PATRICK INDUSTRIES INC 10-Q

ITEM 1. FINANCIAL STATEMENTS PATRICK INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Third Quarter Ended Nine Months Ended ($ in thousands, except per share data) September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 NET SALES $ 919,444 $ 866,073 $ 2,869,560 $ 2,686,858 Cost of goods sold 706,930 666,954 2,220,897 2,083,527 GROSS PROFIT 212,514 199,119 648,663 603,331 Operating expenses: Warehouse and delivery 37,865 37,664 114,053 109,540 Selling, general and administrative 75,783 70,873 244,617 231,814 Amortization of intangible assets 24,449 19,507 71,545 59,093 Total operating expenses 138,097 128,044 430,215 400,447 OPERATING INCOME 74,417 71,075 218,448 202,884 Interest expense, net 20,050 16,879 60,483 53,623 Income before income taxes 54,367 54,196 157,965 149,261 Income taxes 13,501 14,646 34,122 37,181 NET INCOME $ 40,866 $ 39,550 $ 123,843 $ 112,080 BASIC EARNINGS PER COMMON SHARE $ 1.88 $ 1.84 $ 5.71 $ 5.20 DILUTED EARNINGS PER COMMON SHARE $ 1.80 $ 1.81 $ 5.55 $ 5.09 Weighted average shares outstanding – Basic 21,740 21,511 21,706 21,541 Weighted average shares outstanding – Diluted 22,641 21,884 22,297 22,063 See accompanying Notes to Condensed Consolidated Financial Statements. 3 Table of Contents PATRICK INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Third Quarter Ended Nine Months Ended ($ in thousands) September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 NET INCOME $ 40,866 $ 39,550 $ 123,843 $ 112,080 Other comprehensive income (loss), net of tax: Foreign currency translation gain (loss) 43 ( 10 ) 14 ( 109 ) Total other comprehensive income (loss) 43 ( 10 ) 14 ( 109 ) COMPREHENSIVE INCOME $ 40,909 $ 39,540 $ 123,857 $ 111,971 See accompanying Notes to Condensed Consolidated Financial Statements. 4 Table of Contents PATRICK INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) As of ($ in thousands) September 29, 2024 December 31, 2023 ASSETS Current Assets: Cash and cash equivalents $ 52,606 $ 11,409 Trade and other receivables, net 255,369 163,838 Inventories 545,445 510,133 Prepaid expenses and other 59,539 49,251 Total current assets 912,959 734,631 Property, plant and equipment, net 369,342 353,625 Operating lease right-of-use assets 205,110 177,717 Goodwill 789,417 637,393 Intangible assets, net 838,941 651,153 Other non-current assets 7,184 7,929 TOTAL ASSETS $ 3,122,953 $ 2,562,448 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Current maturities of long-term debt $ 11,250 $ 7,500 Current operating lease liabilities 53,335 48,761 Accounts payable 189,274 140,524 Accrued liabilities 125,330 111,711 Total current liabilities 379,189 308,496 Long-term debt, less current maturities, net 1,377,727 1,018,356 Long-term operating lease liabilities 156,083 132,444 Deferred tax liabilities, net 68,012 46,724 Other long-term liabilities 12,461 11,091 TOTAL LIABILITIES 1,993,472 1,517,111 SHAREHOLDERS’ EQUITY Preferred shares, no par value per share, 1,000,000 shares authorized, none issued and outstanding — — Common stock, no par value per share, 40,000,000 shares authorized, 22,420,560 and 22,160,608 issued and outstanding as of September 29, 2024 and December 31, 2023, respectively 200,530 203,258 Accumulated other comprehensive loss ( 985 ) ( 999 ) Retained earnings 929,936 843,078 TOTAL SHAREHOLDERS’ EQUITY 1,129,481 1,045,337 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 3,122,953 $ 2,562,448 See accompanying Notes to Condensed Consolidated Financial Statements. 5 Table of Contents PATRICK INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended ($ in thousands) September 29, 2024 October 1, 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 123,843 $ 112,080 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 124,002 107,976 Stock-based compensation expense 14,367 13,675 Other 2,335 4,024 Change in operating assets and liabilities, net of acquisitions of businesses: Trade and other receivables, net ( 67,027 ) ( 68,114 ) Inventories 2,803 154,634 Prepaid expenses and other assets ( 3,933 ) 9,098 Accounts payable, accrued liabilities and other 27,800 ( 39,543 ) Net cash provided by operating activities 224,190 293,830 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment ( 50,264 ) ( 47,430 ) Proceeds from sale of property, plant and equipment 2,292 946 Business acquisitions, net of cash acquired ( 411,566 ) ( 26,009 ) Other investing activities ( 25,863 ) ( 2,970 ) Net cash used in investing activities ( 485,401 ) ( 75,463 ) CASH FLOWS FROM FINANCING ACTIVITIES Term debt repayments ( 3,750 ) ( 5,625 ) Borrowings on revolver 1,155,416 482,194 Repayments on revolver ( 790,416 ) ( 477,482 ) Repayments of convertible notes — ( 172,500 ) Stock repurchases under buyback program — ( 12,230 ) Cash dividends paid to shareholders ( 37,071 ) ( 30,260 ) Taxes paid for share-based payment arrangements ( 17,116 ) ( 8,762 ) Payment of contingent consideration from business acquisitions ( 4,595 ) ( 1,430 ) Proceeds from exercise of common stock options 21 1,413 Other financing activities ( 81 ) ( 82 ) Net cash provided by (used in) financing activities 302,408 ( 224,764 ) Net increase (decrease) in cash and cash equivalents 41,197 ( 6,397 ) Cash and cash equivalents at beginning of year 11,409 22,847 Cash and cash equivalents at end of period $ 52,606 $ 16,450 See accompanying Notes to Condensed Consolidated Financial Statements. 