PATRICK INDUSTRIES INC 10-Q

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 29 of this Report. The Company undertakes no obligation to update these forward-looking statements. OVERVIEW OF MARKETS AND RELATED INDUSTRY PERFORMANCE The second quarter of 2020 exhibited distinct trends in each month of April, May and June, which are historically among our strongest sales months, as we responded to COVID-19 market volatility. Beginning in late March and early April of 2020, we temporarily curtailed production in certain of our facilities in alignment with reductions in OEM customer production levels, which resulted in a significant decline in revenue during April from each of our end markets. Cost reduction measures implemented at the end of the first quarter of 2020, in order to more closely align our direct and indirect labor costs with the decreased level of business activities, helped to mitigate the financial impact of the revenue 21 decline in April. These cost reduction measures also positively impacted the rest of the second quarter of 2020. In early May 2020 our facilities started to incrementally increase production levels as demand began to recover in our end markets, and the majority of our direct labor force, many of whom had been furloughed with benefits in April, returned to work in our RV, marine, MH and industrial facilities. While the first half of May 2020 was impacted by the temporary shutdowns in operations, the second half of May 2020 experienced a strong increase in end market demand compared to the first half of the month. This momentum continued in June 2020, where our revenues from the RV and industrial markets increased from the prior year, while revenues from the marine and MH markets recovered more gradually but still exhibited a positive trajectory. While current trends in our end markets are encouraging, we believe the combination of our strong financial position, our available liquidity, the flexibility of our highly variable cost operating model, and the diversification of our end markets and the geographic regions in which we operate will help us to manage through any future volatility in our business caused by the pandemic, while allowing us to take advantage of opportunities that may arise in our markets. The safety and well-being of our team members continue to be a key priority during the COVID-19 pandemic. We have successfully implemented extensive safety measures to adapt to this new environment. Those measures have included modifying workspaces, continuing social distancing policies, implementing new personal protective equipment or health screening policies at our facilities, and other industry best practices needed to continue to maintain a healthy and safe environment for our employees during the pandemic. Second Quarter and Six Months 2020 Financial Overview Recreational Vehicle ("RV") Industry The RV industry is our largest market and comprised 48% and 56% of the Company’s sales in the second quarter ended June 28, 2020 and June 30, 2019, respectively, and 52% and 56% for the comparative 2020 and 2019 six month periods. Sales to the RV industry decreased 40% in the second quarter of 2020 and 23% in the first six months, respectively, compared to the prior year periods. According to the Recreation Vehicle Industry Association, wholesale shipments totaled 75,663 units in the second quarter of 2020, decreasing 35% compared to 116,605 units in the second quarter of 2019. Wholesale unit shipments for the first six months of 2020 decreased 19% for the first six months of 2020, totaling 176,067 units compared to 216,581 units in the prior year period. Retail unit sales are estimated to have decreased 17% and 13% during the second quarter and first six months of 2020, respectively. Decreases in wholesale and retail RV shipments in the second quarter and first six months of 2020 are largely attributed to COVID-19 market disruptions. Based on our estimates, RV dealer inventories at the end of the second quarter of 2020 were at their lowest level since 2014 due to a combination of reduced wholesale shipments by the OEMs during the quarter and a recovery in retail sales in the latter part of May and throughout June 2020. Marine Industry Sales to the marine industry, which represented approximately 14% of the Company's consolidated net sales in the second quarter of 2020 and 2019, decreased 34% in the second quarter of 2020 compared to the prior year quarter. For the first six months of 2020 and 2019, sales to the marine industry represented 13% and 15% of consolidated net sales, respectively, declining 24% in 2020 compared to the prior year period. For the second quarter of 2020, overall