Patrick Industries, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; includes fourth-quarter results. Patrick supplies manufactured components and distribution services primarily to recreational vehicle (RV), marine, manufactured housing (MH), and industrial markets. Manufacturing represented 74% of 2022 sales and Distribution 26%.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $4.882 billion | $4.078 billion | +20% |
| Gross profit / margin | $1.060 billion / 21.7% | $801.2 million / 19.6% | +32%; margin +2.1 points |
| Operating income / margin | $496.2 million / 10.2% | $351.7 million / 8.6% | +41%; margin +1.6 points |
| Net income | $328.2 million | $224.9 million | +46% |
| Diluted EPS | $13.49 | $9.63 | +40% |
| Operating cash flow | $411.7 million | $252.1 million | +63% |
| Capital expenditures | $79.9 million | $64.8 million | +$15.1 million |
Fourth quarter: Net sales were $951.9 million versus $1.147 billion in Q4 2021; net income was $40.2 million versus $61.0 million, and diluted EPS was $1.68 versus $2.62. The filing reports lower Q4 sales and earnings amid seasonality and reduced RV production in the second half.
Cash, liquidity and debt: Cash and equivalents were $22.8 million at year-end, down from $122.8 million. Total debt was $1.298 billion, down from $1.361 billion; balance-sheet current maturities were $7.5 million, while scheduled 2023 debt maturities totaled $180 million, including the $172.5 million convertible notes. The notes were repaid at maturity in February 2023 using revolver capacity and cash. The amended credit facility totals $925 million, including a $775 million revolver, and matures in August 2027. The company said cash, operating cash flow and available facility borrowings should cover working capital and capital expenditure needs for at least 12 months, excluding acquisitions. Year-end covenant results were within requirements: secured net leverage ratio 0.29 against a 2.75 maximum; fixed-charge coverage 5.42 against a 1.50 minimum.
Other metrics: Current assets were $909.9 million and current liabilities $367.2 million. Dividends paid were $32.9 million ($1.44 per share); share repurchases under the program were $77.0 million. The company reported returning approximately $110 million to shareholders during 2022.
Changes versus the prior year
- Sales rose across all four end markets: RV +8%, marine +56%, MH +29%, and industrial +18%. Marine growth reflected acquisitions, pricing, product mix and market-share gains; acquisitions accounted for about 65% of the marine sales increase.
- RV remained the largest market at 53% of sales, down from 59%. Industry RV wholesale shipments fell 18% and retail sales fell 22%, while company RV sales increased 8%.
- Gross margin improved as a result of cost reduction and automation, improved labor efficiency, acquisition mix and fixed-cost leverage. SG&A rose 29%, to $327.5 million, and increased to 6.7% of sales from 6.2%, reflecting variable costs and investment in people, technology and incentive compensation.
- Operating cash flow increased, including because cash used for inventory procurement decreased substantially from 2021. Inventory nevertheless rose to $667.8 million from $614.4 million, and management said levels remained elevated versus historical norms.
Outlook, risks and notable items
- The filing provides no formal 2023 revenue or earnings guidance. Management describes long-term opportunity in its markets but emphasizes uncertainty from economic conditions, interest rates, consumer spending, financing availability, and industry production and dealer inventory levels.
- Customer concentration is material: Forest River and Thor together generated 38% of 2022 sales. The company has no long-term customer agreements. Exposure to the cyclical RV market remains significant.
- Other principal risks include raw-material and labor inflation, supply-chain disruption, inventory forecasting and obsolescence, acquisition integration, variable-rate borrowing costs, covenant compliance, and import tariffs or restrictions. A 100-basis-point increase in SOFR was estimated to add approximately $2.2 million in annual interest expense based on year-end variable-rate borrowings.
- The company completed five acquisitions in 2022 for approximately $249 million in cash consideration, plus contingent consideration. Deloitte identified valuation of acquired intangible assets in one acquisition as a critical audit matter; the financial-statement audit opinion was unqualified.
- A $5.5 million pretax gain on sale of certain property was recorded in SG&A. Environmental proceedings concerning the Lusher Street site remain subject to uncertainty; management did not expect a material impact but noted an adverse resolution could be material. The company also recorded estimated costs related to customer RV product recalls and said it did not expect a material adverse effect.
- Adoption of the convertible-instrument accounting standard increased diluted shares and reduced 2022 diluted EPS by $1.15, according to the filing. The 2022 goodwill and indefinite-lived intangible impairment tests identified no impairment.
Investor verification points
- Track RV retail demand, OEM production and dealer inventories, and whether the second-half 2022 slowdown persists.
- Assess the sustainability of improved gross margins and the contribution from pricing, acquisitions, automation and cost efficiencies.
- Monitor inventory levels, cash conversion and working-capital requirements as production and customer demand change.
- Review debt repayment and borrowing capacity after the February 2023 convertible-note repayment, including interest-rate exposure and covenant headroom.
- Verify acquisition performance and integration, customer concentration, and developments in the Lusher Street environmental matter and recall-related costs.