6 Table of Contents PATRICK INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) Third Quarter Ended September 29, 2024 ($ in thousands) Common Stock Accumulated Other Comprehensive Loss Retained Earnings Total Balance at June 30, 2024 $ 198,138 $ ( 1,028 ) $ 901,394 $ 1,098,504 Net income — — 40,866 40,866 Dividends declared — — ( 12,324 ) ( 12,324 ) Other comprehensive income, net of tax — 43 — 43 Repurchases of shares for tax payments related to the vesting and exercising of share-based grants ( 2,233 ) — — ( 2,233 ) Stock-based compensation expense 4,625 — — 4,625 Balance at September 29, 2024 $ 200,530 $ ( 985 ) $ 929,936 $ 1,129,481 Third Quarter Ended October 1, 2023 ($ in thousands) Common Stock Accumulated Other Comprehensive Loss Retained Earnings Total Balance at July 2, 2023 $ 196,912 $ ( 794 ) $ 801,304 $ 997,422 Net income — — 39,550 39,550 Dividends declared — — ( 10,021 ) ( 10,021 ) Other comprehensive loss, net of tax — ( 10 ) — ( 10 ) Stock repurchases under buyback program ( 54 ) — ( 406 ) ( 460 ) Repurchase of shares for tax payments related to the vesting and exercising of share-based grants ( 1,177 ) — — ( 1,177 ) Issuance of shares upon exercise of common stock options 270 — — 270 Stock-based compensation expense 5,729 — — 5,729 Balance at October 1, 2023 $ 201,680 $ ( 804 ) $ 830,427 $ 1,031,303 7 Table of Contents PATRICK INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (Continued) Nine Months Ended September 29, 2024 ($ in thousands) Common Stock Accumulated Other Comprehensive Loss Retained Earnings Total Balance at December 31, 2023 $ 203,258 $ ( 999 ) $ 843,078 $ 1,045,337 Net income — — 123,843 123,843 Dividends declared — — ( 36,985 ) ( 36,985 ) Other comprehensive loss, net of tax — 14 — 14 Repurchases of shares for tax payments related to the vesting and exercise of share-based grants ( 17,116 ) — — ( 17,116 ) Issuance of shares upon exercise of common stock options 21 — — 21 Stock-based compensation expense 14,367 — — 14,367 Balance at September 29, 2024 $ 200,530 $ ( 985 ) $ 929,936 $ 1,129,481 Nine Months Ended October 1, 2023 ($ in thousands) Common Stock Accumulated Other Comprehensive Loss Retained Earnings Total Balance at December 31, 2022 $ 197,003 $ ( 695 ) $ 758,861 $ 955,169 Net income — — 112,080 112,080 Dividends declared — — ( 29,927 ) ( 29,927 ) Other comprehensive loss, net of tax — ( 109 ) — ( 109 ) Share repurchases under buyback program ( 1,649 ) — ( 10,587 ) ( 12,236 ) Repurchases of shares for tax payments related to the vesting and exercise of share-based grants ( 8,762 ) — — ( 8,762 ) Issuance of shares upon exercise of common stock options 1,413 — — 1,413 Stock-based compensation expense 13,675 — — 13,675 Balance at October 1, 2023 $ 201,680 $ ( 804 ) $ 830,427 $ 1,031,303 See accompanying Notes to Condensed Consolidated Financial Statements. 8 Table of Contents PATRICK INDUSTRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Patrick Industries, Inc. (“Patrick”, the “Company”, "we", "our") contain all adjustments (consisting of normal recurring adjustments) that we believe are necessary to present fairly the Company’s financial position as of September 29, 2024 and December 31, 2023, its results of operations for the third quarter and nine months ended September 29, 2024 and October 1, 2023, respectively, and its cash flows for the nine months ended September 29, 2024 and October 1, 2023. Patrick's unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The accompanying unaudited condensed consolidated financial statements for Patrick do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to Patrick’s Audited Consolidated Financial Statements and corresponding notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024. The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning approximately thirteen weeks. The first quarter ends on the Sunday closest to the end of the first thirteen-week period. The second and third quarters are thirteen weeks in duration and the fourth quarter is the remainder of the year. The third quarter of fiscal year 2024 ended on September 29, 2024, and the third quarter of fiscal year 2023 ended on October 1, 2023. Reclassified Amounts Certain amounts have been reclassified in prior year financial statements to conform with current year presentation. These reclassifications are immaterial to the overall financial statements. Summary of Significant Accounting Policies A summary of significant accounting policies is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024. New Accounting Standards Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASUs”) to the FASB’s Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have an immaterial impact on the Company’s unaudited condensed consolidated financial statements. Accounting Pronouncements Not Yet Adopted In November 2023, the FASB issued ASU 