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PATRICK INDUSTRIES INC - Quarter Report: 2023 April (Form 10-Q)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED April 2, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ……………… to ………………
 
Commission file number 000-03922
 
Patrick_logo-01.jpg
PATRICK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

Indiana35-1057796
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
                              
107 WEST FRANKLIN STREET, P.O. Box 638
ELKHART, IN
46515
(Address of principal executive offices) (ZIP Code)
 (574) 294-7511
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
 Common Stock, no par value PATKNASDAQ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.                             
Large accelerated filer Accelerated filer
 
Non-accelerated filer
 
Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).         Yes ☐ No

As of April 28, 2023, there were 22,321,577 shares of the registrant’s common stock outstanding. 




PATRICK INDUSTRIES, INC.

 TABLE OF CONTENTS 

Page No.
PART I. FINANCIAL INFORMATION 
  
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Statements of Income
   First Quarter ended April 2, 2023 and March 27, 2022
 
Condensed Consolidated Statements of Comprehensive Income
   First Quarter ended April 2, 2023 and March 27, 2022
Condensed Consolidated Balance Sheets
   April 2, 2023 and December 31, 2022
Condensed Consolidated Statements of Cash Flows
  First Quarter ended April 2, 2023 and March 27, 2022
Condensed Consolidated Statements of Shareholders' Equity
   First Quarter ended April 2, 2023 and March 27, 2022
Notes to Condensed Consolidated Financial Statements
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
ITEM 4. CONTROLS AND PROCEDURES
 
PART II. OTHER INFORMATION
 
ITEM 1A. RISK FACTORS
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
ITEM 6. EXHIBITS
 
SIGNATURES

2




PART 1: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

First Quarter Ended
(thousands except per share data)April 2, 2023March 27, 2022
NET SALES$900,100 $1,342,175 
Cost of goods sold705,856 1,046,830 
GROSS PROFIT194,244 295,345 
Operating Expenses: 
  Warehouse and delivery35,845 41,169 
  Selling, general and administrative82,401 75,560 
  Amortization of intangible assets19,764 16,861 
    Total operating expenses138,010 133,590 
OPERATING INCOME56,234 161,755 
Interest expense, net18,484 14,886 
Income before income taxes37,750 146,869 
Income taxes7,577 34,196 
NET INCOME$30,173 $112,673 
BASIC EARNINGS PER COMMON SHARE $1.40 $5.00 
DILUTED EARNINGS PER COMMON SHARE $1.35 $4.54 
Weighted average shares outstanding – Basic 21,59122,517
Weighted average shares outstanding – Diluted 22,51224,882
See accompanying Notes to Condensed Consolidated Financial Statements.




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PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

First Quarter Ended
(thousands)April 2, 2023March 27, 2022
NET INCOME$30,173 $112,673 
Other comprehensive income, net of tax:
Unrealized gain of hedge derivatives 757 
Foreign currency translation gain (loss)(9)29 
Total other comprehensive income (loss)(9)786 
COMPREHENSIVE INCOME$30,164 $113,459 
See accompanying Notes to Condensed Consolidated Financial Statements.

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PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
As of
(thousands)April 2, 2023December 31, 2022
ASSETS
Current Assets
    Cash and cash equivalents$30,783 $22,847 
    Trade and other receivables, net256,440 172,890 
    Inventories628,383 667,841 
    Prepaid expenses and other38,872 46,326 
        Total current assets954,478 909,904 
Property, plant and equipment, net353,599 350,572 
Operating lease right-of-use assets166,222 163,674 
Goodwill627,306 629,263 
Intangible assets, net706,706 720,230 
Other non-current assets8,519 8,828 
        TOTAL ASSETS$2,816,830 $2,782,471 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
    Current maturities of long-term debt$7,500 $7,500 
    Current operating lease liabilities44,977 44,235 
    Accounts payable149,260 142,910 
    Accrued liabilities130,943 172,595 
        Total current liabilities332,680 367,240 
Long-term debt, less current maturities, net1,332,158 1,276,149 
Long-term operating lease liabilities124,373 122,471 
Deferred tax liabilities, net48,782 48,392 
Other long-term liabilities9,015 13,050 
        TOTAL LIABILITIES1,847,008 1,827,302 
SHAREHOLDERS’ EQUITY  
Common stock194,753 197,003 
Accumulated other comprehensive loss(704)(695)
Retained earnings775,773 758,861 
        TOTAL SHAREHOLDERS’ EQUITY969,822 955,169 
        TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$2,816,830 $2,782,471 

See accompanying Notes to Condensed Consolidated Financial Statements.

5



PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
First Quarter Ended
(thousands)April 2, 2023March 27, 2022
CASH FLOWS FROM OPERATING ACTIVITIES  
Net income$30,173 $112,673 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization 35,510 30,201 
Stock-based compensation expense5,242 5,111 
Amortization of convertible notes debt discount324 449 
Gain on sale of property, plant and equipment(23)(5,501)
Other non-cash items1,755 1,697 
Change in operating assets and liabilities, net of acquisitions of businesses: 
Trade and other receivables, net(83,354)(160,883)
Inventories39,502 (51,769)
Prepaid expenses and other assets6,314 7,198 
Accounts payable, accrued liabilities and other(36,393)37,785 
Net cash used in operating activities(950)(23,039)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment(20,266)(18,668)
Proceeds from sale of property and equipment and other investing activities92 7,146 
Business acquisitions, net of cash acquired(478)(131,597)
Purchases of intangible assets and other investing activities(2,925)— 
Net cash used in investing activities(23,577)(143,119)
CASH FLOWS FROM FINANCING ACTIVITIES
Term debt repayments(1,875)— 
Borrowings on revolver354,324 303,712 
Repayments on revolver(124,613)(149,712)
Repayments of convertible notes(172,500)— 
Stock repurchases under buyback program(3,660)(24,778)
Cash dividends paid to shareholders(10,761)(8,288)
Taxes paid for share-based payment arrangements(7,499)(9,999)
Payment of contingent consideration from a business acquisition(1,370)(3,780)
Proceeds from exercise of common stock options492 — 
Other financing activities(75)— 
Net cash provided by financing activities32,463 107,155 
Increase (decrease) in cash and cash equivalents7,936 (59,003)
Cash and cash equivalents at beginning of year22,847 122,849 
Cash and cash equivalents at end of period$30,783 $63,846 

