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Item 7. Management’s Discussion and Analysis

2025-02-20 compared with 2024-02-29 · 114 added, 145 removed, 114 unchanged (69% of the section changed)

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In addition, this MD&A contains certain statements relating to future results that are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.

See “Information Concerning Forward-Looking Statements” on page 3 of this Report.

See “Information Concerning Forward-Looking Statements” on page 3 of this Report and Part I, Item 1A.

"Risk Factors" for a discussion of risks and uncertainties.

Patrick’s results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 along with components of change compared to the prior year that have been omitted under this item can be found in Part II, Item 7.

"Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024.

EXECUTIVE SUMMARY

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Recreational Vehicle ("RV") Industry

The RV industry is our primary market and comprised 43% of the Company’s consolidated net sales in 2023 .

Net sales to the RV industry decreased 42% in 2023 compared to 2022.

Following a dealer inventory restocking in the first half of 2022, OEMs dramatically reduced production in the second half of 2022 and throughout 2023 as retail demand decreased and dealer inventory needs decreased, with the OEMs demonstrating operating discipline to maintain a balanced inventory channel for the long-term health and stability of the industry.

According to the RV Industry Association (“RVIA”), wholesale industry unit shipments totaled approximately 313,200 units in 2023, a decrease of 37% compared to approximately 493,300 units in 2022.

RV industry retail unit sales totaled approximately 377,500 units in 2023, a decrease of 15% compared to 2022 retail unit sales of approximately 446,300 units according to Statistical Surveys, Inc.

The RV industry is our primary market and comprised 44% and 43% of the Company’s consolidated net sales for the years ended December 31, 2024 and 2023, respectively.

Net sales to the RV industry increased 8% for the year ended December 31, 2024 compared to 2023.

Following a dealer inventory restocking in the first half of 2024, OEMs reduced production slightly in the second half of 2024 as retail demand decreased, with dealers managing inventory levels and the OEMs demonstrating operating discipline to maintain a balanced inventory channel for the long-term health and stability of the industry.

According to the RV Industry Association (“RVIA”), RV industry wholesale unit shipments totaled approximately 333,700 units in 2024, an increase of 7% from approximately 313,200 units in 2023.

According to Statistical Surveys, Inc.

("SSI"), RV industry retail unit sales totaled approximately 352,700 units in 2024, a decrease of 7% from approximately 380,700 units in 2023.

Marine Industry

Net sales to the marine industry, which represented approximately 27% of the Company's consolidated net sales in 2023, decreased 11% in 2023 compared to 2022.

Our marine revenue is generally correlated to marine wholesale powerboat unit shipments, which decreased 2% to approximately 192,300 units in 2023 compared to approximately 196,500 units in 2022, according to Company estimates based on data published by the National Marine Manufacturers Association ("NMMA").

Estimated marine retail powerboat shipments totaled approximately 178,100 units in 2023 , a decrease of 5% compared to 2022 retail powerboat shipments of approximately 188,100 units, according to SSI as economic uncertainty and higher interest rates impacted demand.

Net sales to the marine industry comprised approximately 15% and 23% of the Company's consolidated net sales for the years ended December 31, 2024 and 2023, respectively.

Net sales to the marine industry in the year ended December 31, 2024 decreased 27% compared to 2023.

The decrease in net sales to the marine industry was in line with the decrease in wholesale powerboat unit shipments.

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

According to Company estimates based on data published by the National Marine Manufacturers Association ("NMMA"), wholesale powerboat unit shipments totaled approximately 143,900 units in 2024, a decrease of 25% compared to 192,300 units in 2023.

According to SSI, we estimate marine retail powerboat shipments totaled approximately 165,000 units in 2024, a decrease of 8% from approximately 179,500 units in 2023.

Powersports Industry

Through acquisitions completed in recent years, the Company entered the powersports end market.

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 disclosed in Note 2 "Revenue Recognition" of the Notes to Consolidated Financial Statements included herein.

Net sales to the powersports industry comprised approximately 10% and 4% of the Company's consolidated net sales for the years ended December 31, 2024 and 2023, respectively.