2023-07, "Improvements to Reportable Segment Disclosures". This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment's profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early 9 Table of Contents adoption is also permitted. This ASU will likely result in additional required disclosures when adopted. The Company is currently evaluating this guidance to determine the impact on its disclosures; however, adoption will not otherwise impact our consolidated financial statements. In December 2023, the FASB issued ASU 2023-09, "Improvements to Income Tax Disclosures" . This ASU establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. Under the new guidance, entities must consistently categorize and provide greater disaggregation of information in the rate reconciliation. They must also further disaggregate income taxes paid. The new standard is effective for fiscal years beginning after December 15, 2024, with retrospective application permitted. The Company is currently evaluating this guidance to determine the impact on its disclosures; however, adoption will not otherwise impact our consolidated financial statements. NOTE 2. REVENUE RECOGNITION In the following table, revenue from contracts with customers, net of all intercompany sales, is disaggregated by market type and by reportable segment: Third Quarter Ended September 29, 2024 ($ in thousands) Manufacturing Distribution Total Market type: Recreational Vehicle $ 275,020 $ 121,476 $ 396,496 Marine 126,066 9,925 135,991 Powersports 84,487 2,903 87,390 Manufactured Housing 76,634 100,780 177,414 Industrial 113,319 8,834 122,153 Total $ 675,526 $ 243,918 $ 919,444 Third Quarter Ended October 1, 2023 ($ in thousands) Manufacturing Distribution Total Market type: Recreational Vehicle $ 273,804 $ 126,300 $ 400,104 Marine 162,976 8,676 171,652 Powersports 26,015 2,768 28,783 Manufactured Housing 66,671 79,030 145,701 Industrial 111,719 8,114 119,833 Total $ 641,185 $ 224,888 $ 866,073 Nine Months Ended September 29, 2024 ($ in thousands) Manufacturing Distribution Total Market type: Recreational Vehicle $ 876,170 $ 391,050 $ 1,267,220 Marine 417,485 31,499 448,984 Powersports 264,795 9,115 273,910 Manufactured Housing 223,532 284,618 508,150 Industrial 344,799 26,497 371,296 Total $ 2,126,781 $ 742,779 $ 2,869,560 10 Table of Contents Nine Months Ended October 1, 2023 ($ in thousands) Manufacturing Distribution Total Market type: Recreational Vehicle $ 780,993 $ 369,643 $ 1,150,636 Marine 604,514 31,451 635,965 Powersports 88,240 9,834 98,074 Manufactured Housing 196,179 226,919 423,098 Industrial 351,753 27,332 379,085 Total $ 2,021,679 $ 665,179 $ 2,686,858 Contract Liabilities Contract liabilities, representing upfront payments from customers received prior to satisfying performance obligations, were immaterial as of the beginning and end of all periods presented and changes in contract liabilities were immaterial during all periods presented. NOTE 3. INVENTORY Inventories consisted of the following: ($ in thousands) September 29, 2024 December 31, 2023 Raw materials $ 302,202 $ 269,786 Work in process 18,647 16,596 Finished goods 106,416 107,675 Less: reserve for inventory obsolescence ( 19,016 ) ( 15,990 ) Total manufactured goods, net 408,249 378,067 Materials purchased for resale (distribution products) 148,574 140,147 Less: reserve for inventory obsolescence ( 11,378 ) ( 8,081 ) Total materials purchased for resale (distribution products), net 137,196 132,066 Total inventories $ 545,445 $ 510,133 NOTE 4. GOODWILL AND INTANGIBLE ASSETS Changes in the carrying amount of goodwill for the nine months ended September 29, 2024 by segment are as follows: ($ in thousands) Manufacturing Distribution Total Balance at December 31, 2023 $ 560,370 $ 77,023 $ 637,393 Acquisitions 119,150 33,051 152,201 Adjustments to preliminary purchase price allocations 60 ( 237 ) ( 177 ) Balance at September 29, 2024 $ 679,580 $ 109,837 $ 789,417 11 Table of Contents Intangible assets, net consisted of the following as of September 29, 2024 and December 31, 2023: ($ in thousands) September 29, 2024 December 31, 2023 Customer relationships $ 932,939 $ 729,664 Non-compete agreements 29,846 21,561 Patents 87,674 69,401 Trademarks 226,527 197,027 Intangible assets, gross 1,276,986 1,017,653 Less: accumulated amortization ( 438,045 ) ( 366,500 ) Intangible assets, net $ 838,941 $ 651,153 Changes in the carrying value of intangible assets for the nine months ended September 29, 2024 by segment are as follows: ($ in thousands) Manufacturing Distribution Total Balance at December 31, 2023 $ 553,703 $ 97,450 $ 651,153 Additions 197,999 61,690 259,689 Amortization ( 61,428 ) ( 10,117 ) ( 71,545 ) Adjustments to preliminary purchase price allocations — ( 356 ) ( 356 ) Balance at September 29, 2024 $ 690,274 $ 148,667 $ 838,941 NOTE 5. ACQUISITIONS General Business combinations generally take place to strengthen Patrick's positions in existing markets and increase its market share and per unit content, expand into additional markets, and gain key technology. Acquisitions are accounted for under the acquisition method of accounting. For