OVERVIEW

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the Company's Condensed Consolidated Financial Statements and Notes thereto included in Item 1 of this Report. In addition, this MD&A contains certain statements relating to future results which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. See "Information Concerning Forward-Looking Statements" on page 25 of this Report. The Company undertakes no obligation to update these forward-looking statements.




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OVERVIEW OF MARKETS AND RELATED INDUSTRY PERFORMANCE

The global spread of the novel coronavirus (COVID-19) in recent months has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption in financial markets. The impact of this pandemic has created significant uncertainty in the global economy and has had, and is expected to continue to have, a material adverse effect on our business, employees, suppliers, and customers. Despite a strong start to the year, there was an abrupt decline in OEM production in the recreational vehicle and marine markets as well as a decrease in U.S. housing starts during the second half of March 2020. We also expect an adverse impact on the Company's sales and profitability in future periods as a result of a decrease in activity in all of our end markets. These impacts are expected to be material. However, the duration and the magnitude of these impacts cannot be precisely estimated at this time, as they are affected by a number of factors, many of which are outside of our control, including those presented in Item 1A. Risk Factors of this Quarterly Report. However, we generally expect the second quarter of 2020 to be the most significantly impacted quarter during the 2020 fiscal year.

Sustained adverse impacts to the Company, certain suppliers, and customers may also affect the Company's future valuation of certain assets and therefore may increase the likelihood of an impairment charge, write-off, or reserve associated with such assets, including goodwill, indefinite and finite-lived intangible assets, property and equipment, inventories, accounts receivable, tax assets, and other assets.

We believe that the combination of our financial position, our available liquidity, the flexibility of our highly variable cost operating model and the diversification of our end markets and the geographic regions in which we operate will help to lessen the impacts of COVID-19 on the Company's operations and financial results. If the situation evolves into a more prolonged pandemic, we plan to continue to adjust mitigation measures as needed related to the health and safety of our employees as well as to operating efficiencies. Those measures have included, and could continue to include in the future, temporarily suspending select plant operations, modifying workspaces, continuing social distancing policies, implementing new personal protective equipment or health screening policies at our facilities, or such other industry best practices needed to continue to maintain a healthy and safe environment for our employees during the pandemic. While we have enhanced, and will continue to enhance, functionality and security of technology for off-site functions, we are planning for the eventual reintroduction of our on-site workforce to our facilities.

We have taken steps to reduce the impact of the COVID-19 pandemic on our operating results, including reducing working capital, postponing non-essential capital expenditures, reducing operating costs, aligning production with demand, initiating workforce reductions and furloughs, reducing salaries, and substantially reducing discretionary spending. These countermeasures are expected to lessen the impacts of COVID-19 on our full year 2020 financial results. As the impact of the COVID-19 pandemic on the economy and our markets evolves, we will continue to assess the impact on the Company and plan to continue to take actions to reduce such impact on our business and operating results.

First Quarter 2020 Financial Overview

Recreational Vehicle ("RV") Industry The RV industry is our primary market and comprised 55% and 56% of the Company's sales in the first quarter ended March 29, 2020 and March 31, 2019, respectively. Sales to the RV industry decreased 6% in the first quarter of 2020 compared to the prior year quarter.



According to the Recreation Vehicle Industry Association, wholesale shipments
totaled 100,404 units in the first quarter of 2020, and were virtually flat
compared to 99,976 units in the first quarter of 2019. Retail unit sales in the
first quarter of 2020 are estimated to have increased slightly despite the
disruption to consumers related to COVID-19. Additionally, based on our
estimates, RV dealer inventories at the end of the first quarter of 2020 were at
their lowest level since 2014.
Marine Industry
Sales to the marine industry, which represented approximately 13% and 15% of the
Company's consolidated net sales in the first quarter of 2020 and 2019,
respectively, decreased 14% compared to the prior year quarter.

For the first quarter of 2020, overall marine retail unit shipments in the powerboat sector, which is the Company's primary marine market, decreased an estimated 5%, with aluminum fishing sales decreasing an estimated 5%; pontoon sales



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decreasing an estimated 2%; fiberglass sales decreasing an estimated 7%; and ski and wake sales decreasing an estimated 6%. Inventory re-calibration continued in the first quarter of 2020, with wholesale unit shipments declining at an estimated mid-to-high teens percentage rate as OEMs continued to decrease production in alignment with lower dealer inventories.

