PATRICK INDUSTRIES INC (PATK)

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included in Item 8 of this Report. 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 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.

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EXECUTIVE SUMMARY

Overview of Markets and Related Industry Performance

Recreational Vehicle ("RV") Industry

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 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 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. 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 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,

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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.

CONSOLIDATED OPERATING RESULTS

The following table sets forth the percentage relationship to net sales of certain items on the Company’s consolidated statements of income for the years ended December 31, 2024 and 2023.

Year Ended December 31, 2024 Compared to 2023

Net Sales. 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.

Cost of Goods Sold. 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.

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Gross Profit. 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 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 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 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.

Amortization of Intangible Assets. Amortization of intangible assets increased $17.6 million, or 22%, in 2024 compared to 2023. 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 $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 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 $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 $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 decrease in the effective tax rate in 2024 is primarily related to increased excess tax benefits on share-based compensation.

BUSINESS SEGMENTS

The Company's reportable segments, manufacturing and distribution, are based on its method of internal reporting. 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

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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. Gross profit includes the impact of intersegment operating activity.

The table below presents information about the net sales, gross profit, and operating income of the Company’s segments. Reconciliations of the amounts below to consolidated totals are presented in Note 17 "Segment Information" of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K.

Year Ended December 31, 2024 Compared to 2023

Manufacturing

Sales. 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. 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. 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.

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Distribution

Sales. 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. 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. 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 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.

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.

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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:

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

Cash Flows

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 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 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 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

None.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The SEC has defined a company’s critical accounting policies as those that are most important to the portrayal of its financial condition and results of operations, and which require the Company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Although management believes that its estimates and assumptions are reasonable, they are based upon information available when they are made. Actual results may differ materially from these estimates under different assumptions or conditions. The Company has identified the following critical accounting policies and estimates:

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Goodwill and Other Intangible Assets. The Company’s acquisitions include purchased goodwill and other intangible assets. Goodwill represents the excess of cost over the fair value of the net assets acquired. Other intangible assets acquired are classified as customer relationships, non-compete agreements, patents and trademarks.

Goodwill and indefinite-lived intangible assets, representing acquired trademarks, are not amortized but are subject to an annual (or under certain circumstances more frequent) impairment test in the fourth quarter based on their estimated fair value. We test more frequently, if there are indicators of impairment, or whenever such circumstances suggest that the carrying value of goodwill or trademarks may not be recoverable. These indicators include a sustained material decline in our share price and market capitalization, a decline in expected future cash flows, or a material adverse change in the business climate. A material adverse change in the business climate could result in a material loss of market share or the inability to achieve previously projected revenue growth.

Impairment reviews of goodwill are performed at the reporting unit level. The Company’s reporting units are defined as one level below our operating segments, Manufacturing and Distribution, which are the same as our reportable segments. In evaluating goodwill for impairment, either a qualitative or quantitative assessment is performed. 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. When calculating the present value of future cash flows under the income approach, the Company takes into consideration multiple variables, including forecasted sales volumes and operating income, current industry and economic conditions, and historical results. The income approach fair value estimate also includes estimates of long-term growth rates and discount rates that are commensurate with the risks and uncertainty inherent in the respective reporting units and internally-developed forecasts.

Impairment reviews of indefinite-lived intangible assets (trademarks) consist of a comparison of the fair value of the trademark to its carrying value. Fair value is measured using a relief-from-royalty approach, a form of discounted cash flow method. Estimated royalty rates applied to projected revenues are based on comparable industry studies and consideration of operating margins. Discount rates are derived in a manner similar to what is done in testing goodwill for impairment.

Based on the results of the Company's analyses, the estimated fair value of each of the Company's reporting units and trademarks was determined to exceed the carrying value for each of the years ended December 31, 2024, 2023 and 2022 and so no impairments were recognized. Further, based on the results of the impairment analyses, none of the Company’s reporting units or trademarks were at risk of failing the impairment assessments discussed above that would have a material effect on the Company’s Consolidated Financial Statements for any period presented.

Business Combinations. From time to time, we may enter into business combinations. We recognize the identifiable assets acquired and the liabilities assumed at their fair values as of the date of acquisition. We measure goodwill as the excess of consideration transferred, which we also measure at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values of property, plant and equipment, identifiable intangible assets, contingent consideration and other financial assets and liabilities. Significant estimates and assumptions include subjective and/or complex judgments regarding items such as discount rates, customer attrition rates, royalty rates, and other factors, including estimated future cash flows that we expect to generate from the acquired assets.

The acquisition method of accounting also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial condition and results of operations. No changes in the year ended December 31, 2024 to provisional fair value estimates of assets acquired and liabilities assumed in acquisitions were material. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop the acquisition date fair value estimates, we could record future impairment charges. In addition, we estimate the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired assets could be impaired.

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ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included in Item 8 of this Report. 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.

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EXECUTIVE SUMMARY

Overview of Markets and Related Industry Performance

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. ("SSI").

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.

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. 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.

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. 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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CONSOLIDATED OPERATING RESULTS

The following table sets forth the percentage relationship to net sales of certain items on the Company’s consolidated statements of income for the years ended December 31, 2023, 2022 and 2021.

Year Ended December 31, 2023 Compared to 2022

Net Sales. 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.

In 2023 and 2022, net sales attributable to acquisitions completed in each of those years was $17.7 million and $121.8 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. 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

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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.

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. As a percentage of net sales, SG&A expenses were 8.6% in 2023 and 6.7% in 2022.

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. Additionally, certain 2022 and 2023 acquisitions operate with comparatively higher SG&A as a percentage of sales when compared to the consolidated percentage.

Amortization of Intangible Assets. Amortization of intangible assets increased $5.5 million, or 8%, in 2023 compared to 2022. The increase in 2023 compared to 2022 reflects the impact of intangible assets of businesses acquired in 2023 and 2022.

Operating Income. Operating income decreased $236.0 million, or 48%, to $260.2 million in 2023 from $496.2 million in 2022. Operating income in 2023 and 2022 included $1.0 million and $19.4 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.

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.

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. For 2023, the effective tax rate was 25.3% compared to 24.6% in 2022. 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. GAAP"). 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. GAAP.

