Good morning, ladies and gentlemen, and welcome to Patrick Industries, Fourth Quarter 2021 Earnings Conference Call. My name is Melissa and I will be your operator for today's call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note that this conference is being recorded. I'll now turn the call over to Ms. Julie Ann Kotowski from Investor Relations. Ms. Kotowski, you may begin.

Good morning everyone and welcome to our call this morning. I am joined on the call today by Andy Nemeth, CEO, Jeff Rodino, President, and Jake Petkovich, CFO. Certain statements made in today's conference call regarding Patrick Industries and its operations may be considered forward-looking statements under the securities laws. There are a number of factors, many of which are beyond the company's control which could cause the actual results and events to differ materially from those described in the forward-looking statements. These factors are identified in our press releases our Form 10-K for the year ended 2020 and in our other filings with the Securities and Exchange Commission. We undertake no obligation to update these statements to reflect circumstances or events that occur after the date the forward-looking statements are made. I would now like to turn the call over to Andy Nemeth.

Thank you, Julie Ann. Good morning, ladies and gentlemen, and thank you for joining us on the call today. As we crossed the finish line for fiscal 2021 and reflected on the environment we and our customers operated in during the year, we remain energized and enthusiastic about the tremendous performance of our team members and many oppressive accomplishments of our organization during an incredibly dynamic year. 2021 was strong for us across a wide platform of operational metrics, where we meaningfully exceeded historical milestones in revenue, gross margin, operating income, operating margin, operating cash flow, dividends, and business acquisitions, among others. We continue to strategically diversify our leisure lifestyle platform with the addition of key new businesses in marine and marine aftermarket, as well as fortifying our portfolio of RV, MH, and industrial offerings. We completed 10 acquisitions during the year representing more than $350 million in annualized revenues. We also amended our credit facility and Broadman strengthened our liquidity profile with two separate senior unsecured note offerings which enhanced our patient capital structure. And while our family has grown to more than 11,000 team members, we've also leveraged the strength of our culture and talent and grow and profitably. While supply chain challenges impacted all major markets in 2021, our teams worked tirelessly in alignment with our customers ' demands based on product availability and other factors to flex our schedules in pace and deliver to our end markets in three key areas. First, our strong liquidity profile and cash generation, along with our multi-brand production capacity and bandwidth, buying power and procurement strength between brands to secure incremental inventory for our customers production. Second, our continued strategic investment in automation and our information systems, which began in the second half of fiscal 2020, allowed us to further…

Thanks, Andy, and good morning, everyone. Our RV revenues of $674 million in the fourth quarter were up $228 million or 51% and represented 59% of our consolidated sales. RV wholesale unit shipments were up 13%, totaling approximately 147,600 units for the quarter. Retail unit shipments decreased 16% to approximately 86,000 units in the fourth quarter. The decrease in retail unit shipments is attributed to continued limited model availability, as well as being consistent with traditional seasonal winter retail demand trends. Especially in comparison to the Q4 2020 backdrop, where retail fulfillment occurred far later in the year due to COVID related disruptions earlier in 2020. With the emergence of some winter restocking, RV dealers are well-positioned, yet not back to historical inventory stocking levels to meet strong continued retail demand in the initial selling months in the first half of 2022. Seasonal winter buying patterns, typically lightest in the winter months, coupled with the RV industry is unique and distinct ability to continue to flex production levels beyond what would be expected given the supply chain constraints, have allowed dealers a better opportunity going into 2022 to establish a solid initial base to sell from, which compared to an extremely fair level earlier in 2021, which we believed constrained retail sales overall in 2021. Record OEM reported backlogs continue to point to a strong expected 2022 retail season. Our estimates indicate the recalibration of dealer inventories has just started with TTM weeks on hand at the end of December 2021, up 27% to approximately 11 weeks to 12 weeks from December 2020 estimated comparative weeks on hand at approximately 8 weeks to 9 weeks. This level is significantly below our estimates of approximately 26 weeks to 30 weeks, historically carried on average across the industry pre -pandemic. Despite the…

