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”) is intended to help the reader understand the results of operations, financial condition and cash flows of Patrick Industries, Inc. This 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 Third Quarter and Nine Months 2023 Financial Overview Recreational Vehicle ("RV") Industry The RV industry is our primary market and comprised 46% and 47% of the Company’s consolidated net sales in the third quarter ended October 1, 2023 and September 25, 2022, respectively, and 43% and 55% for the comparative nine months periods, respectively. Net sales to the RV industry decreased 24% and 47% in the third quarter and first nine months of 2023, respectively, compared to the prior year periods. According to the RV Industry Association ("RVIA"), RV wholesale shipments decreased 20% in the third quarter of 2023 to approximately 73,300 units from approximately 91,700 units in the third quarter of 2022. While we estimate RV industry retail unit sales for third quarter of 2023 decreased approximately 38% compared to the third quarter of 2022, industry retail sales exceeded wholesale unit shipments in the third quarter of 2023 as RV OEMs maintained lower production volumes. RV wholesale unit shipments for the first nine months of 2023 totaled approximately 238,100 units, a decrease of 43% from approximately 416,200 units in the comparative prior year period. We estimate that despite a 24% decrease in RV industry retail unit sales for the first nine 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 24% and 24% of the Company's consolidated net sales in the third quarter ended October 1, 2023 and September 25, 2022, respectively, decreased 24% in the third quarter of 2023 compared to the prior year period. For the first nine months of 2023 and 2022, net sales to the marine industry represented 28% and 20% of our consolidated net sales, respectively, decreasing 4% in the first nine months of 2023 compared to the prior year period. The decrease in net sales was primarily due to a reduction in OEM production levels and inventory decreases at marine dealers, which were offset in part by the contribution from acquisitions completed in 2022 and 2023. 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 23% for the third quarter of 2023 and decreased 4% for the first nine months of 2023 compared to the prior year periods. We estimate that marine industry retail powerboat unit sales increased 1% in the third quarter and first nine months of 2023, compared to the prior year periods primarily due to the current macroeconomic environment faced by the end consumer, such as rising interest rates and inflationary pressures. In both the third quarter and first nine months of 2023, 21 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 17% and 16% of the Company’s consolidated net sales in the third quarter ended October 1, 2023 and September 25, 2022, respectively, decreased 17% in the third quarter of 2023 compared to the prior year period. MH net sales represented 16% and 14% of the Company's consolidated net sales for the first nine months of 2023 and 2022, respectively, and decreased 23% in the first nine months of 2023 compared to the first nine months of 2022. Based on industry data from the Manufactured Housing Institute, MH industry wholesale unit shipments decreased 19% in the third quarter of 2023 and decreased 26% in the first nine 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 kitchen cabinet, countertop, hospitality, retail and commercial fixtures, and office and household furniture markets and regional distributors. Net sales to this market represented 13% of our consolidated net sales in each of the third quarter ended October 1, 2023 and September 25, 2022, and decreased 19% in the third quarter ended October 1, 2023 compared to the prior year period. Industrial net sales represented 13% and 11% of the Company's net sales in the first nine months of 2023 and 2022, respectively, and decreased 13% in the first nine months of 2023 compared to the prior year period. Overall, our revenues in these markets are focused on residential and multifamily housing, hospitality, high-rise housing and office, commercial construction and institutional furniture markets. We estimate that, in general, approximately 70% to 80% of our industrial business is directly tied to the residential housing market, with the remaining 20% to 30% tied to the non-residential and commercial markets. According to the U.S. Census