BUSINESS SEGMENTS

The Company's reportable segments, manufacturing and distribution, are based on its method of internal reporting. 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.

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•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; RV painting; 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; appliances; 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; tile; shower doors; furniture; fireplaces and surrounds; interior and exterior lighting products; and other miscellaneous products in addition to providing transportation and logistics services.

Net sales pertaining to the manufacturing and distribution segments as stated in the table below and in the following discussions include intersegment sales. Gross profit includes the impact of intersegment operating activity.

The table below presents information about the net sales, gross profit, and operating income of the Company’s segments. Reconciliations of the amounts below to consolidated totals are presented in Note 16 "Segment Information" of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K.

Year Ended December 31, 2023 Compared to 2022

Manufacturing

Net Sales. 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.

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.

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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.

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.

Distribution

Net Sales. 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.

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.

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.

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.

As of December 31, 2023, the Company's existing cash and cash equivalents, cash generated from operations, and available borrowings under its 2021 Credit Facility are expected to be sufficient to meet anticipated cash needs for working capital and capital expenditures for at least the next 12 months, exclusive of any acquisitions, based on its current cash flow budgets and forecast of short-term and long-term liquidity needs.

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

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

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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:

In addition, as of December 31, 2023, the Company's consolidated total net leverage ratio (12-month period) was 2.38. 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.

Cash Flows

Year Ended December 31, 2023 Compared to 2022

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.

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.

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.

Off-Balance Sheet Arrangements

None.

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CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The SEC has defined a company’s critical accounting policies as those that are most important to the portrayal of its financial condition and results of operations, and which require the Company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Although management believes that its estimates and assumptions are reasonable, they are based upon information available when they are made. Actual results may differ materially from these estimates under different assumptions or conditions. The Company has identified the following critical accounting policies and estimates:

Goodwill and Other Intangible Assets. The Company’s acquisitions include purchased goodwill and other intangible assets. Goodwill represents the excess of cost over the fair value of the net assets acquired. Other intangible assets acquired are classified as customer relationships, non-compete agreements, patents and trademarks.

Goodwill and indefinite-lived intangible assets, representing acquired trademarks, are not amortized but are subject to an annual (or under certain circumstances more frequent) impairment test in the fourth quarter based on their estimated fair value. We test more frequently, if there are indicators of impairment, or whenever such circumstances suggest that the carrying value of goodwill or trademarks may not be recoverable. These indicators include a sustained material decline in our share price and market capitalization, a decline in expected future cash flows, or a material adverse change in the business climate. A material adverse change in the business climate could result in a material loss of market share or the inability to achieve previously projected revenue growth.

Impairment reviews of goodwill are performed at the reporting unit level. The Company’s reporting units are defined as one level below our operating segments, Manufacturing and Distribution, which are the same as our reportable segments. 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 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. When calculating the present value of future cash flows under the income approach, the Company takes into consideration multiple variables, including forecasted sales volumes and operating income, current industry and economic conditions, and historical results. The income approach fair value estimate also includes estimates of long-term growth rates and discount rates that are commensurate with the risks and uncertainty inherent in the respective reporting units and internally-developed forecasts.

Impairment reviews of indefinite-lived intangible assets (trademarks) consist of a comparison of the fair value of the trademark to its carrying value. Fair value is measured using a relief-from-royalty approach, a form of discounted cash flow method. Estimated royalty rates applied to projected revenues are based on comparable industry studies and consideration of operating margins. Discount rates are derived in a manner similar to what is done in testing goodwill for impairment.

Based on the results of the Company's analyses, the estimated fair value of each of the Company's reporting units and trademarks was determined to exceed the carrying value for each of the years ended December 31, 2023, 2022 and 2021 and so no impairments were recognized. Further, based on the results of the impairment analyses, none of the Company’s reporting units or trademarks were at risk of failing the impairment assessments discussed above that would have a material effect on the Company’s Consolidated Financial Statements for any period presented.

Business Combinations. From time to time, we may enter into business combinations. We recognize the identifiable assets acquired and the liabilities assumed at their fair values as of the date of acquisition. We measure goodwill as the excess of consideration transferred, which we also measure at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values of property, plant and equipment, identifiable intangible assets, contingent consideration and other financial assets and liabilities. Significant estimates and assumptions include subjective and/or complex judgments regarding items such as discount rates, customer attrition rates, royalty rates, and other factors, including estimated future cash flows that we expect to generate from the acquired assets.

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The acquisition method of accounting also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial condition and results of operations. No changes in the year ended December 31, 2023 to provisional fair value estimates of assets acquired and liabilities assumed in acquisitions were material. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop the acquisition date fair value estimates, we could record future impairment charges. In addition, we estimate the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired assets could be impaired.

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included in Item 8 of this Report. 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.

EXECUTIVE SUMMARY

Overview of Markets and Related Industry Performance

Recreational Vehicle ("RV") Industry

The RV industry is our primary market and comprised 53% of the Company’s consolidated net sales in 2022. Net sales to the RV industry increased 8% in 2022 compared to 2021. Following a strong post-COVID increase in retail demand through 2021 and dealer inventory restocking occurring through the first half of 2022, OEMs dramatically reduced production in the second half of 2022 as retail demand decreased and the OEMs focused on maintaining a balanced dealer inventory channel for the long-term health and stability of the industry.

According to the Recreation Vehicle Industry Association (“RVIA”), wholesale industry unit shipments totaled approximately 493,300 units in 2022, a decrease of 18% compared to approximately 600,200 units in 2021. RV industry retail unit sales totaled approximately 446,300 units in 2022, a decrease of 22% compared to 2021 retail unit sales of approximately 568,900 units according to Statistical Surveys, Inc. ("SSI").

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Marine Industry

Net sales to the marine industry, which represented approximately 21% of the Company's consolidated net sales in 2022, increased 56% in 2022 compared to 2021. Our marine revenue is generally correlated to marine wholesale powerboat unit shipments, which increased 7% to approximately 196,500 units in 2022 compared to approximately 183,200 units in 2021, according to Company estimates based on data published by the National Marine Manufacturers Association ("NMMA"). Approximately 65% of our marine net sales increase was attributable to acquisitions made in 2022 and 2021, with the remaining growth attributable to pricing, industry product mix and market share gains. Estimated marine retail powerboat shipments totaled approximately 188,100 units in 2022, a decrease of 15% compared to 2021 retail powerboat shipments of approximately 220,200 units, according to SSI. Marine wholesale unit shipments were limited in part by supply chain constraints, particularly for engines and related components.

