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 30 of this Report. The Company undertakes no obligation to update these forward-looking statements. OVERVIEW OF MARKETS AND RELATED INDUSTRY PERFORMANCE Second Quarter and Six Months 2023 Financial Overview Recreational Vehicle ("RV") Industry The RV industry is our primary market and comprised 42% and 57% of the Company’s consolidated net sales in the second quarter ended July 2, 2023 and June 26, 2022, respectively, and 41% and 59% for the comparative six month periods, respectively. Net sales to the RV industry decreased 54% and 55% in the second quarter and first six months of 2023, respectively, compared to the prior year periods. According to the RV Industry Association ("RVIA"), RV wholesale shipments decreased 44% in the second quarter of 2023 to approximately 86,200 units from approximately 152,700 units in the second quarter of 2022. While we estimate RV industry retail unit sales for second quarter of 2023 decreased approximately 16% compared to the second quarter of 2022, industry retail sales exceeded wholesale unit shipments in the second quarter of 2023 as RV OEMs maintained lower production volumes. RV wholesale unit shipments for the first six months of 2023 totaled approximately 164,800 units, a decrease of 49% from approximately 324,600 units in the comparative prior year period. We estimate that despite a 19% decrease in RV industry retail unit sales for the first six months of 2023 compared to the prior year period, industry retail sales exceeded wholesale unit shipments resulting in improved alignment of dealer inventory levels with retail demand. Marine Industry Net sales to the marine industry, which represented approximately 29% and 20% of the Company's consolidated net sales in the second quarter ended July 2, 2023 and June 26, 2022, respectively, decreased 8% in the second quarter of 2023 compared to the prior year period. For the first six months of 2023 and 2022, net sales to the marine industry represented 30% and 18% of our consolidated net sales, respectively, increasing 6% in 2023 compared to the prior year period. The increase in net sales beyond industry volumes is driven primarily by acquisitions completed in 2022 and 2023, 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"), decreased 19% for the second quarter of 2023 and were flat for the first six months of 2023 compared to the prior year periods. We estimate that marine industry retail powerboat unit sales decreased 4% in the second quarter and first six months of 2023, compared to the prior year periods primarily due to the current macroeconomic environment faced by the end consumer, 21 such as rising interest rates and inflationary pressures. Estimated retail shipments were higher than estimated wholesale unit sales and were in line with typical seasonal buying patterns of consumers for these products. Manufactured Housing ("MH") Industry Net sales to the MH industry, which represented 16% and 13% of the Company’s consolidated net sales in the second quarter of 2023 and 2022, respectively, decreased 28% in the second quarter of 2023 compared to the prior year period. MH net sales represented 15% and 13% of the Company's consolidated net sales for the first six months of 2023 and 2022, respectively, and decreased 26% in the first six months of 2023 compared to the first six months of 2022. Based on industry data from the Manufactured Housing Institute, MH industry wholesale unit shipments decreased 29% in the second quarter of 2023 and decreased 29% in the first six months of 2023 compared to the prior year periods 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 second quarter of 2023 and 2022, respectively, and decreased 15% in the second quarter of 2023 compared to the prior year period. Industrial net sales represented 14% and 10% of the Company's net sales in the first six months of 2023 and 2022, respectively, and decreased 9% in the first six months of 2023 compared to the first six months of 2022. 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 11% in the second quarter of 2023 compared to the prior year quarter, with single-family housing starts decreasing 14%, and multifamily housing starts decreasing 6% for the same period. For the first six months of 2023, combined new housing starts decreased 15%, with single family housing starts decreasing 21% and multifamily housing starts decreasing 2% 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. REVIEW OF CONSOLIDATED OPERATING RESULTS Second Quarter and Six Month Ended July 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. Second Quarter Ended (In thousands) July 2, 2023 June 26, 2022 Amount Change % Change Net sales $ 920,685 100.0 % $ 1,475,693 100.0 % $ (555,008) (38) % Cost of goods sold 710,717 77.2 % 1,148,589 77.8 % (437,872) (38) % Gross profit 209,968 22.8 % 327,104 22.2 % (117,136) (36) % Warehouse and delivery expenses 36,031 3.9 % 44,047 3.0 % (8,016) (18) % Selling, general and administrative expenses 78,540 8.5 % 90,485 6.1 % (11,945) (13) % Amortization of intangible assets 19,822 2.2 % 18,545 1.3 % 1,277 7 % Operating income 