See accompanying Notes to Condensed Consolidated Financial Statements.
6



PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
First Quarter Ended April 2, 2023
(thousands)Common
Stock
Additional Paid-in CapitalAccumulated Other
Comprehensive Loss
Retained
Earnings
Total
Balance December 31, 2022$197,003 $— $(695)$758,861 $955,169 
Net income   30,173 30,173 
Dividends declared   (10,086)(10,086)
Other comprehensive loss, net of tax  (9) (9)
Stock repurchases under buyback program(485)  (3,175)(3,660)
Repurchases of shares for tax payments related to the vesting and exercising of share-based grants(7,499)   (7,499)
Issuance of shares upon exercise of common stock options492    492 
Stock-based compensation expense5,242    5,242 
Balance April 2, 2023$194,753 $ $(704)$775,773 $969,822 

First Quarter Ended March 27, 2022
(thousands)Common
Stock
Additional Paid-in CapitalAccumulated Other
Comprehensive Loss
Retained
Earnings
Total
Balance December 31, 2021$196,383 $59,668 $(2,228)$513,734 $767,557 
Impact of adoption of ASU 2020-06— (59,668)— 15,975 (43,693)
Net income— — — 112,673 112,673 
Dividends declared— — — (7,684)(7,684)
Other comprehensive income, net of tax— — 786 — 786 
Stock repurchases under buyback program(3,062)— — (21,717)(24,779)
Repurchase of shares for tax payments related to the vesting and exercising of share-based grants(9,999)— — — (9,999)
Stock-based compensation expense5,111 — — — 5,111 
Balance March 27, 2022188,433 — (1,442)612,981 799,972 



See accompanying Notes to Condensed Consolidated Financial Statements.

7




PATRICK INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1.BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Patrick Industries, Inc. (“Patrick”, the “Company”, "we", "our") contain all adjustments (consisting of normal recurring adjustments) that we believe are necessary to present fairly the Company’s financial position as of April 2, 2023 and December 31, 2022, its results of operations for the first quarter ended April 2, 2023 and March 27, 2022, and its cash flows for the first quarter ended April 2, 2023 and March 27, 2022.
Patrick’s unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules or regulations. Intercompany balances and transactions have been eliminated in consolidation. For a description of significant accounting policies used by the Company in the preparation of its consolidated financial statements, please refer to Note 1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The December 31, 2022 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. Operating results for the first quarter ended April 2, 2023 are not necessarily indicative of the results that we will realize or expect for the full year ending December 31, 2023.
The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning approximately thirteen weeks. The first quarter ends on the Sunday closest to the end of the first thirteen-week period. The second and third quarters are thirteen weeks in duration and the fourth quarter is the remainder of the year. The first quarter of fiscal year 2023 ended on April 2, 2023 and the first quarter of fiscal year 2022 ended on March 27, 2022.
In preparation of Patrick’s condensed consolidated financial statements as of and for the first quarter ended April 2, 2023, management evaluated all subsequent events and transactions that occurred after the balance sheet date through the date of issuance of the Form 10-Q that required recognition or disclosure in the condensed consolidated financial statements. See Note 15 for further information.
2.REVENUE RECOGNITION
In the following table, revenue from contracts with customers, net of intersegment sales, is disaggregated by market type and by reportable segment, consistent with how the Company believes the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors:
First Quarter Ended April 2, 2023
(thousands)ManufacturingDistributionTotal
Market type:
Recreational Vehicle$252,444 $114,516 $366,960 
Marine261,020 14,884 275,904 
Manufactured Housing64,189 69,235 133,424 
Industrial114,743 9,069 123,812 
Total$692,396 $207,704 $900,100 
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First Quarter Ended March 27, 2022
(thousands)ManufacturingDistributionTotal
Market type:
Recreational Vehicle$570,022 $250,582 $820,604 
Marine207,501 13,473 220,974 
Manufactured Housing84,986 88,578 173,564 
Industrial117,100 9,933 127,033 
Total$979,609 $362,566 $1,342,175 

Contract Liabilities
Contract liabilities, representing upfront payments from customers received prior to satisfying performance obligations, were immaterial as of the beginning and end of all periods presented and changes in contract liabilities were immaterial during all periods presented.
3.INVENTORIES
Inventories consist of the following:
(thousands)April 2, 2023December 31, 2022
Raw materials$315,559 $348,670 
Work in process22,640 22,630 
Finished goods132,348 141,516 
Less: reserve for inventory obsolescence(17,074)(14,059)
  Total manufactured goods, net453,473 498,757 
Materials purchased for resale (distribution products)182,198 175,061 
Less: reserve for inventory obsolescence(7,288)(5,977)
  Total materials purchased for resale (distribution products), net174,910 169,084 
Total inventories$628,383 $667,841 
4.GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying amount of goodwill for the first quarter ended April 2, 2023 by segment are as follows:
(thousands)ManufacturingDistributionTotal
Balance - December 31, 2022$558,362 $70,901 $629,263 
Adjustments to preliminary purchase price allocations(2,132)175 (1,957)
Balance - April 2, 2023
$556,230 $71,076 $627,306 
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Intangible assets, net consist of the following as of April 2, 2023 and December 31, 2022:
(thousands)April 2, 2023December 31, 2022
Customer relationships$727,044 $722,503 
Non-compete agreements21,301 20,412 
Patents69,164 69,164 
Trademarks196,767 195,957 
1,014,276 1,008,036 
Less: accumulated amortization(307,570)(287,806)
Intangible assets, net$706,706 $720,230 

Changes in the carrying value of intangible assets for the first quarter ended April 2, 2023 by segment are as follows:
(thousands)ManufacturingDistributionTotal
Balance - December 31, 2022$622,647 $97,583 $720,230 
Additions2,925 300 3,225 
Amortization(17,183)(2,581)(19,764)
Adjustments to preliminary purchase price allocations3,100 (85)3,015 
Balance - April 2, 2023
$611,489 $95,217 $706,706 
5.ACQUISITIONS
General 
The Company completed no acquisitions in the first quarter of 2023. The Company completed one acquisition in the first quarter of 2022. For the first quarter ended March 27, 2022, net sales included in the Company's condensed consolidated statements of income related to the acquisition completed in the first quarter of 2022 were $8.4 million, and operating income was $1.4 million.

