Patrick Industries, Inc. — Q1 2023 Form 10-Q
Reporting period: First quarter ended April 2, 2023 (approximately 13 weeks); compared with the first quarter ended March 27, 2022. Dollar amounts below are in millions unless stated otherwise.
Business context and results
Patrick supplies products and components to recreational vehicle (RV), marine, manufactured housing (MH), and industrial markets through its Manufacturing and Distribution segments. Net sales fell as RV and MH customers reduced production amid weaker retail demand, inflation, and higher financing costs. Marine growth, market-share gains, pricing, and contributions from 2022 acquisitions partly offset the declines.
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $900.1 | $1,342.2 | -33% |
| Gross profit / margin | $194.2 / 21.6% | $295.3 / 22.0% | -34%; margin -0.4 pts |
| Operating income / margin | $56.2 / 6.2% | $161.8 / 12.1% | -65%; margin -5.9 pts |
| Net income | $30.2 | $112.7 | -73% |
| Diluted EPS | $1.35 | $4.54 | -70% |
| Net cash used in operating activities | $1.0 | $23.0 | Improved by $22.1 |
Markets, segments, and margin factors
- End markets: RV sales declined 55%; marine increased 25%; MH declined 23%; industrial declined 3%. RV wholesale shipments fell 54% year over year, while estimated RV retail sales fell about 8%. Marine wholesale powerboat shipments rose 14%, but estimated retail sales declined 19%. MH wholesale shipments fell 29%.
- Manufacturing: Sales of $708.8 million (-29%) and operating income of $87.2 million (-49%). Gross margin on segment sales was 21.9%, down from 23.7%.
- Distribution: Sales of $210.2 million (-43%) and operating income of $18.3 million (-60%). Gross margin on segment sales was 21.0%, up from 20.7%.
- Consolidated gross margin was pressured by lower volume and less favorable fixed-cost absorption. Material-cost improvements, labor efficiencies, and acquisition synergies partly offset the pressure. SG&A rose 9% to $82.4 million; it was 9.2% of sales versus 5.6% a year earlier, reflecting corporate investment, lower sales, and fixed costs.
- Q1 2022 SG&A included a $5.5 million pretax gain on a property sale, making the comparison less favorable to 2023. Amortization increased 17% to $19.8 million, mainly due to 2022 acquisitions.
Cash flow, debt, and liquidity
- Operating cash flow was negative $1.0 million, with lower earnings substantially offset by a $93.7 million reduction in cash used for working capital. Capital expenditures were $20.3 million; investing cash outflow was $23.6 million, versus $143.1 million in Q1 2022, largely because acquisition spending was lower.
- Cash was $30.8 million at April 2, 2023. Reported debt, before discounts and financing costs, totaled $1,353.8 million; revolving-credit borrowings were $310.0 million. Net debt calculated as reported debt less cash was approximately $1,323.0 million.
- Patrick repaid $172.5 million of 1.00% convertible notes at maturity on February 1, 2023, using its revolving facility. Interest expense rose 24% to $18.5 million; the SOFR-based revolver rate was 6.20% at quarter-end.
- Management reported $457.9 million of available credit-facility capacity and stated existing cash, operating cash flows, and borrowing capacity were expected to cover working-capital and capital-expenditure needs for at least 12 months, excluding acquisitions. The company was in compliance with its credit covenants; actual secured net leverage was 0.74 versus a maximum of 2.75, and fixed-charge coverage was 3.86 versus a minimum of 1.50.
- Dividends paid were $10.8 million; stock repurchases under the program were $3.7 million. Approximately $92.7 million remained authorized for repurchases at quarter-end.
Outlook, risks, and unusual items
- The filing provides no specific full-year revenue or earnings guidance. Management cautions that quarterly results are not necessarily indicative of full-year results.
- Management described lower RV and MH production, macroeconomic conditions, inflation, elevated interest rates, retail demand, and dealer inventory levels as key market factors. Sales and profits are historically seasonal, and changing order patterns and economic conditions may affect seasonality.
- A 100-basis-point increase in SOFR was estimated to add approximately $4.5 million in annual interest cost, based on $445.0 million of variable-rate borrowings at quarter-end. Commodity prices and the ability and timing of passing cost changes to customers are additional risks.
- Ordinary-course legal matters were not expected by management to have a material adverse effect based on information then available. The Lusher Site/Superfund matter remains uncertain; the EPA had not selected a final remedy. Management did not then believe the matter likely to have a material impact, but an adverse outcome or settlement could be material.
- On May 1, 2023, Patrick announced its acquisition of BTI Transport’s assets; the purchase price was described as not material. No acquisitions were completed in Q1 2023.
Important facts for investors to verify
- Whether RV and MH production cuts and dealer inventory adjustments continue, and whether marine retail demand weakens further.
- Whether gross and operating margins recover as volumes change, given fixed-cost absorption, SG&A investment, and acquisition-related amortization.
- Operating cash flow and working-capital trends, alongside revolver usage, interest expense, and covenant headroom.
- The final acquisition accounting and performance-related contingent consideration, and the progress and potential exposure from the Lusher Site/Superfund matter.
- The filing’s market shipment, retail, and content-per-unit figures include company estimates or third-party industry data; assess them as estimates rather than audited GAAP measures.