Manufactured Housing ("MH") Industry

Net sales to the MH industry, which represented 15% of the Company’s consolidated net sales in 2022, increased 29% in 2022 compared to 2021. 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 112,900 units in 2022, an increase of 7% compared to 2021 MH wholesale industry unit shipments of 105,800 units.

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 11% of our consolidated net sales in 2022, increasing 18% in 2022 compared to 2021. 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 3% in 2022 compared to 2021, with single family housing starts decreasing 11% and multifamily residential starts increasing 15% for the same period. Our industrial products are generally among the last components installed in new unit construction and as such our related sales typically trail new housing starts by four to six months.

CONSOLIDATED OPERATING RESULTS

The following table sets forth the percentage relationship to net sales of certain items on the Company’s consolidated statements of income for the years ended December 31, 2022, 2021 and 2020.

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Year Ended December 31, 2022 Compared to 2021

Net Sales. Net sales in 2022 increased approximately $803.8 million, or 20%, to $4.88 billion from $4.08 billion in 2021. The increase was attributable to an 8% increase in net sales to our RV end market, a 56% increase in net sales to our marine end market, a 29% increase in net sales to our MH end market, and a 18% increase in net sales to our industrial end market.

In 2022 and 2021, net sales attributable to acquisitions completed in each of those years was $121.8 million and $259.9 million, respectively.

The Company’s RV content per wholesale unit for 2022 increased 31% to $5,257 from $4,006 in 2021. The Company's marine powerboat content per wholesale unit for 2022 increased 45% to $5,281 from $3,632 in 2021. The Company's MH content per wholesale unit for 2022 increased 21% to $6,243 in 2022 from $5,153 in 2021.

Cost of Goods Sold. Cost of goods sold increased $545.0 million, or 17%, to $3.82 billion in 2022 from $3.28 billion in 2021. As a percentage of net sales, cost of goods sold decreased 210 basis points during 2022 to 78.3% from 80.4% in 2021.

Cost of goods sold as a percentage of net sales decreased for 2022 compared to 2021 primarily as a result of (i) continued cost reduction and automation initiatives we deployed throughout 2021 and 2022 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 2022 and 2021, and (iv) volume-driven efficiencies as a result of leveraging fixed overhead. For 2022, these four factors contributed to a 210-basis point decrease in labor as a percentage of net sales and a 10-basis point decrease in overhead as a percentage of net sales, partially offset by a 10-basis point increase in material costs as a percentage of net sales in part due to supply chain constraints and elevated raw material costs in the first half of 2022. 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 $258.7 million or 32%, to $1,059.9 million in 2022 from $801.2 million in 2021. As a percentage of net sales, gross profit increased to 21.7% in 2022 from 19.6% in 2021. The increase in gross profit as a percentage of net sales in 2022 compared to 2021 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.

Warehouse and Delivery Expenses. Warehouse and delivery expenses increased $23.4 million, or 17%, to $163.0 million in 2022 from $139.6 million in 2021. As a percentage of net sales, warehouse and delivery expenses were 3.3% in 2022 and 3.4% in 2021. The increase in warehouse and delivery expenses is attributable to the increase in sales.

Selling, General and Administrative ("SG&A") Expenses. SG&A expenses increased $74.0 million, or 29%, to $327.5 million in 2022 from $253.5 million in 2021. As a percentage of net sales, SG&A expenses were 6.7% in 2022 and 6.2% in 2021.

The increase in SG&A expenses in 2022 compared to 2021 is primarily due to (i) higher variable expenses associated with the increase in net sales, and (ii) increases in the breadth and depth of corporate resources, specifically our investments in human capital, technology and other initiatives to support the size and growth of the Company. The increase in SG&A expenses as a percentage of net sales is primarily a result of the aforementioned investment in human capital and incentive compensation.

Amortization of Intangible Assets. Amortization of intangible assets increased $16.9 million, or 30%, in 2022 compared to 2021. The increase in 2022 compared to 2021 reflects the impact of intangible assets of businesses acquired in 2022 and 2021.

Operating Income. Operating income increased $144.5 million, or 41%, to $496.2 million in 2022 from $351.7 million in 2021. Operating income in 2022 and 2021 included $19.4 million and $25.0 million, respectively, from the businesses

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acquired in each respective year. Operating income as a percentage of net sales increased 160 basis points to 10.2% in 2022 from 8.6% in 2021. The increase in operating income and operating margin is primarily attributable to the items discussed above as well as the operating margin profiles of businesses acquired in 2022 and 2021.

Interest Expense, Net. Interest expense, net, increased $2.9 million, or 5%, to $60.8 million in 2022 from $57.9 million in 2021. The increase in interest expense is primarily attributable to the issuance of our 1.75% Convertible Senior Notes due 2028 (the "1.75% Convertible Notes") issued in December 2021, partially offset by a decrease in total borrowings.

Income Taxes. Income tax expense increased $38.3 million, or 56%, to $107.2 million in 2022 from $68.9 million in 2021 as a result of the increase in pre-tax income and an increase in the effective tax rate. For 2022, the effective tax rate was 24.6% compared to 23.5% in 2021. The increase in the effective tax rate in 2022 was mostly attributable to decreased benefits from stock-based compensation.

See our Form 10-K for the year ended December 31, 2021 for a discussion of our consolidated operating results for the year ended December 31, 2021 compared to 2020.

Use of Financial Metrics

Our MD&A includes financial metrics, such as RV, marine and MH content per unit, which we believe are important measures of the Company's business performance. Content per unit metrics are generally calculated using our market sales divided by Company estimates of industry unit volume, which are derived from third-party industry data. These metrics should not be considered alternatives to U.S. GAAP. 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. GAAP.

BUSINESS SEGMENTS

The Company's reportable segments, manufacturing and distribution, are based on its method of internal reporting. 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; RV painting; 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; appliances; 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; tile; shower doors; furniture; fireplaces and surrounds; interior and exterior lighting products; and other miscellaneous products in addition to providing transportation and logistics services.