Net sales to the powersports industry increased 189% during the year ended December 31, 2024 compared to 2023.

The increase in net sales for this period is primarily attributable to the Company's acquisition of Sportech in January 2024.

Manufactured Housing ("MH") Industry

Net sales to the MH industry, which represented 16% of the Company’s consolidated net sales in 2023 , decreased 19% in 2023 compared to 2022.

Net sales to the MH industry comprised approximately 18% and 16% of the Company's consolidated net sales for the years ended December 31, 2024 and 2023, respectively.

Net sales to the MH industry increased 20% during the year ended December 31, 2024 compared to 2023.

MH sales are generally correlated to MH industry wholesale unit shipments.

Based on industry data from the Manufactured Housing Institute, MH wholesale industry unit shipments totaled 89,200 units in 2023 , a decrease of 21% compared to 2022 MH wholesale industry unit shipments of 112,900 units.

Demand for MH units in 2023 was impacted by a decrease in housing affordability caused by elevated interest rates and higher raw material costs.

According to Company estimates based on industry data from the Manufactured Housing Institute, MH industry wholesale unit shipments totaled approximately 103,300 units in 2024, an increase of 16% compared to 89,200 units in 2023, 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 the solid surface countertop industry, kitchen cabinet industry, high-rise, hospitality, retail and commercial fixtures market, office and household furniture market and regional distributors.

Net sales to this market represented 14% of our consolidated net sales in 2023 , decreasing 14% in 2023 compared to 2022.

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

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

Combined new housing starts decreased 9% in 2023 compared to 2022, with single family housing starts decreasing 6% and multifamily residential starts decreasing 14% for the same period.

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 the industrial market comprised approximately 13% and 14% of the Company's consolidated net sales for the years ended December 31, 2024 and 2023, respectively.

Net sales to the industrial market decreased 1% during the year ended December 31, 2024 compared to 2023.

Overall, our revenues in these markets are focused on residential and multifamily housing, hospitality, high-rise housing and office,

commercial construction and institutional furniture markets.

We estimate that approximately 75% to 85% of our industrial business is directly tied to the residential housing market, with the remaining industrial sales tied to the non-residential and commercial markets.

During the year ended December 31, 2024, combined new housing starts decreased 4% compared to 2023, reflecting a decrease in multifamily housing starts of 25%, partially offset by an increase in single-family housing starts of 6%.

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.

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Year Ended December 31, $

Change % Change

($ in thousands) 2024 2023

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Year Ended December 31, 2024 Compared to 2023

Net sales in 2023 decreased approximately $1.41 billion, or 29%, to $3.47 billion from $4.88 billion in 2022.

The decrease was attributable to a 42% decrease in net sales to our RV end market, a 11% decrease in net sales to our marine end market, a 19% decrease in net sales to our MH end market, and a 14% decrease in net sales to our industrial end market.

Net sales in 2024 increased approximately $247.6 million, or 7%, to $3.72 billion compared to $3.47 billion in 2023.

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

The Company's sales to the powersports market increased $230.3 million, or 189%, in 2024 compared to 2023, primarily attributable to the Company’s acquisition of Sportech in the first quarter of 2024.

Sales to the RV market increased $121.9 million, or 8%, to $1.63 billion in 2024 compared to $1.50 billion in 2023, due to industry volume growth and the Company’s acquisition of ICON Direct LLC which does business as RecPro (“RecPro”) in the third quarter of 2024.

Sales to the MH market increased $113.9 million, or 20%, to $682.1 million in 2024 compared to $568.2 million in 2023, primarily due to an increase in estimated MH industry wholesale unit shipments of approximately 16%.

Sales to the marine market decreased $211.9 million, or 27%, to $570.7 million in 2024 compared to $782.6 million in 2023 primarily attributable to a decrease in estimated powerboat wholesale unit shipments of 25% compared to 2023.

Sales to the industrial market decreased $6.5 million, or 1%, compared to 2023.

In 2024 and 2023 , net sales attributable to acquisitions completed in each of those years was $295.7 million and $17.7 million , respectively.

The Company’s RV content per wholesale unit for 2023 decreased 9% to $4,800 from $5,257 in 2022.