Bureau, combined new housing starts decreased 6% in the third quarter of 2023 compared to the prior year quarter, with single-family housing starts increasing 7%, and multifamily housing starts decreasing 28% for the same period. For the first nine months of 2023, combined new housing starts decreased 12%, with single-family housing starts decreasing 13% and multifamily housing starts decreasing 11% 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. RESULTS OF OPERATIONS Third Quarter and Nine Months Ended October 1, 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. Third Quarter Ended ($ in thousands) October 1, 2023 September 25, 2022 Amount Change % Change Net sales $ 866,073 100.0 % $ 1,112,089 100.0 % $ (246,016) (22) % Cost of goods sold 666,954 77.0 % 875,638 78.7 % (208,684) (24) % Gross profit 199,119 23.0 % 236,451 21.3 % (37,332) (16) % Warehouse and delivery expenses 37,664 4.3 % 39,997 3.6 % (2,333) (6) % Selling, general and administrative expenses 70,873 8.2 % 84,924 7.6 % (14,051) (17) % Amortization of intangible assets 19,507 2.3 % 18,769 1.7 % 738 4 % Operating income 71,075 8.2 % 92,761 8.3 % (21,686) (23) % Interest expense, net 16,879 1.9 % 15,302 1.4 % 1,577 10 % Income taxes 14,646 1.7 % 18,640 1.7 % (3,994) (21) % Net income $ 39,550 4.6 % $ 58,819 5.3 % $ (19,269) (33) % 22 Nine Months Ended ($ in thousands) October 1, 2023 September 25, 2022 Amount Change % Change Net sales $ 2,686,858 100.0 % $ 3,929,957 100.0 % $ (1,243,099) (32) % Cost of goods sold 2,083,527 77.5 % 3,071,057 78.1 % (987,530) (32) % Gross profit 603,331 22.5 % 858,900 21.9 % (255,569) (30) % Warehouse and delivery expenses 109,540 4.1 % 125,213 3.2 % (15,673) (13) % Selling, general and administrative expenses 231,814 8.6 % 250,969 6.4 % (19,155) (8) % Amortization of intangible assets 59,093 2.2 % 54,175 1.4 % 4,918 9 % Operating income 202,884 7.6 % 428,543 10.9 % (225,659) (53) % Interest expense, net 53,623 2.0 % 44,990 1.1 % 8,633 19 % Income taxes 37,181 1.4 % 95,537 2.4 % (58,356) (61) % Net income $ 112,080 4.2 % $ 288,016 7.3 % $ (175,936) (61) % Net Sales . Net sales in the third quarter of 2023 decreased $246.0 million, or 22%, to $866.1 million from $1,112.1 million in the third quarter of 2022. Net sales in the third quarter of 2023 decreased 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. The Company's RV market sales decreased $123.5 million, or 24%, in the quarter resulting from the continued reduction of production by our RV OEM customers. Marine market sales decreased $65.9 million, or 24%, attributable to a wholesale shipment decline compared to the prior year quarter. MH market sales decreased $29.7 million, or 17%, due to industry headwinds from elevated financing rates and persistent inflation. Industrial market sales decreased $26.9 million, or 19% when compared to the prior year quarter, which is in line with housing start trends in the prior two quarters. Net sales in the first nine months of 2023 decreased $1,243.1 million, or 32%, to $2,686.9 million from $3,930.0 million in the first nine months of 2022. The net sales decrease in the first nine months of 2023 reflects a $1,031.0 million decline in RV revenues resulting from the continued reduction of production by our RV OEM customers, a $126.3 million decline in MH revenues due to industry headwinds from elevated financing rates and persistent inflation and a $32.9 million decline in marine revenues due to a reduction in OEM production levels and inventory decreases at the marine dealers, which were partially offset by the contribution from acquisitions completed in 2022 and 2023. The Company's RV market sales decreased 47%, marine market sales decreased 4%, MH market sales decreased 23% and industrial market sales decreased 13% in the first nine months of 2023 when compared to the prior year period. Revenue attributable to acquisitions completed in the first nine months of 2023 was $7.3 million and $9.8 million in the third quarter and first nine months of 2023, respectively. Revenue attributable to acquisitions completed in the first nine months of 2022 was $38.0 million and $87.3 million in the third quarter and first nine months of 2022, respectively. The Company’s RV content per wholesale unit (on a trailing twelve-month basis) for the third quarter of 2023 decreased approximately 2% to $4,957 fr om $5,065 for the third quarter of 2022 . Marine powerboat content per wholesale unit (on a trailing twelve-month basis) for the third quarter of 2023 