75,575 8.2 % 174,027 11.8 % (98,452) (57) % Interest expense, net 18,260 2.0 % 14,802 1.0 % 3,458 23 % Income taxes 14,958 1.6 % 42,701 2.9 % (27,743) (65) % Net income $ 42,357 4.6 % $ 116,524 7.9 % $ (74,167) (64) % 22 Six Months Ended (In thousands) July 2, 2023 June 26, 2022 Amount Change % Change Net sales $ 1,820,785 100.0 % $ 2,817,868 100.0 % $ (997,083) (35) % Cost of goods sold 1,416,573 77.8 % 2,195,419 77.9 % (778,846) (35) % Gross profit 404,212 22.2 % 622,449 22.1 % (218,237) (35) % Warehouse and delivery expenses 71,876 3.9 % 85,216 3.0 % (13,340) (16) % Selling, general and administrative expenses 160,941 8.8 % 166,045 5.9 % (5,104) (3) % Amortization of intangible assets 39,586 2.2 % 35,406 1.3 % 4,180 12 % Operating income 131,809 7.2 % 335,782 11.9 % (203,973) (61) % Interest expense, net 36,744 2.0 % 29,688 1.1 % 7,056 24 % Income taxes 22,535 1.2 % 76,897 2.7 % (54,362) (71) % Net income $ 72,530 4.0 % $ 229,197 8.1 % $ (156,667) (68) % Net Sales . Net sales in the second quarter of 2023 decreased $555.0 million, or 38%, to $920.7 million from $1,475.7 million in the second quarter of 2022. The net sales decrease in the second quarter of 2023 reflects revenue decreases from each of our four end markets, partially offset by the contribution of acquisitions completed in 2022 and 2023. The Company's RV market sales decreased $454 million, or 54%, in the quarter resulting from the continued reduction of production by our RV OEM customers. Marine market sales decreased $21.9 million, or 8%, attributable to a wholesale shipment decline compared to the prior year quarter. MH market sales decreased $56.4 million, or 28%, due to industry headwinds from elevated financing rates and persistent inflation. Industrial market sales decreased $22.8 million, or 15%, which is in line with new housing start trends when compared to the prior year quarter. Net sales in the first six months of 2023 decreased $997.1 million, or 35%, to $1,820.8 million from $2,817.9 million in the first six months of 2022. The net sales decrease in the first six months of 2023 reflects a $907.5 million decline in RV revenues in the quarter resulting from the continued reduction of production by our RV OEM customers and a $96.6 million decline in MH net sales due to industry headwinds from elevated financing rates and persistent inflation, partially offset by growth in our marine end market, market share gains, and the contribution of acquisitions completed in 2022 and 2023. The Company's RV market sales decreased 55%, marine market sales increased 6%, MH market sales decreased 26% and industrial market sales decreased 9% in the first six months of 2023 when compared to the prior year period. Revenue attributable to acquisitions completed in the first six months of 2023 was $2.3 million in both the second quarter and first six months of 2023. Revenue attributable to acquisitions completed in the first six months of 2022 was $40.8 million in the second quarter of 2022 and $49.2 million in the first six months of 2022 . The Company’s RV content per wholesale unit (on a trailing twelve-month basis) for the second quarter of 2023 increased approximately 6% to $5,054 fr om $4,749 for the second quarter of 2022 . Marine powerboat content per wholesale unit (on a trailing twelve-month basis) for the second quarter of 2023 increased approximately 15% to an estimated $5,330 from $4,648 for the second quarter of 2022. MH content per wholesale unit (on a trailing twelve-month b asis) for the second quarter of 2023 increased approximately 10% to $6,393 from $5,800 for the second quarter of 2022 . These increases in content per wholesale unit reflect market share gains, contributions from businesses acquired in 2022 and 2023, and favorable pricing impacts. Cost of Goods Sold. Cost of goods sold decreased $437.9 million, or 38%, to $710.7 million in the second quarte r of 2023 from $1,148.6 million in the comparative 2022 period. As a percentage of net sales, cost of goods sold decreased 60 basis points during the second quarter of 2023 to 77.2% from 77.8% in the prior year period. Cost of goods sold decreased $778.8 million, or 35%, to $1,416.6 million in the first six months of 2023 from $2,195.4 million in the first six months of 2022. As a percentage of net sales, cost of goods sold decreased 10 basis points during the first six months of 2023 to 77.8% from 77.9% in the prior year period. 