The Company's marine powerboat content per wholesale unit for 2023 decreased 5% to $4,803 from $5,032 in 2022.

The Company's MH content per wholesale unit for 2023 increased 2% to $6,372 in 2023 from $6,243 in 2022.

Cost of Goods Sold.

Cost of goods sold decreased $1.14 billion, or 30%, to $2.69 billion in 2023 from $3.82 billion in 2022.

As a percentage of net sales, cost of goods sold decreased 90 basis points during 2023 to 77.4% from 78.3% in 2022.

Cost of goods sold as a percentage of net sales decreased for 2023 compared to 2022 primarily as a result of (i) continued cost reduction and automation initiatives we deployed throughout 2022 and 2023 that positively impacted overall costs, (ii) improved labor efficiencies as a result of investment in human capital and improved retention rates, (iii) synergies and different cost profiles from acquisitions completed in 2023 and 2022 and (iv) changes in certain commodity prices, partially offset by reduced sales volumes resulting in less favorable fixed cost absorption when compared to the prior year periods.

For 2023, these factors contributed to a 50-basis point decrease in labor as a percentage of net sales and a 330-basis point decrease in materials cost as a percentage of net sales, partially offset by a 300-basis point increase in overhead as a percentage of net sales due to lower sales volumes.

Cost of goods sold increased $194.0 million, or 7%, to $2.88 billion in 2024 compared to $2.69 billion in 2023.

As a percentage of net sales, cost of goods sold increased 10-basis points during 2024 to 77.5% compared to 77.4% in 2023.

Cost of goods sold as a percentage of net sales increased in 2024 compared to 2023 primarily as a result of a 50-basis point increase in overhead as a percentage of net sales due to higher research and development costs, partially offset by a 40-basis point decrease in labor as a percentage of net sales.

In general, the Company's cost of goods sold percentage can be impacted from period-to-period by demand changes in certain market sectors that can result in fluctuating costs of certain raw materials and commodity-based components that are utilized in production.

Gross Profit.

Gross profit decreased $277.7 million or 26%, to $782.2 million in 2023 from $1,059.9 million in 2022.

As a percentage of net sales, gross profit increased to 22.6% in 2023 from 21.7% in 2022.

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

Economic or industry-wide factors affecting the profitability of our RV, marine, MH and industrial businesses include the costs of commodities and supply chain constraints and the labor used to manufacture our products, the competitive

environment and the impact of different gross margin profiles of acquired companies, all of which can cause gross margins to fluctuate from quarter-to-quarter and year-to-year.

Gross profit increased $53.7 million or 7%, to $835.9 million in 2024 compared to $782.2 million in 2023.

As a percentage of net sales, gross profit decreased to 22.5% in 2024 compared to 22.6% in 2023.

The decrease in gross profit as a percentage of net sales in 2024 compared to 2023 reflects the impact of the factors discussed above under “Cost of Goods Sold”.

Economic or industry-wide factors affecting the profitability of our sales to the RV, marine, powersports, MH and industrial markets include the costs of commodities and supply chain constraints and the labor used to manufacture our products, the competitive environment and the impact of different gross margin profiles of acquired companies, all of which can cause gross margins to fluctuate from quarter-to-quarter and year-to-year.

Warehouse and Delivery Expenses.

Warehouse and delivery expenses decreased $19.1 million, or 12%, to $143.9 million in 2023 from $163.0 million in 2022.

As a percentage of net sales, warehouse and delivery expenses were 4.1% in 2023 and 3.3% in 2022.

The decrease in warehouse and delivery expenses is attributable to the decrease in sales, and the increase as a percentage of net sales is primarily attributed to the fixed nature of certain expenses such as personnel wages, building charges, fleet expense, insurance, and depreciation among others as well as a decrease in load efficiency.

Warehouse and delivery expenses increased $11.9 million, or 8%, to $155.8 million in 2024 compared to $143.9 million in 2023.

As a percentage of net sales, warehouse and delivery expenses increased 10 basis points to 4.2% in 2024 compared to 4.1% in 2023.

