Patrick Industries, Inc. Reports Second Quarter 2020 Financi

|Jul 30|magazine38 min read

ELKHART, Ind., July 30, 2020 /PRNewswire/ -- Patrick Industries, Inc. (NASDAQ: PATK), a major manufacturer and distributor of component and building products for the recreational vehicle ("RV"), marine, manufactured housing ("MH"), and industrial markets, today reported financial results for the second quarter ended June 28, 2020.

Net sales for the second quarter of 2020 decreased $189.2 million, or 30.8%, to $424.0 million from $613.2 million in the same quarter of 2019. The decrease was primarily attributable to business disruption in our end markets related to the COVID-19 pandemic, the resulting temporary shutdown of certain plants in April and early May in alignment with our OEM customers' shutdown schedules, and associated lost production and shipping days.

Patrick reported operating income of $12.1 million, a decrease of 73.2%, or $33.1 million, from $45.2 million reported in the second quarter of 2019. Net income in the second quarter of 2020 was $0.7 million compared to $27.4 million in the second quarter of 2019. Net income per diluted share was $0.03 for the second quarter of 2020 compared to $1.18 for the second quarter of 2019.  The second quarter 2020 results include cash and non-cash non-recurring pretax charges related to COVID-19 and other items of approximately $4.5 million, or $0.12 per diluted share.

Net sales for the six months ended June 28, 2020 decreased 17.0%, or $208.1 million, to $1,013.3 million from $1,221.4 million for the six months ended June 30, 2019. Operating income for the six months ended June 28, 2020 was $51.4 million, a decrease of 36.6%, or $29.7 million, from the same period of 2019. Net income for the first six months of 2020 was $21.9 million compared to net income of $48.3 million for the first six months of 2019, and net income per diluted share for the first six months of 2020 was $0.95 per diluted share compared to $2.07 for the first six months of 2019.

"We are pleased with our operating and financial performance during the second quarter and the tremendous flexibility and adaptability of our team as we navigated significant uncertainty and production shutdowns in both our leisure lifestyle and housing and industrial markets," said Andy Nemeth, President and Chief Executive Officer. "In particular, the RV industry experienced a five-week production shutdown, while various marine OEMs had production shutdowns ranging from one to five weeks. Our team took quick, disciplined and focused actions to reduce our fixed cost structure to align with our revenue stream starting at the end of the first quarter and during the second quarter. This helped position us to mitigate significant headwinds caused by COVID-19 during the second quarter, while strengthening and solidifying our operating platform to address ongoing uncertainty related to the pandemic. In the latter half of the second quarter, rising demand in our RV, marine, and MH markets benefited from an increase in interest from new consumers in addition to those already in the retail pipeline. We expect this momentum to continue into the second half of 2020. Additionally, we believe that the continued resilience and subsequent surge in retail demand in these markets have further reduced dealer inventories from what we believe were already at a low point heading into the 2020 selling season."

Second Quarter 2020 Sales by Market Sector (all metrics compared to Second Quarter 2019 unless otherwise noted)

RV (48% of Sales)

  • Revenues of $204.1 million decreased 40%, while RV industry wholesale unit shipments for the quarter declined 35%;
  • RV content per wholesale unit (on a trailing twelve-month basis) decreased 2% to $3,086.

Marine (14% of Sales)

  • Revenues of $59.0 million decreased 34%, while marine powerboat industry wholesale unit shipments decreased an estimated 39%;
  • Marine powerboat content per retail unit (on a trailing twelve-month basis) decreased 13% to an estimated $1,439.

MH (21% of Sales)

  • Revenues of $90.3 million decreased 18%, with a 17% decrease in MH industry wholesale unit shipments, according to Company estimates;
  • MH content per wholesale unit (on a trailing twelve-month basis) increased 16% to an estimated $4,529.

Industrial (17% of Sales)

  • Revenues of $70.6 million decreased 2%;
  • In residential housing, the Company's primary industrial market, new housing starts decreased 17% in the second quarter of 2020.

The Company's content per unit in the RV, marine and MH market sectors was negatively impacted by COVID-19 in the second quarter of 2020 as manufacturers curtailed production in April and early May, while continuing to ship finished product. 

COVID-19 Business Impact

Following a temporary suspension of operations at certain of the Company's facilities in late March, April and early May, our plants started to incrementally increase production levels as demand began to recover in our end markets by mid-May, with the majority of our direct labor workforce returning to production. As plants resumed operations, the Company implemented extensive safety protocols in alignment with federal, state and local guidelines to provide a safe working environment for its team members.