23 Cost of goods sold as a percentage of net sales decreased in the second quarter and first six months of 2023 primarily as a result of (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 and 2023, partially offset by reduced industry volumes resulting in less favorable fixed cost absorption when compared to the prior year periods. For the second quarter of 2023, these factors contributed to a 340 basis point decrease in material costs as a percentage of net sales and a 50 basis point decrease in labor as a percentage of net sales, partially offset by a 330 basis point increase in overhead as a percentage of net sales. For the first six months of 2023, these factors contributed to a 300 basis point decrease in material costs as a percentage of net sales and a 40 basis point decrease in labor as a percentage of net sales, partially offset by a 330 basis point increase in overhead 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. Gross Profit. Gross profit decreased $117.1 million, or 36%, to $210.0 million in the second quarter of 2023 from $327.1 million in the prior year period. As a percentage of net sales, gross profit increased 60 basis points to 22.8% in the second quarter of 2023 from 22.2% in the same period in the prior year period. Gross profit decreased $218.2 million, or 35%, to $404.2 million in the first six months of 2023 from $622.4 million in the prior year period. As a percentage of net sales, gross profit increased 10 basis points to 22.2% in the first six months of 2023 from 22.1% in the same period in the prior year period. The increase in gross profit as a percentage of net sales in the second quarter and first six months of 2023 compared to the same periods in 2022 reflects the impact of the factors discussed above under “Cost of Goods Sold”. Warehouse and Delivery Expenses . Warehouse and delivery expenses decreased $8.0 million, or 18%, to $36.0 million in the second quarter of 2023 from $44.0 million in the second quarter of 2022. As a percentage of net sales, warehouse and delivery expenses increased 90 basis points to 3.9% in the second quarter of 2023 compared to 3.0% in the second quarter of 2022. Warehouse and delivery expenses decreased $13.3 million, or 16%, to $71.9 million in the first six months of 2023 from $85.2 million in the first six months of 2022. As a percentage of net sales, warehouse and delivery expenses increased 90 basis points to 3.9% in the first six months of 2023 compared to 3.0% in the first six months of 2022. The decrease in warehouse and delivery expenses in the second quarter and first six months of 2023 compared to the same periods in 2022 is attributable to the decrease in sales. The increase as a percentage of net sales in the second quarter and first six months of 2023 as compared to the same 2022 periods is primarily attributable to increased property and casualty insurance rates and the fixed-cost nature of certain warehouse and delivery expenses. Selling, General and Administrative ("SG&A") Expenses . SG&A expenses decreased $12.0 million, or 13%, to $78.5 million in the second quarter of 2023 from $90.5 million in the prior year quarter. As a percentage of net sales, SG&A expenses were 8.5% in the second quarter of 2023 compared to 6.1% in the second quarter of 2022. SG&A expenses decreased $5.1 million, or 3%, to $160.9 million in the first six months of 2023 from $166.0 million in the prior year quarter. As a percentage of net sales, SG&A expenses were 8.8% in the first six months of 2023 compared to 5.9% in the first six months of 2022. The decrease in SG&A expenses in the second quarter and first six months of 2023 compared to 2022 is primarily attributed to decreases in incentive compensation, professional fees, and prior period adjustments to the fair value of contingent consideration, partially offset by increases in software and insurance expenditures. As a percentage of sales, SG&A expenses increased 240 and 290 basis points for the second quarter and first six months of 2023, respectively, compared to the same periods in 2022. This increase primarily reflects 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 six months of 2022 includes a $5.5 million pre-tax gain on sale of property. 24 Amortization of Intangible Assets. Amortization of intangible assets increased $1.3 million, or 7%, to $19.8 million in the second quarter of 2023 from $18.5 million in the prior year quarter. Amortization of intangible assets increased $4.2 million, or 12%, to $39.6 million in the first six months of 2023 from $35.4 million in the prior year period. The increase in the second quarter and first six months of 2023 compared to the prior year periods primarily reflects the impact of businesses acquired in 2022 and 2023. Operating Income. Operating income decreased $98.4 million, or 57%, to $75.6 million in the second quarter of 2023 from $174.0 million in 2022. As a percentage of net sales, operating income decreased 360 basis points to 8.2% in the second quarter of 2023 versus 11.8% in the same period in 2022. For the first six months of 2023, operating income decreased $204.0 million, or 61%, to $131.8 million from $335.8 million in the same period in 2022. As a percentage of net sales, operating income decreased 470 basis points to 7.2% in the first six months of 2023 versus 11.9% in the same period in 2022. The decrease in operating income and operating margin is primarily attributable to the items discussed above. Interest Expense, Net. Interest expense increased $3.5 million, or 23%, to $18.3 million in the second quarter of 2023 from $14.8 million in the prior year period. Interest expense increased $7.0 million, or 24%, to $36.7 million in the first six months of 2023 from $29.7 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, partially offset by decreases in average borrowings compared to the prior year periods. Income Taxes. Income tax expense decreased $27.7 million in the second quarter of 2023 to $15.0 million from $42.7 million in the prior year period. Income tax expense decreased $54.4 million in the first six months of 2023 to $22.5 million from $76.9 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 six months 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 $1.8 million and $4.0 million, respectively. 