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Net sales pertaining to the manufacturing and distribution segments as stated in the table below and in the following discussions include intersegment sales. Gross profit includes the impact of intersegment operating activity.

The table below presents information about the net sales, gross profit, and operating income of the Company’s segments. Reconciliations of the amounts below to consolidated totals are presented in Note 17 of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K.

Year Ended December 31, 2022 Compared to 2021

Manufacturing

Net Sales. Sales increased $679.3 million, or 23%, to $3.68 billion in 2022 from $3.00 billion in 2021. This segment accounted for approximately 74% of the Company’s consolidated net sales in 2022 compared to approximately 72% of the Company's consolidated net sales in 2021. The sales increase reflected increased net sales across all of our end markets.

In 2022 and 2021, net sales attributable to acquisitions completed in each of those periods was approximately $121.3 million and $202.2 million, respectively.

Gross Profit. Gross profit increased $220.1 million, or 37%, to $819.0 million in 2022 from $598.9 million in 2021. As a percentage of net sales, gross profit was 22.2% in 2022 compared to 20.0% in 2021.

Gross profit margin increased in 2022 compared to 2021 due to (i) an improvement in direct labor, material costs, and manufacturing overhead expense as a percentage of net sales primarily as a result of automation and efficiency initiatives implemented during 2022 and 2021 and (ii) synergies and different cost profiles from acquisitions completed in 2022 and 2021.

Operating Income. Operating income increased $151.6 million, or 40%, to $531.5 million in 2022 from $379.9 million in 2021. Operating income for the manufacturing segment attributable to acquisitions completed in 2022 and 2021 was approximately $19.4 million and $14.5 million, respectively. The increase in operating income primarily reflects the increase in gross profit mentioned above.

Distribution

Net Sales. Sales increased $132.9 million, or 12%, to $1.29 billion in 2022 from $1.15 billion in 2021. This segment accounted for approximately 26% of the Company’s consolidated net sales for 2022 compared to 28% of the Company's consolidated net sales in 2021. The increase in sales in 2022 is attributed to an increase in net sales in our RV, marine and MH markets, partially offset by a decrease in net sales in our industrial market. In 2022 and 2021, net sales attributable to acquisitions completed in each of those periods was approximately $0.5 million and $57.7 million, respectively.

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Gross Profit. Gross profit increased $43.7 million, or 21%, to $254.9 million in 2022 from $211.2 million in 2021. As a percentage of net sales, gross profit was 19.8% in 2022 compared to 18.3% in 2021. The increase in gross profit as a percentage of net sales for 2022 is primarily attributed to the higher margin profiles of certain 2021 acquisitions as well as the benefit of leveraging certain fixed costs on increased net sales.

Operating Income. Operating income in 2022 increased $30.7 million, or 29%, to $136.9 million from $106.2 million in 2021. Operating income for the Distribution segment attributable to acquisitions completed in 2022 was immaterial. Operating income for the Distribution segment in 2021 attributable to acquisitions completed in 2021 was approximately $10.4 million. The overall improvement in operating income in 2022 primarily reflects the items discussed above.

Unallocated Corporate Expenses

As presented in Note 17 of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K, unallocated corporate expenses in 2022 increased $20.9 million, or 27%, to $99.0 million from $78.1 million in 2021. The increase in 2022 was mostly attributed to an increase in professional fees, administrative wages, and incentive compensation.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity are cash flows from operations, which includes selling its products and collecting receivables, available cash reserves and borrowing capacity available under the 2021 Credit Facility (as defined below). 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.

Cash Flows

Year Ended December 31, 2022 Compared to 2021

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 increased $159.6 million, or 63%, to $411.7 million in 2022 from $252.1 million in 2021 primarily due to: (i) an increase in net income of $103.3 million; (ii) a decrease in cash used for inventory procurement of $220.6 million; (iii) a source of cash from trade and other receivables of $26.1 million compared to a use of cash of $14.4 million in 2021; and (iv) an increase in depreciation and amortization of $26.0 million. Partially offsetting these sources of cash was a use of cash for accounts payable, accrued liabilities and other of $95.0 million compared to a source of cash of $149.9 million in the prior year period.

Investing Activities

Net cash used in investing activities decreased $253.2 million, or 44%, to $321.5 million in 2022 from $574.7 million in 2021 primarily due to a decrease in cash used in business acquisitions of $259.2 million, partially offset by an increase in cash used for capital expenditures of $15.1 million.

Financing Activities

Net cash flows used in financing activities was $190.3 million in 2022 compared to net cash provided by financing activities of $400.7 million in 2021. The change in cash flows from financing activities was primarily due to: (i) a $34.1 million increase in stock repurchases and cash dividends paid to shareholders in 2022 and (ii) $62.2 million in net revolver and term loan repayments in 2022 compared with $520.6 million of net borrowings in 2021 consisting of $350.0 million of borrowings from the Company's issuance of its 4.75% Senior Notes and $258.8 million of borrowings from the Company's issuance of its 1.75% Convertible Notes, less $88.1 million of net revolver and term loan repayments.

See our Form 10-K for the year ended December 31, 2021 for a discussion of cash flows for the year ended December 31, 2021 compared to 2020.

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Summary of Liquidity and Capital Resources

At December 31, 2022, 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.

On August 11, 2022, the Company entered into the first amendment of its Fourth Amended and Restated Credit Agreement dated April 20, 2021 (as amended, the “2021 Credit Agreement”), under which the senior secured credit facility was increased to $925 million from $700 million and the maturity date was extended to August 11, 2027 from April 20, 2026. The senior credit facility under the 2021 Credit Agreement is comprised of a $775 million revolving credit facility (the "Revolver due 2027") and the remaining balance of the $150 million term loan (the "Term Loan due 2027", and together with the Revolver due 2027, the "2021 Credit Facility"). The quarterly repayment schedule for the Term Loan due 2027 was revised, with quarterly installments in the following amounts: (i) beginning June 30, 2021, through and including June 30, 2025, in the amount of $1,875,000, and (ii) beginning September 30, 2025, and each quarter thereafter, in the amount of $3,750,000, with the remaining balance due at maturity. The Company recorded a $0.3 million write-off of deferred financing costs as a result of the amendment, which is included in "Selling, general and administrative" in the Company's consolidated statements of income for the year ended December 31, 2022. Pursuant to the amendment, interest rates for borrowings under the 2021 Credit Agreement transitioned to a SOFR-based option from a LIBOR-based option. The ability to access unused borrowing capacity under the 2021 Credit Agreement as a source of liquidity is dependent on maintaining compliance with the financial covenants as specified under the terms of the 2021 Credit Agreement. See Note 8 of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K for aggregate maturities of total long-term debt for the next five fiscal years and thereafter.