As discussed, we exceeded many positive milestones in 2021 alongside our customers, suppliers, and strategic partners. Our continued strategic diversification is producing results and we are continuing to expand our portfolio of highly engineered products to support our innovation initiatives for our customers in a more versatile end-market composition. We expect to continue to expand our presence in both OEM and aftermarket product offerings in addition to our focus on innovation and new product development. Visibility for 2022 remains clear and positive. We expect RV to be in a healthier inventory position to not only satisfy strong consumer demand, but to provide a better overall consumer experience, which we are proud to be a part of with our product offerings. Marine production will continue to be driven by strong consumer demand in backlogs and meaningful dealer inventories are not expected to build until 2023 or 2024. MH, residential housing, big box, and our other industrial markets are expected to exhibit steady growth in 2022 and beyond, and fulfill critical fundamental housing and repair and remodel needs. Our liquidity and capital resources remains strong with available dry powder, our acquisition pipeline is full, and our capital allocation philosophy remains consistently disciplined and thoughtful, providing us with both the foundation and vision for growth, profitability, and innovation. Our culture is strong and getting stronger and our investments in human capital and related initiatives to improve the lives of our team members and communities will continue to be a focus in alignment with our core values. ESG continues to be a priority for us as we further drive our efforts around the continuous pursuit of a balanced and thoughtful value proposition that betters our environment, people, community, stakeholders, and shareholders. We expect to publish our first corporate sustainability report this year, and will continue to humbly strive for excellence and servant leadership under our better together philosophy. And finally, we want to thank our customers, team members, Board of Directors, suppliers, business partners, and shareholders for your support as we drive our organization towards the goal of continuously increasing overall long-term shareholder value. This is the end of our prepared remarks. We are now ready to take questions.

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Scott Stember with CL King and Associates. Please proceed with your question.

Good morning, guys, and thanks for taking my questions.

Good morning, Scott.

Jeff, you were talking about, I guess where dealer inventories are right now on the RV side, I guess based on weeks on hand, and pre - COVID, we're not even remotely close to that, but we're just trying to get a sense. Can you guys come up with what you think the new normal would be at some point? Whether we get back to those 20-30 weeks on hand, or maybe somewhere in between where we are now and that?

Yeah, that very question. We've looked at that and we believe that just talking to our checks, that 18 to 22 week range or about 30% less so lower than where we were prior pre -pandemic is where we're going to land. So we still have some pretty good runway to get there and give them to that position.

Got it. Okay. And on the margin side, great job, obviously, with all the automation project you guys have in place. Price increases and so forth. But, what is the narrative that we should be looking out for operating margin expansion for 2022? Are we still in that 30 to 50 basis point range, or do you foresee any upside to that?

Scott, this is Jake, and I appreciate the question. As you've seen through the year, we've definitely performed pretty well in the expansion, in particular, of our operating margin up a 160 basis points versus what we had at the end of fiscal year 2020. And I appreciate that as the year progressed quarter-to-quarter we continued to expand that range. And as we transition here into 2022, we're still thinking back to that 30-50 basis point expansion, we feel pretty good about that. But to your point, we do believe there's upside to it as we see how their real volumes play out and the continued adoption and implementation of the -- what's really making a meaningful impact on that, which is the automation that you referenced, and our ability to be nimble and be more efficient in all the things that we do.

And then last question before I jump back in the queue, aftermarket it seems to be getting to be a bigger and bigger piece of the business for you. I know the wet sound acquisition certainly helps. Can you maybe talk about how big overall aftermarket is right now and where that's heading, and a timeline, how big it could be?

Scott, this is Andy. Without question, we're excited about the aftermarket. I think there's a ton of opportunity in particular. We've had it in our marine businesses as we've gone forward here. We're close to probably $150 million, $160 million all-in on aftermarket today. And we expect to meaningfully expand that as we go forward with opportunities, not only within the marine business, but within our RV businesses as well. And so a lot of opportunity there and we're pretty excited about it. We're excited about the runway that's there and looking to build on that. And along with our OEM mentality.