Manufactured Housing ("MH") Industry Sales to the MH industry, which represented 19% and 17% of the Company's sales in the first quarter of 2020 and 2019, respectively, increased 6% in the first quarter of 2020 compared to the first quarter of 2019. Based on industry data from the Manufactured Housing Institute, MH wholesale unit shipments increased by approximately 13% in the first quarter of 2020 compared to the prior year quarter. MH wholesale unit shipments benefited from an improvement in weather conditions in the first quarter of 2020 compared to the first quarter of 2019, where wet weather conditions affected the moving of inventory and the setting of foundations and houses.



Industrial Market
The industrial market is comprised primarily of the kitchen cabinet industry,
hospitality market, retail and commercial fixtures market, office and household
furniture market and regional distributors. Sales to this market represented 13%
and 12% of our sales in the first quarter of 2020 and 2019, respectively, and
increased 14% in the first quarter of 2020 compared to the prior year quarter.
Overall, our revenues in these markets are focused on the residential housing,
hospitality, high-rise housing and office, commercial construction and
institutional furniture markets. We estimate that approximately 60% of our
industrial business is directly tied to the residential housing market, with the
remaining 40% directly tied to the non-residential and commercial markets.
Combined new housing starts increased 22% in the first quarter of 2020 compared
to the prior year quarter, with single family housing starts increasing 12% and
multifamily residential starts increasing 47% for the same period. Our
industrial products are generally among the last components installed in new
unit construction and as such our related sales typically trail new housing
starts by four to six months.
REVIEW OF CONSOLIDATED OPERATING RESULTS
First Quarter Ended March 29, 2020 Compared to 2019
The following table sets forth the percentage relationship to net sales of
certain items on the Company's Condensed Consolidated Statements of Income.
                                                      First Quarter Ended
                                               March 29, 2020     March 31, 2019
Net sales                                             100.0 %             100.0 %
Cost of goods sold                                     81.4                82.5
Gross profit                                           18.6                17.5
Warehouse and delivery expenses                         4.2                 4.0
Selling, general and administrative expenses            6.1                 6.2
Amortization of intangible assets                       1.6                 1.5
Operating income                                        6.7                 5.9
Interest expense, net                                   1.8                 1.5
Income taxes                                            1.3                 1.0
Net income                                              3.6                 3.4


Net Sales. Net sales in the first quarter of 2020 decreased $19.0 million, or 3%, to $589.2 million from $608.2 million in the first quarter of 2019. The consolidated net sales decrease in the first quarter of 2020 was primarily attributed to sales decreases to the RV and marine markets, partially offset by sales increases to the MH and industrial markets. The Company's RV market sales decreased 6% and marine market sales decreased 14%, while industrial market sales increased



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14% and MH market sales increased 6% when compared to the prior year quarter. All four of our end markets were impacted by business disruptions and associated lost shipping days due to the COVID-19 pandemic.

The Company's RV content per wholesale unit (on a trailing twelve-month basis) for the first quarter of 2020 decreased approximately 1% to $3,112 from $3,131 for the first quarter of 2019. Marine powerboat content per retail unit (on a trailing twelve-month basis) for the first quarter of 2020 increased approximately 3% to an estimated $1,531 from $1,484 for the first quarter of 2019. MH content per wholesale unit (on a trailing twelve-month basis) for the first quarter of 2020 increased approximately 33% to an estimated $4,543 from $3,415 for the first quarter of 2019.

Cost of Goods Sold. Cost of goods sold decreased $21.9 million, or 4%, to $479.8 million in the first quarter of 2020 from $501.7 million in 2019. As a percentage of net sales, cost of goods sold decreased during the first quarter of 2020 to 81.4% from 82.5% in 2019.

Cost of goods sold as a percentage of net sales decreased primarily as a result of (i) cost reductions we initiated in the third quarter of 2019 which benefited our gross margins in the first quarter of 2020, (ii) synergies achieved and realized in the first quarter of 2020 from our 2018 and 2019 acquisitions and (iii) decreases in commodity cost inputs. 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 the production of our products. Gross Profit. Gross profit increased $3.0 million, or 3%, to $109.5 million in the first quarter of 2020 from $106.5 million in 2019. As a percentage of net sales, gross profit increased to 18.6% in the first quarter of 2020 from 17.5% in the same period in 2019. The increase in gross profit as a percentage of net sales in the first quarter of 2020 compared to the same period in 2019 reflects the impact of the factors discussed above under "Cost of Goods Sold".

Warehouse and Delivery Expenses. Warehouse and delivery expenses increased $0.7 million, or 3%, to $24.7 million in the first quarter of 2020 from $24.0 million in the first quarter of 2019. As a percentage of net sales, warehouse and delivery expenses were 4.2% in the first quarter of 2020 compared to 4.0% in the first quarter of 2019.

Selling, General and Administrative ("SG&A") Expenses. SG&A expenses decreased $1.8 million, or 5%, to $35.9 million in the first quarter of 2020 from $37.7 million in the prior year quarter. As a percentage of net sales, SG&A expenses were 6.1% in the first quarter of 2020 compared to 6.2% in the first quarter of 2019.

The decrease in SG&A expenses in the first quarter of 2020 compared to 2019 is primarily due to the realization of cost reduction measures implemented in the third quarter of 2019 as well as reductions in certain SG&A spending associated with the decrease in net sales in the first quarter of 2020.

Amortization of Intangible Assets. Amortization of intangible assets increased $0.6 million, or 7%, to $9.6 million in the first quarter of 2020 from $9.0 million in the prior year quarter. The increase in the first quarter of 2020 compared to the prior year quarter primarily reflects the impact of businesses acquired in 2019.

Operating Income. Operating income increased $3.5 million, or 10%, to $39.3 million in the first quarter of 2020 from $35.8 million in 2019. As a percentage of net sales, operating income was 6.7% in the first quarter of 2020 versus 5.9% in the same period in 2019. The change in operating income and operating margin is primarily attributable to the items discussed above.

Interest Expense, Net. Interest expense increased $1.5 million, or 17%, to $10.5 million in the first quarter of 2020 from $9.0 million in the prior year. The increase in interest expense reflects increased borrowings related to 2019 acquisitions and an increase in the Company's overall average interest rate resulting from the issuance of $300 million aggregate principal amount of 7.5% senior notes in the third quarter of 2019, partially offset by a decrease in variable interest rates on the Company's term loan and revolving credit facility.

Income Taxes. Income tax expense increased $1.6 million, or 27%, to $7.6 million from $6.0 million in the prior year period.




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The increase in income tax expense is due primarily to an increase in pretax income as well as an increase in the effective tax rate in the first quarter of 2020 compared to the prior year quarter. The effective tax rate in the first quarter of 2020 and 2019 was 26.4% and 22.3%, respectively. The effective tax rate for the first quarter of 2019 includes the impact of the recognition of excess tax benefits on share-based compensation that was recorded as a reduction to income tax expense upon realization in the amount of $0.8 million.

Use of Financial Metrics Our MD&A includes financial metrics, such as RV, marine and MH content per unit, which we believe are important measures of the Company's business performance. Content per unit metrics are generally calculated using our market sales divided by third-party measures of industry volume. These metrics should not be considered alternatives to U.S. GAAP. Our computations of content per unit may differ from similarly titled measures used by others. These metrics should not be considered in isolation or as substitutes for an analysis of our results as reported under U.S. GAAP.

REVIEW BY BUSINESS SEGMENT The Company's reportable segments, Manufacturing and Distribution, are based on its method of internal reporting. The Company regularly evaluates the performance of the Manufacturing and Distribution segments and allocates resources to them based on a variety of indicators including sales and operating income. The Company does not measure profitability at the customer market (RV, marine, MH and industrial) level.

First Quarter Ended March 29, 2020 Compared to 2019 General

In the discussion that follows, sales attributable to the Company's reportable segments include intersegment sales and gross profit includes the impact of intersegment operating activity.



The table below presents information about the sales, gross profit and operating
income of the Company's reportable segments. A reconciliation of consolidated
operating income is presented in Note 15 to the Notes to Condensed Consolidated
Financial Statements.

                                    First Quarter Ended
(thousands)                          March 29, 2020      March 31, 2019
Sales
Manufacturing      $                         426,839    $        433,404
Distribution                                 171,266             183,699
Gross Profit
Manufacturing                                 78,947              76,827
Distribution                                  29,196              28,973
Operating Income
Manufacturing                                 45,704              44,437
Distribution                                   9,968               8,291



Manufacturing

Sales. Sales decreased $6.6 million, or 2%, to $426.8 million in the first quarter of 2020 from $433.4 million in the prior year quarter. This segment accounted for approximately 71% and 70% of the Company's consolidated net sales for the first quarter of 2020 and 2019, respectively. The sales decrease in the first quarter of 2020 was primarily attributed to sales decreases to the RV and marine markets as a result of business disruptions and lost shipping days due to the COVID-19 pandemic.




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Gross Profit. Gross profit increased $2.1 million, or 3%, to $78.9 million in the first quarter of 2020 from $76.8 million in the first quarter of 2019. As a percentage of sales, gross profit increased to 18.5% in the first quarter of 2020 from 17.7% in the first quarter of 2019.

Gross profit increased during the first quarter of 2020 compared to the prior year quarter primarily due to cost reduction initiatives implemented in the third quarter of 2019 as well as synergies we achieved from our 2018 and 2019 acquisitions.

Operating Income. Operating income increased $1.3 million, or 3%, to $45.7 million in the first quarter of 2020 from $44.4 million in the prior year quarter. The overall increase in operating income in the first quarter of 2020 primarily reflects the items discussed above.

Distribution

Sales. Sales decreased $12.4 million, or 7%, to $171.3 million in the first quarter of 2020 from $183.7 million in the prior year quarter. This segment accounted for approximately 29% and 30% of the Company's consolidated net sales for the first quarter of 2020 and 2019, respectively. The sales decrease was mostly attributed to a decrease in our RV end market sales in the first quarter of 2020 compared to the prior year quarter as a result of business disruptions and lost shipping days due to the COVID-19 pandemic.

Gross Profit. Gross profit increased $0.2 million, or 1%, to $29.2 million in the first quarter of 2020 from $29.0 million in the first quarter of 2019. As a percentage of sales, gross profit increased to 17.0% in the first quarter of 2020 from 15.8% in the first quarter of 2019. The increase in gross profit margin in the first quarter of 2020 compared to the first quarter of 2019 is primarily attributed to a reduction of overall fixed costs relative to RV and MH distribution product revenue.

Operating Income. Operating income increased $1.7 million, or 20%, to $10.0 million in the first quarter of 2020 from $8.3 million in the prior year quarter. The improvement in operating income in the first quarter of 2020 primarily reflects the items discussed above.

LIQUIDITY AND CAPITAL RESOURCES

As the impact of the COVID-19 pandemic on the economy, our markets and our operations evolves, we will continue to assess our liquidity needs. The COVID-19 pandemic has materially adversely impacted the global economy, disrupted global supply chains and created significant volatility and disruption in financial markets. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, ability to meet debt covenants, access to sources of liquidity and financial condition. Given the economic uncertainty as a result of the pandemic, we have taken actions to improve our current liquidity position, including reducing working capital, pausing our share repurchase program, postponing non-essential capital expenditures, reducing executive salaries, reducing operating costs by initiating workforce reductions and furloughs, and reducing discretionary spending.

Our liquidity at March 29, 2020 consisted of cash and cash equivalents of $94.5 million as well as $410.2 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 decreased $14.7 million to $13.2
million in the first quarter of 2020 from $27.9 million in the first quarter of
2019 primarily as a result of an increase in the use of cash from trade
receivables of $12.3 million, primarily reflecting the timing of cash receipts
from one large customer, and an increase in the use of cash from inventories of
$19.4 million, due mostly to purchases of raw materials in anticipation of
potential supply chain disruptions related to COVID-19. These decreases in
operating cash flows were partially offset by an increase of cash flows from
prepaid expenses and other assets of $4.4 million, accounts payable of $10.5
million, and other items of $2.1 million, mostly due to the timing of prepaid
expenditures and accounts payable disbursements.

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Investing Activities
Net cash used in investing activities increased $21.9 million to $31.8 million
in the first quarter 2020 from $9.9 million in the first quarter of 2019
primarily due to an increase in cash used in business acquisitions of $23.1
million, partially offset by a decrease in capital expenditures and other
investing activities of $1.2 million.
Financing Activities
Net cash flows used by financing activities increased $9.7 million to $26.2
million in the first quarter of 2020 from $16.5 million in the first quarter of
2019 primarily due to stock repurchases under our buyback program of $15.6
million with no corresponding amount in the prior year quarter and cash
dividends paid to shareholders of $5.8 million with no corresponding amount in
the prior year quarter. These increases in use of cash from financing activities
were partially offset by a decrease in the payment of contingent consideration
from a business acquisition of $2.4 million and a decrease in net repayments on
our credit facility of $8.6 million and other financing activities of $0.7
million.
Summary of Liquidity and Capital Resources
The Company's existing cash and cash equivalents, cash generated from
operations, and available borrowings under its credit facility are expected to
be sufficient to meet anticipated cash needs for working capital and capital
expenditures for at least the next 12 months, exclusive of any acquisitions,
based on its current cash flow budgets and forecast of short-term and long-term
liquidity needs.
The Company's credit facility consists of a $550 million senior secured revolver
and a $100 million senior secured term loan. The maturity date for borrowings
under the credit agreement that established the credit facility is September 17,
2024. Upon the satisfaction of certain conditions, and obtaining incremental
commitments from its lenders, the Company may be able to increase the borrowing
capacity of the credit facility by up to $250 million. Borrowings under the
credit facility are secured by substantially all personal property assets of the
Company and any domestic subsidiary guarantors. Pursuant to the credit
agreement:

• The term loan is due in consecutive quarterly installments in the


       following amounts: (i) through and including June 30, 2021, $1,250,000 and
       (ii) beginning September 30, 2021, and each quarter thereafter,
       $2,500,000, with the remaining balance due at maturity;


• The interest rates for borrowings under the revolver and the term loan are

the Prime Rate or LIBOR

plus a margin, which ranges from 0.00% to 0.75% for Prime Rate loans and from 1.00% to 1.75% for LIBOR loans depending on the Company's consolidated total leverage ratio. The Company is required to pay fees on unused but committed portions of the revolver, which range from 0.15% to 0.225%.

At March 29, 2020, the Company had $410.2 million of unused borrowing availability under its credit facility. The ability to access unused borrowing capacity under the credit facility as a source of liquidity is dependent on maintaining compliance with the financial covenants as specified under the terms of the credit agreement.

As of and for the March 29, 2020 reporting date, the Company was in compliance with its financial covenants as required under the terms of its credit agreement. The required maximum consolidated total leverage ratio and the required minimum consolidated fixed charge coverage ratio, as such ratios are defined in the credit agreement, compared to the actual amounts as of March 29, 2020 and for the fiscal period then ended are as follows:


                                                            Required   Actual
Consolidated total leverage ratio (12-month period)             4.00     2.32

Consolidated fixed charge coverage ratio (12-month period) 1.50 6.53

Working capital requirements vary from period to period depending on manufacturing volumes primarily related to the RV, MH and marine industries as well as the 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



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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.

CRITICAL ACCOUNTING POLICIES

There have been no material changes to our critical accounting policies which are summarized in the MD&A in our Annual Report on Form 10-K for the year ended December 31, 2019.

OTHER

Seasonality

Manufacturing operations in the RV, marine and MH industries historically have been seasonal and at their highest levels when the weather is moderate. Accordingly, the Company's sales and profits had generally been the highest in the second quarter and lowest in the fourth quarter. Seasonal industry trends in the past several years have included the impact related to the addition of major RV manufacturer open houses for dealers in the August/September timeframe as well as marine open houses in the January/February timeframe, resulting in dealers delaying certain restocking purchases until new product lines are introduced at these shows. In addition, current and future seasonal industry trends may be different than in prior years due to the impact of national and regional economic conditions and consumer confidence on retail sales of RVs and other products for which the Company sells its components, timing of dealer orders, fluctuations in dealer inventories, and from time to time, the impact of severe weather conditions on the timing of industry-wide wholesale shipments. INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

The Company makes forward-looking statements with respect to financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive position, growth opportunities for existing products, plans and objectives of management, markets for the common stock of Patrick Industries, Inc. and other matters from time to time and desires to take advantage of the "safe harbor" which is afforded such statements under the Private Securities Litigation Reform Act of 1995 when they are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statements. The statements contained in the foregoing "Management's Discussion and Analysis of Financial Condition and Results of Operations", as well as other statements contained in this quarterly report and statements contained in future filings with the Securities and Exchange Commission ("SEC"), publicly disseminated press releases, quarterly earnings conference calls, and statements which may be made from time to time in the future by management of the Company in presentations to shareholders, prospective investors, and others interested in the business and financial affairs of the Company, which are not historical facts, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. Any projections of financial performance or statements concerning expectations as to future developments should not be construed in any manner as a guarantee that such results or developments will, in fact, occur. There can be no assurance that any forward-looking statement will be realized or that actual results will not be significantly different from that set forth in such forward-looking statement. The Company does not undertake to publicly update or revise any forward-looking statements except as required by law. Information about certain risks that could affect our business and cause actual results to differ from those expressed or implied in the forward-looking statements are contained in the section entitled "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, and in the Company's Form 10-Qs for subsequent quarterly periods, which are filed with the SEC and are available on the SEC's website at www.sec.gov.

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