increased approximately 3% to an estimated $5,009 from $4,860 for the third quarter of 2022. MH content per wholesale unit (on a trailing twelve-month b asis) for the third quarter of 2023 increased approximately 7% to $6,444 from $6,029 for the third quarter of 2022 . The decrease in content per wholesale unit in the RV market reflects pricing impacts. The increases in content per wholesale unit in the marine powerboat and MH markets primarily reflect product mix shifts by certain OEM customers, market share gains, and contributions from businesses acquired in 2022 and 2023. Cost of Goods Sold. Cost of goods sold decreased $208.6 million, or 24%, to $667.0 million in the third quarte r of 2023 from $875.6 million in the comparative 2022 period. As a percentage of net sales, cost of goods sold decreased 170 basis points during the third quarter of 2023 to 77.0% from 78.7% in the prior year period. 23 Cost of goods sold decreased $987.6 million, or 32%, to $2,083.5 million in the first nine months of 2023 from $3,071.1 million in the first nine months of 2022. As a percentage of net sales, cost of goods sold decreased 60 basis points during the first nine months of 2023 to 77.5% from 78.1% in the prior year period. Cost of goods sold as a percentage of net sales decreased in the third quarter and first nine 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 and labor 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 third quarter of 2023, these factors contributed to a 290 basis point decrease in material costs as a percentage of net sales and a 120 basis point decrease in labor as a percentage of net sales, partially offset by a 240 basis point increase in overhead as a percentage of net sales. For the first nine months of 2023, these factors contributed to a 300 basis point decrease in material costs as a percentage of net sales and a 60 basis point decrease in labor as a percentage of net sales, partially offset by a 300 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 $37.4 million, or 16%, to $199.1 million in the third quarter of 2023 from $236.5 million in the prior year period. As a percentage of net sales, gross profit increased 170 basis points to 23.0% in the third quarter of 2023 from 21.3% in the same period in the prior year period. Gross profit decreased $255.6 million, or 30%, to $603.3 million in the first nine months of 2023 from $858.9 million in the prior year period. As a percentage of net sales, gross profit increased 60 basis points to 22.5% in the first nine months of 2023 from 21.9% in the same period in the prior year period. The increase in gross profit as a percentage of net sales in the third quarter and first nine 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 $2.3 million, or 6%, to $37.7 million in the third quarter of 2023 from $40.0 million in the third quarter of 2022. As a percentage of net sales, warehouse and delivery expenses increased 70 basis points to 4.3% in the third quarter of 2023 compared to 3.6% in the third quarter of 2022. Warehouse and delivery expenses decreased $15.7 million, or 13%, to $109.5 million in the first nine months of 2023 from $125.2 million in the first nine months of 2022. As a percentage of net sales, warehouse and delivery expenses increased 90 basis points to 4.1% in the first nine months of 2023 compared to 3.2% in the first nine months of 2022. The decrease in warehouse and delivery expenses in the third quarter and first nine 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 third quarter and first nine months of 2023 as compared to the same 2022 periods is primarily attributable to increased property and casualty insurance rates, the fixed-cost nature of certain warehouse and delivery expenses, and the impact from acquisitions. Selling, General and Administrative ("SG&A") Expenses . SG&A expenses decreased $14.0 million, or 17%, to $70.9 million in the third quarter of 2023 from $84.9 million in the prior year quarter. As a percentage of net sales, SG&A expenses were 8.2% in the third quarter of 2023 compared to 7.6% in the third quarter of 2022. SG&A expenses decreased $19.2 million, or 8%, to $231.8 million in the first nine months of 2023 from $251.0 million in the prior year quarter. As a percentage of net sales, SG&A expenses were 8.6% in the first nine months of 2023 compared to 6.4% in the first nine months of 2022. The decrease in SG&A expenses in the third quarter and first nine months of 2023 compared to 2022 is primarily attributed to