each acquisition, the excess of the purchase consideration over the fair value of the net assets acquired is recorded as goodwill, which generally represents the combined value of the Company’s existing purchasing, manufacturing, sales, and systems resources with the organizational talent and expertise of the acquired companies’ respective management teams to maximize efficiencies, market share growth and net income. The Company completed one acquisition in the third quarter of 2024 and seven acquisitions in the first nine months of 2024 (the "2024 Acquisitions"). For the third quarter and nine months ended September 29, 2024, net sales included in the Company's condensed consolidated statements of income related to the 2024 Acquisitions were $ 78.6 million and $ 216.4 million, respectively, and operating income was $ 12.3 million and $ 38.9 million, respectively. Acquisition-related costs associated with the 2024 Acquisitions were $ 5.0 million. Assets acquired and liabilities assumed in the acquisitions were recorded on the Company's condensed consolidated balance sheet at their estimated fair values as of the respective dates of acquisition. For each acquisition, the Company completes its allocation of the purchase price to the fair value of acquired assets and liabilities within a one year measurement period. The Company completed three acquisitions in the first nine months of 2023. For the third quarter and nine months ended October 1, 2023, net sales included in the Company's condensed consolidated statements of income related to the acquisitions completed in the first nine months of 2023 were $ 7.3 million and $ 9.8 million, respectively. For the third quarter and nine months ended October 1, 2023, operating losses of $ 0.1 million and operating income of $ 0.1 million, respectively, related to the acquisitions completed in the first nine months of 2023 are included in the Company's condensed consolidated statements of income. In connection with certain acquisitions, the Company is required to pay additional cash consideration if certain financial results of the acquired businesses are achieved. The Company records a liability for the estimated fair value of the contingent consideration related to each of these acquisitions as part of the initial purchase price based on the present value of the expected future cash flows and the probability of future payments at the date of acquisition. 12 Table of Contents Changes in the fair value of contingent consideration for the nine months ended September 29, 2024 are as follows: ($ in thousands) Balance at December 31, 2023 $ 8,510 Additions 3,131 Fair value adjustments (1) ( 1,900 ) Settlements ( 4,976 ) Balance at September 29, 2024 $ 4,765 (1) The Company recorded a measurement period adjustment reducing the estimated fair value of contingent consideration in connection with one of the 2023 acquisitions. The following table shows the balance sheet location of the fair value of contingent consideration and the maximum amount of contingent consideration payments the Company may be subject to as of September 29, 2024 and December 31, 2023: ($ in thousands) September 29, 2024 December 31, 2023 Accrued liabilities $ 1,694 $ 7,500 Other long-term liabilities 3,071 1,010 Total fair value of contingent consideration $ 4,765 $ 8,510 Maximum amount of contingent consideration $ 8,665 $ 8,510 2024 Acquisitions The Company completed seven acquisitions in the first nine months ended September 29, 2024, including the following previously announced acquisitions: Company Segment Description Sportech, LLC ("Sportech") Manufacturing Leading designer and manufacturer of high-value, complex component solutions sold to powersports original equipment manufacturers ("OEMs"), adjacent market OEMs and the aftermarket, including integrated door systems, roofs, canopies, bumpers, windshields, fender flares and cowls, based in Elk River, Minnesota, acquired in January 2024. ICON Direct LLC ("RecPro") Distribution Leading e-commerce business and aftermarket platform specializing in creating and marketing component products, systems, and solutions for the RV and marine end markets, based in Bristol, Indiana, acquired in September 2024 Inclusive of five acquisitions not discussed above, total cash consideration for the 2024 Acquisitions was approximately $ 411.7 million, plus working capital holdbacks and contingent consideration over a three-year period based on future performance in connection with certain acquisitions. The preliminary purchase price allocations are subject to valuation activities being finalized, and thus certain purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its estimates. 