For each acquisition, the excess of the purchase consideration over the fair value of the net assets acquired is recorded as goodwill, which generally represents the combined value of the Company’s existing purchasing, manufacturing, sales, and systems resources with the organizational talent and expertise of the acquired companies’ respective management teams to maximize efficiencies, market share growth and net income.
Contingent Consideration
In connection with certain acquisitions, if certain financial results for the acquired businesses are achieved, the Company is required to pay additional cash consideration. The Company records a liability for the estimated fair value of the contingent consideration related to each of these acquisitions as part of the initial purchase price based on the present value of the expected future cash flows and the probability of future payments at the date of acquisition.
10



Changes in the fair value of contingent consideration for the first quarter ended April 2, 2023 are as follows:
(thousands)April 2, 2023
Balance - December 31, 2022$9,213 
Additions90 
Fair value adjustments(1)
1,000 
Settlements(5,120)
Balance - April 2, 2023
5,183 
(1) The company records non-cash fair value adjustments to contingent consideration based on expected results, which are included in Selling, general and administrative expenses in the Company's condensed consolidated statements of income for the first quarter of 2023.
The following table shows the balance sheet location of the fair value of contingent consideration and the maximum amount of contingent consideration payments the Company may be subject to at April 2, 2023 and December 31, 2022:
(thousands)April 2, 2023December 31, 2022
Accrued liabilities$5,083 $5,250 
Other long-term liabilities100 3,963 
Total fair value of contingent consideration5,183 9,213 
Maximum amount of contingent consideration6,770 10,747 
2022 Acquisitions
The Company completed five acquisitions in the year ended December 31, 2022, including the following three previously announced acquisitions (collectively, the "2022 Acquisitions"):
CompanySegmentDescription
Rockford CorporationManufacturingDesigner and manufacturer of audio systems and components through its brand Rockford Fosgate®, primarily serving the powersports and automotive aftermarkets, based in Tempe, Arizona, acquired in March 2022
Diamondback Towers, LLCManufacturingManufacturer of wakeboard/ski towers and accessories for marine original equipment manufacturers ("OEMs"), based in Cocoa, Florida, acquired in May 2022
TranshieldManufacturingDesigner and manufacturer of customized and proprietary protection solutions for the marine, military and industrial markets, including covers and shrinkable packaging, to protect equipment during transport and storage, based in Elkhart, Indiana, acquired in November 2022.
Inclusive of two acquisitions not discussed above, total cash consideration for the 2022 Acquisitions was approximately $248.7 million, plus contingent consideration over a one to two-year period based on future performance in connection with certain acquisitions. The preliminary purchase price allocations are subject to valuation activities being finalized, and thus certain purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its estimates. Purchase price allocations and all valuation activities in connection with the acquisition completed in the first quarter of 2022 have been finalized. Changes to preliminary purchase accounting estimates recorded in the first quarter ended April 2, 2023 related to the 2022 Acquisitions were immaterial.

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The following table summarizes the fair values of the assets acquired and the liabilities assumed as of the date of acquisition for the 2022 Acquisitions:
2022
Acquisitions
(thousands)Acquisition AAcquisition BAll OthersTotal
Consideration
Cash, net of cash acquired$132,557 $95,571 $20,526 $248,655 
Working capital holdback and other, net (1,291)315 (977)
Contingent consideration(1)
  1,840 1,840 
Total consideration$132,557 $94,280 $22,681 $249,518 
Assets Acquired
Trade receivables$20,640 $4,917 $904 $26,461 
Inventories32,744 8,732 2,353 43,829 
Prepaid expenses & other1,325 164 120 1,609 
Property, plant & equipment4,681 6,026 1,638 12,345 
Operating lease right-of-use assets2,917 1,435 599 4,951 
Identifiable intangible assets
Customer relationships58,000 38,630 7,045 103,675 
Non-compete agreements500 230 250 980 
Patents7,500 9,400  16,900 
Trademarks17,000 7,910 1,220 26,130 
Liabilities Assumed
Current portion of operating lease obligations(512)(289)(273)(1,074)
Accounts payable & accrued liabilities(24,521)(3,408)(1,255)(29,184)
Operating lease obligations(2,405)(1,146)(326)(3,877)
Deferred tax liabilities(19,930)(14,466) (34,396)
Total fair value of net assets acquired97,939 58,135 12,275 168,349 
Goodwill(2)
34,618 36,145 10,406 81,169 
$132,557 $94,280 $22,681 $249,518 
(1) These amounts reflect the acquisition date fair value of contingent consideration based on expected future results relating to certain acquisitions.
(2) Goodwill is not tax-deductible for Acquisition A and Acquisition B (totaling approximately $70.8 million) but is tax-deductible for the remaining 2022 Acquisitions.
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We estimate the value of acquired property, plant, and equipment using a combination of the income, cost, and market approaches, such as estimates of future income growth, capitalization rates, discount rates, and capital expenditure needs of the acquired businesses.
We estimate the value of customer relationships using the multi-period excess earnings method, which is a variation of the income approach, calculating the present value of incremental after-tax cash flows attributable to the asset. Non-compete agreements are valued using a discounted cash flow approach, which is a variation of the income approach, with and without the individual counterparties to the non-compete agreements. Trademarks and patents are valued using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future cash flows, discounted to present value.
The estimated useful life for customer relationships is 10 years. The estimated useful life for non-compete agreements is 5 years. The weighted average estimated useful life for patents is 13 years, ranging from 10 to 18 years. Trademarks have an indefinite useful life.
Pro Forma Information
The following pro forma information for the first quarter ended April 2, 2023 and March 27, 2022 assumes the 2022 Acquisitions occurred as of the beginning of the year immediately preceding each such acquisition. The pro forma information contains the actual operating results of the 2022 Acquisitions combined with the results prior to their respective acquisition dates, adjusted to reflect the pro forma impact of the acquisitions occurring as of the beginning of the year immediately preceding each such acquisition.

The pro forma information includes financing and interest expense charges based on incremental borrowings incurred in connection with each transaction. In addition, the pro forma information includes amortization expense, in the aggregate, related to intangible assets acquired in connection with the transactions of $1.7 million for the first quarter ended March 27, 2022.
 
First Quarter Ended
(thousands, except per share data)April 2, 2023March 27, 2022
Revenue$900,100 $1,373,573 
Net income30,173 113,769 
Basic earnings per common share1.40 5.05 
Diluted earnings per common share1.35 4.59 
The pro forma information is presented for informational purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of the periods indicated above.
6.STOCK-BASED COMPENSATION
The Company recorded expense of approximately $5.2 million and $5.1 million in the first quarter ended April 2, 2023 and March 27, 2022, respectively, for its stock-based compensation plans in the condensed consolidated statements of income.
The Company's Board of Directors (the "Board") approved various stock-based grants under the Company’s 2009 Omnibus Incentive Plan in the first quarter ended April 2, 2023 totaling 313,635 shares in the aggregate at an average fair value of $55.59 at grant date for a total fair value at grant date of $17.4 million.
As of April 2, 2023, there was approximately $33.6 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under incentive plans. That cost is expected to be recognized over a weighted-average period of 19.4 months.
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7.EARNINGS PER COMMON SHARE
Earnings per common share calculated for the first quarter of 2023 and 2022 is as follows:
 