Got it. Thanks again.

Thank you. Our next question comes from the line of Daniel Moore with CJS Securities, please proceed with your question.

Thank you. Good morning, thanks for taking questions. Your RV content growth up 24% in Q4; can you just talk about how much of that was acquisitions, what it looks like organically and of the organic piece, how much was volume and how much was [Indiscernible]?

Sure, Dan, it's Jake. And little less about the RV in Q4 where we had some contribution from some of our 2021 acquisitions, most notably the Alpha Systems acquisition we made in the April timeframe as well as a few others, Infusion and a few others. But maybe take a step back and talk about the overall contribution for the overall fourth quarter for -- as we're at 49.4% on a total revenue basis. We're about -- for the enterprise, which again, as you can appreciate is weighted more towards the marine, at least this year it has been, we're up 12% on acquisitions, industry growth is about 10% up, pricing 18%. But I want one of the things we're really focused on is we're up about 9% to 10% on -- from the organic basis after you peel away some of those other layers, which is really a testament to our ability to leverage our scale and our relationships to continue delivering when other folks might stumble a bit or destocked down and puts us in a position where we can take share, which is something that's accelerated through the full fiscal year 2021 and certainly showing well in fourth quarter. Full-year, spread out a little bit more as you know. We got 64% up year-over-year, 14% of that acquisitions industry is 27% pricing 16%. And then from the -- from an organic perspective, that's down in the 7% range. Still very strong and greater than the 3% to 5% we've consistently talked about over time. And that resonates through both our overall revenue contribution, but as well as our content, which as you can appreciate, we've talked about here today is up measurably on a quarter-over-quarter and year-over-year basis, calculated on TTM basis.

That's super helpful, Jake. That answers three questions, and I only asked one. Maybe talk about pricing. Are you -- as we went through the quarter and into January, is there -- do you continue to take price, and how much of an uplift do we expect to see in Q1 in 2022 based on the pricing initiatives we've taken either in dollar or percentage terms?

This is Jeff. We continue to take pricing out to the market through the -- through the fourth quarter. We are seeing some of that continuing into 2022, not at the -- really at the levels we were at in the third and fourth quarter of '21. So as a percentage, it's probably about half of where we were in those quarters going into this year. And we see some leveling out in a few of our areas. But then there is some volatility along some of the commodities that we see out there. We've seen some of them go down maybe in lumber and aluminum and then and then start to -- really start to head back up. So we're watching those closely and passing along as we see them.

As we've kind of looked out, Dan this is Andy, we're looking at commodities. There'll be some puts and takes I think certainly as supply chain eases up, which is our expectation. As we move throughout this year into Q2 and Q3, we're expecting some of that to happen which is a good thing from our perspective. And so I think while there may be some pricing going out right now, we're anticipating as well in the back half that we might see some pricing come back, which is a good thing again, on the inflationary side. So we're looking forward to that model but our expectation is puts and takes flat for the year on pricing plus and minus.

Maybe one more. You mentioned incremental strength we're seeing in the MH side of the business. Are there organic or inorganic opportunities to expand share? Hasn't been a big focus of M&A up until this point, wondering if that might shift given the longer-term supply demand outlook. Thanks again.

Yes, thanks. We think in the MH market there's plenty of upside for us. Just organically throughout our organization, we've really put a lot of our groups together to work towards a more consolidated look at the MH market and cross-sell some of our brands and some of our products. We've been able to do that this year. We've seen some tremendous growth, as you can see by the numbers we put out today as far as versus wholesale shipments. And we've got some opportunities with new players on the supply side and our distribution channels which will give us a lot of upside opportunity in 2022, I believe, and beyond. A lot going on there.

I think there's some M&A opportunity, Dan, I think what we get excited about on the MH side is that business for us is highly leverageable. And so as they continue to gain capacity with the strengths of the backlogs that are there, our business organically is leverageable and from a fixed cost perspective as well. We look forward to the upside on MH, whether it's organic or M&A. If there's opportunities either way for us, we're going to look at both of them.

