What changed in this filing

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Item 1. Business

2024-02-29 compared with 2023-02-24 · 54 added, 41 removed, 225 unchanged (30% of the section changed)

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Company Overview

Patrick i s a leading component solutions provider for the recreational vehicle ("RV"), marine, manufactured housing ("MH") and various industrial markets – including single and multi-family housing, hospitality, institutional and commercial markets.

Patrick is a leading component solutions provider for the recreational vehicle ("RV"), marine, manufactured housing ("MH") and various industrial markets – including single and multi-family housing, hospitality, institutional and commercial markets.

The Company operates through a nationwide network that includes, as of December 31, 2023, 179 manufacturing plants and 62 warehouse and distribution facilities located in 23 states, with a small presence in Mexico, China and Canada.

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The Manufacturing and Distribution segments accounted for 75% and 25%, respectively, of the Company’s consolidated net sales for 2023.

Financial information about these operating segments is included in Note 17 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K (the "Form 10-K") and incorporated herein by reference.

Financial information about these operating segments is included in Note 16 "Segment Information" of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K (the "Form 10-K") and incorporated herein by reference.

The Company’s capital allocation strategy is to optimally manage and utilize its resources and leverage its platform of operating brands to continue to grow, reinvest in its business, and return capital to shareholders.

Through strategic acquisitions, expansion both geographically and into new product lines and investment in infrastructure and capital expenditures, Patrick seeks to ensure that its operating network contains capacity, technology and innovative thought processes to support anticipated growth needs, effectively respond to changes in market conditions, inventory and sales levels, and successfully integrate manufacturing, distribution and administrative functions.

Over the last three years, we have executed on a number of new product initiatives and completed acquisitions for approximately $1.09 billion in total consideration that directly complement our core competencies and existing products, expand our presence in our primary end markets, and position us to enter new end markets.

Over the last three years, we have executed on a number of new product initiatives and completed acquisitions for approximately $804 million in total consideration that directly complement our core competencies and existing products, expand our presence in our primary end markets, and position us to enter new end markets.

Patrick believes that returning capital to shareholders is an important part of its capital allocation strategy, and during 2023 we returned $61 million to shareholders through our regular quarterly dividend and opportunistic share repurchases.

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www.patrickind.com .

The information on Patrick's website is not incorporated by reference into this Form 10-K.

The Company makes available free of charge through the website its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports filed with the SEC as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.

Major Product Lines

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("Winnebago") which combined held approximately 86% of retail market share for towables an d 83% for motorized units for 2023 as reported per Statistical Surveys, Inc.

In 2021, strong demand in the RV market due to demographic trends and the post-COVID increased interest in the travel and leisure lifestyle resulted in RV wholesale industry unit shipments of approximately 600,200, an increase of 39% compared to the prior year and a record high for the industry, according to the Recreational Vehicle Industry Association (the “RVIA”), while RV retail unit sales increased by 9% according to SSI.

While wholesale unit growth and dealer inventory restocking continued in the first half of 2022, RV OEMs dramatically reduced production in the second half of the year as retail demand decreased and the OEMs focused on maintaining a balanced dealer inventory channel for the long-term health and stability of the industry.

RV wholesale shipments were down 18% in 2022 compared to 2021 as a result of the reduced production levels, while RV retail unit shipments decreased 22% compared to 2021 in part due to rising interest rates and macroeconomic conditions.

We believe there has been substantial growth over the past several years in the consumer’s affinity for the Outdoor Enthusiast lifestyle.

As more people see the benefits of enjoying the outdoors with families and friends, there should be a positive impact on long-term demand in the RV market.

We also are optimistic about the near-term outlook for the RV market, which we believe bottomed in 2023 after a period of sharp declines in OEM production in late 2022 and 2023 as a result of decreased retail demand and dealer inventory reductions.

Our analysis suggests that dealer inventory levels are currently well below historical norms and will need to be replenished when retail demand recovers.

Our strategy in the RV space continues to be centered around our goal of providing best-in-class customer service and a growing portfolio of products to OEMs through our full solutions model, therefore helping our customers innovate and build quality units across the spectrum of feature and price.

We estimate that our mix of RV revenues related to towable units and motorized units is consistent with the overall RV industry production mix.