marine retail unit shipments in the powerboat sector, which is the Company's primary marine market, decreased an estimated 7%, with aluminum fishing sales decreasing an estimated 11%; pontoon sales decreasing an estimated 3%; fiberglass sales decreasing an estimated 10%; and ski and wake sales increasing an estimated 1%. Wholesale unit shipments declined an estimated 39% during the quarter, reflecting the impact of COVID-19 OEM production shutdowns. For the first six months of 2020, overall marine retail unit shipments in the powerboat sector decreased an estimated 7%, with aluminum fishing sales decreasing an estimated 10%; pontoon sales decreasing an estimated 4%; fiberglass sales decreasing an estimated 9%; and ski and wake sales virtually flat. Wholesale unit shipments declined an estimated 27% during the first six months of 2020, due mostly to temporary OEM production shutdowns. 22 Manufactured Housing ("MH") Industry Sales to the MH industry, which represented 21% and 18% of the Company’s sales in the second quarter of 2020 and 2019, respectively, decreased 18% in the second quarter of 2020 compared to the second quarter of 2019. MH sales for the first six months of 2020, representing 20% and 18% of the Company's sales for the 2020 and 2019 periods, decreased 6% in the first six months of 2020 compared to the prior year period. Based on industry data from the Manufactured Housing Institute, MH wholesale unit shipments decreased by approximately 14% in the second quarter of 2020 compared to the prior year quarter and decreased 1% for the first six months of 2020 compared to the prior year period. MH wholesale unit shipments were impacted due to temporary OEM plant shutdowns in the second quarter and first six months of 2020 as well as COVID-19 related construction delays during these periods. Industrial Market The industrial market is comprised primarily of the kitchen cabinet industry, hospitality market, retail and commercial fixtures market, office and household furniture market and regional distributors. Sales to this market represented 17% and 12% of our sales in the second quarter of 2020 and 2019, respectively, and decreased 2% in the second quarter of 2020 compared to the prior year quarter. Sales to the industrial market represented 15% and 11% of our sales for the first six months of 2020 and 2019, respectively, and increased 6% in the first six months of 2020 compared to the prior year period. Overall, our revenues in these markets are focused on the residential housing, hospitality, high-rise housing and office, commercial construction and institutional furniture markets. We estimate that approximately 60% of our industrial business is directly tied to the residential housing market, with the remaining 40% directly tied to the non-residential and commercial markets. Combined new housing starts decreased 17% in the second quarter of 2020 compared to the prior year quarter, with single family housing starts decreasing 13% and multifamily residential starts decreasing 27%. For the first six months of 2020, combined new housing starts increased 1% compared to the prior year period, with single family housing starts decreasing 1% and multifamily residential starts increasing 5%. 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. REVIEW OF CONSOLIDATED OPERATING RESULTS Second Quarter and Six Months Ended June 28, 2020 Compared to 2019 The following table sets forth the percentage relationship to net sales of certain items on the Company’s Condensed Consolidated Statements of Income. Second Quarter Ended Six Months Ended June 28, 2020 June 30, 2019 June 28, 2020 June 30, 2019 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of goods sold 82.6 81.6 81.9 82.1 Gross profit 17.4 18.4 18.1 17.9 Warehouse and delivery 4.8 4.3 4.4 4.1 Selling, general and administrative 7.4 5.4 6.7 5.8 Amortization of intangible assets 2.3 1.3 1.9 1.4 Operating income 2.9 7.4 5.1 6.6 Interest expense, net 2.6 1.4 2.1 1.4 Income taxes 0.1 1.5 0.8 1.2 Net income 0.2 4.5 2.2 4.0 Net Sales . Net sales in the second quarter of 2020 decreased $189.2 million, or 31%, to $424.0 million from $613.2 million in the second quarter of 2019. The consolidated net sales decrease in the second quarter of 2020 was attributed to sales decreases in all four of our end markets. The Company's RV market sales decreased 40%, marine market sales decreased 34%, industrial market sales decreased 2% and MH market sales decreased 18% when compared to the prior year quarter. 