Balance Sheet, Cash Flow and Capital Allocation

Patrick generated cash flow from operations of $39.4 million for the six months ended June 28, 2020, a decrease of 58% compared to the prior year, which primarily reflected a reduction in net income due to pandemic-related business disruptions, strategically carrying additional inventories to ensure our ability to support our customers once they resumed production, and an increase in accounts receivable which, due to the timing of customer payments, did not reflect approximately $15 million of collections within two business days following the quarter end. Capital expenditures during the six months ended June 28, 2020 were $11.3 million, 38% lower than in the prior year period, reflecting a higher level of strategic project spending in the first six months of 2019 and the Company's efforts to reduce non-essential capital expenditures during April and May 2020 in reaction to the COVID-19 pandemic. The Company expects to return to previous levels of capital expenditures in the latter half of 2020 reflecting expectations for increased demand in its end markets.

The Company returned $5.8 million to shareholders in the form of quarterly dividends during the second quarter of 2020 in alignment with its dividend policy.

The Company's net debt at the end of the quarter was approximately $593 million. Available liquidity, comprised of borrowing availability under the Company's credit facility and $111.1 million of cash on hand, was approximately $521 million, with no major debt maturities until 2023.

2020 Outlook

"Momentum in our RV and marine markets continues to be strong, reflecting the value proposition of outdoor recreation and the ability to spend quality time with family and friends in a COVID and post-COVID environment," Mr. Nemeth said. "In addition, our MH and industrial markets are benefitting from low interest rates, pent up demand for affordable housing, and a tight U.S. housing market. With increased visibility into our four primary end markets, we believe we will have opportunities to quickly pivot and invest strategically in our acquisition pipeline and existing businesses to support the growth of our OEM customers. At the same time, our highest priority remains the safety and well-being of our incredibly talented and dedicated team members, who have been working tirelessly to serve our customers within all of our end markets."

Mr. Nemeth continued, "Despite the ongoing uncertainty caused by the pandemic, we are optimistic about our business outlook given the trajectory of our end markets and our flexible, highly variable cost structure which, along with our strong liquidity and balance sheet, position us to navigate a variety of economic scenarios with the goal of taking care of our customers and team members at the highest level."

Conference Call Webcast

As previously announced, Patrick Industries will host an online webcast of its second quarter 2020 earnings conference call that can be accessed on the Company's website, www.patrickind.com, under "Investor Relations," on Thursday, July 30, 2020 at 10:00 a.m. Eastern time. In addition, a supplemental earnings presentation can be accessed on the Company's website, www.patrickind.com under "Investor Relations - Presentations."

About Patrick Industries, Inc.

Patrick Industries, Inc. is a major manufacturer and distributor of component products and building products serving the recreational vehicle, marine, manufactured housing, residential housing, high-rise, hospitality, kitchen cabinet, office and household furniture, fixtures and commercial furnishings, and other industrial markets and operates coast-to-coast in various locations throughout the United States and in Canada, China and the Netherlands. Patrick's major manufactured products include decorative vinyl and paper laminated panels, countertops, fabricated aluminum products, wrapped profile mouldings, slide-out trim and fascia, cabinet doors and components, hardwood furniture, fiberglass bath fixtures and tile systems, thermoformed shower surrounds, specialty bath and closet building products, fiberglass and plastic helm systems and component products, wiring and wire harnesses, boat covers, towers, tops and frames, electrical systems components including instrument and dash panels, softwoods lumber, interior passage doors, air handling products, RV painting, slotwall panels and components, aluminum fuel tanks, and CNC molds and composite parts and other products. The Company also distributes drywall and drywall finishing products, electronics and audio systems components, wiring, electrical and plumbing products, appliances, cement siding, raw and processed lumber, FRP products, interior passage doors, roofing products, tile, laminate and ceramic flooring, shower doors, furniture, fireplaces and surrounds, interior and exterior lighting products, and other miscellaneous products, in addition to providing transportation and logistics services.

Use of Financial Metrics

In addition to reporting financial results in accordance with U.S. GAAP, the Company also provides financial metrics, such as RV, marine and MH content per unit, net debt and available liquidity, as well as the quantification of non-recurring costs incurred related to COVID-19 and other items, which we believe are important measures of the Company's business performance. These metrics should not be considered alternatives to U.S. GAAP. Our computations of content per unit, net debt and available liquidity, and non-recurring costs may differ from similarly titled measures used by others. You should not consider these metrics in isolation or as substitutes for an analysis of our results as reported under U.S. GAAP.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains certain statements related to future results, our intentions, beliefs and expectations or predictions for the future, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of factors. Potential factors that could impact results include: the impact of the continuing financial and operational uncertainty due to the COVID-19 pandemic, including its impact on the overall economy, our sales, customers, operations, team members, suppliers, and the countries where we have operations or from which we source products and raw materials, such as China; adverse economic and business conditions, including cyclicality and seasonality in the industries we sell our products; the deterioration of the financial condition of our customers or suppliers; the loss of a significant customer; changes in consumer preferences; pricing pressures due to competition; conditions in the credit market limiting the ability of consumers and wholesale customers to obtain retail and wholesale financing for RVs, manufactured homes, and marine products; the imposition of restrictions and taxes on imports of raw materials and components used in our products; information technology performance and security; any increased cost or limited availability of certain raw materials; the impact of governmental and environmental regulations, and our inability to comply with them; our level of indebtedness; the ability to remain in compliance with our credit agreement covenants; the availability and costs of labor and production facilities; inventory levels of retailers and manufacturers; the ability to generate cash flow or obtain financing to fund growth; future growth rates in the Company's core businesses; realization and impact of efficiency improvements and cost reductions; the successful integration of acquisitions and other growth initiatives; increases in interest rates and oil and gasoline prices; the ability to retain key executive and management personnel; the disruption of business resulting from natural disasters or other unforeseen events, and adverse weather conditions impacting retail sales.