First Quarter Ended
(thousands except per share data)April 2, 2023March 27, 2022
Numerator:
Earnings for basic earnings per common share calculation$30,173 $112,673 
Effect of interest on potentially dilutive convertible notes, net of tax162 317 
Earnings for diluted earnings per common share calculation$30,335 $112,990 
Denominator:
Weighted average common shares outstanding - basic21,59122,517
Weighted average impact of potentially dilutive convertible notes6582,046
Weighted average impact of potentially dilutive securities263319
Weighted average common shares outstanding - diluted22,51224,882
Earnings per common share:
Basic earnings per common share$1.40 $5.00 
Diluted earnings per common share$1.35 $4.54 
An immaterial amount of securities was not included in the computation of diluted earnings per common share as they are considered anti-dilutive under the treasury stock method for all periods presented.
8.DEBT
A summary of total debt outstanding at April 2, 2023 and December 31, 2022 is as follows:
(thousands)April 2, 2023December 31, 2022
Long-term debt:
1.00% convertible notes due 2023
$ $172,500 
Term loan due 2027135,000 136,875 
Revolver due 2027310,000 80,289 
7.50% senior notes due 2027
300,000 300,000 
1.75% convertible notes due 2028
258,750 258,750 
4.75% senior notes due 2029
350,000 350,000 
Total long-term debt1,353,750 1,298,414 
Less: convertible notes debt discount, net(5,664)(5,989)
Less: term loan deferred financing costs, net(663)(701)
Less: senior notes deferred financing costs, net(7,765)(8,075)
Less: current maturities of long-term debt(7,500)(7,500)
Total long-term debt, less current maturities, net$1,332,158 $1,276,149 
The Company maintains a senior secured credit facility comprised of a $775 million revolving credit facility (the "Revolver due 2027") and the remaining balance of a $150 million term loan. On February 1, 2023, the Company utilized borrowing capacity under the Revolver due 2027 to satisfy its repayment obligation at maturity of the 1.00% Convertible Senior Notes due 2023 (the "1.00% Convertible Notes"). All noteholders elected to receive cash in repayment of the 1.00% Convertible Notes.
14



The interest rate for incremental borrowings under the Revolver due 2027 at April 2, 2023 was SOFR plus 1.25% (or 6.20%) for the SOFR-based option. The fee payable on committed but unused portions of the Revolver due 2027 was 0.18% at April 2, 2023.
Total cash interest paid for the first quarter of 2023 and 2022 was $5.8 million and $3.2 million, respectively.
9.LEASES
Lease expense, supplemental cash flow information, and other information related to leases were as follows:
First Quarter Ended
(thousands)April 2, 2023March 27, 2022
Operating lease cost$13,464 $12,164 
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases$13,378 $11,927 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$15,034 $23,725 

Balance sheet information related to leases was as follows:
(thousands, except lease term and discount rate)April 2, 2023December 31, 2022
Assets
Operating lease right-of-use assets$166,222 $163,674 
Liabilities
Operating lease liabilities, current portion$44,977 $44,235 
Long-term operating lease liabilities124,373 122,471 
Total lease liabilities$169,350 $166,706 
Weighted average remaining lease term, operating leases (in years)5.25.1
Weighted average discount rate, operating leases4.8 %4.4 %
Maturities of lease liabilities were as follows at April 2, 2023:
(thousands)
2023 (excluding the three months ended April 2, 2023)$39,468 
202446,218 
202536,333 
202625,824 
202714,806 
Thereafter30,476 
Total lease payments193,125 
Less imputed interest(23,775)
Total$169,350 

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As of April 2, 2023, outstanding leases have remaining lease terms ranging from 1 year to 16 years. The Company has additional operating leases that have not yet commenced as of April 2, 2023 and, therefore, were not included as operating right-of-use assets and corresponding operating lease liabilities on our condensed consolidated balance sheet at April 2, 2023. These operating leases are anticipated to commence in the second quarter of fiscal 2023 with lease terms of 5 years to 7 years. The estimated fair value of these operating lease right-of-use assets and corresponding operating lease liabilities to be recorded on our balance sheet upon lease commencement is approximately $9.9 million.
10.FAIR VALUE MEASUREMENTS
The following table presents fair values of certain assets and liabilities at April 2, 2023 and December 31, 2022:
April 2, 2023December 31, 2022
(in millions)Level 1Level 2Level 3Level 1Level 2Level 3
Cash equivalents(1)
$21.1 $ $ $15.2 $— $— 
7.50% senior notes due 2027(2)
 294.4  — 293.9 — 
4.75% senior notes due 2029(2)
 304.4  — 293.8 — 
1.00% convertible notes due 2023(2)
   — 172.0 — 
1.75% convertible notes due 2028(2)
 233.7  — 219.9 — 
Term loan due 2027(3)
 135.0  — 136.9 — 
Revolver due 2027(3)
 310.0  — 80.3 — 
Contingent consideration(4)
  5.2 — — 9.2 
(1) The carrying amounts of cash equivalents, representing government and other money market funds traded in an active market with relatively short maturities, are reported on the condensed consolidated balance sheet as of April 2, 2023 and December 31, 2022 as a component of "Cash and cash equivalents".
(2) The amounts of these notes listed above are the current fair values for disclosure purposes only, and they are recorded in the Company's condensed consolidated balance sheets as of April 2, 2023 and December 31, 2022 using the interest rate method. Repayment of the 1.00% Convertible Notes at maturity is discussed further in Note 8.
(3) The carrying amounts of our Term loan due 2027 and Revolver due 2027 approximate fair value as of April 2, 2023 and December 31, 2022 based upon their terms and conditions in comparison to the terms and conditions of debt instruments with similar terms and conditions available at those dates.
(4) The estimated fair value of the Company's contingent consideration is discussed further in Note 5.
11.INCOME TAXES
The effective tax rate in the first quarter of 2023 and 2022 was 20.1% and 23.3%, respectively. The first quarter of 2023 and 2022 rates include the impact of the recognition of excess tax benefits on share-based compensation that was recorded as a reduction to income tax expense in the amount of $2.3 million and $4.0 million, respectively.
 