The increase in warehouse and delivery expenses in 2024 compared to 2023 is primarily attributable to the increase in sales, and the increase as a percentage of net sales is primarily related to an increase in certain expenses that are fixed in nature, including fleet and insurance expenses.

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

SG&A expenses decreased $28.1 million, or 9%, to $299.4 million in 2023 from $327.5 million in 2022.

SG&A expenses increased $26.3 million, or 9%, to $325.8 million in 2024 compared to $299.4 million in 2023.

As a percentage of net sales, SG&A expenses were 8.8% in 2024 and 8.6% in 2023.

The decrease in SG&A expenses in 2023 compared to 2022 is primarily due to lower variable expenses, such as commissions, associated with the decrease in net sales.

The increase in SG&A expenses as a percentage of net sales is primarily a result of the fixed nature of certain other expenses such as wages, payroll taxes, stock compensation, and insurance, as well as an increase in software and technology expenses.

The increase in SG&A expenses in 2024 compared to 2023 is primarily due to increased wages, $5.0 million of transaction costs associated with the acquisition of Sportech, increased technology expenses and the $2.5 million write-off of deferred financing costs due to early payment debt, partially offset by decreased incentive compensation and insurance expenses.

The increase in SG&A expenses as a percentage of net sales in 2024 compared to 2023 is primarily attributable to the Sportech acquisition-related costs, increased technology expenses and deferred financing costs write-off mentioned above, partially offset by decreased incentive compensation, wages and insurance expenses.

Additionally, certain 2023 and 2024 acquisitions operate with comparatively higher SG&A as a percentage of sales when compared to the consolidated percentage.

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Amortization of intangible assets increased $17.6 million, or 22%, in 2024 compared to 2023.

The increase in 2023 compared to 2022 reflects the impact of intangible assets of businesses acquired in 2023 and 2022.

The increase in 2024 compared to 2023 primarily reflect the impact of the Sportech acquisition as well as other acquisitions completed in 2024 and 2023.

Operating Income.

Operating income decreased $236.0 million, or 48%, to $260.2 million in 2023 from $496.2 million in 2022.

Operating income decreased $2.2 million, or 1%, to $258.0 million in 2024 compared to $260.2 million in 2023.

Operating income in 2024 and 2023 included $47.2 million and $1.0 million, respectively, from the businesses acquired in each respective year.

Operating income as a percentage of net sales decreased 270 basis points to 7.5% in 2023 from 10.2% in 2022.

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

Operating income as a percentage of net sales decreased 60 basis points to 6.9% in 2024 compared to 7.5% in 2023.

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

Interest Expense, Net.

Interest expense, net, increased $8.2 million, or 13%, to $68.9 million in 2023 from $60.8 million in 2022.

The increase in interest expense is primarily attributable to the increase in interest rates on our debt subject to variable interest rates and the repayment of our 1.00% Convertible Senior Notes due 2023 (the “1.00% Convertible Notes”) in February 2023, with borrowings under our revolving credit facility (the "Revolver due 2027") which has a comparatively higher interest rate, partially offset by lower average debt levels compared to 2022.

Interest expense, net, increased $10.5 million, or 15%, to $79.5 million in 2024 compared to $68.9 million in 2023.

The increase primarily reflects interest associated with the issuance of our 6.375% Senior Notes due 2032 (the “6.375% Senior Notes”) in October 2024, higher debt levels and higher interest rates on our term loan and revolver balances.

Income Taxes.

Income tax expense decreased $58.9 million, or 55%, to $48.4 million in 2023 from $107.2 million in 2022 as a result of the decrease in pre-tax income and an increase in the effective tax rate.

Income tax expense decreased $8.2 million, or 17%, to $40.2 million in 2024 compared to $48.4 million in 2023 as a result of the decrease in pre-tax income and a decrease in the effective tax rate.

For 2024, the effective tax rate was 22.5% compared to 25.3% in 2023.

The increase in the effective tax rate in 2023 was mostly attributable to an increased impact from stock compensation Section 162(m) permanent addback.

See our Form 10-K for the year ended December 31, 2022 for a discussion of our consolidated operating results for the year ended December 31, 2022 compared to 2021.