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. 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, 2019, which is filed with the Securities and Exchange Commission ("SEC") and is available on the SEC's website at www.sec.gov.  Each forward-looking statement speaks only as of the date of this press release, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date on which it is made.

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


















Second Quarter Ended


Six Months Ended

(thousands except per share data)

June 28, 2020


June 30, 2019


June 28, 2020


June 30, 2019









NET SALES

$

424,045



$

613,218



$

1,013,277



$

1,221,436


Cost of goods sold

350,324



500,557



830,075



1,002,227


           GROSS PROFIT

73,721



112,661



183,202



219,209










 Operating Expenses:








     Warehouse and delivery

20,209



26,270



44,941



50,311


     Selling, general and administrative

31,628



32,894



67,497



70,586


     Amortization of intangible assets

9,778



8,268



19,379



17,257


           Total operating expenses

61,615



67,432



131,817



138,154










OPERATING INCOME

12,106



45,229



51,385



81,055


     Interest expense, net

10,821



8,636



21,313



17,619


 Income before income taxes

1,285



36,593



30,072



63,436


     Income taxes

571



9,177



8,171



15,171


NET INCOME

$

714



$

27,416



$

21,901



$

48,265










BASIC NET INCOME PER COMMON SHARE

$

0.03



$

1.19



$

0.96



$

2.09


DILUTED NET INCOME PER COMMON SHARE

$

0.03



$

1.18



$

0.95



$

2.07










Weighted average shares outstanding – Basic

22,667



23,102



22,840



23,071


Weighted average shares outstanding - Diluted

22,932



23,316



23,098



23,282


 

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)










As of

(thousands)

June 28, 2020


December 31, 2019

ASSETS




Current Assets




     Cash and cash equivalents

$

111,062



$

139,390


     Trade receivables, net

143,614



87,536


     Inventories

261,691



253,870


     Prepaid expenses and other

21,086



36,038


           Total current assets

537,453



516,834


 Property, plant and equipment, net

184,797



180,849


 Operating lease right-of-use assets

96,065



93,546


 Goodwill and intangible assets, net

671,383



676,363


 Deferred financing costs, net

2,706



2,978


 Other non-current assets

392



423


          TOTAL ASSETS

$

1,492,796



$

1,470,993






LIABILITIES AND SHAREHOLDERS' EQUITY




Current Liabilities




     Current maturities of long-term debt

$

5,000



$

5,000


     Current operating lease liabilities

28,567



27,694


     Accounts payable

115,838



96,208


     Accrued liabilities

69,132



58,033


         Total current liabilities

218,537



186,935


 Long-term debt, less current maturities, net

673,138



670,354


 Long-term operating lease liabilities

68,318



66,467


 Deferred tax liabilities, net

19,056



27,284


 Other long-term liabilities

20,479



22,472


          TOTAL LIABILITIES

999,528



973,512






 SHAREHOLDERS' EQUITY




 Common stock

173,178



172,662


 Additional paid-in-capital

24,534



25,014


 Accumulated other comprehensive loss

(8,292)



(5,698)


 Retained earnings

303,848



305,503


          TOTAL SHAREHOLDERS' EQUITY

493,268



497,481


          TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

1,492,796



$

1,470,993


 

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) 



Six Months Ended

(thousands)

June 28,


June 30,


2020


2019

CASH FLOWS FROM OPERATING ACTIVITIES




Net income

$

21,901



$

48,265


Depreciation and amortization

34,689



30,247


Stock-based compensation expense

6,347



8,172


Amortization of convertible notes debt discount

3,505



3,382


Other adjustments to reconcile net income to net cash provided by operating
activities

(4,330)



(579)


  Change in operating assets and liabilities, net of acquisitions of businesses

(22,740)



4,327


Net cash provided by operating activities

39,372



93,814


CASH FLOWS FROM INVESTING ACTIVITIES




Capital expenditures

(11,305)



(18,177)


Other investing activities

(23,712)



3,111


Net cash used in investing activities

(35,017)



(15,066)






NET CASH FLOWS USED IN FINANCING ACTIVITIES

(32,683)



(62,071)


Increase (decrease) in cash and cash equivalents

(28,328)



16,677


Cash and cash equivalents at beginning of period

139,390



6,895


Cash and cash equivalents at end of period

$

111,062



$

23,572


 

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SOURCE Patrick Industries, Inc.