13 Table of Contents 2023 Acquisitions The Company completed three acquisitions in the year ended December 31, 2023, including the following previously announced acquisition (collectively, the “2023 Acquisitions”): Company Segment Description BTI Transport Distribution Provider of transportation and logistics services to marine OEMs and dealers, based in Elkhart, Indiana, acquired in April 2023. The acquired business operates under the Patrick Marine Transport brand. Inclusive of two acquisitions not discussed above, total cash consideration for the 2023 Acquisitions was approximately $ 26.3 million, plus contingent consideration over a two-year period based on future performance in connection with certain acquisitions. Purchase price allocations and all valuation activities in connection with the 2023 Acquisitions have been finalized. Changes to preliminary purchase accounting estimates recorded in the nine months ended September 29, 2024 related to the 2023 Acquisitions were immaterial and relate primarily to the valuation of contingent consideration and property, plant, and equipment. The following table summarizes the fair values of the assets acquired and the liabilities assumed as of the date of acquisition for the 2024 Acquisitions and 2023 Acquisitions: 2024 Acquisitions 2023 Acquisitions ($ in thousands) Sportech All Others Total Total Consideration: Cash, net of cash acquired $ 319,073 $ 92,586 $ 411,659 $ 26,294 Working capital holdback and other, net — 4,824 4,824 — Contingent consideration (1) — 3,130 3,130 1,600 Total consideration $ 319,073 $ 100,540 $ 419,613 $ 27,894 Assets Acquired: Trade receivables $ 21,588 $ 2,246 $ 23,834 $ 1,293 Inventories 21,021 17,095 38,116 4,430 Prepaid expenses & other 1,810 4,316 6,126 105 Property, plant & equipment 18,768 4,043 22,811 8,165 Operating lease right-of-use assets 15,096 1,283 16,379 1,044 Identifiable intangible assets Customer relationships 151,000 25,780 176,780 10,075 Non-compete agreements 2,000 6,445 8,445 270 Patents and developed technology 17,500 600 18,100 — Trademarks 21,500 9,000 30,500 — Liabilities Assumed: Current portion of operating lease obligations ( 1,437 ) ( 585 ) ( 2,022 ) ( 262 ) Accounts payable & accrued liabilities ( 32,145 ) ( 3,867 ) ( 36,012 ) ( 514 ) Operating lease obligations ( 13,658 ) ( 699 ) ( 14,357 ) ( 781 ) Deferred tax liabilities ( 21,288 ) — ( 21,288 ) — Total fair value of net assets acquired 201,755 65,657 267,412 23,825 Goodwill (2) 117,318 34,883 152,201 5,814 Bargain purchase gain (3) — — — ( 1,745 ) $ 319,073 $ 100,540 $ 419,613 $ 27,894 (1) These amounts reflect the acquisition date fair value of contingent consideration based on expected future results relating to certain acquisitions. 14 Table of Contents (2) Goodwill is tax-deductible for all acquisitions, except Sportech, which is only partially tax-deductible. (3) In connection with one of the 2023 Acquisitions, the Company recognized a $ 1.7 million bargain purchase gain. A bargain purchase gain is recognized when the net assets acquired in a business combination have a higher fair value than the consideration paid. This gain is primarily attributable to the fair value assigned to customer relationships in that acquisition and is included in "Selling, general, and administrative" in the consolidated statement of income for the year ended December 31, 2023 We estimate the value of acquired property, plant, and equipment using a combination of the income, cost, and market approaches, such as estimates of future income growth, capitalization rates, discount rates, and capital expenditure needs of the acquired businesses. We estimate the value of customer relationships using the multi-period excess earnings method, which is a variation of the income approach, calculating the present value of incremental after-tax cash flows attributable to the asset. Non-compete agreements are valued using a discounted cash flow approach, which is a variation of the income approach, with and without the individual counterparties to the non-compete agreements. Trademarks and patents are valued using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future cash flows, discounted to present value. The estimated useful life for customer relationships is 10 years. The estimated useful life for non-compete agreements is 5 years. The estimated useful life for patents and developed technology is 10 years. Trademarks have an indefinite useful life. Pro Forma Information The following pro forma information for the third quarter and nine months ended September 29, 2024 and October 1, 2023 assumes the 2024 Acquisitions and 2023 Acquisitions occurred as of the beginning of the year immediately preceding each such acquisition. The pro forma information contains the actual operating results of the 2024 Acquisitions and 2023 Acquisitions combined with the results prior to their respective acquisition dates, adjusted to reflect the pro forma impact of the acquisitions occurring as of the beginning of the year immediately preceding each such acquisition. The pro forma information includes financing and interest expense charges based on incremental borrowings incurred in connection with each transaction. In addition, the pro forma information includes incremental amortization expense, in the aggregate, related to intangible assets acquired in connection with the transactions of $ 0.4 million and $ 4.0 million, respectively, for the third quarter and nine months ended September 29, 2024 and $ 3.0 million and $ 12.3 million, respectively, for the third quarter and nine months ended October 1, 2023. Third Quarter Ended Nine Months Ended ($ in thousands, except per share data) September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Revenue $ 933,100 $ 955,841 $ 2,949,044 $ 2,970,700 Net income $ 42,115 $ 41,374 $ 128,829 $ 118,141 Basic earnings per common share $ 1.94 $ 1.92 $ 5.94 $ 5.48 Diluted earnings per common share $ 1.86 $ 1.89 $ 5.78 $ 5.36 The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved had the acquisitions been consummated as of the periods indicated above. 