Cash paid for income taxes, net of refunds, was $17.2 million in the first quarter of 2023 and $18.4 million in the first quarter of 2022.
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12.SEGMENT INFORMATION
The Company has two reportable segments, Manufacturing and Distribution, which are based on its method of internal reporting, which segregates its businesses based on the manner in which its chief operating decision maker allocates resources, evaluates financial results, and determines compensation.
The tables below present information about the sales and operating income of those segments. 
First Quarter Ended April 2, 2023   
(thousands)ManufacturingDistributionTotal
Net outside sales$692,396 $207,704 $900,100 
Intersegment sales16,419 2,455 18,874 
Total sales708,815 210,159 918,974 
Operating income87,165 18,307 105,472 
First Quarter Ended March 27, 2022   
(thousands)ManufacturingDistributionTotal
Net outside sales$979,609 $362,566 $1,342,175 
Intersegment sales18,976 3,168 22,144 
Total sales998,585 365,734 1,364,319 
Operating income170,544 45,966 216,510 
The following table presents a reconciliation of segment operating income to consolidated operating income:
 First Quarter Ended
(thousands)April 2, 2023March 27, 2022
Operating income for reportable segments$105,472 $216,510 
Unallocated corporate expenses(29,474)(37,894)
Amortization(19,764)(16,861)
Consolidated operating income$56,234 $161,755 
Unallocated corporate expenses include corporate general and administrative expenses comprised of wages and other compensation, insurance, taxes, supplies, travel and entertainment, professional fees, amortization of inventory step-up adjustments, and other.
13.
STOCK REPURCHASE PROGRAMS
In December 2022, the Board authorized an increase in the amount of the Company's common stock that may be acquired over the next 24 months under the current stock repurchase program to $100 million, including the $38.2 million remaining under the previous authorization. Approximately $92.7 million remains in the amount of the Company's common stock that may be acquired under the current stock repurchase program as of April 2, 2023. Under the stock repurchase plan, the Company made repurchases of common stock as follows for the respective periods:
 First Quarter Ended
April 2, 2023March 27, 2022
Shares repurchased54,620365,627
Average price$67.01 $67.77 
Aggregate cost (in millions)$3.7 $24.8 
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14.COMMITMENTS AND CONTINGENCIES
The Company is subject to proceedings, lawsuits, audits, and other claims arising in the normal course of business. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. Accruals for these items, when applicable, have been provided to the extent that losses are deemed probable and are reasonably estimable. These accruals are adjusted from time to time as developments warrant.
Although the ultimate outcome of these matters cannot be ascertained, on the basis of present information, amounts already provided, availability of insurance coverage and legal advice received, it is the opinion of management that the ultimate resolution of these proceedings, lawsuits, and other claims will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.
In the Company's Form 10-K for the year ended December 31, 2022, the Company described the current status of litigation concerning the Lusher Site Remediation Group. There has been no change in the status of this litigation since that time. The Company has also been named as a potentially responsible party for the related Lusher Street Groundwater Contamination Superfund Site (the "Superfund Site") by the U.S. Environmental Protection Agency (the "EPA"). The proceedings remain subject to a court-approved stay, granted in September 2021, pending negotiations with the EPA. The Company sold certain parcels of real property that the EPA contends are connected to the Superfund Site (the "Divested Properties") in January 2022 for a pretax gain on disposal of $5.5 million that is included in Selling, general and administrative expenses in the Company's condensed consolidated statements of income for the first quarter of 2022. The purchaser agreed to indemnify, defend and hold the Company harmless for all liability and exposure, both private and to all EPA claims, concerning and relating to the Divested Properties. No further proceedings have occurred in 2022 or the first three months of 2023. As to the real properties that were not among the Divested Properties but remain the subject of the litigation, the Company does not currently believe that the litigation or the Superfund Site matter are likely to have a material adverse impact on its financial condition, results of operations, or cash flows. However, any litigation is inherently uncertain, the EPA has yet to select a final remedy for the Superfund Site, and any judgment or injunctive relief entered against us or any adverse settlement could materially and adversely impact our business, results of operations, financial condition, and prospects.
15.SUBSEQUENT EVENTS
On May 1, 2023 the Company announced the acquisition of the assets of BTI Transport, a provider of transportation and logistics services to marine OEMs and dealers located in Elkhart, Indiana. The purchase price is not material and will be primarily allocated to property, plant & equipment and intangible assets.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and Notes thereto included in Item 1 of this Report. In addition, this MD&A contains certain statements relating to future results which 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 34 of this Report. The Company undertakes no obligation to update these forward-looking statements.
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OVERVIEW OF MARKETS AND RELATED INDUSTRY PERFORMANCE
First Quarter 2023 Financial Overview
Recreational Vehicle ("RV") Industry 
The RV industry is our primary market and comprised 41% and 61% of the Company’s consolidated net sales in the first quarter ended April 2, 2023 and March 27, 2022, respectively. Net sales to the RV industry decreased 55% in the first quarter of 2023 compared to the prior year period.
According to the Recreation Vehicle Industry Association ("RVIA"), RV wholesale shipments decreased 54% in the first quarter of 2023 to approximately 78,600 units from approximately 171,900 units in the first quarter of 2022. While we estimate RV industry retail unit sales for the first quarter of 2023 decreased approximately 8% compared to the first quarter of 2022, industry retail sales still exceeded wholesale shipments in the first quarter of 2023 as RV OEMs reduced production to maintain a more balanced inventory channel in alignment with lower retail demand primarily related to macroeconomic conditions.

Marine Industry
Net sales to the marine industry, which represented approximately 31% and 16% of the Company's consolidated net sales in the first quarter ended April 2, 2023 and March 27, 2022, respectively, increased 25% in the first quarter of 2023 compared to the prior year period. The increase in net sales beyond industry volumes is driven primarily by acquisitions completed in 2022, product mix, and market share gains.
Our marine revenue is generally correlated to marine industry wholesale powerboat unit shipments, which, according to Company estimates based on data published by the National Marine Manufacturers Association ("NMMA"), increased 14% for the first quarter of 2023 compared to the prior year period. We estimate that marine industry retail powerboat unit sales decreased an estimated 19% in the first quarter of 2023 compared to the prior year period primarily due to the current macroeconomic environment faced by the end consumer. Estimated wholesale shipments were higher than estimated retail unit sales as dealer inventories increased from recent historically low levels.
Manufactured Housing ("MH") Industry
Net sales to the MH industry, which represented 15% and 13% of the Company’s consolidated net sales in the first quarter of 2023 and 2022, respectively, decreased 23% in the first quarter of 2023 compared to the prior year period. Based on industry data from the Manufactured Housing Institute, MH industry wholesale unit shipments decreased 29% in the first quarter of 2023 compared to the prior year period primarily driven by persistent inflation and elevated interest rates that caused OEMs to adjust production based on anticipated lower consumer demand.
Industrial Market
The industrial market is comprised primarily of the kitchen cabinet and countertop industry, hospitality market, retail and commercial fixtures market, office and household furniture market and regional distributors. Net sales to this market represented 13% and 10% of our consolidated net sales in the first quarter of 2023 and 2022, respectively, and decreased 3% in the first quarter of 2023 compared to the prior year period. Overall, our revenues in these markets are focused on residential and multifamily housing, hospitality, high-rise housing and office, commercial construction and institutional furniture markets. We estimate that, in general, approximately 70-80% of our industrial business is directly tied to the residential housing market, with the remaining 20-30% directly tied to the non-residential and commercial markets.