Use of Financial Metrics

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

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

These metrics should not be considered alternatives to accounting principles generally accepted in the United States of America ("U.S.

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

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

The decrease in the effective tax rate in 2024 is primarily related to increased excess tax benefits on share-based compensation.

BUSINESS SEGMENTS

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

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

• Manufacturing – This segment includes the following products:

laminated products that are utilized to produce furniture, shelving, walls, countertops and cabinet products;

cabinet doors;

fiberglass bath fixtures and tile systems;

hardwood furniture;

vinyl printing;

RV and marine furniture;

audio systems and accessories, including amplifiers, tower speakers, soundbars, and subwoofers;

decorative vinyl and paper laminated panels;

solid surface, granite, and quartz countertop fabrication;

fabricated aluminum products;

fiberglass and plastic components;

fiberglass bath fixtures and tile systems;

softwoods lumber;

custom cabinetry;

polymer-based and other flooring;

electrical systems components including instrument and dash panels;

wrapped vinyl, paper and hardwood profile mouldings;

interior passage doors;

air handling products;

slide-out trim and fascia;

thermoformed shower surrounds;

specialty bath and closet building products;

fiberglass and plastic helm systems and components products;

treated, untreated and laminated plywood;

wiring and wire harnesses;

adhesives and sealants;

boat towers, tops, trailers and frames;

marine hardware and accessories;

protective covers for boats, RVs, aircraft, and military and industrial equipment;

aluminum and plastic fuel tanks;

CNC molds and composite parts;

slotwall panels and components;

and other products.

• Distribution – This segment includes the distribution of pre-finished wall and ceiling panels;

drywall and drywall finishing products;

electronics and audio systems components;

marine accessories and components;

wiring, electrical and plumbing products;

fiber reinforced polyester products;

cement siding;

raw and processed lumber;

interior passage doors;

roofing products;

laminate and ceramic flooring;

shower doors;

fireplaces and surrounds;

interior and exterior lighting products;

and other miscellaneous products in addition to providing transportation and logistics services.

The Company does not measure profitability at the

end market (RV, marine, powersports, MH and industrial) level.

See Notes 17 "Segment Information" of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K for additional details.

Net sales pertaining to the manufacturing and distribution segments as stated in the table below and in the following discussions include intersegment sales.

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Year Ended December 31, $

Change % Change

($ in thousands) 2024 2023

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Manufacturing

Sales decreased $1.03 billion, or 28%, to $2.65 billion in 2023 from $3.68 billion in 2022.

This segment accounted for approximately 75% of the Company’s consolidated net sales in 2023 compared to approximately 74% of the Company's consolidated net sales in 2022.

The sales decrease reflects decreased net sales across all of our end markets.

In 2023 and 2022, net sales attributable to acquisitions completed in each of those periods was approximately $3.6 million and $121.3 million, respectively.

Manufacturing sales increased $103.2 million, or 4%, to $2.76 billion in 2024 compared to $2.65 billion in 2023.

The manufacturing segment accounted for approximately 74% of the Company’s consolidated net sales in 2024 compared to approximately 75% of the Company's consolidated net sales in 2023.

Manufacturing segment sales in 2024 compared to 2023 increased due to increased sales to the powersports, MH and RV markets, partially offset by decreased sales to the marine and industrial markets.

Sales to the powersports market increased 210% in 2024 compared to 2023, primarily attributable to the Company’s acquisition of Sportech in the first quarter of 2024.

Sales to the MH market increased 16% compared to 2023, primarily due to an increase in estimated MH industry wholesale unit shipments of approximately 16%.

Sales to the RV market increased 10% compared to 2023, due to industry volume growth.

Sales to the marine market decreased 29% compared to 2023, primarily attributable to a decrease in estimated powerboat wholesale unit shipments of 25%.

Sales to the industrial market decreased 2% compared to 2023.

For 2024 and 2023, manufacturing segment sales attributable to acquisitions completed in each of those years were $275.4 million and $3.6 million, respectively.

Gross Profit.

Gross profit decreased $241.7 million, or 30%, to $577.3 million in 2023 from $819.0 million in 2022.