decreases in incentive compensation, professional fees, and adjustments to the fair value of contingent consideration, partially offset by increases in software and insurance expenditures. As a percentage of sales, SG&A 24 expenses increased 60 basis points and 220 basis points for the third quarter and first nine 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 expenses in the first nine months of 2022 include a $5.5 million pre-tax gain on sale of property, as noted above. Amortization of Intangible Assets. Amortization of intangible assets increased $0.7 million, or 4%, to $19.5 million in the third quarter of 2023 from $18.8 million in the prior year quarter. Amortization of intangible assets increased $4.9 million, or 9%, to $59.1 million in the first nine months of 2023 from $54.2 million in the prior year period. The increase in the third quarter and first nine 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 $21.7 million, or 23%, to $71.1 million in the third quarter of 2023 from $92.8 million in 2022. As a percentage of net sales, operating income decreased 10 basis points to 8.2% in the third quarter of 2023 versus 8.3% in the same period in 2022. For the first nine months of 2023, operating income decreased $225.6 million, or 53%, to $202.9 million from $428.5 million in the same period in 2022. As a percentage of net sales, operating income decreased 330 basis points to 7.6% in the first nine months of 2023 versus 10.9% 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 $1.6 million, or 10%, to $16.9 million in the third quarter of 2023 from $15.3 million in the prior year period. Interest expense increased $8.6 million, or 19%, to $53.6 million in the first nine months of 2023 from $45.0 million in the prior year period. These increases primarily reflect 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 $4.0 million in the third quarter of 2023 to $14.6 million from $18.6 million in the prior year period. Income tax expense decreased $58.3 million in the first nine months of 2023 to $37.2 million from $95.5 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 nine 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 $2.3 million and $4.0 million, respectively. Use of Financial Metrics Our MD&A includes financial metrics, such as RV, marine and MH content per unit, which we believe are important measures of the Company's business performance. Content per unit metrics are generally calculated using our market sales divided by Company estimates of industry unit volume, which are derived from third-party industry data. These metrics should not be considered alternatives to U.S. GAAP. Our computations of content per unit may differ from similarly titled measures used by others. These metrics should not be considered in isolation or as substitutes for an analysis of our results as reported under U.S. GAAP. SEGMENT REPORTING The Company's reportable segments, Manufacturing and Distribution, are based on its method of internal reporting. The Company regularly evaluates the performance of the Manufacturing and Distribution segments and allocates resources to them based on a variety of indicators including sales and operating income. The Company does not measure profitability at the customer end market (RV, marine, MH and industrial) level. 25 Third Quarter and Nine Months Ended October 1, 2023 Compared to 2022 General In the discussion that follows, sales attributable to the Company’s reportable segments include intersegment sales and gross profit includes the impact of intersegment operating activity. The table below presents information about the sales, gross profit and operating income of the Company’s reportable segments. A reconciliation of consolidated operating income is presented in Note 13 "Segment Information" of the Notes to Condensed Consolidated Financial Statements. Third Quarter Ended ($ in thousands) October 1, 2023 September 25, 2022 Amount Change % Change Sales Manufacturing $ 659,493 $ 846,891 $ (187,398) (22)% Distribution $ 226,859 $ 286,538 $ (59,679) (21)% Gross Profit Manufacturing $ 144,194 $ 182,362 $ (38,168) (21)% Distribution $ 50,187 $ 56,150 $ (5,963) (11)% Operating Income Manufacturing $ 80,777 $ 109,462 $ (28,685) (26)% Distribution $ 24,026 $ 27,228 $ (3,202) (12)% Nine Months Ended ($ in thousands) October 1, 2023 September 25, 2022 Amount Change % Change Sales Manufacturing $ 2,072,599 $ 2,954,420 $ (881,821) (30)% Distribution $ 671,764 $ 1,045,906 $ (374,142) (36)% Gross Profit