In 2022, according to the RVIA, towable and motorized unit shipments represented approximately 88% and 12%, respectively, of total RV industry wholesale shipments with w holesale unit shipments decreasing 20% in the towable sector and increasing 4% in the motorized sector in 2022 compared to the prior year.

In 2023, according to the Recreation Vehicle Industry Association ("RVIA"), towable and motorized unit shipments represented approximately 85% and 15%, respectively, of total RV industry wholesale shipments with wholesale unit shipments decreasing 39% in the towable sector and decreasing 21% in the motorized sector in 2023 compared to the prior year.

Recreational vehicle purchases are generally consumer discretionary income purchases, and therefore, any situation which causes concerns related to discretionary income may have a negative impact on the RV market.

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Demographic and ownership trends continue to point to favorable market growth for the long term in the RV market, as we believe that there has been a shift toward outdoor, nature-based tourism activities in a post-COVID environment, with younger and more diverse campers across different socio-economic groups.

According to the 2022 KOA North American Camping Report, based on surveys of North American leisure travelers, 53% of campers in 2021 were "millennials" and "Gen Zers", up from 48% in 2020 and 34% in 2019.

Additionally, according to KOA, 37% of 2021 camper households reported household income of over $100,000, up from 29% in 2020, demonstrating leisure lifestyle participants who may be more resilient to negative macroeconomic conditions.

Furthermore, 56% of non-camping leisure travelers polled expressed having an interest in camping in the future.

According to the 2022 KOA North American Camping Report, KOA projects that a record 61.3 million households went camping in 2022, illustrating both current and potential long-term interest in the leisure lifestyle space.

According to the 2023 Kampgrounds of America, Inc.

("KOA") North American Camping and Outdoor Hospitality Report, based on surveys of North American leisure travelers, 58.5 million households went camping in 2022, an increase from 57 million in 2021 and 42 million in 2019.

Of these camping households, 15.2 million went on at least one RV trip during 2022, compared to 14.8 million in 2021 and 11.3 million in 2019.

At the same time, the proportion of campers in younger demographic groups has been steadily increasing over the last several years, with "millennials" and "Gen Zers" representing 71% of campers in 2022, up from 53% in 2021 and 44% in 2019.

Additionally, according to the 2023 KOA report, 28% of 2022 camper households reported household income of over $100,000.

While this percentage was down from 37% in 2021, these higher-income households still represented a significantly greater proportion of campers than before the COVID-19 pandemic.

Detailed narrative information about the Company’s sales to the RV industry is included in Item 7.

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Consumer demand in the marine market is generally driven by the popularity of the recreational and leisure lifestyle and by economic conditions.

As was the case with the RV industry, the marine industry experienced an increase in demand in 2021, primarily driven by new entrants into the market resulting from the post-COVID interest in outdoor leisure lifestyle activities.

While retail demand remained strong throughout 2022, supply chain constraints relating to certain inputs, particularly engines, limited wholesale unit shipments which resulted in higher order backlogs and historically low dealer inventory levels, as measured by weeks of sales on hand, during the first half of 2022.

As supply chain constraints improved during the second half of 2022, dealer inventory levels began to increase, although at the end of 2022 they remained well below levels historically seen in the industry.

The sharp increase in demand for powerboats, which is our primary marine market, experienced during the COVID-19 pandemic continued through 2021 and into 2022, although supply chain constraints limited wholesale unit shipments which resulted in higher order backlogs and historically low dealer inventory levels, during the first half of 2022.

While these supply chain constraints improved during the second half of 2022, OEM production declined slightly in 2023 as concerns relating to elevated interest rates, inflation and overall economic uncertainties dampened retail demand and led marine dealers to reduce inventory levels.

The Company's marine revenue mix is slightly more concentrated toward higher dollar units, particularly the fiberglass and ski and wake segments, which began to see more pronounced softness in market demand in the second half of 2023 compared to the broader marine market.

We expect to continue to feel the effects of our revenue mix through the first half of 2024.

Despite short-term challenges, we remain optimistic about the long-term outlook including within the high value, premium segment of the marine industry that we serve.

According to the National Marine Manufacturers Association (“NMMA”), per its 2022 U.S.

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retail expenditures on boats, engines, accessories, and related costs totaled approximately $59.3 billion in 2022, up approximately 4.4% from 2021.

