Patrick Industries, Inc. Reports Third Quarter 2023 Financial Results

Third Quarter 2023 Highlights (compared to Third Quarter 2022 unless otherwise noted)

• Net sales of $866 million decreased 22% as a result of lower wholesale unit shipments in our end markets and lower pricing passed on to our customers to reflect changes in certain commodity costs, partially offset by market share gains. 
• Diversification strategy, acquisitions, successful labor management and cost control, continuous improvement and automation initiatives resulted in operating margin resilience despite the sales decline, with operating margin declining 10 basis points to 8.2% during the quarter.
• Adjusted EBITDA of $113 million decreased 14%; adjusted EBITDA margin increased 130 basis points to 13.1%.
• Inventory reduction of $150 million from year-end 2022 and $216 million from the end of the third quarter of 2022; cash provided by operations for the first nine months of 2023 was $294 million versus $230 million for the same period last year.
• On a trailing twelve-month basis, free cash flow through the third quarter of 2023 was $412 million, an increase of 64% compared to $250 million through the third quarter of 2022.
• Strong cash flow and solid balance sheet and liquidity position us favorably and help enable us to continue to opportunistically deploy capital and flex our operations, to reflect current market conditions.

Patrick Industries, Inc. (NASDAQ: PATK) (“Patrick” or the “Company”), a leading component solutions provider for the Outdoor Enthusiast and Housing markets, today reported financial results for the third quarter ended October 1, 2023.

Net sales were $866 million, a decrease of $246 million, or 22% from $1.11 billion in the third quarter of 2022. The decline in sales was primarily driven by a decrease in unit shipments across our end markets and lower pricing passed on to our customers to reflect changes in certain commodity costs, partially offset by market share gains.

Operating income of $71 million in the third quarter of 2023 decreased $22 million from $93 million in the third quarter of 2022. Operating margin of 8.2% decreased 10 basis points compared to 8.3% in the same period a year ago, primarily due to the impact of lower net sales, absorption on certain fixed distribution expenses, and an increase in non-cash amortization due to acquisitions.

Net income decreased 33% to $40 million from $59 million in the third quarter of 2022. Diluted earnings per share of $1.81 decreased 26% compared to $2.43 for the third quarter of 2022.

“Our operating results for the third quarter of 2023 are a reflection of our team’s thoughtful discipline to manage our business and drive resilient operating margins in a very dynamic environment, despite the continued reduction in shipments across our end markets,” said Andy Nemeth, Chief Executive Officer. “We have reduced our overall cost structure and reduced our inventory by $150 million from year-end 2022. Our team’s focus on labor management, automation, and continuous improvement has helped enable us to dynamically adjust our business to current market demand and industry trends, while remaining opportunistically nimble and poised, ready to pivot when opportunity presents itself or upon an uptick in our markets.”

Jeff Rodino, President, said, “We continue to strategically deploy capital and reinvest in the business with the goal of achieving our long-term growth objectives and operational excellence. This focus is also reflected in our repayment of $112 million of long-term debt during the quarter, demonstrating our commitment to maintaining our solid financial foundation and bolstering our ability to seize upon both organic and strategic opportunities. Our acquisition pipeline remains full of potential targets to continue to enhance our outdoor enthusiast platform.”

Third Quarter 2023 Revenue by Market Sector
(compared to Third Quarter 2022 unless otherwise noted)

RV (46% of Revenue)

• Revenue of $400 million decreased 24% while wholesale RV industry unit shipments declined 20%.
• Content per wholesale RV unit (on a trailing twelve-month basis) decreased 2% to $4,957.

Marine (24% of Revenue)

• Revenue of $205 million decreased 24% while estimated wholesale powerboat industry unit shipments decreased 23%.
• Estimated content per wholesale powerboat unit (on a trailing twelve-month basis) increased 3% to $5,009.

Housing (30% of Revenue, comprised of Manufactured Housing (“MH”) and Industrial)

• Revenue of $261 million decreased 18%; estimated wholesale MH industry unit shipments decreased 22%; total housing starts decreased 6%, with single-family housing starts increasing 7% and multifamily housing starts decreasing 28%.
• Estimated MH content per wholesale MH unit (on a trailing twelve-month basis) increased 8% to $6,498.

Balance Sheet, Cash Flow and Capital Allocation

Cash provided by operations of $294 million in the first nine months of 2023 increased by $64 million from $230 million in the first nine months of 2022 due to an improvement of $227 million in working capital monetization, partially offset by a $176 million reduction in net income. Capital expenditures totaled $11 million in the third quarter of 2023, reflecting continued investments in alignment with our automation and technology initiatives. On a trailing twelve-month basis, free cash flow through the third quarter of 2023 was $412 million, an increase of 64% compared to $250 million through the third quarter of 2022. Our long-term debt decreased approximately $112 million during the third quarter of 2023, principally due to net repayments on our revolving credit facility.

We remained disciplined in allocating and deploying capital, returning approximately $10 million to shareholders in the third quarter of 2023 through dividends.

Our total debt at the end of the third quarter was approximately $1.13 billion, resulting in a total net leverage ratio of 2.5x (as calculated in accordance with our credit agreement). Available net liquidity, comprised of borrowing availability under our credit facility and cash on hand, was approximately $700 million.

Business Outlook and Summary

“We remain confident in our ability to navigate the current macroeconomic environment while continuing to reinvest in our business thanks to our solid balance sheet and liquidity position and our team’s dedication to operational excellence and customer service at the highest level,” continued Mr. Nemeth. “We believe RV OEM production is calibrated with retail unit shipments as a result of disciplined business management by dealers and OEMs alike resulting in lower dealer inventory relative to historical levels, and a healthier mix of product by model year. As we anticipate a potential recovery in RV production next year, we expect improving industry wholesale shipments to offset the financial impact of continued restricted production from marine OEMs and inventory discipline from dealers. More importantly, long-term demand for the outdoor enthusiast lifestyle is supported by positive demographic trends and consumers’ affinity for outdoor living and innovative lifestyle product enhancements. Affordable housing continues to be in short supply and we remain optimistic about the long-term opportunity this presents as home buyers adjust to higher interest rates. We like our position in the markets we serve and are confident that our diverse portfolio and flexible operating model will help continue to enable us to deliver value to our stakeholders.”

About Patrick Industries, Inc.

Patrick Industries (NASDAQ: PATK) is a leading component solutions provider for the RV, marine, manufactured housing and various industrial markets – including single and multifamily housing, hospitality, institutional and commercial markets. Founded in 1959, Patrick is based in Elkhart, Indiana, employing approximately 11,000 team members throughout the United States.

Source: Patrick Industries, Inc.