23 Net sales in the first six months of 2020 decreased $208.1 million, or 17%, to $1,013.3 million from $1,221.4 million in the first six months of 2019. The consolidated net sales decrease in the first six months of 2020 was attributed to sales decreases in three of our end markets. The Company's RV market sales decreased 23%, marine market sales decreased 24% and MH market sales decreased 6% while industrial market sales increased 6% when compared to the prior year period. During the second quarter and six months ended June 28, 2020, all four of our end markets were impacted by business disruptions and associated lost production and shipping days due to the COVID-19 pandemic. Revenue attributable to acquisitions completed in the second quarter and first six months of 2020 was $3.3 million and $3.8 million, respectively. The Company’s RV content per wholesale unit (on a trailing twelve-month basis) for the second quarter of 2020 decreased approximately 2% to $3,086 from $3,135 for the second quarter of 2019. Marine powerboat content per retail unit (on a trailing twelve-month basis) for the second quarter of 2020 decreased approximately 13% to an estimated $1,439 from $1,659 for the second quarter of 2019. MH content per wholesale unit (on a trailing twelve-month basis) for the second quarter of 2020 increased approximately 16% to an estimated $4,501 from $3,889 for the second quarter of 2019. Cost of Goods Sold. Cost of goods sold decreased $150.3 million, or 30%, to $350.3 million in the second quarter of 2020 from $500.6 million in 2019, primarily reflecting the decrease in net sales in the quarter. As a percentage of net sales, cost of goods sold increased during the second quarter of 2020 to 82.6% from 81.6% in 2019. This percentage increase is largely attributed to additional costs incurred and production inefficiencies related to business disruption of our end markets as a result of the COVID-19 pandemic. Cost of goods sold decreased $172.1 million, or 17%, to $830.1 million in the first six months of 2020 from $1,002.2 million in 2019, primarily reflecting the decrease in net sales in the period. As a percentage of net sales, cost of goods sold decreased during the first six months of 2020 to 81.9% from 82.1% in 2019. Cost of goods sold as a percentage of net sales decreased in the first six months of 2020 primarily as a result of (i) cost reductions we initiated in the third quarter of 2019, (ii) synergies achieved and realized in the first six months of 2020 from our 2018 and 2019 acquisitions and (iii) decreases in commodity cost inputs. These decreases in cost of goods sold were partially offset by additional costs incurred and production inefficiencies related to business disruption of our end markets as a result of the COVID-19 pandemic. Gross Profit. Gross profit decreased $39.0 million, or 35%, to $73.7 million in the second quarter of 2020 from $112.7 million in 2019. As a percentage of net sales, gross profit decreased to 17.4% in the second quarter of 2020 from 18.4% in the same period in 2019. Gross profit decreased $36.0 million, or 16%, to $183.2 million in the first six months of 2020 from $219.2 million in 2019. As a percentage of net sales, gross profit increased to 18.1% in the first six months of 2020 from 17.9% in the same period in 2019. The changes in gross profit as a percentage of net sales in the second quarter and first six months of 2020 compared to the same periods in 2019 reflect the impact of the factors discussed above under “Cost of Goods Sold”. Warehouse and Delivery Expenses . Warehouse and delivery expenses decreased $6.1 million, or 23%, to $20.2 million in the second quarter of 2020 from $26.3 million in the second quarter of 2019. As a percentage of net sales, warehouse and delivery expenses were 4.8% in the second quarter of 2020 compared to 4.3% in the second quarter of 2019. Warehouse and delivery expenses decreased $5.4 million, or 11%, to $44.9 million in the first six months of 2020 from $50.3 million in the first six months of 2019. As a percentage of net sales, warehouse and delivery expenses were 4.4% in the first six months of 2020 compared to 4.1% in the same period in 2019. The increase in warehouse and delivery expenses as a percentage of net sales for the second quarter and first six months of 2020 primarily reflects the fixed nature of certain of these expenses and operating inefficiencies as net sales declined. 