As a percentage of net sales, gross profit was 21.8% in 2023 compared to 22.2% in 2022.

Gross profit margin decreased in 2023 compared to 2022 due to increases in labor and manufacturing overhead expense as a percentage of net sales primarily due to reduced sales volumes, partially offset by an improvement in material costs as a percentage of net sales.

Manufacturing segment gross profit increased $35.3 million, or 6%, to $612.6 million in 2024 compared to $577.3 million in 2023.

As a percentage of sales, gross profit increased 40 basis points to 22.2% in 2024 compared to 21.8% in 2023.

The increase in gross profit as a percentage of sales in 2024 compared to 2023 is attributable to decreases in material and labor costs as a percentage of sales, partially offset by increased overhead costs as a percentage of sales.

Operating Income.

Operating income decreased $210.4 million, or 40%, to $321.1 million in 2023 from $531.5 million in 2022.

Operating income for the manufacturing segment attributable to acquisitions completed in 2023 and 2022 was approximately $(0.6) million and $19.4 million, respectively.

The decrease in operating income primarily reflects the decrease in gross profit mentioned above.

Sales decreased $398.2 million, or 31%, to $889.4 million in 2023 from $1,287.6 million in 2022.

This segment accounted for approximately 25% of the Company’s consolidated net sales for 2023 compared to 26% of the Company's consolidated net sales in 2022.

The decrease in sales in 2023 is attributed to decreased net sales across all of our end markets.

In 2023 and 2022, net sales attributable to acquisitions completed in each of those periods was approximately $14.1 million and $0.5 million, respectively.

Manufacturing segment operating income increased $19.9 million, or 6%, to $341.0 million in 2024 compared to $321.1 million in 2023.

Manufacturing segment operating income in 2024 attributable to acquisitions completed in such year was approximately $46.5 million and manufacturing segment operating loss in 2023 attributable to acquisitions completed in such year was $(0.6) million.

The increase in operating income in 2024 primarily reflects the items discussed above.

Distribution sales increased $90.7 million, or 10%, to $980.1 million in 2024 compared to $889.4 million in 2023.

The distribution segment accounted for approximately 26% of the Company’s consolidated net sales for 2024 compared to 25% of the Company's consolidated net sales in 2023.

Distribution segment sales in 2024 compared to 2023 increased due to increased sales to all five of our end markets.

Sales to the MH market increased 23% compared to 2023, primarily due to an increase in estimated MH industry wholesale unit shipments of approximately 16%.

Sales to the powersports market increased 6% compared to 2023, primarily attributable to product mix shifts by certain customers.

Sales to the RV market increased 4% compared to 2023, primarily attributable to the Company’s acquisition of RecPro in the third quarter of 2024.

Sales to the marine market increased 3% compared to 2023.

Sales to the industrial market increased 2% compared to 2023, primarily reflecting product mix shifts by certain customers.

For 2024 and 2023, distribution segment sales attributable to acquisitions completed in each of those years were $20.3 million and $14.1 million, respectively.

Gross Profit.

Gross profit decreased $59.4 million, or 23%, to $195.5 million in 2023 from $254.9 million in 2022.

As a percentage of net sales, gross profit was 22.0% in 2023 compared to 19.8% in 2022.

The increase in gross profit as a percentage of net sales for 2023 is primarily attributed to decreases in labor as a percentage of net sales partly offset by increases in material costs as a percentage of net sales.

Distribution segment gross profit increased $29.4 million, or 15%, to $224.9 million in 2024 compared to $195.5 million in 2023.

As a percentage of sales, gross profit increased 90 basis points 22.9% in 2024 compared to 22.0% in 2023.

The increase in gross profit as a percentage of net sales for 2024 is primarily attributed to decreases in material and labor costs as a percentage of net sales.

Operating Income.

Operating income in 2023 decreased $46.8 million, or 34%, to $90.1 million from $136.9 million in 2022.

Operating income for the Distribution segment attributable to acquisitions completed in 2023 and 2022 was immaterial.