Manufacturing $ 460,849 $ 677,873 $ (217,024) (32)% Distribution $ 146,787 $ 207,473 $ (60,686) (29)% Operating Income Manufacturing $ 263,146 $ 460,691 $ (197,545) (43)% Distribution $ 68,172 $ 116,835 $ (48,663) (42)% Manufacturing Sales. Sales decreased $187.4 million, or 22%, to $659.5 million in the third quarter of 2023 from $846.9 million in the prior year quarter. For the first nine months of 2023, sales decreased $881.8 million, or 30%, to $2,072.6 million from $2,954.4 million in the prior year period. The manufacturing segment accounted for approximately 74% and 75% of the Company’s sales for the third quarter of 2023 and 2022, respectively, and 76% and 74% of the Company's sales for the first nine months of 2023 and 2022, respectively. The sales decrease in the third 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 slowing of housing starts, partially offset by acquisitions completed in 2022 and 2023. For the third quarter of 2023 compared to the same prior year period, the Company's RV end market sales decreased 23%, the marine end market sales decreased 25% , the MH end market sales decreased 22% and industrial end market sales decreased 18%. For the first nine months of 2023 compared to the same prior year period, the Company's RV end market sales decreased 48%, the marine end market sales decreased 4%, the MH end market sales decreased 26 27% and industrial end market sales decreased 12%. Net sales attributable to acquisitions completed in the first nine months of 2023 were approximately $1.6 million for both the third quarter and the first nine months of 2023. Net sales attributable to acquisitions completed in the first nine months of 2022 were approximately $38.0 million and $87.3 million in the third quarter and first nine months of 2022, respectively. Gross Profit . Gross profit decreased $38.2 million, or 21%, to $144.2 million in the third quarter of 2023 from $182.4 million in the third quarter of 2022. For the first nine months of 2023, gross profit decreased $217.1 million, or 32%, to $460.8 million from $677.9 million in the first nine months of 2022. As a percentage of sales, gross profit increased to 21.9% in the third quarter of 2023 from 21.5% in the third quarter of 2022, and decreased to 22.2% in the first nine months of 2023 from 22.9% in the first nine months of 2022. Gross profit as a percentage of sales increased during the third quarter compared to the same period in 2022 due to decrease in manufacturing material cost as a percentage of sales, partially offset by increases in manufacturing overhead and labor costs as a percentage of sales. Gross profit as a percentage of sales decreased during the first nine months of 2023 compared to the same period in 2022 due to an increase in manufacturing overhead and labor costs as a percentage of sales, partially offset by a decrease in manufacturing material costs as a percentage of sales. These fluctuations are a result of changes in certain commodity input costs, reduced sales volumes, and differing cost and margin profiles of acquisitions completed in 2022 and 2023. Operating Income. Operating income decreased $28.7 million, or 26%, to $80.8 million in the third quarter of 2023 from $109.5 million in the prior year quarter. For the first nine months of 2023, operating income decreased $197.6 million, or 43%, to $263.1 million from $460.7 million in the first nine months of 2022. The overall decrease in operating income in the third quarter and first nine months of 2023 primarily reflects the items discussed above. Distribution Sales. Sales decreased $59.6 million, or 21%, to $226.9 million in the third quarter of 2023 from $286.5 million in the prior year quarter. For the first nine months of 2023, sales decreased $374.1 million, or 36%, to $671.8 million from $1,045.9 million in the prior year period. This segment accounted for approximately 26% and 25% of the Company’s sales for the third quarter of 2023 and 2022, respectively, and 24% and 26% of the Company's sales for the first nine months of 2023 and 2022, respectively. The sales decrease in the third quarter of 2023 compared to the third quarter of 2022 was attributed to a 25% decrease in our RV end-market sales and a 12% decrease in MH end-market sales as a result of reduced industry wholesale unit shipments in the respective industries, as well as a 35% decrease in industrial end-market sales, and a 18% decrease in marine end-market sales. The sales decrease in the first nine months of 2023 compared