According to the U.S. Census Bureau, combined new housing starts decreased 18% in the first quarter of 2023 compared to the prior year quarter, due to industry headwinds from elevated interest rates, persistent inflation and decreased housing affordability, particularly in the single-family market. Single-family housing starts decreased 29% compared to the prior year period, while multifamily housing starts increased 5% 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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REVIEW OF CONSOLIDATED OPERATING RESULTS
First Quarter Ended April 2, 2023 Compared to 2022 
The following table sets forth the percentage relationship to net sales of certain items on the Company’s Condensed Consolidated Statements of Income.
 First Quarter Ended
($ in thousands)April 2, 2023March 27, 2022Amount Change% Change
Net sales$900,100 100.0 %$1,342,175 100.0 %$(442,075)(33)%
Cost of goods sold705,856 78.4 %1,046,830 78.0 %(340,974)(33)%
Gross profit194,244 21.6 %295,345 22.0 %(101,101)(34)%
Warehouse and delivery expenses35,845 4.0 %41,169 3.1 %(5,324)(13)%
Selling, general and administrative expenses82,401 9.2 %75,560 5.6 %6,841 %
Amortization of intangible assets19,764 2.2 %16,861 1.3 %2,903 17 %
Operating income56,234 6.2 %161,755 12.1 %(105,521)(65)%
Interest expense, net18,484 2.1 %14,886 1.1 %3,598 24 %
Income taxes7,577 0.8 %34,196 2.5 %(26,619)(78)%
Net income$30,173 3.4 %$112,673 8.4 %$(82,500)(73)%
Net Sales. Net sales in the first quarter of 2023 decreased $442.1 million, or 33%, to $900.1 million from $1,342.2 million in the first quarter of 2022. The net sales decrease in the first quarter of 2023 reflects growth in our marine end market, market share gains, and the contribution of acquisitions completed in 2022 that partially offset a $454 million decline in RV revenues in the quarter resulting from the continued reduction of production by our RV OEM customers and a $40 million decline in manufactured housing net sales due to industry headwinds from elevated financing rates and persistent inflation. The Company's RV market sales decreased 55%, marine market sales increased 25%, MH market sales decreased 23% and industrial market sales decreased 3% when compared to the prior year quarter.
Revenue attributable to acquisitions completed in the first three months of 2022 was $8.4 million in the first quarter of 2022. There were no acquisitions completed in the first three months of 2023.
The Company’s RV content per wholesale unit (on a trailing twelve-month basis) for the first quarter of 2023 increased approximately 22% to $5,349 from $4,367 for the first quarter of 2022. Marine powerboat content per wholesale unit (on a trailing twelve-month basis) for the first quarter of 2023 increased approximately 27% to an estimated $5,266 from $4,144 for the first quarter of 2022. MH content per wholesale unit (on a trailing twelve-month basis) for the first quarter of 2023 increased approximately 16% to $6,366 from $5,487 for the first quarter of 2022. These increases in content per wholesale unit reflect market share gains, contributions from businesses acquired in 2022, and favorable pricing.
Cost of Goods Sold. Cost of goods sold decreased $340.9 million, or 33%, to $705.9 million in the first quarter of 2023 from $1,046.8 million in 2022. As a percentage of net sales, cost of goods sold increased 40 basis points during the first quarter of 2023 to 78.4% from 78.0% in the prior year period.
Cost of goods sold as a percentage of net sales increased in the first quarter of 2023 primarily as a result of reduced industry volume mentioned above that provided less favorable fixed cost absorption when compared to the prior period. This industry volume-driven impact was partially offset by (i) continued cost reduction and automation initiatives we deployed throughout 2022 and into 2023 that had a positive impact on material costs, (ii) improved labor efficiencies as a result of investment in human capital and improved retention rates, and (iii) synergies and different cost profiles from acquisitions completed in 2022. For the first quarter of 2023, these factors contributed to a 320 basis point increase in overhead as a percentage of net sales, partially offset by a 20 basis point decrease in labor as a percentage of net sales and a 260 basis point decrease in material costs as a percentage of net sales. 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.
20



Gross Profit. Gross profit decreased $101.1 million, or 34%, to $194.2 million in the first quarter of 2023 from $295.3 million in the prior year period. As a percentage of net sales, gross profit decreased 40 basis points to 21.6% in the first quarter of 2023 from 22.0% in the same period in the prior year period.
The decrease in gross profit as a percentage of net sales in the first quarter of 2023 compared to the same period in 2022 reflects the impact of the factors discussed above under “Cost of Goods Sold”.
Warehouse and Delivery Expenses. Warehouse and delivery expenses decreased $5.4 million, or 13%, to $35.8 million in the first quarter of 2023 from $41.2 million in the first quarter of 2022. As a percentage of net sales, warehouse and delivery expenses increased 90 basis points to 4.0% in the first quarter of 2023 compared to 3.1% in the first quarter of 2022.
The decrease in warehouse and delivery expenses in the first quarter of 2023 compared to the same period in 2022 is attributable to the decrease in sales. The increase as a percentage of net sales in the first quarter of 2023 as compared to the same 2022 period is primarily attributable to elevated fuel prices, increased insurance rates, and the fixed-cost nature of some warehouse and delivery expenses.
Selling, General and Administrative ("SG&A") Expenses. SG&A expenses increased $6.8 million, or 9%, to $82.4 million in the first quarter of 2023 from $75.6 million in the prior year quarter. As a percentage of net sales, SG&A expenses were 9.2% in the first quarter of 2023 compared to 5.6% in the first quarter of 2022.
The increase in SG&A expenses in the first quarter of 2023 compared to 2022 is primarily due to continued investments to increase the breadth and depth of corporate resources, specifically human capital, technology and other initiatives to support the size and growth of the Company. As a percentage of sales, SG&A expenses increased 360 basis points for the first quarter of 2023 compared to the first quarter of 2022. This increase primarily reflects these continued investments, the decrease in net sales and the fixed-cost nature of certain SG&A expenses. In addition, certain acquisitions completed in 2022 have higher sales and marketing expenses as a percentage of sales than our other businesses. Additionally, SG&A in the first quarter of 2022 includes a $5.5 million pre-tax gain on sale of property.
Amortization of Intangible Assets. Amortization of intangible assets increased $2.9 million, or 17%, to $19.8 million in the first quarter of 2023 from $16.9 million in the prior year quarter. The increase in the first quarter of 2023 compared to the prior year period primarily reflects the impact of businesses acquired in 2022.
Operating Income. Operating income decreased $105.6 million, or 65%, to $56.2 million in the first quarter of 2023 from $161.8 million in 2022. As a percentage of net sales, operating income decreased 590 basis points to 6.2% in the first quarter of 2023 versus 12.1% in the same period in 2022. The change in operating income and operating margin is primarily attributable to the items discussed above.
Interest Expense, Net. Interest expense increased $3.6 million, or 24%, to $18.5 million in the first quarter of 2023 from $14.9 million in the prior year period. This increase primarily reflects the increase in interest rates on our variable rate debt, as well as repayment of our 1.00% Convertible Senior Notes due 2023 at maturity through borrowings under our revolving credit facility, which has a comparatively higher interest rate.
Income Taxes. Income tax expense decreased $26.6 million in the first quarter of 2023 to $7.6 million from $34.2 million in the prior year period. The decrease in income tax expense is driven primarily by the decrease in income before income taxes. Additionally, the first quarter of 2023 and 2022 rates include the impact of the recognition of excess tax benefits on share-based compensation that was recorded as a reduction to income tax expense in the amount of $2.3 million and $4.0 million, respectively.
21