15 Table of Contents NOTE 6. STOCK-BASED COMPENSATION The Company's Board of Directors (the "Board") approved various stock-based grants under the Company’s 2009 Omnibus Incentive Plan in the nine months ended September 29, 2024 totaling 223,011 shares in the aggregate at an average fair value of $ 100.63 per share at grant date for a total fair value at grant date of $ 22.4 million. The Company recorded stock-based compensation expense, net of forfeitures, of approximately $ 4.7 million and $ 14.4 million in the third quarter and nine months ended September 29, 2024, respectively, for its stock-based compensation plans in the condensed consolidated statements of income. Stock-based compensation expense, net of forfeitures of $ 5.8 million and $ 13.7 million was recorded in the third quarter and nine months ended October 1, 2023, respectively. NOTE 7. EARNINGS PER COMMON SHARE Earnings per common share calculated for the third quarter and first nine months of 2024 and 2023 is as follows: Third Quarter Ended Nine Months Ended ($ in thousands, except per share data) September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Numerator: Earnings for basic earnings per common share calculation $ 40,866 $ 39,550 $ 123,843 $ 112,080 Effect of interest on potentially dilutive convertible notes, net of tax — — — 162 Earnings for diluted earnings per common share calculation $ 40,866 $ 39,550 $ 123,843 $ 112,242 Denominator: Weighted average common shares outstanding - basic 21,740 21,511 21,706 21,541 Weighted average impact of potentially dilutive convertible notes 554 — 340 221 Weighted average impact of potentially dilutive warrants 117 — 39 — Weighted average impact of potentially dilutive securities 230 373 212 301 Weighted average common shares outstanding - diluted 22,641 21,884 22,297 22,063 Earnings per common share: Basic earnings per common share $ 1.88 $ 1.84 $ 5.71 $ 5.20 Diluted earnings per common share $ 1.80 $ 1.81 $ 5.55 $ 5.09 An immaterial amount of securities were not included in the computation of diluted earnings per common share as they are considered anti-dilutive for the periods presented. 16 Table of Contents NOTE 8. DEBT A summary of total debt outstanding at September 29, 2024 and December 31, 2023 is as follows: ($ in thousands) September 29, 2024 December 31, 2023 Long-term debt: Term loan due 2027 $ 125,625 $ 129,375 Revolver due 2027 365,000 — 7.50 % senior notes due 2027 300,000 300,000 1.75 % convertible notes due 2028 258,750 258,750 4.75 % senior notes due 2029 350,000 350,000 Total debt 1,399,375 1,038,125 Less: convertible notes deferred financing costs, net ( 4,169 ) ( 4,917 ) Less: term loan deferred financing costs, net ( 434 ) ( 548 ) Less: senior notes deferred financing costs, net ( 5,795 ) ( 6,804 ) Less: current maturities of long-term debt ( 11,250 ) ( 7,500 ) Total long-term debt, less current maturities, net $ 1,377,727 $ 1,018,356 As of September 29, 2024, the Company maintained a senior secured credit facility comprised of a $ 775 million revolving credit facility (the "Revolver due 2027") and a $ 150 million term loan (the "Term Loan due 2027" and together with the Revolver due 2027, the "2021 Credit Facility"). During the first nine months of 2024, the Company utilized borrowing capacity under the Revolver due 2027 to fund the acquisitions of Sportech and RecPro as discussed in Note 5 "Acquisitions". The interest rate for incremental borrowings under the Revolver due 2027 as of September 29, 2024 was the Secured Overnight Financing Rate (“SOFR”) plus 1.75 % (or 6.71 %) for the SOFR-based option. The fee payable on committed but unused portions of the Revolver due 2027 was 0.225 % as of September 29, 2024. Total cash interest paid for the third quarter of 2024 and 2023 was $ 4.7 million and $ 8.1 million, respectively, and $ 44.9 million and $ 40.8 million for the comparative nine month periods, respectively. NOTE 9. FAIR VALUE MEASUREMENTS The following table presents fair values of certain assets and liabilities as of September 29, 2024 and December 31, 2023: September 29, 2024 December 31, 2023 ($ in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 7.50 % senior notes due 2027 (1) $ — $ 300.5 $ — $ — $ 303.7 $ — 4.75 % senior notes due 2029 (1) $ — $ 333.5 $ — $ — $ 320.2 $ — 1.75 % convertible notes due 2028 (1) $ — $ 392.6 $ — $ — $ 295.2 $ — Term loan due 2027 (2) $ — $ 125.6 $ — $ — $ 129.4 $ — Revolver due 2027 (2) $ — $ 365.0 $ — $ — $ — $ — Contingent consideration (3) $ — $ — $ 4.8 $ — $ — $ 8.5 (1) The amounts of these notes listed above are the current fair values for disclosure purposes only, and they are recorded in the Company's condensed consolidated balance sheets as of September 29, 2024 and December 31, 2023 using the interest rate method. (2) The carrying amounts of our Term loan due 2027 and Revolver due 2027 approximate fair value as of September 29, 2024 and December 31, 2023 based upon their terms and conditions in comparison to the terms and conditions of debt instruments with similar terms and conditions available at those dates. (3) The estimated fair value of the Company's contingent consideration is discussed further in Note 5 "Acquisitions". 