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. 25 Second Quarter and Six Month Ended July 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. Second Quarter Ended (In thousands) July 2, 2023 June 26, 2022 Amount Change % Change Sales Manufacturing $ 704,291 $ 1,108,944 $ (404,653) (36)% Distribution 234,746 393,634 (158,888) (40)% Gross Profit Manufacturing 161,571 259,224 (97,653) (38)% Distribution 52,523 75,556 (23,033) (30)% Operating Income Manufacturing 95,203 180,685 (85,482) (47)% Distribution 25,840 43,641 (17,801) (41)% Six Months Ended (In thousands) July 2, 2023 June 26, 2022 Amount Change % Change Sales Manufacturing $ 1,413,106 $ 2,107,529 $ (694,423) (33)% Distribution 444,905 759,368 (314,463) (41)% Gross Profit Manufacturing 316,655 495,511 (178,856) (36)% Distribution 96,599 151,323 (54,724) (36)% Operating Income Manufacturing 182,369 351,229 (168,860) (48)% Distribution 44,146 89,607 (45,461) (51)% 26 Manufacturing Sales. Sales decreased $404.6 million, or 36%, to $704.3 million in the second quarter of 2023 from $1,108.9 million in the prior year quarter. For the first six months of 2023, sales decreased $694.4 million, or 33%, to $1,413.1 million from $2,107.5 million in the prior year period. This segment accounted for approximately 75% and 74% of the Company’s sales for the second quarter of 2023 and 2022, respectively, and 76% and 74% of the Company's sales for the first six months of 2023 and 2022, respectively. The sales decrease in the second quarter of 2023 compared to 2022 was attributed to sales decreases in each of the Company's four end-markets due to reduced industry wholesale unit shipments in the RV, marine and MH industries and previous slowing of housing starts, partially offset by acquisitions completed in 2022 and 2023. For the second quarter of 2023 compared to the same prior year period, the Company's RV end-market sales decreased 56%, the marine end-market sales decreased 8% , the MH end-market sales decreased 34% and industrial end-market sales decreased 15%. For the first six months of 2023 compared to the same prior year period, the Company's RV end-market sales decreased 56%, the marine end-market sales increased 7%, the MH end-market sales decreased 30% and industrial end-market sales decreased 9%. Net sales in the second quarter and first six months of 2022 attributable to acquisitions completed in the first six months of 2022 were approximately $40.8 million and $49.2 million, respectively. Gross Profit . Gross profit decreased $97.6 million, or 38%, to $161.6 million in the second quarter of 2023 from $259.2 million in the second quarter of 2022. For the first six months of 2023, gross profit decreased $178.8 million, or 36%, to $316.7 million from $495.5 million in the first six months of 2022. As a percentage of sales, gross profit decreased to 22.9% in the second quarter of 2023 from 23.4% in the second quarter of 2022, and decreased to 22.4% in the first six months of 2023 from 23.5% in the first six months of 2022. Gross profit as a percentage of sales decreased during the second quarter of 2023 compared to second quarter of 2022 due to a 430 basis point increase in manufacturing overhead as a percentage of sales and a 130 basis point increase in manufacturing labor as a percentage of sales, partially offset by a 510 basis point decrease in manufacturing material expense as a percentage of sales. Gross profit as a percentage of sales decreased during the first six months of 2023 compared to first six months of 2022 due to a 420 basis point increase in manufacturing overhead as a percentage of sales and a 120 basis point increase in manufacturing labor as a percentage of sales, partially offset by a 430 basis point decrease in manufacturing material expense as a percentage of sales. Operating Income. Operating income decreased $85.5 million, or 47%, to $95.2 million in the second quarter of 2023 from $180.7 million in the prior year quarter. For the first six months of 2023, operating income decreased $168.8 million, or 48%, to $182.4 million from $351.2 million in the first six months of 2022. The overall decrease in operating income in the second quarter and first six months of 2023 primarily reflects the items discussed above. Distribution Sales. Sales decreased $158.9 million, or 40%, to $234.7 million in the second quarter of 2023 from $393.6 million in the prior year quarter. For the first six months of 2023, sales decreased $314.5 million, or 41%, to $444.9 million from $759.4 million in the prior year period. This segment accounted for approximately 25% and 26% of the Company’s sales for the second quarter of 2023 and 2022, respectively, and 24% and 26% of the Company's