Based on data from the Abstract, we estimate that the average age of pre-owned powerboats sold during 2021 was approximately 25 years compared to an average useful life of 30 years, while the estimated average age of pre-owned powerboats sold during 2020 was approximately 22 years.

Based on data from the Abstract, we estimate that the average age of pre-owned powerboats sold during 2022 was approximately 23 years compared to an average useful life of 30 years.

The Company’s sales to the marine industry are primarily focused on the powerboat sector of the market which is comprised of four main categories:

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Manufactured Housing

The Company’s manufactured housing products are sold primarily to major manufacturers of manufactured homes, other OEMs, and to a lesser extent, manufacturers in adjacent industries.

The Company’s products for this market are sold primarily to major manufacturers of manufactured homes, other OEMs, and to a lesser extent, manufacturers in adjacent industries.

In the aggregate, the top three manufacturers produced approximately 80% of MH market retail unit shipments in 2023 per SSI.

Although wholesale unit shipments have increased in the MH industry from a low of approximately 49,800 units in 2009 to approximately 112,900 units in 2022, they are still trending below historical levels.

Wholesale unit shipments have increased in the MH industry from a low of approximately 49,800 units in 2009 to approximately 89,200 units in 2023 after reaching a 15-year high of 112,900 units in 2022.

The Company believes there is growth potential for this market in the long term driven by pent-up demand, multi-family housing capacity, demand for lower-cost rental options, increased affordability and quality, demographic trends such as increased first-time home buyers and urban-to-suburban relocations trends, new home pricing, and investments from developers and real estate investment trusts.

We continue to expand our product offerings to meet the evolving needs of our OEM customers, including energy efficient water heaters, furnaces, heating, ventilation, and air conditioning ("HVAC") duct systems and other products for OEMs seeking to exceed government sustainability guidelines on manufactured homes.

Factors that may favorably impact production levels further in this industry include jobs growth, consumer confidence, favorable changes in financing regulations, a narrowing in the difference between interest rates on MH loans and mortgages on traditional residential "stick-built" housing, and any improvement in conditions in the asset-backed securities markets for manufactured housing loans.

Despite supply chain disruptions, the MH industry expanded capacity during 2022 to meet current and future customer demand.

We believe that MH units offer a cost-effective housing solution in a time when high home prices coupled with increased mortgage interest rates have negatively impacted housing affordability.

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We believe that there is a direct correlation between the demand for our products and new residential housing construction and existing home remodeling activities.

Patrick's sales to the industrial market generally lag new housing starts by four to six months as our industrial products are generally among the last components installed into new unit construction and will vary based on differences in regional economic prospects.

Patrick's sales to the industrial market generally lag new

housing starts by four to six months as our industrial products are generally among the last components installed into new unit construction and will vary based on differences in regional economic prospects.

Many of Patrick's core manufacturing products are also utilized in the kitchen cabinet, high-rise, office and household furniture, hospitality, and fixtures and commercial furnishings markets.

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Additionally, we believe that other residential and commercial segments have been less vulnerable to import competition, and therefore, provide opportunities for increased sales penetration and market share gains.

Over the past three years, the residential housing market in particular has benefited from a low interest rate environment and limited housing inventory across the country.

While the demand for single family homes may be negatively impacted by the interest rate increases throughout 2022 and into 2023, the demand for multi-family units to provide rental options in a limited-inventory environment remains relatively strong, which we believe may provide support for our industrial market.

After a relatively flat first half of 2023, multifamily housing starts experienced significant softness in the second half of 2023.

Single-family housing starts began to recover in the second half of 2023 after declining significantly earlier in the year.

Housing prices were resilient last year in the face of a continued elevated mortgage rates.

The potential for interest rate cuts in 2024, combined with low inventory and high prices for existing homes for sale, may provide support for our industrial market in 2024, particularly if economic uncertainties recede.

Additional information about the Company’s sales to the industrial markets is included in the MD&A of this Form 10-K.

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The Company may explore strategic acquisition opportunities that are not directly tied to the four primary markets it serves in order to further leverage its core competencies in manufacturing and distribution, diversify its end market exposure and presence, and expand its footprint outside of its core Midwest markets.

During 2022 , the Company completed acquisitions for approximately $250 million of total consideration and over the last three years has completed acquisitions for approximately $1.09 billion of total consideration.