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.
REVIEW BY BUSINESS SEGMENT
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 sales and operating income. The Company does not measure profitability at the customer market (RV, marine, MH and industrial) level.
First Quarter Ended April 2, 2023 Compared to 2022
General
 
In the discussion that follows, sales attributable to the Company’s reportable segments include intersegment sales and gross profit includes the impact of intersegment operating activity.
The table below presents information about the sales, gross profit and operating income of the Company’s reportable segments. A reconciliation of consolidated operating income is presented in Note 12 of the Notes to Condensed Consolidated Financial Statements.
 First Quarter Ended
(thousands)April 2, 2023March 27, 2022Amount Change% Change
Sales  
Manufacturing$708,815 $998,585 $(289,770)(29)%
Distribution210,159 365,734 (155,575)(43)%
Gross Profit
Manufacturing155,084 236,286 (81,202)(34)%
Distribution44,077 75,768 (31,691)(42)%
Operating Income
Manufacturing87,165 170,544 (83,379)(49)%
Distribution18,307 45,966 (27,659)(60)%
Manufacturing
Sales. Sales decreased $289.8 million, or 29%, to $708.8 million in the first quarter of 2023 from $998.6 million in the prior year quarter. This segment accounted for approximately 77% and 73% of the Company’s sales for the first quarter of 2023 and 2022, respectively. The sales decrease in the first quarter of 2023 compared to 2022 was attributed to sales decreases in the Company's RV, MH and industrial markets due to reduced industry wholesale unit shipments in the RV and MH industries and previous slowing of housing starts, partially offset by growth in our marine market sales resulting from market share gains and acquisitions completed in 2022. The Company's RV end-market sales decreased 56%, the marine end-market sales increased 26%, the MH end-market sales decreased 24% and industrial end-market sales decreased 2%. Net sales in the first quarter of 2022 attributable to acquisitions completed in the first three months of 2022 was approximately $8.4 million. There were no acquisitions completed in the first three months of 2023.
22



Gross Profit. Gross profit decreased $81.2 million, or 34%, to $155.1 million in the first quarter of 2023 from $236.3 million in the first quarter of 2022. As a percentage of sales, gross profit decreased to 21.9% in the first quarter of 2023 from 23.7% in the first quarter of 2022.
Gross profit as a percentage of sales decreased during the first quarter of 2023 compared to first quarter of 2022 due to a 420 basis point increase in manufacturing overhead as a percentage of sales and a 100 basis point increase in manufacturing labor as a percentage of sales, partially offset by a 340 basis point decrease in manufacturing material expense as a percentage of sales.
Operating Income. Operating income decreased $83.3 million, or 49%, to $87.2 million in the first quarter of 2023 from $170.5 million in the prior year quarter. The overall decrease in operating income in the first quarter of 2023 primarily reflects the items discussed above.
Distribution
Sales. Sales decreased $155.5 million, or 43%, to $210.2 million in the first quarter of 2023 from $365.7 million in the prior year quarter. This segment accounted for approximately 23% and 27% of the Company’s sales for the first quarter of 2023 and 2022, respectively. The sales decrease in the first quarter of 2023 compared to the first quarter of 2022 was attributed to a 54% decrease in our RV market sales and a 22% decrease in MH market sales as a result of reduced industry wholesale unit shipments in the respective industries, as well as a 9% decrease in industrial sales, partially offset by a 10% increase in marine market sales. None of the net sales in the first quarter of 2023 or 2022 were attributable to acquisitions completed in the first three months of 2023 or 2022.
Gross Profit. Gross profit decreased $31.7 million, or 42%, to $44.1 million in the first quarter of 2023 from $75.8 million in the first quarter of 2022. As a percentage of sales, gross profit increased to 21.0% in the first quarter of 2023 from 20.7% in the first quarter of 2022.
Gross profit as a percentage of sales increased during the first quarter of 2023 compared to first quarter of 2022 primarily due to a 260 basis point decrease in distribution labor as a percentage of sales primarily attributable to a decrease in utilization of outsourced labor, partially offset by a 230 basis point increase in distribution material expense as a percentage of sales as a result of increased material costs.
Operating Income. Operating income decreased $27.7 million, or 60%, to $18.3 million in the first quarter of 2023 from $46.0 million in the prior year quarter. The decrease in operating income in the first quarter of 2023 primarily reflects the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity at April 2, 2023 consisted of cash and cash equivalents of $30.8 million and $457.9 million of availability under our credit facility.
Cash Flows
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 used in operating activities was $1.0 million in the first quarter of 2023 compared to net cash used in operating activities of $23.0 million in the first quarter of 2022. The change in operating cash flows is primarily attributable to a $93.7 million reduction in cash used for working capital, substantially offset by an $82.5 million reduction in net income.
Investing Activities  
Net cash used in investing activities decreased $119.5 million to $23.6 million in the first quarter of 2023 from $143.1 million in the first quarter of 2022 primarily due to a decrease in cash used in business acquisitions of $131.1 million.
23