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

Unallocated Corporate Expenses

As presented in Note 16 "Segment Information" of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K, unallocated corporate expenses in 2023 decreased $26.7 million, or 27%, to $72.3 million from $99.0 million in 2022.

The decrease in 2023 was mostly attributed to decreases in incentive compensation, wages, professional fees and amortization of inventory step-up adjustments.

Distribution segment operating income increased $14.6 million, or 16%, to $104.7 million in 2024 compared to $90.1 million in 2023.

For 2024 and 2023 distribution segment operating income attributable to acquisitions completed in each of those years was immaterial.

The increase in operating income in 2024 primarily reflects the items discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Our liquidity as of December 31, 2023 consisted of cash and cash equivalents of $11.4 million and $768.1 million of availability under our credit facility.

The Company's primary sources of liquidity are cash flows from operations, which includes selling its products and collecting receivables, available cash reserves and borrowing capacity available under the 2021 Credit Facility as discussed in Note 7 "Debt" of the Notes to Consolidated Financial Statements.

Our liquidity requirements are primarily 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.

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 “2024 Credit Facility”) as discussed in Note 7 "Debt" of the Notes to Consolidated Financial Statements.

During 2024, we expanded our access to capital and reduced our cost of debt by issuing $500 million in aggregate principal amount of 6.375% Senior Notes.

The proceeds from the issuance, together with borrowings under the 2024 Credit Facility, were utilized to redeem all $300 million aggregate principal amount of the Company’s 7.50% Senior Notes due 2027 (the “7.50% Senior Notes”), to repay all borrowings under its existing senior secured credit facility and to pay related fees and expenses, as discussed in Note 7 "Debt" of the Notes to Consolidated Financial Statements .

As of December 31, 2024, our liquidity consisted of cash and cash equivalents of $33.6 million and $770.0 million of availability under our 2024 Credit Facility.

As of December 31, 2024, the Company's existing cash and cash equivalents, cash generated from operations, and available borrowings under its 2024 Credit Facility are expected to be sufficient to meet anticipated cash needs for working capital and capital expenditures for at least the next 12 months, exclusive of any acquisitions, based on its current cash flow budgets and forecast of short-term and long-term liquidity needs.

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

Working capital requirements vary from period to period depending on manufacturing volumes primarily related to the RV, marine, MH and industrial markets we serve, the timing of deliveries, and the payment cycles of customers.

Working capital requirements vary from period to period depending on manufacturing volumes primarily related to the RV, marine, powersports, MH and industrial markets we serve, the timing of deliveries, and the payment cycles of customers.

In the event that operating cash flow is inadequate and one or more of the Company's capital resources were to become unavailable, the Company would seek to revise its operating strategies accordingly.

The Company will continue to assess its liquidity position and potential sources of supplemental liquidity in view of operating performance, current economic and capital market conditions, and other relevant circumstances.

In February 2023, the Company utilized available borrowing capacity under the Revolver due 2027 and cash on hand to satisfy its repayment obligation at maturity for the 1.00% Convertible Notes.

See Note 7 "Debt" of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K for further discussion of the 1.00% Convertible Notes.

Throughout the course of the year, the Company made payments on the Revolver due 2027, with the balance repaid in full as of December 2023.

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 17 "Subsequent Events" of the Notes to Consolidated Financial Statements.

As of and for the reporting period ended December 31, 2023, the Company was in compliance with its financial covenants as required under the terms of its 2021 Credit Agreement.

The required maximum consolidated secured net leverage ratio and the required minimum consolidated fixed charge coverage ratio, as such ratios are defined in the 2021 Credit Agreement, compared to the actual amounts as of December 31, 2023 and for the fiscal period then ended are as follows:

As of and for the reporting period ended December 31, 2024, the Company was in compliance with its financial covenants under the Company’s Fifth Amended and Restated Credit Agreement (the "2024 Credit Agreement").

The required maximum consolidated secured net leverage ratio and the required minimum consolidated interest coverage ratio, as such ratios are defined in the 2024 Credit Agreement, compared to the actual amounts as of December 31, 2024 and for the fiscal period then ended are as follows:

Required Actual

Consolidated secured net leverage ratio (12-month period) 2.75 0.40

Consolidated fixed charge coverage ratio (12-month period) 1.50 3.01

Consolidated interest coverage ratio (12-month period) 3.00 6.05

In addition, as of December 31, 2024, the Company's consolidated total net leverage ratio (12-month period) was 2.71.