See Note 4 of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K for further discussion of acquisitions completed by the Company in 2022, 2021 and 2020.

During 2023 , the Company completed acquisitions for approximately $30 million of total consideration and over the last three years has completed acquisitions for approximately $804 million of total consideration.

See Note 3 "Acquisitions" of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K for further discussion of acquisitions completed by the Company in 2023, 2022 and 2021.

In January 2024, the Company announced that it completed its acquisition of Sportech, LLC, a leading designer and manufacturer of high-value, complex component solutions sold to powersports OEMs, adjacent market OEMs and the aftermarket.

See Note 17 "Subsequent Events" of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K for further discussion.

The RV, marine, MH and industrial markets are highly competitive, both among manufacturers and the suppliers of various components.

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Patrick has the ability to fulfill demand for certain products in excess of capacity at certain facilities by shifting production to other facilities.

Capital expenditures for 2022 consisted of $80 million of investments primarily to provide more advanced manufacturing automation, replace and upgrade production equipment, and increase capacity to meet consumer needs and trends.

Capital expenditures for 2023 consisted of $59 million of investments primarily to provide more advanced manufacturing automation, replace and upgrade production equipment.

Management regularly monitors capacity at its facilities and reallocates existing resources where needed to maintain production efficiencies throughout all of its operations and capitalize on commercial and industrial synergies in key regions to support profitable growth, grow its customer base, and expand its geographical product reach outside its core Midwest market.

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The Company strives to be the supplier of choice for its customers by elevating the customer purchasing experience with expert product line managers, and support staff and strategic partnerships for each operating brand, which help drive efficiency and maximize value for its customers.

Patrick has no material licenses, franchises, or concessions and does not conduct material research and development activities.

The Company’s research and development efforts are intended to maintain leadership positions in core products and provide the Company with a competitive edge as it seeks additional business with new and existing customers.

The Company also works with technology development partners, including customers, to develop technological capabilities and new products and applications.

Marketing and Distribution

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The Company purchases a majority of its distribution segment products in railcar, container, or truckload quantities , which are warehoused prior to their sale t o customers.

Approximate ly 9% , 8 %, and 12% of the Company's distribution segment’s sales were from products shipped directly from the suppliers to Patrick customers in 2022, 2021, and 2020, respectively.

Approximat ely 9%, 9%, and 8% of the Company's distribution segment’s sales were from products shipped directly from the suppliers to Patrick customers in 2023, 2022, and 2021, respectively.

Typically, there is a two to four-week period between Patrick receiving a purchase order and the delivery of products to its warehouses or customers and, as a result, the Company has no material backlog of orders.

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Patrick took steps to mitigate these supply chain constraints by carrying increased levels of inventory and partnering with suppliers to help secure adequate supplies of materials.

In the second half of 2022, the Company began to reduce its inventory in alignment with lower production levels.

We believe the Company's inventory levels remained elevated as of December 31, 2022 compared to historical norms, and we intend to continue to manage inventory based on anticipated customer needs.

Beginning in the second half of 2022 and throughout 2023, the Company reduced its inventory in alignment with lower OEM production levels.

We believe that, as of December 31, 2023, the Company’s inventory levels are appropriately balanced with expected OEM production, and we will continue to manage inventory based on anticipated customer needs.

Additionally, the Company continually explores alternative sources of raw materials and components, both domestically and from outside the U.S.

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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.

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 and marine open houses in the December-February timeframe, resulting in dealers delaying certain restocking purchases until new product lines are introduced at these shows.

In addition, recent seasonal industry trends have been, and future trends may be, different than in prior years due to the impact of COVID-19, volatile economic conditions, interest rates, access to financing, cost of fuel, national and regional economic conditions and consumer confidence on retail sales of RVs and marine units and other products for which the Company sells its components, as well as fluctuations in RV and marine dealer inventories, increased volatility in demand from RV and marine dealers, the timing of dealer orders, and from time to time, the impact of severe weather conditions on the timing of industry-wide wholesale shipments.

In addition, recent seasonal industry trends have been, and future trends may be, different than in prior years due to volatile economic conditions, interest rates, access to financing, cost of fuel, national and regional economic conditions and consumer confidence on retail sales of RVs and marine units and other products for which the Company sells its components, as well as fluctuations in RV and marine dealer inventories, increased volatility in demand from RV and marine dealers, the timing of dealer orders, and from time to time, the impact of severe weather conditions on the timing of industry-wide wholesale shipments.