24 Selling, General and Administrative ("SG&A") Expenses . SG&A expenses decreased $1.3 million, or 4%, to $31.6 million in the second quarter of 2020 from $32.9 million in the prior year quarter. As a percentage of net sales, SG&A expenses were 7.4% in the second quarter of 2020 compared to 5.4% in the second quarter of 2019. SG&A expenses decreased $3.1 million, or 4%, to $67.5 million in the first six months of 2020 from $70.6 million in the prior year period. As a percentage of net sales, SG&A expenses were 6.7% in the first six months of 2020 compared to 5.8% in the prior year period. The decrease in SG&A expenses in the second quarter of 2020 compared to 2019 is primarily due to the realization of cost reduction measures implemented in the third quarter of 2019 and the first quarter of 2020 as well as reductions in certain SG&A spending associated with the decrease in net sales in the second quarter and first six months of 2020. The increase in SG&A expenses as a percentage of net sales in the second quarter and first six months of 2020 compared to prior year periods is attributed to the decline in net sales from the impact of COVID-19, discussed above. Amortization of Intangible Assets. Amortization of intangible assets increased $1.5 million, or 18%, to $9.8 million in the second quarter of 2020 from $8.3 million in the prior year quarter and increased $2.1 million, or 12%, to $19.4 million in the first six months of 2020 from $17.3 million in the prior year period. The increase in the second quarter and first six months of 2020 compared to the prior year periods primarily reflects the impact of businesses acquired in 2019 and 2020. Operating Income. Operating income decreased $33.1 million, or 73%, to $12.1 million in the second quarter of 2020 from $45.2 million in 2019. As a percentage of net sales, operating income was 2.9% in the second quarter of 2020 versus 7.4% in the same period in 2019. Operating income decreased $29.7 million, or 37%, to $51.4 million in the first six months of 2020 from $81.1 million in 2019. As a percentage of net sales, operating income was 5.1% in the first six months of 2020 versus 6.6% in the same period in 2019. The change in operating income and operating income percentage is primarily attributable to the items discussed above. Interest Expense, Net. Interest expense increased $2.2 million, or 25%, to $10.8 million in the second quarter of 2020 from $8.6 million in the prior year. For the first six months of 2020, interest expense increased $3.7 million, or 21%, to $21.3 million from $17.6 million in the prior year period. The increase in interest expense in the second quarter and first six months of 2020 reflects increased borrowings related to 2019 and 2020 acquisitions and an increase in the Company's overall average interest rate resulting from the issuance of $300 million aggregate principal amount of 7.5% senior notes in the third quarter of 2019. Income Taxes. Income tax expense decreased $8.6 million, or 94%, to $0.6 million in the second quarter of 2020 from $9.2 million in the prior year period. For the first six months of 2020, income tax expense decreased $7.0 million, or 46%, to $8.2 million for the first six months of 2020 from $15.2 million in the prior year period. The decrease in both the second quarter and first six months of 2020 is attributed to the decrease in taxable income for both periods. The effective tax rate in the second quarter of 2020 and 2019 was 44.4% and 25.1% , respectively, and the effective tax rate for the comparable six month periods was 27.2% and 23.9% , respectively. The effective tax rate for the second quarter and six months of 2020 reflects the impact of $ 2.2 million of permanent tax differences due to certain Coronavirus Aid, Relief, and Economic Security Act payroll tax credits. In addition, the effective tax rate for the first six months of 2019 includes the impact of the recognition of excess tax benefits on share-based compensation that was recorded as a reduction to income tax expense upon realization in the amount of $ 0.9 million. 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 third-party measures of industry volume. 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. 25 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. Second Quarter and Six Months Ended June 28, 2020 Compared to 2019 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 15 of the Notes to Condensed Consolidated Financial Statements. Second Quarter Ended Six Months Ended (thousands) June 28, 2020 June 30, 2019 June 28, 2020 June 30, 2019 Sales Manufacturing $ 297,688 $ 442,606 $ 724,527 $ 876,010 Distribution 132,556 180,061 303,822 363,760 Gross Profit Manufacturing 48,957 80,700 127,904 157,527 Distribution 23,192 30,800 52,388 59,773 Operating Income Manufacturing 22,410 48,787 68,114 93,224 Distribution 6,938 10,800 16,906 19,091 Manufacturing Sales. Sales decreased $144.9 million, or 33%, to $297.7 million in the second quarter of 2020 from $442.6 million in the prior year quarter. For the first six months of 2020, sales decreased $151.5 million, or 17%, to $724.5 