While this ratio was a covenant under the Company’s previous credit agreement and is not a covenant under the 2021 Credit Agreement, it is used in the determination of the applicable borrowing margin under the 2021 Credit Agreement.

While this ratio is not a covenant under the 2024 Credit Agreement, it is used in determining the applicable borrowing margin under the 2024 Credit Agreement.

Year Ended December 31, 2024 Compared to 2023

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 decreased $3.0 million, or 1%, to $408.7 million in 2023 from $411.7 million in 2022 primarily due to a decrease in net income of $185.3 million, substantially offset by an increase in depreciation and amortization of $13.7 million and a $98.9 million source of cash from operating assets and liabilities compared to a $60.7 million use of cash from operating assets and liabilities in the prior period.

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 decreased $81.9 million, or 20%, to $326.8 million in 2024 compared to $408.7 million in 2023.

The decrease in operating cash flows is primarily attributable to a decrease in operating assets and liabilities, net of business acquisitions, as a source of cash of $93.3 million, from $98.9 million in 2023 compared to $5.6 million in 2024, a decrease in net income of $4.5 million and an increase in deferred income taxes of $5.9 million, partially offset by increased depreciation and amortization expense of $22.0 million and loss on extinguishment of debt of $2.5 million.

Investing Activities

Net cash used in investing activities decreased $235.0 million, or 73%, to $86.5 million in 2023 from $321.5 million in 2022 primarily due to a decrease in cash used in business acquisitions of $223.0 million and a decrease in cash used for capital expenditures of $20.9 million, partly offset by a $6.2 million decrease in cash received on disposals of property, plant, and equipment.

Net cash used in investing activities increased $426.3 million, to $512.8 million in 2024 compared to $86.5 million in 2023 primarily due to an increase in cash used in business acquisitions, which were $411.7 million in 2024, primarily due to the acquisitions of Sportech and RecPro, compared to $25.9 million in 2023, an increase in cash used for capital expenditures of $16.7 million and an increase in other investing activities of $24.7 million.

Financing Activities

Net cash flows used in financing activities increased $143.3 million to $333.6 million in 2023 compared to $190.3 million in 2022.

The increase in cash flows used in financing activities was primarily due to the $172.5 million repayment of the 1.00% Convertible Notes and $25.6 million in net repayments on the Revolver due 2027, partially offset by a $58.3 million reduction in stock repurchases in 2023 compared to 2022.

See our Form 10-K for the year ended December 31, 2022 for a discussion of cash flows for the year ended December 31, 2022 compared to 2021.

Net cash flows provided by financing activities was $208.2 million in 2024 compared to net cash flows used in financing activities of $333.6 million in 2023.

The change in cash flow from financing activities was primarily due to net borrowings of $100 million under the Revolver due 2029 and proceeds from the issuance of $500 million aggregate principal amount of 6.375% Senior Notes in 2024 and compared to cash used in 2023 to redeem the $172.5 million 1.00% Convertible Senior Notes due 2023, partially offset by the redemption of the $300 million 7.50% Senior Notes in 2024.

Off-Balance Sheet Arrangements

17 unchanged sentences

In evaluating goodwill for impairment, either a qualitative or quantitative assessment is performed.

If the qualitative assessment indicates it is more likely than not that the fair value of the reporting unit is less than its carrying value, the Company performs a quantitative assessment.

When estimating reporting unit fair value with the quantitative assessment, the Company uses a combination of market and income-based methodologies.

The Company performed a quantitative assessment for all reporting units in 2024.

When estimating reporting unit fair value with a quantitative assessment, the Company uses a combination of market and income-based methodologies.

The market approach includes a comparison of the multiple of a reporting unit's carrying value to its earnings before interest, taxes, depreciation and amortization with the multiples of similar businesses or guideline companies whose securities are actively traded in the public markets.

20 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis