Patrick Industries, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing is an annual report, not a standalone quarterly filing; selected fourth-quarter results are included below. Patrick manufactures and distributes components and building products, primarily for recreational vehicle (RV), marine, manufactured housing (MH), and industrial markets.
Financial performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net sales | $2,486.6 million | $2,337.1 million | +6% |
| Gross profit / margin | $459.0 million / 18.5% | $422.9 million / 18.1% | Margin +0.4 percentage points |
| Operating income / margin | $173.4 million / 7.0% | $154.4 million / 6.6% | +12% |
| Net income / diluted EPS | $97.1 million / $4.20 | $89.6 million / $3.85 | Net income +8% |
| Cash from operations | $160.2 million | $192.4 million | Down $32.2 million |
| Capital expenditures | $32.1 million | $27.7 million | Up $4.4 million |
| Cash and cash equivalents at year-end | $44.8 million | $139.4 million | Down $94.6 million |
| Total debt, before financing costs and discounts | $840.0 million | $705.0 million | Up $135.0 million |
Operating cash flow less capital expenditures was approximately $128.1 million in 2020, compared with $164.7 million in 2019. Cash use reflected higher inventory and receivables, acquisitions, dividends, and share repurchases. Net interest expense rose to $43.0 million from $36.6 million; the effective tax rate was 25.6%, versus 24.0%.
Fourth quarter: Net sales were $772.6 million, gross profit $142.3 million, net income $37.8 million, and diluted EPS $1.64. Compared with fourth-quarter 2019, these were increases of approximately 41%, 43%, 89%, and 91%, respectively.
Markets, segments, and material changes
- By end market, 2020 sales were 56% RV, 14% marine, 17% MH, and 13% industrial. Sales increased 8% in RV, 3% in marine, and 14% in industrial, and declined 1% in MH.
- Manufacturing accounted for approximately 70% of consolidated sales; Distribution accounted for 30%. Distribution operating income increased 40% to $54.4 million, with gross margin rising to 17.5% from 15.9%. Manufacturing operating income increased 9% to $190.5 million; gross margin was 18.4% in both years.
- COVID-19 caused temporary customer and facility shutdowns in late Q1 and early Q2. Demand and OEM production rebounded sharply in the second half, particularly in RV and marine; MH recovery was slower amid labor and supply constraints.
- The company completed seven previously announced acquisitions in 2020, investing approximately $307 million in cash consideration. Acquired businesses contributed $81.9 million of 2020 sales and $10.7 million of operating income.
Liquidity, outlook, risks, and unusual items
- At year-end, $314.6 million was available under the $650 million revolving-credit and term-loan facility. The company reported compliance with debt covenants: actual leverage ratio 2.44 versus a maximum of 4.50, and fixed-charge coverage ratio 4.81 versus a minimum of 1.50.
- Management said cash, operating cash flow, and available credit were expected to cover working capital and capital expenditures for at least the next 12 months, excluding acquisitions. The filing provides no specific earnings or revenue guidance.
- Management cited strong demand and historically low RV and marine dealer inventories, but warned that demand, production, and results remain exposed to COVID-19, economic and consumer-confidence shifts, financing availability, supply-chain and labor constraints, commodity prices, and industry cyclicality.
- Two RV customers represented 39% of 2020 sales combined; the company has no long-term customer agreements. Goodwill was $395.8 million, and approximately 70% of total assets comprised goodwill, intangible assets, operating lease right-of-use assets, and property, plant and equipment. Annual goodwill and trademark impairment tests found no impairment; a separate $2.0 million intangible-asset impairment was recorded after certain operations ceased.
- A CERCLA and related environmental case was dismissed as to Patrick in August 2020; a plaintiff’s reconsideration motion remained pending. Management did not expect the matter to have a material impact. The filing reports no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether strong RV and marine retail demand converts into sustained OEM production and replenishment of depleted dealer inventories.
- How much reported growth and future earnings depend on acquisitions, and whether acquired operations deliver expected integration benefits and returns.
- Debt repayment and refinancing needs, including the $172.5 million convertible notes due 2023 and the $300 million senior notes due 2027, alongside covenant headroom and interest-rate exposure.
- Working-capital trends: inventories rose to $312.8 million from $253.9 million, while receivables rose to $132.5 million from $87.5 million.
- Exposure to major customers, raw-material availability and prices, labor constraints, and potential COVID-19-related disruption; also monitor the pending environmental reconsideration motion.