PATRICK INDUSTRIES INC
For the period ended Jun 30, 2024. Filed Aug 8, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 8, 2024
Contents
Item 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
| Second Quarter Ended | Six Months Ended | |||
|---|---|---|---|---|
| ($ in thousands, except per share data) | June 30, 2024 | July 2, 2023 | June 30, 2024 | July 2, 2023 |
| NET SALES | $1,016,624 | $920,685 | $1,950,116 | $1,820,785 |
| Cost of goods sold | 785,330 | 710,717 | 1,513,967 | 1,416,573 |
| GROSS PROFIT | 231,294 | 209,968 | 436,149 | 404,212 |
| Operating expenses: | ||||
| Warehouse and delivery | 38,739 | 36,031 | 76,188 | 71,876 |
| Selling, general and administrative | 83,588 | 78,540 | 168,834 | 160,941 |
| Amortization of intangible assets | 24,278 | 19,822 | 47,096 | 39,586 |
| Total operating expenses | 146,605 | 134,393 | 292,118 | 272,403 |
| OPERATING INCOME | 84,689 | 75,575 | 144,031 | 131,809 |
| Interest expense, net | 20,343 | 18,260 | 40,433 | 36,744 |
| Income before income taxes | 64,346 | 57,315 | 103,598 | 95,065 |
| Income taxes | 16,462 | 14,958 | 20,621 | 22,535 |
| NET INCOME | $47,884 | $42,357 | $82,977 | $72,530 |
| BASIC EARNINGS PER COMMON SHARE | $2.20 | $1.97 | $3.83 | $3.36 |
| DILUTED EARNINGS PER COMMON SHARE | $2.16 | $1.94 | $3.75 | $3.28 |
| Weighted average shares outstanding – Basic | 21,724 | 21,521 | 21,689 | 21,556 |
| Weighted average shares outstanding – Diluted | 22,169 | 21,787 | 22,125 | 22,151 |
| See accompanying Notes to Condensed Consolidated Financial Statements. | ||||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
| Second Quarter Ended | Six Months Ended | |||
|---|---|---|---|---|
| ($ in thousands) | June 30, 2024 | July 2, 2023 | June 30, 2024 | July 2, 2023 |
| NET INCOME | $47,884 | $42,357 | $82,977 | $72,530 |
| Other comprehensive income (loss), net of tax: | ||||
| Foreign currency translation gain (loss) | 3 | (90) | (29) | (99) |
| Total other comprehensive income (loss) | 3 | (90) | (29) | (99) |
| COMPREHENSIVE INCOME | $47,887 | $42,267 | $82,948 | $72,431 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
| As of | ||
|---|---|---|
| ($ in thousands) | June 30, 2024 | December 31, 2023 |
| ASSETS | ||
| Current Assets | ||
| Cash and cash equivalents | $43,960 | $11,409 |
| Trade and other receivables, net | 252,106 | 163,838 |
| Inventories | 504,445 | 510,133 |
| Prepaid expenses and other | 53,383 | 49,251 |
| Total current assets | 853,894 | 734,631 |
| Property, plant and equipment, net | 367,761 | 353,625 |
| Operating lease right-of-use assets | 191,289 | 177,717 |
| Goodwill | 758,319 | 637,393 |
| Intangible assets, net | 825,315 | 651,153 |
| Other non-current assets | 7,292 | 7,929 |
| TOTAL ASSETS | $3,003,870 | $2,562,448 |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||
| Current Liabilities | ||
| Current maturities of long-term debt | $7,500 | $7,500 |
| Current operating lease liabilities | 52,788 | 48,761 |
| Accounts payable | 206,605 | 140,524 |
| Accrued liabilities | 106,774 | 111,711 |
| Total current liabilities | 373,667 | 308,496 |
| Long-term debt, less current maturities, net | 1,310,848 | 1,018,356 |
| Long-term operating lease liabilities | 142,681 | 132,444 |
| Deferred tax liabilities, net | 67,903 | 46,724 |
| Other long-term liabilities | 10,267 | 11,091 |
| TOTAL LIABILITIES | 1,905,366 | 1,517,111 |
| SHAREHOLDERS’ EQUITY | ||
| Common stock | 198,138 | 203,258 |
| Accumulated other comprehensive loss | (1,028) | (999) |
| Retained earnings | 901,394 | 843,078 |
| TOTAL SHAREHOLDERS’ EQUITY | 1,098,504 | 1,045,337 |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $3,003,870 | $2,562,448 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| Six Months Ended | ||
|---|---|---|
| ($ in thousands) | June 30, 2024 | July 2, 2023 |
| CASH FLOWS FROM OPERATING ACTIVITIES | ||
| Net income | $82,977 | $72,530 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||
| Depreciation and amortization | 81,816 | 71,492 |
| Stock-based compensation expense | 9,742 | 7,946 |
| Other | 1,419 | 2,978 |
| Change in operating assets and liabilities, net of acquisitions of businesses: | ||
| Trade and other receivables, net | (65,089) | (33,057) |
| Inventories | 28,276 | 117,440 |
| Prepaid expenses and other assets | (1,862) | 7,112 |
| Accounts payable, accrued liabilities and other | 35,379 | (68,090) |
| Net cash provided by operating activities | 172,658 | 178,351 |
| CASH FLOWS FROM INVESTING ACTIVITIES | ||
| Purchases of property, plant and equipment | (32,411) | (36,491) |
| Proceeds from sale of property, plant and equipment | 2,114 | 728 |
| Business acquisitions, net of cash acquired | (330,727) | (26,837) |