All right. I'll jump back with any follow-ups. Thanks.

Thank you. Our next question comes from the line of Craig Kennison with Baird. Please proceed with your question.

Hey, good morning. Thank you for taking my questions as well. Really, a big picture question here, but there's a wide gap between your results today and the outlook for this industry, and then the seven times earnings multiple or less that you trade at. What's your explanation for what the market maybe missing here?

Craig, this is Andy. Thanks for that question. We question that ourselves as we look at our results and where we performed. I think from a business model perspective, we feel really good about the platform and leverage ability of the platform. We're brand fronted. We go-to-market through our brands. And so I think there's probably some confusion there as to how leverageable that profile really is. But overall with our better together philosophy, we've got tremendous connectivity and collaboration. And we can leverage capacities between brands as we go to market with different product offerings and product opportunities. And so we look for a good, better, best type of product offering for our customers and believe that that's a great focus for us. I think as we look at the model, our aftermarket business is growing, we've got a lot of leveragability on the platform as well as our fixed costs structure, so we need to do a good job of telling the story about the company. And I think that, from our perspective, we think it's a great story to the market. We're working on that is what had to say. But overall, I think from a communication perspective, there's a lot of great things. And our team members really worked well together. We've got a humble philosophy here. And so for us, we want our results to speak for ourselves. And so, we're going to do some bridging of that messaging. But overall, we love the brand platform. It's been phenomenally successful for us. Our team members are well-connected. We leverage synergies across the platform, and it's not as visible under the brand fronted model. But overall, we get excited about the connectivity that's there, and we leverage that every day through our team members. So got phenomenal teams, phenomenal leaders across that brand spectrum, and they've done a great job of driving results and we want to continue to tell that story in the right way.

Thank you. And then, of course, the balance sheet looks very well prepared for M&A if you want to pursue that. But your stocks, super cheap as well. How does the Board weigh share repurchase versus M&A? And are the deals that you're looking at as affordable as your own stock?

Yeah. I think that as you look at where we're trading today, [Indiscernible] just a little over six times, and we're looking at deals that are six to eight times. What I'd tell you is from evaluation perspective, if you look at -- we bought 600,000 shares, more than 600,000 shares back in 2021 at a leverage price of about $80. We bought 166,000 shares back in January at an average price of a little less than $70. So I think, as we look at capital allocation, the strength of our cash flows, we've got a lot of options on where to deploy that capital and invest in the business to drive returns. We're certainly active. We just came out with our new $100 million authorization on stock buybacks, so there's tremendous appetite to continue to drive value for our shareholders. And our acquisition pipeline is full as well, so I'd tell you, certainly we want to drive valuation on the share price without question. But there's a lot of opportunity for us to continue to invest in the business and deploy that capital thoughtfully. So we're going to continue to do that and continue to try and drive those returns.

Thanks. I guess lastly, I'm very familiar with boondoggles but I'm less familiar with boondocking. Could you just explain what that trend is all about?

Yeah, it's given people the opportunity to go -- really just go anywhere with their RV, be able to without short power and connecting, be able to go and turn on the generator, and or go with battery power. However, they are able to do it nowadays and live off the grid and do that. And there's several opportunities out there. There's wineries throughout the country now they're offering the ability to come on their property and stay for the night. It's opened up a wide variety of new opportunities for RV enthusiasts to see the whole country. It's really exciting to see the -- with solar and some other things that the RV OEMs are doing. It's giving the RV user a lot more opportunities to do that throughout the country.

Awesome. Thank you so much.

Thanks, Craig.

Thank you. [Operator Instructions] We'll pause a moment. Thank you. It seems that we've come to the end of our question session. I'll turn the floor back to Ms. Julie Ann Kotowski for final remarks.

Thanks, Melissa. We appreciate everyone for being on the call today and looking forward to talking to you again at our first quarter 2022 conference call. A replay of today's call will be archived on Patrick's website, www.patrickind.com_investors. I'll turn the call back over to our Operator.

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.