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 due 2023. See Note 8 of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K for further discussion of the 1.00% Convertible Notes due 2023.

As of and for the reporting period ended December 31, 2022, 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, 2022 and for the fiscal period then ended are as follows:

In addition, as of December 31, 2022, the Company's consolidated total net leverage ratio (12-month period) was 1.89. 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.

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. 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.

Off-Balance Sheet Arrangements

None.

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CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The SEC has defined a company’s critical accounting policies as those that are most important to the portrayal of its financial condition and results of operations, and which require the Company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Although management believes that its estimates and assumptions are reasonable, they are based upon information available when they are made. Actual results may differ materially from these estimates under different assumptions or conditions. The Company has identified the following critical accounting policies and estimates:

Goodwill and Other Intangible Assets. The Company’s acquisitions include purchased goodwill and other intangible assets. Goodwill represents the excess of cost over the fair value of the net assets acquired. Other intangible assets acquired are classified as customer relationships, non-compete agreements, patents and trademarks.

Goodwill and indefinite-lived intangible assets, representing acquired trademarks, are not amortized but are subject to an annual (or under certain circumstances more frequent) impairment test in the fourth quarter based on their estimated fair value. We test more frequently, if there are indicators of impairment, or whenever such circumstances suggest that the carrying value of goodwill or trademarks may not be recoverable. These indicators include a sustained material decline in our share price and market capitalization, a decline in expected future cash flows, or a material adverse change in the business climate. A material adverse change in the business climate could result in a material loss of market share or the inability to achieve previously projected revenue growth.

Impairment reviews of goodwill are performed at the reporting unit level. The Company’s reporting units are defined as one level below our operating segments, Manufacturing and Distribution, which are the same as our reportable segments. 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 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. When calculating the present value of future cash flows under the income approach, the Company takes into consideration multiple variables, including forecasted sales volumes and operating income, current industry and economic conditions, and historical results. The income approach fair value estimate also includes estimates of long-term growth rates and discount rates that are commensurate with the risks and uncertainty inherent in the respective reporting units and internally-developed forecasts.

Impairment reviews of indefinite-lived intangible assets (trademarks) consist of a comparison of the fair value of the trademark to its carrying value. Fair value is measured using a relief-from-royalty approach, a form of discounted cash flow method. Estimated royalty rates applied to projected revenues are based on comparable industry studies and consideration of operating margins. Discount rates are derived in a manner similar to what is done in testing goodwill for impairment.

Based on the results of the Company's analyses, the estimated fair value of each of the Company's reporting units and trademarks was determined to exceed the carrying value for each of the years ended December 31, 2022, 2021 and 2020 and so no impairments were recognized. Further, based on the results of the impairment analyses, none of the Company’s reporting units or trademarks were at risk of failing the impairment assessments discussed above that would have a material effect on the Company’s Consolidated Financial Statements for any period presented.

Business Combinations. From time to time, we may enter into business combinations. We recognize the identifiable assets acquired and the liabilities assumed at their fair values as of the date of acquisition. We measure goodwill as the excess of consideration transferred, which we also measure at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values of property, plant and equipment, identifiable intangible assets, contingent consideration and other financial assets and liabilities. Significant estimates and assumptions include subjective and/or complex judgments regarding items such as discount rates, customer attrition rates, royalty rates, and other factors, including estimated future cash flows that we expect to generate from the acquired assets.

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The acquisition method of accounting also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial condition and results of operations. No changes in the year ended December 31, 2022 to provisional fair value estimates of assets acquired and liabilities assumed in acquisitions were material. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop the acquisition date fair value estimates, we could record future impairment charges. In addition, we estimate the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired assets could be impaired.

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included in Item 8 of this Report. 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.

EXECUTIVE SUMMARY

Overview of Markets and Related Industry Performance

Recreational Vehicle ("RV") Industry

The RV industry is our primary market and comprised 59% of the Company’s consolidated net sales in 2021. Sales to the RV industry increased 73% in 2021 compared to 2020. An approximate 6-week operations shutdown occurred in the late first quarter and early second quarter of 2020 in certain of our RV facilities in alignment with production shutdowns by certain OEM customers in response to the COVID-19 pandemic. In the second half of 2020, OEM production improved sharply in response to a strong increase in retail and wholesale demand for RVs, and our sales to RV OEMs also improved for 2020, with demand continuing through 2021.

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According to the Recreation Vehicle Industry Association (“RVIA”), wholesale industry shipments totaled approximately 600,200 units in 2021, an increase of 39% compared to 430,400 units in 2020. RV industry retail unit sales totaled approximately 564,400 units in 2021, an increase of 8% compared to 2020 retail unit sales of 520,500 units according to Statistical Surveys, Inc ("SSI").

Marine Industry

Sales to the marine industry, which represented approximately 16% of the Company's consolidated net sales in 2021, increased 96% in 2021 compared to 2020. Our marine revenue is generally correlated to marine wholesale powerboat unit shipments, which increased 11% to approximately 138,400 units in 2021 compared to approximately 124,200 units in 2020, according to the National Marine Manufacturers Association. Estimated marine retail powerboat shipments totaled approximately 214,200 units in 2021, a decrease of 9% compared to 2020 retail powerboat shipments of approximately 234,800 units.

Manufactured Housing ("MH") Industry

Sales to the MH industry, which represented 14% of the Company’s consolidated net sales in 2021, increased 26% in 2021 compared to 2020. 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 105,800 units in 2021, an increase of 12% compared to 2020 MH wholesale industry unit shipments of 94,400 units.

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. Sales to this market represented 11% of our consolidated net sales in 2021, increasing 43% in 2021 compared to 2020. 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% of our industrial business is directly tied to the residential housing market, with the remaining 30% directly tied to the non-residential and commercial markets.

Combined new housing starts increased 16% in 2021 compared to 2020, with single family housing starts increasing 13% and multifamily residential starts increasing 23% for the same period. Our industrial products are generally among the last components installed in new unit construction and as such our related sales typically trail new housing starts by four to six months.

CONSOLIDATED OPERATING RESULTS

The following table sets forth the percentage relationship to net sales of certain items on the Company’s consolidated statements of income for the years ended December 31, 2021, 2020 and 2019.

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Year Ended December 31, 2021 Compared to 2020

Net Sales. Net sales in 2021 increased approximately $1.59 billion, or 64%, to $4.08 billion from $2.49 billion in 2020. The increase was attributable to a 73% increase in sales to our RV end market, a 96% increase in sales to our marine end market, a 26% increase in sales to our MH end market, and a 43% increase in sales to our industrial end market.

In 2021 and 2020, net sales attributable to acquisitions completed in each of those years was $259.9 million and $81.9 million, respectively. Net sales in 2020 were adversely impacted by the COVID-19 pandemic and the related approximate 6-week operations shutdown that occurred in the late first quarter and early second quarter of 2020 in certain of our facilities in alignment with production shutdowns by certain OEM customers in response to the COVID-19 pandemic.

The Company’s RV content per wholesale unit for 2021 increased 24% to $4,006 from $3,235 in 2020. Marine powerboat content per wholesale unit for 2021 increased 76% to $3,632 from $2,069 in 2020. The Company's MH content per wholesale unit for 2021 increased 13% to $5,153 in 2021 from $4,580 in 2020.

Cost of Goods Sold. Cost of goods sold increased $1.25 billion, or 62%, to $3.28 billion in 2021 from $2.03 billion in 2020. As a percentage of net sales, cost of goods sold decreased 110 basis points during 2021 to 80.4% from 81.5% in 2020.

Cost of goods sold as a percentage of net sales decreased for 2021 compared to 2020 primarily as a result of (i) continued cost reduction and automation initiatives we deployed throughout 2020 and 2021, (ii) volume-driven efficiencies as a result of leveraging fixed overhead, (iii) a recovery from the production inefficiencies experienced while operating in a COVID-19 environment, and (iv) synergies and different cost profiles from our 2021 and 2020 acquisitions, partially offset by an increase in labor costs and certain labor inefficiencies, the impact of supply-chain constraints, and an increase in certain commodity cost inputs. In general, the Company's cost of goods sold percentage can be impacted 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 the production of our products.

Gross Profit. Gross profit increased $342.2 million or 75%, to $801.2 million in 2021 from $459.0 million in 2020. As a percentage of net sales, gross profit increased to 19.6% in 2021 from 18.5% in 2020. The increase in gross profit as a percentage of net sales in 2021 compared to 2020 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.

Warehouse and Delivery Expenses. Warehouse and delivery expenses increased $41.2 million, or 42%, to $139.6 million in 2021 from $98.4 million in 2020. As a percentage of net sales, warehouse and delivery expenses were 3.4% in 2021 and 4.0% in 2020. The increase in warehouse and delivery expenses is attributable to the significant increase in sales. The decrease of warehouse and delivery expenses as a percentage of net sales in 2021 compared to 2020 was primarily attributable to the lower proportion of MH industry net sales in 2021 compared to 2020, which have higher warehousing and delivery costs as a percentage of net sales. In addition, the percentage of warehousing and delivery expenses as a percentage of sales decreased as we leveraged certain fixed warehousing costs in proportion to our overall sales growth.

Selling, General and Administrative ("SG&A") Expenses. SG&A expenses increased $107.1 million, or 73.2%, to $253.5 million in 2021 from $146.4 million in 2020. As a percentage of net sales, SG&A expenses were 6.2% in 2021 and 5.9% in 2020.

The increase in SG&A expenses in 2021 is primarily due to (i) the increase in net sales; (ii) increases in the breadth and depth of corporate resources, specifically our investments in human capital and other technological initiatives to support the size and growth of the Company, (iii) the comparison to the prior year, which includes SG&A cost reduction measures implemented in the second quarter of 2020 that continued into the third quarter of 2020, and (iv) increased incentive compensation. As a percentage of sales, SG&A expenses increased 30 basis points for 2021 compared 2020. This increase is primarily a result of the aforementioned investment in human capital and incentive compensation.

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Amortization of Intangible Assets. Amortization of intangible assets increased $15.5 million, or 38%, in 2021 compared to 2020. The increase in 2021 compared to 2020 primarily reflects the impact of intangible assets of businesses acquired in 2021 and 2020.

Operating Income. Operating income increased $178.2 million, or 103%, to $351.7 million in 2021 from $173.4 million in 2020. Operating income in 2021 and 2020 included $25.0 million and $10.7 million, respectively, from the businesses acquired in each respective year. Operating income as a percentage of net sales increased 160 basis points to 8.6% in 2021 from 7.0% in 2020. The increase in operating income and operating margin is primarily attributable to the items discussed above as well as the operating margin profiles of businesses acquired in 2021 and 2020.

Interest Expense, Net. Interest expense, net, increased $14.9 million, or 35%, to $57.9 million in 2021 from $43.0 million in 2020. The increase in interest expense reflects (i) increased borrowings related to 2021 and 2020 acquisitions and (ii) the Company's issuance of its 4.75% Senior Notes (as defined herein) in April 2021 and 1.75% Convertible Notes (as defined herein) in December 2021.

Income Taxes. Income tax expense increased $35.6 million, or 107%, to $68.9 million in 2021 from $33.3 million in 2020, attributed to an increase in pre-tax income. For 2021, the effective tax rate was 23.5% compared to 25.6% in 2020. The decrease in the effective tax rate in 2021 was mostly attributable to increased benefits from stock-based compensation as well as a decrease in certain state tax rates.

See our Form 10-K for the year ended December 31, 2020 for a discussion of our consolidated operating results for the year ended December 31, 2020 compared to 2019.

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 third-party industry volume metrics. These metrics should not be considered alternatives to U.S. GAAP. 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. GAAP. Beginning in the third quarter of 2020, we calculate marine content per unit based on estimated wholesale powerboat unit shipments, which we believe better represents the relationship between our sales and marine OEM production, rather than based on estimated retail powerboat unit sales.