| Other investing activities | (25,789) | (2,947) |
| Net cash used in investing activities | (386,813) | (65,547) |
| CASH FLOWS FROM FINANCING ACTIVITIES | ||
| Term debt repayments | (3,750) | (3,750) |
| Borrowings on revolver | 875,055 | 364,814 |
| Repayments on revolver | (580,055) | (250,104) |
| Repayments of convertible notes | — | (172,500) |
| Stock repurchases under buyback program | — | (11,776) |
| Cash dividends paid to shareholders | (25,047) | (20,507) |
| Taxes paid for share-based payment arrangements | (14,883) | (7,585) |
| Payment of contingent consideration from a business acquisition | (4,560) | (1,400) |
| Proceeds from exercise of common stock options | 21 | 1,143 |
| Other financing activities | (75) | (75) |
| Net cash provided by (used in) financing activities | 246,706 | $(101,740) |
| Net increase in cash and cash equivalents | 32,551 | 11,064 |
| Cash and cash equivalents at beginning of year | 11,409 | 22,847 |
| Cash and cash equivalents at end of period | $43,960 | $33,911 |
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
| Second Quarter Ended June 30, 2024 | ||||
|---|---|---|---|---|
| ($ in thousands) | CommonStock | Accumulated OtherComprehensive Loss | RetainedEarnings | Total |
| Balance March 31, 2024 | $193,930 | $(1,031) | $865,637 | $1,058,536 |
| Net income | — | — | 47,884 | 47,884 |
| Dividends declared | — | — | (12,127) | (12,127) |
| Other comprehensive income, net of tax | — | 3 | — | 3 |
| Repurchases of shares for tax payments related to the vesting and exercising of share-based grants | (95) | — | — | (95) |
| Issuance of shares upon exercise of common stock options | 21 | — | — | 21 |
| Stock-based compensation expense | 4,282 | — | — | 4,282 |
| Balance June 30, 2024 | $198,138 | $(1,028) | $901,394 | $1,098,504 |
| Second Quarter Ended July 2, 2023 | ||||
|---|---|---|---|---|
| ($ in thousands) | CommonStock | Accumulated OtherComprehensive Loss | RetainedEarnings | Total |
| Balance April 2, 2023 | $194,753 | $(704) | $775,773 | $969,822 |
| Net income | — | — | 42,357 | 42,357 |
| Dividends declared | — | — | (9,820) | (9,820) |
| Other comprehensive loss, net of tax | — | (90) | — | (90) |
| Stock repurchases under buyback program | (1,110) | — | (7,006) | (8,116) |
| Repurchase of shares for tax payments related to the vesting and exercising of share-based grants | (86) | — | — | (86) |
| Issuance of shares upon exercise of common stock options | 651 | — | — | 651 |
| Stock-based compensation expense | 2,704 | — | — | 2,704 |
| Balance July 2, 2023 | $196,912 | $(794) | $801,304 | $997,422 |
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (cont.)
| Six Months Ended June 30, 2024 | ||||
|---|---|---|---|---|
| ($ in thousands) | CommonStock | Accumulated OtherComprehensive Loss | RetainedEarnings | Total |
| Balance December 31, 2023 | $203,258 | $(999) | $843,078 | $1,045,337 |
| Net income | — | — | 82,977 | 82,977 |
| Dividends declared | — | — | (24,661) | (24,661) |
| Other comprehensive loss, net of tax | — | (29) | — | (29) |
| Repurchases of shares for tax payments related to the vesting and exercise of share-based grants | (14,883) | — | — | (14,883) |
| Issuance of shares upon exercise of common stock options | 21 | — | — | 21 |
| Stock-based compensation expense | 9,742 | — | — | 9,742 |
| Balance June 30, 2024 | $198,138 | $(1,028) | $901,394 | $1,098,504 |
| Six Months Ended July 2, 2023 | ||||
|---|---|---|---|---|
| ($ in thousands) | CommonStock | Accumulated OtherComprehensive Loss | RetainedEarnings | Total |
| Balance December 31, 2022 | $197,003 | $(695) | $758,861 | $955,169 |
| Net income | — | — | 72,530 | 72,530 |
| Dividends declared | — | — | (19,906) | (19,906) |
| Other comprehensive loss, net of tax | — | (99) | — | (99) |
| Share repurchases under buyback program | (1,595) | — | (10,181) | (11,776) |
| Repurchases of shares for tax payments related to the vesting and exercise of share-based grants | (7,585) | — | — | (7,585) |
| Issuance of shares upon exercise of common stock options | 1,143 | — | — | 1,143 |
| Stock-based compensation expense | 7,946 | — | — | 7,946 |
| Balance July 2, 2023 | $196,912 | $(794) | $801,304 | $997,422 |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Patrick Industries, Inc. (“Patrick”, the “Company”, "we", "our") contain all adjustments (consisting of normal recurring adjustments) that we believe are necessary to present fairly the Company’s financial position as of June 30, 2024 and December 31, 2023, its results of operations for the second quarter and six months ended June 30, 2024 and July 2, 2023, and its cash flows for the six months ended June 30, 2024 and July 2, 2023.