17 Table of Contents NOTE 10. INCOME TAXES The effective tax rate in the third quarter of 2024 and 2023 was 24.8 % and 27.0 %, respectively, and the effective tax rate for the comparable nine month periods was 21.6 % and 24.9 %, respectively. The first nine months of 2024 and 2023 tax rates include the impact of the recognition of excess tax benefits on share-based compensation that was recorded as a reduction to income tax expense in the amount of $ 6.7 million and $ 2.3 million, respectively. Cash paid for income taxes, net of refunds, was $ 18.2 million and $ 37.4 million in the third quarter and first nine months of 2024, respectively, and $ 16.9 million and $ 65.9 million in the third quarter and first nine months of 2023, respectively. NOTE 11. SEGMENT INFORMATION Financial results for the Company's reportable segments have been prepared using a management approach, which is consistent with the basis and manner in which financial information is evaluated by the Company's CODM in allocating resources and in assessing performance. The Company has two reportable segments, Manufacturing and Distribution. The operating results of the operating segments are regularly reviewed by the Company’s CODM, the Chief Executive Officer, to assess the performance of the individual operating segments and to make decisions about resources to be allocated to the operating segments. The Company does not measure profitability at the customer end market (RV, marine, powersports, MH and industrial) level. The following table presents a reconciliation of segment sales and operating income to consolidated net sales and operating income: Third Quarter Ended Nine Months Ended ($ in thousands) September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Segment net sales: Manufacturing $ 685,296 $ 659,493 $ 2,139,598 $ 2,072,599 Distribution 239,135 226,859 747,269 671,764 Eliminations (1) ( 4,987 ) ( 20,279 ) ( 17,307 ) ( 57,505 ) Consolidated net sales $ 919,444 $ 866,073 $ 2,869,560 $ 2,686,858 Operating income for reportable segments: Manufacturing $ 86,429 $ 80,777 $ 282,631 $ 263,146 Distribution 23,400 24,026 77,278 68,172 Unallocated corporate expenses ( 10,963 ) ( 14,221 ) ( 69,916 ) ( 69,341 ) Amortization ( 24,449 ) ( 19,507 ) ( 71,545 ) ( 59,093 ) Consolidated operating income $ 74,417 $ 71,075 $ 218,448 $ 202,884 (1) Eliminations in the third quarter and nine months ended September 29, 2024 includes only the elimination of inter-segment transactions. Unallocated corporate expenses include corporate general and administrative expenses comprised of wages and other compensation, insurance, taxes, supplies, travel and entertainment, professional fees, acquisition-related transaction costs, amortization of inventory step-up adjustments, and other. 18 Table of Contents The following table presents an allocation of total assets to the reportable segments of the Company and a reconciliation to consolidated total assets: ($ in thousands) September 29, 2024 December 31, 2023 Manufacturing assets $ 2,467,214 $ 2,071,500 Distribution assets 540,664 426,931 Assets for reportable segments 3,007,878 2,498,431 Corporate assets unallocated to segments 62,469 52,608 Cash and cash equivalents 52,606 11,409 Consolidated total assets $ 3,122,953 $ 2,562,448 NOTE 12. STOCK REPURCHASE PROGRAMS In December 2022, the Board authorized an increase in the amount of the Company's common stock that may be acquired over the next 24 months under the current stock repurchase program to $ 100 million, which includes $ 38.2 million remaining under the previous authorization. Approximately $ 77.6 million remains available for common stock repurchases under the current stock repurchase program as of September 29, 2024. Under the stock repurchase plan, the Company made repurchases of common stock as follows for the respective periods: Third Quarter Ended Nine Months Ended ($ in millions, except average price data) September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Shares repurchased — 6,184 — 185,993 Average price $ — $ 74.43 $ — $ 65.79 Aggregate cost $ — $ 0.5 $ — $ 12.2 NOTE 13. COMMITMENTS AND CONTINGENCIES The Company is subject to proceedings, lawsuits, audits, and other claims arising in the normal course of business. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. Accruals for these items, when applicable, have been provided to the extent that losses are deemed probable and are reasonably estimable. These accruals are adjusted from time to time as developments warrant. Although the ultimate outcome of these matters cannot be ascertained, on the basis of present information, amounts already provided, availability of insurance coverage and legal advice received, it is the opinion of management that the ultimate resolution of these proceedings, lawsuits, and other claims will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows. In the Company's Form 10-K for the year ended December 31, 2023, the Company described the current status of litigation concerning the Lusher Site Remediation Group. In early July 2023, the Court granted the Company’s Rule 54(b) Motion for Final Judgment on previously dismissed claims and granted the Company’s Motion to Dismiss the plaintiff’s remaining claims against the defendants, without prejudice (the Company’s Motion to Dismiss having been joined by the remaining defendants in the litigation.) The only remaining issue pending in the litigation for the Court’s determination is the plaintiff’s motion to bar contribution claims. The Company has also been named as a potentially responsible party for the related Lusher Street Groundwater Contamination Superfund Site (the "Superfund Site") by the U.S. Environmental Protection Agency (the "EPA"). There has been no change in the status of the proceedings as described in the 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024. The Company does not currently believe that the litigation or the Superfund Site matter are likely to have a material adverse impact on its financial condition, results of operations, or cash flows. However, any litigation is inherently uncertain, the EPA has yet to select a final remedy for the Superfund Site, and any judgment or injunctive relief entered against us or any adverse settlement could materially and adversely impact our business, results of operations, financial condition, and prospects. 19 Table of Contents NOTE 14. SUBSEQUENT EVENTS 2024 Credit Facility On October 24, 2024, the Company entered into the Fifth Amended and Restated Credit Agreement dated October 24, 2024 (the “2024 Credit Agreement”), under which the 2021 Credit Facility was increased to $ 1.0 billion from $ 925.0 million and the maturity date was extended to October 24, 2029 from August 20, 2027. The credit facility under the 2024 Credit Agreement (the "2024 Credit Facility") is comprised of an $ 875.0 million revolving credit facility (the "Revolver due 2029") and a $ 125.0 million term loan (the "Term Loan due 2029"). Under the terms of the 2024 Credit Agreement, the covenant requiring the Company to have a consolidated fixed charge coverage ratio of not more than 1.5 to 1.0 was replaced with a covenant requiring the Company to have an interest coverage ratio (the ratio of Consolidated EBITDA to Consolidated Interest Expense, as defined in the 2024 Credit Agreement) of not less than 3.0 to 1.0 tested on a quarterly basis. 6.375 % Senior Notes due 2032 On October 22, 2024, the Company issued $ 500.0 million in aggregate principal amount of 6.375 % senior notes due November 1, 2032 (the “ 6.375 % Senior Notes”) in a transaction pursuant to Rule 144A under the Securities Act. The proceeds from the issuance were utilized to redeem all of the Company's $ 300.0 million aggregate principal amount of 7.50 % Senior Notes due 2027 (the “ 7.50 % Senior Notes”) on November 7, 2024, to repay a portion of the Company’s borrowings under its existing senior secured credit facility and pay fees and expenses in connection with the foregoing. Interest on the 6.375 % Senior Notes is payable semi-annually on May 1 and November 1 of each year to holders of record at the close of business on April 15 and October 15 immediately preceding the interest payment date. 7.50 % Senior Notes due 2027 On November 7, 2024, the Company redeemed all of its outstanding $ 300.0 million aggregate principal amount of its 7.50 % Senior Notes. 1.75 % Convertible Notes due 2028 On September 30, 2024, subsequent to the end of the Company’s fiscal third quarter of 2024, the conversion feature of the 1.75 % Convertible Senior Notes due 2028 (the “ 1.75 % Convertible Notes”) was triggered as the last reported price of our common stock was more than or equal to 130 % of the conversion price (or $ 128.66 ) for at least 20 trading days in the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter ended September 30, 2024. Therefore, the 1.75 % Convertible Notes are convertible, in whole or in part, at the option of the holders from October 1, 2024 to December 31, 2024. Whether the 1.75 % Convertible Notes will be convertible following such period will depend on the continued satisfaction of this condition or another conversion condition in the future. We had not received any conversion notices from the triggering date of the conversion feature through the issuance date of our unaudited Condensed Consolidated Financial Statements of November 7, 2024. The Company has the intent and ability to utilize available borrowing capacity under the Revolver due 2029 to satisfy any cash conversion obligations that it may have, should holders choose to exercise their conversion rights during the period noted above. 20 Table of Contents