year period.

This segment accounted for approximately 26% of the Company’s

sales for the third quarter of 2024 and 2023, and 26% and 24% of the Company's sales for the first nine months of 2024 and 2023, respectively.

Distribution segment sales in the third quarter of 2024 compared to the third quarter of 2023 increased due to increased sales to the MH, marine, industrial and powersports markets, partially offset by decreased sales to the RV market.

Sales to the MH market increased 28% compared to the prior year quarter, primarily due to an increase in estimated wholesale MH industry unit shipments of approximately 17%.

Sales to the marine market increased 14% compared to the prior year quarter, primarily attributable to product mix shifts by certain customers.

Sales to the industrial market increased 9% when compared to the prior year quarter, primarily reflecting market share gains and an increase in housing starts in the prior two quarters given the timing at which our products are installed in relation to housing starts.

Sales to the powersports market increased 5%, compared to the prior year quarter, primarily attributable to the Company’s acquisition of Sportech in the first quarter of 2024.

Sales to the RV market decreased 4% when compared to the prior year quarter primarily due to decreased production by our RV OEM customers.

Distribution segment sales in the first nine months of 2024 compared to the first nine months of 2023 increased due to increased sales to the MH and RV markets, partially offset by decreased sales to the industrial and powersports markets.

Sales to the MH market increased 25% compared to the first nine months of 2023, primarily due to an increase in estimated wholesale MH industry unit shipments of approximately 17%.

Sales to the RV market increased 6% compared to the first nine months of 2023, due to industry wholesale volume growth.

Sales to the industrial market decreased 3% compared to the first nine months of 2023, primarily reflect product mix shifts by certain customers.

Sales to the powersports market decreased 7% in the first nine months of 2024 compared to the first nine months of 2023, primarily attributable to product mix shifts by certain customers.

Distribution segment sales attributable to acquisitions completed in the first nine months of 2024 were approximately $4.7 million in both the third quarter and first nine months of 2024.

Gross Profit.

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.

Distribution segment gross profit increased $3.0 million, or 6%, to $53.2 million in the third quarter of 2024 compared to $50.2 million in the third quarter of 2023.

As a percentage of sales, gross profit increased 20 basis points to 22.3% in the third quarter of 2024 compared to 22.1% in the prior year quarter.

The increase in gross profit as a percentage of sales in the third quarter of 2024 compared to the same quarter in 2023 is attributable to decreased material costs as a percentage of sales, partially offset by increased labor costs as a percentage of sales.

Distribution segment gross profit increased $14.6 million, or 10%, to $161.4 million in the first nine months of 2024 compared to $146.8 million in the first nine months of 2023.

As a percentage of sales, gross profit decreased 30 basis points to 21.6% in the first nine months of 2024 compared to 21.9% in the prior year period primarily due to different cost profiles of acquired businesses.

Operating Income.

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.

Operating income decreased $0.6 million, or 3%, to $23.4 million in the third quarter of 2024 compared to $24.0 million in the prior year quarter.

For the first nine months of 2024, operating income increased $9.1 million, or 13%, to $77.3 million compared to $68.2 million in the first nine months of 2023.

The changes in operating income in the third quarter and first nine months of 2024 reflect the impact of 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 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.

The Company's primary sources of liquidity are cash flows from operation, 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 as of September 29, 2024 consisted of cash and cash equivalents of $52.6 million and $405.0 million of availability under the 2021 Credit Facility, net of $5 million of outstanding letters of credit.

Subsequent to the end of the third quarter of 2024, we expanded our access to capital and reduced our cost of debt by issuing $500.0 million in aggregate principal amount of 6.375% senior notes due 2032 (the “6.375% Senior Notes”).

The proceeds from the issuance were utilized to redeem all $300.0 million aggregate principal amount of the Company’s 7.50% Senior Notes due 2027 (the “7.50% Senior Notes”), to repay a portion of the Company’s borrowings under its existing senior secured credit facility and pay related fees and expenses, as discussed in Note 14 "Subsequent Events" to our Condensed Consolidated Financial Statements.

As of September 29, 2024, the Company's existing cash and cash equivalents, cash generated from operations, and available borrowings under the 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 the Company's 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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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 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:

In the first nine months of 2024, the Company utilized available borrowing capacity under the Revolver due 2027 and cash on hand to fund the acquisitions of Sportech and ICON Direct LLC ("RecPro"), as discussed in Note 5 "Acquisitions" of the Notes to Condensed Consolidated Financial Statements.

As of and for the reporting period ended September 29, 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 September 29, 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 3.55

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.

In addition, as of September 29, 2024, the Company's consolidated total net leverage ratio (12-month period) was 2.65, 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 $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.

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 certain non-cash items and changes in operating assets and liabilities.

Net cash provided by operating activities was $224.2 million in the first nine months of 2024 compared to $293.8 million in the first nine months of 2023.

The decrease in operating cash flows is primarily attributable to a $40.4 million use of cash for working capital, net of business acquisitions, compared to a $56.1 million source of cash in the prior year period, partially offset by a $11.7 million increase in net income and a $16.0 million increase in depreciation and amortization compared to the first nine months of 2023.

Investing Activities:

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.

Net cash used in investing activities increased $409.9 million to $485.4 million in the first nine months of 2024 compared to $75.5 million in the first nine months of 2023 due to an increase in cash used in business acquisitions, which were $411.6 million in the nine months of 2024, primarily due to the acquisitions of Sportech and RecPro, compared to $26.0 million in the first nine months of 2023.

Financing Activities:

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.

Net cash provided by financing activities was $302.4 million in the first nine months of 2024 compared to $224.8 million use of cash in the first nine months of 2023 primarily due to an increase in cash provided from net borrowings of $365.0 million under the Revolver due 2027 to fund the acquisitions of Sportech and RecPro.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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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