Patrick's unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The accompanying unaudited condensed consolidated financial statements for Patrick do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to Patrick’s Audited Consolidated Financial Statements for the year ended December 31, 2023, and corresponding notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024.
The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning approximately thirteen weeks. The first quarter ends on the Sunday closest to the end of the first thirteen-week period. The second and third quarters are thirteen weeks in duration and the fourth quarter is the remainder of the year. The second quarter of fiscal year 2024 ended on June 30, 2024 and the second quarter of fiscal year 2023 ended on July 2, 2023.
Reclassified Amounts
Certain amounts have been reclassified in prior year financial statements to conform with current year presentation. These reclassifications are immaterial to the overall financial statements.
Summary of Significant Accounting Policies
A summary of significant accounting policies is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024
New Accounting Standards
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASUs”) to the FASB’s Accounting Standards Codification.
The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have an immaterial impact on the Company’s unaudited condensed consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07, "Improvements to Reportable Segment Disclosures". This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment's profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.
Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is also permitted. This ASU will likely result in additional required disclosures when adopted. The Company is currently evaluating this guidance to determine the impact on its disclosures; however, adoption will not otherwise impact our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, "Improvements to Income Tax Disclosures". This ASU establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. Under the new guidance, entities must consistently categorize and provide greater disaggregation of information in the rate reconciliation. They must also further disaggregate income taxes paid. The new standard is effective for fiscal years beginning after December 15, 2024, with retrospective application permitted. The Company is currently evaluating this guidance to determine the impact on its disclosures; however, adoption will not otherwise impact our consolidated financial statements.
NOTE 2. REVENUE RECOGNITION
In the following table, revenue from contracts with customers, net of intersegment sales, is disaggregated by market type and by reportable segment:
| ($ in thousands) | Manufacturing | Distribution | Total |
|---|---|---|---|
| Market type: | |||
| Recreational Vehicle | $309,339 | $140,396 | $449,735 |
| Marine | 145,374 | 12,304 | 157,678 |
| Powersports | 100,349 | 3,501 | 103,850 |
| Manufactured Housing | 77,473 | 97,139 | 174,612 |
| Industrial | 121,177 | 9,572 | 130,749 |
| Total | $753,712 | $262,912 | $1,016,624 |
| ($ in thousands) | Manufacturing | Distribution | Total |
|---|---|---|---|
| Market type: | |||
| Recreational Vehicle | $254,745 | $128,827 | $383,572 |
| Marine | 214,308 | 12,034 | 226,342 |
| Powersports | 32,663 | 3,827 | 36,490 |
| Manufactured Housing | 65,319 | 78,654 | 143,973 |
| Industrial | 121,063 | 9,245 | 130,308 |
| Total | $688,098 | $232,587 | $920,685 |
| ($ in thousands) | Manufacturing | Distribution | Total |
|---|---|---|---|
| Market type: | |||
| Recreational Vehicle | $601,150 | $269,574 | $870,724 |
| Marine | 291,419 | 21,574 | 312,993 |
| Powersports | 180,308 | 6,212 | 186,520 |
| Manufactured Housing | 146,898 | 183,838 | 330,736 |
| Industrial | 231,480 | 17,663 | 249,143 |
| Total | $1,451,255 | $498,861 | $1,950,116 |
| ($ in thousands) | Manufacturing | Distribution | Total |
|---|---|---|---|
| Market type: | |||
| Recreational Vehicle | $507,189 | $243,343 | $750,532 |
| Marine | 441,538 | 22,775 | 464,313 |
| Powersports | 62,225 | 7,066 | 69,291 |
| Manufactured Housing | 129,508 | 147,889 | 277,397 |
| Industrial | 240,034 | 19,218 | 259,252 |
| Total | $1,380,494 | $440,291 | $1,820,785 |
Contract Liabilities
Contract liabilities, representing upfront payments from customers received prior to satisfying performance obligations, were immaterial as of the beginning and end of all periods presented and changes in contract liabilities were immaterial during all periods presented.