million from $876.0 million in the prior year period. This segment accounted for approximately 69% and 71% of the Company’s consolidated net sales for the second quarter of 2020 and 2019, respectively, and 70% of the Company's consolidated net sales for the first six months of 2020 and 2019. The sales decrease in the second quarter and first six months of 2020 was primarily attributed to sales decreases in our primary end markets as a result of business disruptions and lost production and shipping days due to the COVID-19 pandemic. Gross Profit . Gross profit decreased $31.7 million, or 39%, to $49.0 million in the second quarter of 2020 from $80.7 million in the second quarter of 2019. For the first six months of 2020, gross profit decreased $29.6 million, or 19%, to $127.9 million from $157.5 million in 2019. As a percentage of sales, gross profit decreased to 16.5% in the second quarter of 2020 from 18.2% in the second quarter of 2019 and decreased to 17.7% in the first six months of 2020 from 18.0% in the prior year period. Gross profit as a percentage of net sales decreased during the second quarter and first six months of 2020 compared to the prior year periods primarily due to additional costs and operational inefficiencies as a result of business disruptions from the COVID-19 pandemic. Operating Income. Operating income decreased $26.4 million, or 54%, to $22.4 million in the second quarter of 2020 from $48.8 million in the prior year quarter. For the first six months of 2020, operating income decreased $25.1 million, or 27%, to $68.1 million from $93.2 million in the prior year. The overall decrease in operating income in the second quarter and first six months of 2020 primarily reflects the items discussed above. 26 Distribution Sales. Sales decreased $47.5 million, or 26%, to $132.6 million in the second quarter of 2020 from $180.1 million in the prior year quarter. For the first six months of 2020, sales decreased $60.0 million, or 16%, to $303.8 million from $363.8 million in the prior year period. This segment accounted for approximately 31% and 29% of the Company’s consolidated net sales for the second quarter of 2020 and 2019, respectively, and 30% of consolidated net sales for the first six months of 2020 and 2019. The sales decrease in the second quarter and first six months of 2020 was primarily attributed to sales decreases in our primary end markets as a result of business disruptions and lost production and shipping days due to the COVID-19 pandemic. Gross Profit. Gross profit decreased $7.6 million, or 25%, to $23.2 million in the second quarter of 2020 from $30.8 million in the second quarter of 2019. For the first six months of 2020, gross profit decreased $7.4 million, or 12%, to $52.4 million from $59.8 million in 2019. As a percentage of sales, gross profit increased to 17.5% in the second quarter of 2020 from 17.1% in the second quarter of 2019 and increased to 17.2% in the first six months of 2020 from 16.4% in the prior year period. As a percentage of sales, gross profit increased during the second quarter and first six months of 2020 compared to the prior year periods primarily due to realized synergies from certain 2018 and 2019 acquisitions, partially offset by additional costs and operational inefficiencies as a result of business disruptions from the COVID-19 pandemic. Operating Income. Operating income decreased $3.9 million, or 36%, to $6.9 million in the second quarter of 2020 from $10.8 million in the prior year quarter. For the first six months of 2020, operating income decreased $2.2 million, or 11%, to $16.9 million from $19.1 million in the prior year. The overall decrease in operating income in the second quarter and first six months of 2020 primarily reflects the items discussed above. LIQUIDITY AND CAPITAL RESOURCES As the impact of the COVID-19 pandemic on the economy, our markets and our operations evolves, we will continue to assess our liquidity needs. After a postponement of non-essential capital expenditures in the second quarter of 2020, the Company expects to return to its historical levels of capital expenditures in the second half of 2020 reflecting the anticipated recovery of our end markets. Our liquidity at June 28, 2020 consisted of cash and cash equivalents of $111.1 million and $410.2 million of unused borrowing 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 provided by operating activities decreased $54.4 million to $39.4 million in the first six months of 2020 from $93.8 million in the first six months of 2019 primarily due to (i) a decrease of net income of $26.4 million due to disruptions in our end markets as a result of the COVID-19 pandemic; (ii) an