BUSINESS SEGMENTS

The Company's reportable segments, manufacturing and distribution, are based on its method of internal reporting. 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; RV painting; 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 covers, towers, tops, trailers and frames; marine hardware and accessories; aluminum and plastic fuel tanks; CNC molds and composite parts; slotwall panels and components; and other products.

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•Distribution – This segment includes the distribution of pre-finished wall and ceiling panels; drywall and drywall finishing products; electronics and audio systems components; appliances; 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; tile; shower doors; furniture; fireplaces and surrounds; interior and exterior lighting products; and other miscellaneous products in addition to providing transportation and logistics services.

Net sales pertaining to the manufacturing and distribution segments as stated in the table below and in the following discussions include intersegment sales. Gross profit includes the impact of intersegment operating activity.

The table below presents information about the net sales, gross profit, and operating income of the Company’s segments. Reconciliations of the amounts below to consolidated totals are presented in Note 18 of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K.

Year Ended December 31, 2021 Compared to 2020

Manufacturing

Net Sales. Sales increased $1.23 billion, or 70%, to $3.00 billion in 2021 from $1.77 billion in 2020. This segment accounted for approximately 72% of the Company’s consolidated net sales in 2021 compared to approximately 70% of the Company's consolidated net sales in 2020. The sales increase reflected increased net sales across all of our end markets.

In 2021 and 2020, net sales attributable to acquisitions completed in each of those periods was approximately $202.2 million and $52.5 million, respectively.

Gross Profit. Gross profit increased $274.0 million, or 84%, to $598.9 million in 2021 from $324.9 million in 2020. As a percentage of net sales, gross profit was 20.0% in 2021 compared to 18.4% in 2020.

Gross profit margin increased in 2021 compared to 2020 primarily due to (i) an improvement in manufacturing overhead expense as a percentage of net sales, and (ii) an improvement in direct labor as a percentage of net sales, partially offset by an increase in material costs as a percentage of net sales.

Operating Income. Operating income increased $189.4 million, or 99%, to $379.9 million in 2021 from $190.5 million in 2020. Operating income for the manufacturing segment attributable to acquisitions completed in 2021 and 2020 was approximately $14.5 million and $7.0 million, respectively. The increase in operating income primarily reflects the increase in gross profit mentioned above.

Distribution

Net Sales. Sales increased $392.2 million, or 51%, to $1,154.7 million in 2021 from $762.5 million in 2020. This segment accounted for approximately 28% of the Company’s consolidated net sales for 2021 compared to 30% of the Company's

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consolidated net sales in 2020. The increase in net sales in 2021 is attributed to an increase in sales across all end markets. In 2021 and 2020, net sales attributable to acquisitions completed in each of those periods was approximately $57.7 million and $29.4 million, respectively.

Gross Profit. Gross profit increased $77.9 million, or 58%, to $211.2 million in 2021 from $133.3 million in 2020. As a percentage of net sales, gross profit was 18.3% in 2021 compared to 17.5% in 2020. The increase in gross profit as a percentage of net sales for 2021 is primarily attributed to the higher margin profiles of certain 2021 and 2020 acquisitions as well as the benefit of leveraging certain fixed costs on increased net sales.

Operating Income. Operating income in 2021 increased $51.9 million, or 95%, to $106.2 million from $54.4 million in 2020. Operating income for the Distribution segment attributable to acquisitions completed in 2021 and 2020 was approximately $10.4 million and $3.7 million, respectively. The overall improvement in operating income in 2021 primarily reflects the items discussed above.

Unallocated Corporate Expenses

As presented in Note 18 of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K, unallocated corporate expenses in 2021 increased $47.4 million, or 155%, to $78.1 million from $30.7 million in 2020. The increase in 2021 was mostly attributed to an increase in professional fees, administrative wages and incentive compensation.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity are cash flow from operations, which includes selling its products and collecting receivables, available cash reserves and borrowing capacity available under the 2021 Credit Facility (as defined below). 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.

Cash Flows

Year Ended December 31, 2021 Compared to 2020

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 increased $91.9 million, or 57%, to $252.1 million in 2021 from $160.2 million in 2020 primarily due to: (i) an increase in net income of $127.8 million; (ii) an increase in cash from accounts payable, accrued liabilities and other of $129.1 million; and (iii) an increase in depreciation and amortization of $31.5 million. Partially offsetting these sources of cash was an increase in cash used for the purchase of inventory of $197.9 million as we strategically secured inventory to support a strong increase in end market demand for our products.

Investing Activities

Net cash used in investing activities increased $236.8 million, or 70%, to $574.7 million in 2021 from $337.9 million in 2020 primarily due to an increase in cash used in business acquisitions of $202.1 million and an increase in capital expenditures of $32.7 million.

Financing Activities

Net cash flows provided by financing activities increased $317.6 million, or 382%, to $400.7 million in 2021 from $83.1 million in 2020 primarily due to: (i) proceeds of $350.0 million from the Company's issuance of its 4.75% Senior Notes; (ii) proceeds of $258.8 million from the Company's issuance of 1.75% Convertible Notes; and (iii) an additional $51.9 million in term loan borrowings, net of repayments. These sources of cash were partially offset by (i) $140.0 million of net revolver repayments in 2021 versus $140.0 million of net revolver borrowings in 2020, and (ii) a $29.2 million increase in stock repurchases and dividends to shareholders.

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See our Form 10-K for the year ended December 31, 2020 for a discussion of cash flows for the year ended December 31, 2020 compared to 2019.

Summary of Liquidity and Capital Resources

At December 31, 2021, 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.

Following the issuance of the 4.75% Senior Notes, the Company amended and restated its credit agreement to establish a new $700 million senior secured credit facility consisting of a $550 million revolving credit facility and a $150 million term loan facility (the "2021 Credit Facility"). The maturity date for borrowings under the 2021 Credit Facility is April 2026. The ability to access unused borrowing capacity under the 2021 Credit Facility as a source of liquidity is dependent on maintaining compliance with the financial covenants as specified under the terms of the credit agreement that established the 2021 Credit Facility (the "2021 Credit Agreement"). See Note 8 of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K for aggregate maturities of total long-term debt for the next five fiscal years and thereafter.