NOTE 3. INVENTORY
Inventories consist of the following:
| ($ in thousands) | June 30, 2024 | December 31, 2023 |
|---|---|---|
| Raw materials | $282,926 | $269,786 |
| Work in process | 17,867 | 16,596 |
| Finished goods | 102,407 | 107,675 |
| Less: reserve for inventory obsolescence | (19,643) | (15,990) |
| Total manufactured goods, net | 383,557 | 378,067 |
| Materials purchased for resale (distribution products) | 133,054 | 140,147 |
| Less: reserve for inventory obsolescence | (12,166) | (8,081) |
| Total materials purchased for resale (distribution products), net | 120,888 | 132,066 |
| Total inventories | $504,445 | $510,133 |
NOTE 4. GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying amount of goodwill for the six months ended June 30, 2024 by segment are as follows:
| ($ in thousands) | Manufacturing | Distribution | Total |
|---|---|---|---|
| Balance - December 31, 2023 | $560,370 | $77,023 | $637,393 |
| Acquisitions | 120,757 | 260 | 121,017 |
| Adjustments to preliminary purchase price allocations | 16 | (107) | (91) |
| Balance - June 30, 2024 | $681,143 | $77,176 | $758,319 |
Intangible assets, net consist of the following as of June 30, 2024 and December 31, 2023:
| ($ in thousands) | June 30, 2024 | December 31, 2023 |
|---|---|---|
| Customer relationships | $911,239 | $729,664 |
| Non-compete agreements | 22,546 | 21,561 |
| Patents | 87,600 | 69,401 |
| Trademarks | 217,527 | 197,027 |
| Intangible assets, gross | 1,238,912 | 1,017,653 |
| Less: accumulated amortization | (413,597) | (366,500) |
| Intangible assets, net | $825,315 | $651,153 |
Changes in the carrying value of intangible assets for the six months ended June 30, 2024 by segment are as follows:
| ($ in thousands) | Manufacturing | Distribution | Total |
|---|---|---|---|
| Balance - December 31, 2023 | $553,703 | $97,450 | $651,153 |
| Additions | 195,924 | 25,690 | 221,614 |
| Amortization | (40,529) | (6,567) | (47,096) |
| Adjustments to preliminary purchase price allocations | — | (356) | (356) |
| Balance - June 30, 2024 | $709,098 | $116,217 | $825,315 |
NOTE 5. ACQUISITIONS
General
Business combinations generally take place to strengthen Patrick's positions in existing markets and increase its market share and per unit content, expand into additional markets, and gain key technology. Acquisitions are accounted for under the acquisition method of accounting. For each acquisition, the excess of the purchase consideration over the fair value of the net assets acquired is recorded as goodwill, which generally represents the combined value of the Company’s existing purchasing, manufacturing, sales, and systems resources with the organizational talent and expertise of the acquired companies’ respective management teams to maximize efficiencies, market share growth and net income.
The Company completedtwo acquisitions in the second quarter of 2024 andsix acquisitions in the first six months of 2024 (the "2024 Acquisitions"). For the second quarter and six months ended June 30, 2024, net sales included in the Company's condensed consolidated statements of income related to the 2024 Acquisitions were $79.6 million and $137.7 million, respectively, and operating income was $15.7 million and $26.6 million, respectively. Acquisition-related costs associated with the 2024 Acquisitions were $5.0 million. Assets acquired and liabilities assumed in the acquisitions were recorded on the Company's condensed consolidated balance sheet at their estimated fair values as of the respective dates of acquisition. For each acquisition, the Company completes its allocation of the purchase price to the fair value of acquired assets and liabilities within a one year measurement period. The Company completed three acquisitions in the second quarter and first six months of 2023. For the second quarter and six months ended July 2, 2023, net sales included in the Company's condensed consolidated statements of income related to the acquisitions completed in the first six months of 2023 were $2.3 million for both periods, and operating income was $0.2 million for both periods.
In connection with certain acquisitions, the Company is required to pay additional cash consideration if certain financial results of the acquired businesses are achieved. The Company records a liability for the estimated fair value of the contingent consideration related to each of these acquisitions as part of the initial purchase price based on the present value of the expected future cash flows and the probability of future payments at the date of acquisition.
Changes in the fair value of contingent consideration for the six months ended June 30, 2024 are as follows:
| ($ in thousands) | |
|---|---|
| Balance - December 31, 2023 | $8,510 |
| Additions | 130 |
| Fair value adjustments(1) | (1,900) |
| Settlements | (4,940) |
| Balance - June 30, 2024 | $1,800 |
(1) The Company recorded a measurement period adjustment reducing the estimated fair value of contingent consideration in connection with one of the 2023 acquisitions.