sales for the first six months of 2023 and 2022, respectively. The sales decrease in the second quarter of 2023 compared to the second quarter of 2022 was attributed to a 51% 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 27% decrease in industrial sales, and a 1% decrease in marine market sales. The sales decrease in the first six months of 2023 compared to the first six months of 2022 was attributed to a 53% 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 18% decrease in industrial sales, partially offset by a 4% increase in marine market sales. Net sales in the second quarter and first six months of 2023 attributable to acquisitions completed in the first six months of 2023 was approximately $2.3 million. None of the net sales in the second quarter and first six months of 2022 were attributable to acquisitions completed in the first six months of 2022. 27 Gross Profit. Gross profit decreased $23.1 million, or 30%, to $52.5 million in the second quarter of 2023 from $75.6 million in the second quarter of 2022. For the first six months of 2023, gross profit decreased $54.7 million, or 36%, to $96.6 million from $151.3 million in the first six months of 2022. As a percentage of sales, gross profit increased to 22.4% in the second quarter of 2023 from 19.2% in the second quarter of 2022, and increased to 21.7% in the first six months of 2023 from 19.9% in the first six months of 2022. Gross profit as a percentage of sales increased during the second quarter of 2023 compared to second quarter of 2022 primarily due to a 500 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 180 basis point increase in distribution material expense as a percentage of sales as a result of increased material costs. Gross profit as a percentage of sales increased during the first six months of 2023 compared to the first six months of 2022 primarily due to a 390 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 210 basis point increase in distribution material expense as a percentage of sales as a result of increased material costs. Operating Income. Operating income decreased $17.8 million, or 41%, to $25.8 million in the second quarter of 2023 from $43.6 million in the prior year quarter. For the first six months of 2023, operating income decreased $45.5 million, or 51%, to $44.1 million from $89.6 million in the first six months of 2022. The decrease in operating income in the second quarter and first six months of 2023 primarily reflects the items discussed above. LIQUIDITY AND CAPITAL RESOURCES Our liquidity at July 2, 2023 consisted of cash and cash equivalents of $33.9 million and $573.0 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 provided by operating activities was $178.4 million in the first six months of 2023 compared to $74.3 million in the first six months of 2022. The change in operating cash flows is primarily attributable to a $23.4 million source of cash from working capital working compared to a $227.7 million use of cash in the prior year period, partially offset by a $156.7 million reduction in net income. Investing Activities Net cash used in investing activities decreased $122.1 million to $65.5 million in the first six months of 2023 from $187.6 million in the first six months of 2022 primarily due to a decrease in cash used in business acquisitions of $123.6 million. Financing Activities Net cash used in financing activities was $101.7 million in the first six months of 2023 compared to net cash provided by financing activities of $67.4 million in the first six months of 2022. In the first six months of 2023, revolver and term loan repayments and the repayment of our 1.00% Convertible Senior Notes due 2023 at maturity, net of borrowings under our revolving credit facility, were $61.5 million, compared to borrowings under our revolving credit facility, net of revolver and term loan repayments, of $138.1 million in the first six months of 2022. In addition, there was a $28.6 million decrease in stock repurchases in the first six months of 2023 compared to the prior year period. 28 Summary of Liquidity and Capital Resources At July 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 July 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 July 2, 2023 and for the fiscal period then ended are as follows: Required Actual Consolidated secured net leverage ratio (12-month period) 2.75 0.64 Consolidated fixed charge coverage ratio (12-month period) 1.50 2.84 In addition, as of July 2, 2023, the Company's consolidated total net leverage ratio (12-month period) was 2.60, 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, marine, MH, 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. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS There have been no new accounting pronouncements issued but not yet adopted or effective that we believe will have a significant impact on our consolidated financial statements. 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. 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. 29 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 those 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.