As of and for the reporting period ended December 31, 2021, 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, 2021 and for the fiscal period then ended are as follows:

In addition, as of December 31, 2021, the Company's consolidated total net leverage ratio (12-month period) was 2.33. 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.

Working capital requirements vary from period to period depending on manufacturing volumes primarily related to the RV, MH, marine 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 April 2021, we issued $350.0 million aggregate principal amount of 4.75% Senior Notes due 2029 (the "4.75% Senior Notes"), which accrue interest at a rate of 4.75% per annum and mature on May 1, 2029. The Company may redeem the 4.75% Senior Notes, in whole or in part, at any time (a) prior to May 1, 2024, at a price equal to 100% of the principal amount thereof, plus the applicable premium described in the associated indenture and accrued and unpaid interest and (b) on or after May 1, 2024 at specified redemption prices set forth in the indenture, plus accrued and unpaid interest. In addition, prior to May 1, 2024, the Company may redeem, in one or more transactions, up to an aggregate of 40% of the original principal amount of the 4.75% Senior Notes at a redemption price equal to 104.75% of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds of one or more equity offerings.

In December 2021, we completed the issuance of $258.8 million aggregate principal amount of 1.75% Convertible Senior Notes due 2028 (the “1.75% Convertible Notes”). The net proceeds from the issuance of the 1.75% Convertible Notes were approximately $249.7 million, after deducting the initial purchasers’ discounts and commissions and offering expenses payable by the Company, but before deducting the net cost of the 1.75% Convertible Note Hedge Transactions and the Warrant Transactions (each as defined herein) of $13.8 million described in Note 9 of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K.

The 1.75% Convertible Notes are senior unsecured obligations of the Company, accrue interest at 1.75% per annum and mature on December 1, 2028. The 1.75% Convertible Notes are convertible, in certain circumstances and subject to certain

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conditions, into cash, or a combination of cash and common stock, at the Company’s election. The initial conversion rate for the 1.75% Convertible Notes is 9.9887 shares of the Company’s common stock per $1,000 principal amount of 1.75% Convertible Notes (equal to an initial conversion price of $100.11 per share). Prior to June 1, 2028, the 1.75% Convertible Notes may be converted at the option of the holders only upon the occurrence of specified events and during certain periods, and thereafter until the close of business on the second scheduled trading day immediately preceding the maturity date, the Notes may be converted at any time. The Company will satisfy any conversion by paying cash up to the aggregate principal amount of the 1.75% Convertible Notes to be converted and by paying or delivering, as the case may be, cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at its election, in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of the 1.75% Convertible Notes being converted. The Company may redeem for cash all or any portion of the 1.75% Convertible Notes, at its option, on or after December 5, 2025 if the closing sale price per share of the Company’s common stock exceeds 130% of the conversion price of the 1.75% Convertible Notes for a specified period of time.

Off-Balance Sheet Arrangements

None.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The SEC has defined a company’s critical accounting policies as those that are most important to the portrayal of its financial condition and results of operations, and which require the Company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Although management believes that its estimates and assumptions are reasonable, they are based upon information available when they are made. Actual results may differ materially from these estimates under different assumptions or conditions. The Company has identified the following critical accounting policies and estimates:

Goodwill and Other Intangible Assets. The Company’s acquisitions include purchased goodwill and other intangible assets. Goodwill represents the excess of cost over the fair value of the net assets acquired. Other intangible assets acquired are classified as customer relationships, non-compete agreements, patents and trademarks.

Goodwill and indefinite-lived intangible assets, representing acquired trademarks, are not amortized but are subject to an annual (or under certain circumstances more frequent) impairment test in the fourth quarter based on their estimated fair value. We test more frequently, if there are indicators of impairment, or whenever such circumstances suggest that the carrying value of goodwill or trademarks may not be recoverable. These indicators include a sustained material decline in our share price and market capitalization, a decline in expected future cash flows, or a material adverse change in the business climate. A material adverse change in the business climate could result in a material loss of market share or the inability to achieve previously projected revenue growth.

Impairment reviews of goodwill are performed at the reporting unit level. The Company’s reporting units are defined as one level below our operating segments, Manufacturing and Distribution, which are the same as our reportable segments. 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 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. When calculating the present value of future cash flows under the income approach, the Company takes into consideration multiple variables, including forecasted sales volumes and operating income, current industry and economic conditions, and historical results. The income approach fair value estimate also includes estimates of long-term growth rates and discount rates that are commensurate with the risks and uncertainty inherent in the respective reporting units and internally-developed forecasts.

Impairment reviews of indefinite-lived intangible assets (trademarks) consist of a comparison of the fair value of the trademark to its carrying value. Fair value is measured using a relief-from-royalty approach, a form of discounted cash flow

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method. Estimated royalty rates applied to projected revenues are based on comparable industry studies and consideration of operating margins. Discount rates are derived in a manner similar to what is done in testing goodwill for impairment.

Based on the results of the Company's analyses, the estimated fair value of each of the Company's reporting units and trademarks was determined to exceed the carrying value for each of the years ended December 31, 2021, 2020 and 2019 and so no impairments were recognized. Further, based on the results of the impairment analyses, none of the Company’s reporting units or trademarks were at risk of failing the impairment assessments discussed above that would have a material effect on the Company’s Consolidated Financial Statements for any period presented.

Business Combinations. From time to time, we may enter into business combinations. We recognize the identifiable assets acquired and the liabilities assumed at their fair values as of the date of acquisition. We measure goodwill as the excess of consideration transferred, which we also measure at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values of property, plant and equipment, identifiable intangible assets, contingent consideration and other financial assets and liabilities. Significant estimates and assumptions include subjective and/or complex judgments regarding items such as discount rates, customer attrition rates, royalty rates, and other factors, including estimated future cash flows that we expect to generate from the acquired assets.

The acquisition method of accounting also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial condition and results of operations. No changes in the year ended December 31, 2021 to provisional fair value estimates of assets acquired and liabilities assumed in acquisitions were material. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop the acquisition date fair value estimates, we could record future impairment charges. In addition, we estimate the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired assets could be impaired.