The following table shows the balance sheet location of the fair value of contingent consideration and the maximum amount of contingent consideration payments the Company may be subject to as of June 30, 2024 and December 31, 2023:
| ($ in thousands) | June 30, 2024 | December 31, 2023 |
|---|---|---|
| Accrued liabilities | $1,725 | $7,500 |
| Other long-term liabilities | 75 | 1,010 |
| Total fair value of contingent consideration | $1,800 | $8,510 |
| Maximum amount of contingent consideration | $3,700 | $8,510 |
2024 Acquisitions
The Company completedsix acquisitions in the first six months ended June 30, 2024, including the following previously announced acquisition:
| Company | Segment | Description |
|---|---|---|
| Sportech, LLC ("Sportech") | Manufacturing | Leading designer and manufacturer of high-value, complex component solutions sold to powersports original equipment manufacturers ("OEMs"), adjacent market OEMs and the aftermarket, including integrated door systems, roofs, canopies, bumpers, windshields, fender flares and cowls, based in Elk River, Minnesota, acquired in January 2024. |
Inclusive offive acquisitions not discussed above, total cash consideration for the 2024 Acquisitions was approximately $330.9 million. The preliminary purchase price allocations are subject to valuation activities being finalized, and thus certain purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its estimates.
2023 Acquisitions
The Company completed three acquisitions in the year ended December 31, 2023, including the following previously announced acquisition (collectively, the “2023 Acquisitions”):
| Company | Segment | Description |
|---|---|---|
| BTI Transport | Distribution | Provider of transportation and logistics services to marine OEMs and dealers, based in Elkhart, Indiana, acquired in April 2023. The acquired business operates under the Patrick Marine Transport brand. |
Inclusive oftwo acquisitions not discussed above, total cash consideration for the 2023 Acquisitions was approximately $26.3 million, plus contingent consideration over atwo-year period based on future performance in connection with certain acquisitions. Purchase price allocations and all valuation activities in connection with the 2023 Acquisitions have been finalized. Changes to preliminary purchase accounting estimates recorded in the second quarter and six months ended June 30, 2024 related to the 2023 Acquisitions were immaterial and relate primarily to the valuation of contingent consideration and property, plant, and equipment.
The following table summarizes the fair values of the assets acquired and the liabilities assumed as of the date of acquisition for the 2024 Acquisitions and 2023 Acquisitions:
| 2024 Acquisitions · 2023Acquisitions | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| ($ in thousands) · Sportech · All Others · Total · Total | |||||||||
| Consideration | |||||||||
| Cash, net of cash acquired | $319,073 | $11,790 | $330,863 | $26,294 | |||||
| Working capital holdback and other, net | — | 144 | 144 | — | |||||
| Contingent consideration(1) | — | 130 | 130 | 1,600 | |||||
| Total consideration | $319,073 | $12,064 | $331,137 | $27,894 | |||||
| Assets Acquired | |||||||||
| Trade receivables | $21,545 | $963 | $22,508 | $1,293 | |||||
| Inventories | 21,021 | 1,567 | 22,588 | 4,430 | |||||
| Prepaid expenses & other | 1,766 | 216 | 1,982 | 105 | |||||
| Property, plant & equipment | 18,768 | 1,893 | 20,661 | 8,165 | |||||
| Operating lease right-of-use assets | 15,096 | 1,283 | 16,379 | 1,044 | |||||
| Identifiable intangible assets | |||||||||
| Customer relationships | 151,000 | 5,080 | 156,080 | 10,075 | |||||
| Non-compete agreements | 1,000 | 145 | 1,145 | 270 | |||||
| Patents and developed technology | 17,500 | 600 | 18,100 | — | |||||
| Trademarks | 20,500 | — | 20,500 | — | |||||
| Liabilities Assumed | |||||||||
| Current portion of operating lease obligations | (1,437) | (585) | (2,022) | (262) | |||||
| Accounts payable & accrued liabilities | (31,773) | (492) | (32,265) | (514) | |||||
| Operating lease obligations | (13,658) | (699) | (14,357) | (781) | |||||
| Deferred tax liabilities | (21,179) | — | (21,179) | — | |||||
| Total fair value of net assets acquired | $200,149 | $9,971 | $210,120 | $23,825 | |||||
| Goodwill(2) | 118,924 | 2,093 | 121,017 | 5,814 | |||||
| Bargain purchase gain(3) | — | — | — | (1,745) | |||||
| $319,073 | $12,064 | $331,137 | $27,894 | ||||||
(1) These amounts reflect the acquisition date fair value of contingent consideration based on expected future results relating to certain acquisitions.
(2) Goodwill is tax-deductible for all acquisitions, except Sportech, which is only partially tax-deductible.