increase in the use of cash from trade receivables of $24.0 million, primarily due to the timing of customer cash payments at the end of our fiscal second quarter; (iii) an increase in the use of cash from inventories of $20.8 million, due mostly to purchases of inventory in June 2020 as a result of an increase in demand in our end markets; and (iv) a decrease of deferred income tax liabilities of $7.6 million. These decreases in operating cash flows were partially offset by an increase of cash flows from prepaid expenses and other assets of $12.5 million and accounts payable of $5.2 million and an increase of depreciation and amortization of $4.4 million. Investing Activities Net cash used in investing activities increased $19.9 million to $35.0 million in the first six months of 2020 from $15.1 million in the first six months of 2019 primarily due to an increase in cash used in business acquisitions of $22.6 million 27 and a decrease in proceeds from sale of property, plant, and equipment and other investing activities of $4.2 million, partially offset by a decrease in capital expenditures of $6.9 million. Financing Activities Net cash flows used by financing activities decreased $29.4 million to $32.7 million in first six months of 2020 from $62.1 million in the first six months of 2019 primarily due to a net decrease in repayments on our revolving credit facility and term loan of $52.8 million and other financing activities of $3.8 million, partially offset by stock repurchases under our buyback program of $15.6 million with no corresponding amount in the prior year period and cash dividends paid to shareholders of $11.6 million with no corresponding amount in the prior year period. Summary of Liquidity and Capital Resources The Company's existing cash and cash equivalents, cash generated from operations, and available borrowings under its 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 Company's credit facility consists of a $550 million senior secured revolver and a $100 million senior secured term loan. The maturity date for borrowings under the credit agreement that established the credit facility is September 17, 2024. Upon the satisfaction of certain conditions, and obtaining incremental commitments from its lenders, the Company may be able to increase the borrowing capacity of the credit facility by up to $250 million. Borrowings under the credit facility are secured by substantially all personal property assets of the Company and any domestic subsidiary guarantors. Pursuant to the credit agreement: • The term loan is due in consecutive quarterly installments in the following amounts: (i) through and including June 30, 2021, $1,250,000 and (ii) beginning September 30, 2021, and each quarter thereafter, $2,500,000, with the remaining balance due at maturity; • The interest rates for borrowings under the revolver and the term loan are the Prime Rate or LIBOR plus a margin, which ranges from 0.00% to 0.75% for Prime Rate loans and from 1.00% to 1.75% for LIBOR loans depending on the Company’s consolidated total leverage ratio. The Company is required to pay fees on unused but committed portions of the revolver, which range from 0.15% to 0.225%. At June 28, 2020, the Company had $410.2 million of unused borrowing availability under its credit facility. The ability to access unused borrowing capacity under the 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. As of and for the June 28, 2020 reporting date, the Company was in compliance with its financial covenants as required under the terms of its credit agreement. The required maximum consolidated total leverage ratio and the required minimum consolidated fixed charge coverage ratio, as such ratios are defined in the credit agreement, compared to the actual amounts as of June 28, 2020 and for the fiscal period then ended are as follows: Required Actual Maximum consolidated total leverage ratio (12-month period) 4.00 2.31 Minimum consolidated fixed charge coverage ratio (12-month period) 1.50 5.65 Working capital requirements vary from period to period depending on manufacturing volumes, 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. 28 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, 2019 . OTHER Seasonality 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, and from time to time, the impact of severe weather conditions on the timing of industry-wide wholesale shipments. 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. 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 , and in the Company's Form 10-Qs for subsequent quarterly periods, which are filed with the SEC and are available on the SEC’s website at www.sec.gov.