Financing Activities 
Net cash provided by financing activities was $32.5 million in the first quarter of 2023 compared to $107.2 million in the first quarter of 2022. In the first quarter of 2023, borrowings under our revolving credit facility, net of revolver and term loan repayments and the repayment of our 1.00% Convertible Senior Notes due 2023 at maturity, were $55.3 million, compared to borrowings under our revolving credit facility, net of revolver repayments, of $154.0 million in the first quarter of 2022. In addition, there was a $21.1 million decrease in stock repurchases in the first quarter of 2023 compared to the prior year quarter.
Summary of Liquidity and Capital Resources
At April 2, 2023, the Company's existing cash and cash equivalents, cash generated from operations, and available borrowings under its current 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.
The ability to access unused borrowing capacity under the Company's senior 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 governing the credit facility (the "2021 Credit Agreement").
As of and for the reporting period ended April 2, 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 April 2, 2023 and for the fiscal period then ended are as follows:  
 RequiredActual
Consolidated secured net leverage ratio (12-month period)2.75 0.74 
Consolidated fixed charge coverage ratio (12-month period)1.50 3.86 
In addition, as of April 2, 2023, the Company's consolidated total net leverage ratio (12-month period) was 2.34, which is used to determine 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.
CRITICAL ACCOUNTING POLICIES
There have been no material changes to our critical accounting policies which are summarized in the MD&A in our Annual Report on Form 10-K for the year ended December 31, 2022. 
24



OTHER
Seasonality
Manufacturing operations in the RV, marine and MH industries historically have been seasonal and at their highest levels when the weather is moderate. Accordingly, the Company’s sales and profits had generally been the highest in the second quarter and lowest in the fourth quarter. Seasonal industry trends in the past several years have included the impact related to the addition of major RV manufacturer open houses for dealers in the August/September timeframe as well as marine open houses in the January/February timeframe, resulting in dealers delaying certain restocking purchases until new product lines are introduced at these shows. In addition, current and future seasonal industry trends may be different than in prior years due to the impact of national and regional economic conditions and consumer confidence on retail sales of RVs and other products for which the Company sells its components, timing of dealer orders, fluctuations in dealer inventories, the impact of the COVID-19 pandemic on consumer buying patterns, and from time to time, the impact of severe weather conditions on the timing of industry-wide wholesale shipments.
Subsequent Events
We evaluated all subsequent events and transactions that occurred after the balance sheet date through the date of issuance of the Form 10-Q that required recognition or disclosure in the condensed consolidated financial statements.
See Note 15 of the Notes to Condensed Consolidated Financial Statements for further discussion of events occurring after April 2, 2023 until the filing date of this Form 10-Q.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
The Company makes forward-looking statements with respect to financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive position, growth opportunities for existing products, plans and objectives of management, markets for the common stock of Patrick Industries, Inc. and other matters from time to time and desires to take advantage of the “safe harbor” which is afforded such statements under the Private Securities Litigation Reform Act of 1995 when they are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statements. The statements contained in the foregoing “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as well as other statements contained in this quarterly report and statements contained in future filings with the Securities and Exchange Commission (“SEC”), publicly disseminated press releases, quarterly earnings conference calls, and statements which may be made from time to time in the future by management of the Company in presentations to shareholders, prospective investors, and others interested in the business and financial affairs of the Company, which are not historical facts, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. Any projections of financial performance or statements concerning expectations as to future developments should not be construed in any manner as a guarantee that such results or developments will, in fact, occur. There can be no assurance that any forward-looking statement will be realized or that actual results will not be significantly different from that set forth in such forward-looking statement. The Company does not undertake to publicly update or revise any forward-looking statements. Information about certain risks that could affect our business and cause actual results to differ from those expressed or implied in the forward-looking statements are contained in the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and in the Company's Forms 10-Q for subsequent quarterly periods, which are filed with the SEC and are available on the SEC’s website at www.sec.gov.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Debt Obligations under Credit Agreement
At April 2, 2023, our total debt obligations under our 2021 Credit Agreement accrue interest under SOFR-based interest rates. A 100-basis point increase in the underlying SOFR would result in additional annual interest cost of approximately $4.5 million, assuming average borrowings, including our revolving credit facility and term loan under our senior credit facility, subject to variable rates of $445.0 million, which was the amount of such borrowings outstanding at April 2, 2023 subject to variable rates, excluding deferred financing costs related to the term loan.
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Commodity Volatility
The prices of key raw materials, consisting primarily of lauan, gypsum, particleboard, aluminum, softwoods lumber, and petroleum-based products, are influenced by demand and other factors specific to these commodities, such as the price of oil, rather than being directly affected by inflationary pressures. Prices of certain commodities have historically been volatile. During periods of volatile commodity prices, we have generally been able to pass both price increases and decreases to our customers in the form of price adjustments. We are exposed to risks during periods of commodity volatility because there can be no assurance future cost increases or decreases, if any, can be partially or fully passed on to customers, or that the timing of such sales price increases or decreases will match raw material cost increases or decreases. We do not believe that commodity price volatility had a material effect on results of operations for the periods presented.

ITEM 4.CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company maintains “disclosure controls and procedures”, as such term is defined under Securities Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934, as amended (the “Exchange Act”) reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and the Company’s management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including consolidated subsidiaries, required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the first quarter ended April 2, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.      
PART II: OTHER INFORMATION
Items 1, 3, 4 and 5 of Part II are not applicable and have been omitted.
ITEM 1A.RISK FACTORS
There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
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ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) None.
(b) None. 
(c) Issuer Purchases of Equity Securities
Period
Total Number of Shares Purchased(1)
Average Price
Paid Per Share
(1)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
January 1 - January 29, 2023118,404 $65.26 3,902 $96,143,305 
January 30 - March 5, 2023— — — 96,143,305 
March 6 - April 2, 202350,785 67.57 50,718 92,716,615 
169,189 54,620 
(1) Amount includes 114,569 shares of common stock purchased by the Company in aggregate in January 2023 and March 2023 for the sole purpose of satisfying the minimum tax withholding obligations of employees upon the vesting of stock awards held by the employees.
(2) See Note 13 of the Notes to Condensed Consolidated Financial Statements for additional information about the Company's stock repurchase program.
ITEM 6.EXHIBITS
 
Exhibits (1)Description
31.1
31.2
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101Interactive Data Files. The following materials are filed electronically with this Quarterly Report on Form 10-Q:
 101.INSXBRL Instance Document
 101.SCHXBRL Taxonomy Schema Document
 101.CALXBRL Taxonomy Calculation Linkbase Document
 101.DEFXBRL Taxonomy Definition Linkbase Document
 101.LABXBRL Taxonomy Label Linkbase Document
 101.PREXBRL Taxonomy Presentation Linkbase Document

104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
PATRICK INDUSTRIES, INC.
 (Registrant)
   
Date: May 11, 2023
By:/s/ Andy L. Nemeth
  
Andy L. Nemeth

  Chief Executive Officer
 
 
   
Date: May 11, 2023By:/s/ Jacob R. Petkovich
  Jacob R. Petkovich
  Executive Vice President Finance, Chief Financial Officer and Treasurer



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