(3) In connection with one of the 2023 Acquisitions, the Company recognized a $1.7 million bargain purchase gain. A bargain purchase gain is recognized when the net assets acquired in a business combination have a higher fair value than the consideration paid. This gain is primarily attributable to the fair value assigned to customer relationships in that acquisition and is included in "Selling, general, and administrative" in the consolidated statement of income for the year ended December 31, 2023.
We estimate the value of acquired property, plant, and equipment using a combination of the income, cost, and market approaches, such as estimates of future income growth, capitalization rates, discount rates, and capital expenditure needs of the acquired businesses.
We estimate the value of customer relationships using the multi-period excess earnings method, which is a variation of the income approach, calculating the present value of incremental after-tax cash flows attributable to the asset. Non-compete agreements are valued using a discounted cash flow approach, which is a variation of the income approach, with and without the individual counterparties to the non-compete agreements. Trademarks and patents are valued using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future cash flows, discounted to present value.
The estimated useful life for customer relationships is 10 years. The estimated useful life for non-compete agreements is 5 years. The estimated useful life for patents and developed technology is 10 years. Trademarks have an indefinite useful life.
Pro Forma Information
The following pro forma information for the second quarter and six months ended June 30, 2024 and July 2, 2023 assumes the 2024 Acquisitions and 2023 Acquisitions occurred as of the beginning of the year immediately preceding each such acquisition. The pro forma information contains the actual operating results of the 2024 Acquisitions and 2023 Acquisitions combined with the results prior to their respective acquisition dates, adjusted to reflect the pro forma impact of the acquisitions occurring as of the beginning of the year immediately preceding each such acquisition.
The pro forma information includes financing and interest expense charges based on incremental borrowings incurred in connection with each transaction. In addition, the pro forma information includes incremental amortization expense, in the aggregate, related to intangible assets acquired in connection with the transactions of $0.1 million and $1.5 million, respectively, for the second quarter and six months ended June 30, 2024 and $5.4 million and $11.0 million, respectively, for the second quarter and six months ended July 2, 2023.
| Second Quarter Ended | Six Months Ended | |||
|---|---|---|---|---|
| ($ in thousands, except per share data) | June 30, 2024 | July 2, 2023 | June 30, 2024 | July 2, 2023 |
| Revenue | $1,016,961 | $994,719 | $1,974,975 | $1,972,587 |
| Net income | $47,919 | $40,852 | $82,624 | $69,568 |
| Basic earnings per common share | $2.21 | $1.90 | $3.81 | $3.23 |
| Diluted earnings per common share | $2.16 | $1.88 | $3.73 | $3.15 |
The pro forma information is presented for informational purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of the periods indicated above.
NOTE 6. STOCK-BASED COMPENSATION
The Company's Board of Directors (the "Board") approved various stock-based grants under the Company’s 2009 Omnibus Incentive Plan in the six months ended June 30, 2024 totaling 223,011 shares in the aggregate at an average fair value of $100.63 per share at grant date for a total fair value at grant date of $22.4 million.
The Company recorded expense, net of forfeitures, of approximately $4.2 million and $9.7 million in the second quarter and six months ended June 30, 2024, respectively, for its stock-based compensation plans in the condensed consolidated statements of income. Stock-based compensation expense of $2.7 million and $7.9 million was recorded in the second quarter and six months ended July 2, 2023, respectively.
NOTE 7. EARNINGS PER COMMON SHARE
Earnings per common share calculated for the second quarter and first six months of 2024 and 2023 is as follows:
| Second Quarter Ended | Six Months Ended | |||
|---|---|---|---|---|
| ($ in thousands, except per share data) | June 30, 2024 | July 2, 2023 | June 30, 2024 | July 2, 2023 |
| Numerator: | ||||
| Earnings for basic earnings per common share calculation | $47,884 | $42,357 | $82,977 | $72,530 |
| Effect of interest on potentially dilutive convertible notes, net of tax | — | — | — | 162 |
| Earnings for diluted earnings per common share calculation | $47,884 | $42,357 | $82,977 | $72,692 |
| Denominator: | ||||
| Weighted average common shares outstanding - basic | 21,724 | 21,521 | 21,689 | 21,556 |
| Weighted average impact of potentially dilutive convertible notes | 260 | — | 233 | 331 |
| Weighted average impact of potentially dilutive securities | 185 | 266 | 203 | 264 |
| Weighted average common shares outstanding - diluted | 22,169 | 21,787 | 22,125 | 22,151 |
| Earnings per common share: | ||||
| Basic earnings per common share | $2.20 | $1.97 | $3.83 | $3.36 |
| Diluted earnings per common share | $2.16 | $1.94 | $3.75 | $3.28 |
An immaterial amount of securities was not included in the computation of diluted earnings per common share as they are considered anti-dilutive for the periods presented.