to the first nine months of 2022 was attributed to a 46% decrease in our RV end-market sales and a 19% decrease in MH end-market sales as a result of reduced industry wholesale unit shipments in the respective industries, as well as a 24% decrease in industrial end-market sales, partially offset by a 3% increase in marine end-market sales. Net sales in the third quarter and first nine months of 2023 attributable to acquisitions completed in the first nine months of 2023 was approximately $5.7 million and $8.2 million, respectively. None of the net sales in the third quarter and first nine months of 2022 were attributable to acquisitions completed in the first nine months of 2022. Gross Profit. Gross profit decreased $6.0 million, or 11%, to $50.2 million in the third quarter of 2023 from $56.2 million in the third quarter of 2022. For the first nine months of 2023, gross profit decreased $60.7 million, or 29%, to $146.8 million from $207.5 million in the first nine months of 2022. As a percentage of sales, gross profit increased to 22.1% in the third quarter of 2023 from 19.6% in the third quarter of 2022, and increased to 21.9% in the first nine months of 2023 from 19.8% in the first nine months of 2022. Gross profit as a percentage of sales increased during the third quarter and first nine months of 2023 compared to the same periods in 2022 primarily due to a decrease in distribution labor as a percentage of sales, attributable to a decrease in utilization of outsourced labor, partially offset by increased material costs. Operating Income. Operating income decreased $3.2 million, or 12%, to $24.0 million in the third quarter of 2023 from $27.2 million in the prior year quarter. For the first nine months of 2023, operating income decreased $48.6 million, or 42%, to $68.2 million from $116.8 million in the first nine months of 2022. The decrease in operating income in the third quarter and first nine months of 2023 primarily reflects the items discussed above. 27 LIQUIDITY AND CAPITAL RESOURCES Our liquidity at October 1, 2023 consisted of cash and cash equivalents of $16.5 million and $683.1 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 $293.8 million in the first nine months of 2023 compared to $229.8 million in the first nine months of 2022. The change in operating cash flows is primarily attributable to a $56.1 million source of cash from working capital compared to a $170.8 million use of cash in the prior year period, partially offset by a $175.9 million reduction in net income. Investing Activities Net cash used in investing activities decreased $133.4 million to $75.5 million in the first nine months of 2023 from $208.9 million in the first nine months of 2022 primarily due to a decrease in cash used in business acquisitions of $126.9 million. Financing Activities Net cash used in financing activities was $224.8 million in the first nine months of 2023 compared to $90.5 million used in the first nine months of 2022. In the first nine 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 $173.4 million, compared to net repayments on our revolver and term loan of $3.8 million in the first nine months of 2022. This increase in outflows was partially offset by a $34.8 million decrease in stock repurchases in the first nine months of 2023 compared to the prior year period. Summary of Liquidity and Capital Resources At October 1, 2023, the Company's existing cash and cash equivalents, cash generated from operations, and available borrowing capacity 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 October 1, 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 October 1, 2023 and for the fiscal period then ended are as follows: Required Actual Consolidated secured net leverage ratio (12-month period) 2.75 0.44 Consolidated fixed charge coverage ratio (12-month period) 1.50 2.88 In addition, as of October 1, 2023, the Company's consolidated total net leverage ratio (12-month period) was 2.50, which is used to determine the applicable borrowing margin under the 2021 Credit Agreement. 28 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 See Note 2, “Summary of Significant Accounting Policies” to the accompanying condensed consolidated financial statements in Item 1. 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 filed with the SEC on February 24, 2023. 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 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. 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. 29