Human Capital Management

Our people are the heart of our business, and we allocate substantial resources to foster the well-being, success and growth of our team members in an inclusive and diverse environment which we believe is fundamental to our values and our service to our customers.

At December 31, 2022, our team members totaled approximately 11,000, of which 83% are hourly team members who serve our customers by producing and distributing products in our RV, marine, MH and industrial end markets, and 17% who are salaried employees who manage the resources, capital allocations, business decisions, and customer relationships of our end markets.

As of December 31, 2023, our team members totaled approximately 10,000, of which 83% are hourly team members who serve our customers by producing and distributing products in our RV, marine, MH and industrial end markets, and 17% who are salaried employees who manage the resources, capital allocations, business decisions, and customer relationships of our end markets.

The majority of our team members work in our facilities to produce or distribute products for our customers.

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Our primary commitment to our team members in the production environment is to their safety, well-being and progress, and in this regard our human capital management programs focus on the following, in addition to our health care insurance and other employment benefits:

• Free assistance programs available to all team members and their families to address mental health and other matters which arise, which we believe are essential during the unique pressures and uncertainties during the COVID-19 pandemic;

• Free assistance programs available to all team members and their families to address mental health and other matters which arise, which we believe are essential during periods of uncertainty;

• Tuition reimbursement programs available to all team members as they pursue educational opportunities;

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• Job safety analysis, which identifies risks unique to each production environment, training and empowering our team members to mitigate risks and develop workplace best practices;

• OSHA preparedness, which involves site specific training development to educate and enable our team members to work safely and effectively;

• Occupational Safety and Health Administration ("OSHA") preparedness, which involves site specific training development to educate and enable our team members to work safely and effectively;

• Industrial hygiene audits and testing, ensuring that our team members work in healthy environments with respect to air quality and noise reduction;

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• Ergonomic assessments for all team members, which accommodate each individual to work in the most effective and comfortable manner;

• Patrick Connect, our social media platform to share ongoing events, communicate leadership messages, share success stories, and provide a platform of mutual communication;

• Community involvement initiatives, such as our participation in Military Makeover and Care Camps, which provides our team members opportunities to give back to the communities in which we do business.

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Ellis Executive Vice President-Operations and Chief Operating Officer 49

Petkovich Executive Vice President-Finance, Chief Financial Officer, and Treasurer

Filer Interim Executive Vice President-Finance, Chief Financial Officer, and Treasurer

Duthie Executive Vice President-Chief Legal Officer and Secretary 49

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Ellis has over 27 years of experience serving the recreational vehicle, marine, manufactured housing, industrial and automotive markets.

Petkovich was appointed as Executive Vice President of Finance, Chief Financial Officer, and Treasurer of the Company in November 2020.

Prior to joining Patrick, Mr.

Petkovich served as Managing Director in the Leveraged Finance Group of Wells Fargo Securities and predecessor Wachovia Securities from 2004 to 2020, performing in various senior leadership roles responsible for leading, underwriting, structuring and arranging financing solutions to support issuers’ access to the capital markets for acquisition financings, recapitalizations, refinancings and restructurings.

Filer was appointed Interim Executive Vice President-Finance, Chief Financial Officer, and Treasurer in May 2023.

He joined Patrick as Senior Vice President of Finance in November 2022.

In 2007, he joined Caterpillar Inc.

and served in a series of progressive leadership roles which culminated in his appointment to Chief Financial Officer beginning in 2019 for two separate multi-billion dollar divisions within Caterpillar’s Resource Industries segment.

Prior to that, Mr.

Filer served in various controllership and CFO roles for Progress Rail, Caterpillar's rail division, from 2008 to 2019.

Duthie was appointed as Executive Vice President, Chief Legal Officer and Secretary in May 2021.

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Prior to joining Patrick in February 2022, Ms.

Amundson served in a temporary capacity with Kerry Foods with a focus on providing HR leadership in the transformation of its North America operations model.

Amundson served in a temporary capacity with Kerry Foods with a focus on providing human resources leadership in the transformation of its North America operations model.

Prior to this role, Ms.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business