NOTE 8. DEBT
A summary of total debt outstanding at June 30, 2024 and December 31, 2023 is as follows:
| ($ in thousands) | June 30, 2024 | December 31, 2023 |
|---|---|---|
| Long-term debt: | ||
| Term loan due 2027 | $125,625 | $129,375 |
| Revolver due 2027 | 295,000 | — |
| 7.50% senior notes due 2027 | 300,000 | 300,000 |
| 1.75% convertible notes due 2028 | 258,750 | 258,750 |
| 4.75% senior notes due 2029 | 350,000 | 350,000 |
| Total debt | 1,329,375 | 1,038,125 |
| Less: convertible notes deferred financing costs, net | (4,419) | (4,917) |
| Less: term loan deferred financing costs, net | (472) | (548) |
| Less: senior notes deferred financing costs, net | (6,136) | (6,804) |
| Less: current maturities of long-term debt | (7,500) | (7,500) |
| Total long-term debt, less current maturities, net | $1,310,848 | $1,018,356 |
The Company maintains a senior secured credit facility comprised of a $775 million revolving credit facility (the "Revolver due 2027") and the remaining balance of a $150 million term loan. In January 2024, the Company utilized borrowing capacity under the Revolver due 2027 to fund its acquisition of Sportech as discussed in Note 5 "Acquisitions".
The interest rate for incremental borrowings under the Revolver due 2027 at June 30, 2024 was the Secured Overnight Financing Rate (“SOFR”) plus 1.75% (or 7.19%) for the SOFR-based option. The fee payable on committed but unused portions of the Revolver due 2027 was 0.225% at June 30, 2024.
Total cash interest paid for the second quarter of 2024 and 2023 was $31.6 million and $26.9 million, respectively, and $40.2 million and $32.7 million for the comparative six month periods, respectively.
NOTE 9. FAIR VALUE MEASUREMENTS
The following table presents fair values of certain assets and liabilities as of June 30, 2024 and December 31, 2023:
| June 30, 2024 | December 31, 2023 | |||||
|---|---|---|---|---|---|---|
| ($ in millions) | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 |
| 7.50% senior notes due 2027(1) | $— | $303.4 | $— | $— | $303.7 | $— |
| 4.75% senior notes due 2029(1) | $— | $322.8 | $— | $— | $320.2 | $— |
| 1.75% convertible notes due 2028(1) | $— | $312.5 | $— | $— | $295.2 | $— |
| Term loan due 2027(2) | $— | $125.6 | $— | $— | $129.4 | $— |
| Revolver due 2027(2) | $— | $295.0 | $— | $— | $— | $— |
| Contingent consideration(3) | $— | $— | $1.8 | $— | $— | $8.5 |
(1) The amounts of these notes listed above are the current fair values for disclosure purposes only, and they are recorded in the Company's condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023 using the interest rate method.
(2) The carrying amounts of our Term loan due 2027 and Revolver due 2027 approximate fair value as of June 30, 2024 and December 31, 2023 based upon their terms and conditions in comparison to the terms and conditions of debt instruments with similar terms and conditions available at those dates.`
(3) The estimated fair value of the Company's contingent consideration is discussed further in Note 5 "Acquisitions".
NOTE 10. INCOME TAXES
The effective tax rate in the second quarter of 2024 and 2023 was 25.6% and 26.1%, respectively, and the effective tax rate for the comparable six month periods was 19.9% and 23.7%, respectively. The first six months of 2024 and 2023 tax 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 $5.6 million and $1.8 million, respectively.
Cash paid for income taxes, net of refunds, was $19.1 million and $19.2 million in the second quarter and first six months of 2024, respectively, and $31.9 million and $49.0 million in the second quarter and first six months of 2023, respectively.
NOTE 11. SEGMENT INFORMATION
Financial results for the Company's reportable segments have been prepared using a management approach, which is consistent with the basis and manner in which financial information is evaluated by the Company's Chief Operating Decision Maker ("CODM") in allocating resources and in assessing performance. The Company hastwo reportable segments, Manufacturing and Distribution. The operating results of the operating segments are regularly reviewed by the Company’s CODM, the Chief Executive Officer, to assess the performance of the individual operating segments and to make decisions about resources to be allocated to the operating segments. The Company does not measure profitability at the customer end market (RV, marine, powersports, MH and industrial) level.
The tables below present information about the sales and operating income of those segments.
| ($ in thousands) | Manufacturing | Distribution | Total |
|---|---|---|---|
| Net outside sales | $753,712 | $262,912 | $1,016,624 |
| Intersegment sales | 20,519 | 2,325 | 22,844 |
| Total sales | $774,231 | $265,237 | $1,039,468 |
| Operating income for reportable segments | $108,752 | $30,158 | $138,910 |
| ($ in thousands) | Manufacturing | Distribution | Total |
|---|---|---|---|
| Net outside sales | $688,098 | $232,587 | $920,685 |
| Intersegment sales | 16,193 | 2,159 | 18,352 |
| Total sales | $704,291 | $234,746 | $939,037 |
| Operating income for reportable segments | $95,204 | $25,839 | $121,043 |
| ($ in thousands) | Manufacturing | Distribution | Total |
|---|---|---|---|
| Net outside sales | $1,451,255 | $498,861 | $1,950,116 |
| Intersegment sales | 37,486 | 4,878 | 42,364 |
| Total sales | $1,488,741 | $503,739 | $1,992,480 |
| Operating income for reportable segments | $196,202 | $53,878 | $250,080 |
| ($ in thousands) | Manufacturing | Distribution | Total |
|---|---|---|---|
| Net outside sales | $1,380,494 | $440,291 | $1,820,785 |
| Intersegment sales | 32,612 | 4,614 | 37,226 |
| Total sales | $1,413,106 | $444,905 | $1,858,011 |
| Operating income for reportable segments | $182,369 | $44,146 | $226,515 |
The following table presents a reconciliation of segment operating income to consolidated operating income:
| Second Quarter Ended | Six Months Ended | |||
|---|---|---|---|---|
| ($ in thousands) | June 30, 2024 | July 2, 2023 | June 30, 2024 | July 2, 2023 |
| Operating income for reportable segments | $138,910 | $121,043 | $250,080 | $226,515 |
| Unallocated corporate expenses | (29,943) | (25,646) | (58,953) | (55,120) |
| Amortization | (24,278) | (19,822) | (47,096) | (39,586) |
| Consolidated operating income | $84,689 | $75,575 | $144,031 | $131,809 |
Unallocated corporate expenses include corporate general and administrative expenses comprised of wages and other compensation, insurance, taxes, supplies, travel and entertainment, professional fees, acquisition-related transaction costs, amortization of inventory step-up adjustments, and other.
The following table presents an allocation of total assets to the reportable segments of the Company and a reconciliation to consolidated total assets:
| ($ in thousands) | June 30, 2024 | December 31, 2023 |
|---|---|---|
| Manufacturing assets | $2,453,240 | $2,071,500 |
| Distribution assets | 445,190 | 426,931 |
| Assets for reportable segments | 2,898,430 | 2,498,431 |
| Corporate assets unallocated to segments | 61,480 | 52,608 |
| Cash and cash equivalents | 43,960 | 11,409 |
| Consolidated total assets | $3,003,870 | $2,562,448 |
NOTE 12. STOCK REPURCHASE PROGRAMS
In December 2022, the Board authorized an increase in the amount of the Company's common stock that may be acquired over the next 24 months under the current stock repurchase program to $100 million, including the $38.2 million remaining under the previous authorization. Approximately $77.6 million remains in the amount of the Company's common stock that may be acquired under the current stock repurchase program as of June 30, 2024. Under the stock repurchase plan, the Company made repurchases of common stock as follows for the respective periods:
| Second Quarter Ended | Six Months Ended | |||
|---|---|---|---|---|
| June 30, 2024 | July 2, 2023 | June 30, 2024 | July 2, 2023 | |
| Shares repurchased | — | 125,189 | — | 179,809 |
| Average price | $— | $64.83 | $— | $65.49 |
| Aggregate cost (in millions) | $— | $8.1 | $— | $11.8 |
NOTE 13. COMMITMENTS AND CONTINGENCIES
The Company is subject to proceedings, lawsuits, audits, and other claims arising in the normal course of business. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. Accruals for these items, when applicable, have been provided to the extent that losses are deemed probable and are reasonably estimable. These accruals are adjusted from time to time as developments warrant.
Although the ultimate outcome of these matters cannot be ascertained, on the basis of present information, amounts already provided, availability of insurance coverage and legal advice received, it is the opinion of management that the ultimate resolution of these proceedings, lawsuits, and other claims will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.
In the Company's Form 10-K for the year ended December 31, 2023, the Company described the current status of litigation concerning the Lusher Site Remediation Group. In early July 2023, the Court granted the Company’s Rule 54(b) Motion for Final Judgment on previously dismissed claims and granted the Company’s Motion to Dismiss the plaintiff’s remaining claims against the defendants, without prejudice (the Company’s Motion to Dismiss having been joined by the remaining defendants in the litigation.) The only remaining issue pending in the litigation for the Court’s determination is the plaintiff’s motion to bar contribution claims. The Company has also been named as a potentially responsible party for the related Lusher Street Groundwater Contamination Superfund Site (the "Superfund Site") by the U.S. Environmental Protection Agency (the "EPA"). There has been no change in the status of the proceedings as described in the 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024. The Company does not currently believe that the litigation or the Superfund Site matter are likely to have a material adverse impact on its financial condition, results of operations, or cash flows. However, any litigation is inherently uncertain, the EPA has yet to select a final remedy for the Superfund Site, and any judgment or injunctive relief entered against us or any adverse settlement could materially and adversely impact our business, results of operations, financial condition, and prospects.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.