Good morning, ladies and gentlemen, and welcome to Patrick Industries First Quarter 2024 Earnings Conference Call. My name is Darryl, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. And I will now turn the call over to Mr. Steve O'Hara, Vice President of Investor Relations. Mr. O'Hara, you may begin. Steve O’Hara: Good morning, everyone, and welcome to our call this morning. I'm joined on the call today by Andy Nemeth, CEO; Jeff Rodino, President RV; and Andy Roeder, CFO; Kip Ellis, President, Powersports Technology and Housing and Matt Filer, SVP, Finance, is also here for Q&A. 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 2023 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, Steve. Good morning, everyone, and thank you for joining us on the call today. As we finished the first quarter of the 2024 fiscal year Patrick remains in a position of strength, as a result of the work our team has put in day in and day out and the strong performance and results that we have generated, while diligently managing our business and balance sheet. Our success would not be possible without the dedication of our incredible team members, and I thank them for their tremendous efforts and focus. Our family of trusted, independent brands building better component solutions is guiding our model as we strive to be the supplier of choice in the outdoor enthusiast and housing markets. Our accretive growth strategy has evolved over the years through our team's relentless pursuit of great customer service and building innovative high-quality product solutions. We have become a key supplier to RV, marine, manufactured housing and now Powersports OEMs alike, and we believe our ability to scale and adapt to our customers' needs is unmatched. As we have further refined our business objectives, we identified and executed on the appeal of a more diversified end market ecosystem. Which is proving resilient, especially in these uncertain market conditions. Our first quarter acquisition of Sportech further solidifies the foundation in the Powersports industry and serves as another platform for future strategic and organic growth. We are excited by the promising potential in this space, particularly in the utility side-by-side segment on which Sportech focuses. The Sportech acquisition brings in a team aligned with our purpose as passionate outdoor enthusiasts dedicated to creating highly engineered, innovative products in close partnership with our valued OEM customers. We are thrilled with the initiatives that Patrick and Sportech teams have already set in motion…

Thanks, Andy. Good morning, everyone. We continue to experience dynamic conditions across all of our primary end markets. RV and MH trends have improved modestly after reaching what we believe was the bottom of the cycle in 2023. While shipments have improved in the market, interest rates continue to negatively impact demand of our end consumers and dealers across our markets as ownership and online costs remain relatively high. As a reminder, in the outdoor enthusiast space, RV has historically been first market to enter and exit economic cycles and the RV market typically precedes the recovery in marine and Powersports. In the first quarter, RV wholesale shipments have seen some sequential and year-over-year improvement. We except these positive trends to continue in the near-term, give the need for additional inventory and preparation for spring selling season and the coming 2025 model year change. However, the durability of positive trends will depend on retail sell-through. Our first quarter RV revenues increased 15% to $421 million when compared to the same period in 2023 and represented 45% of consolidated revenue. RV content per unit on a TTM basis was $4,859, off by about 9% from the record level we achieved for the first quarter of 2023. On a positive note, RV content per unit on a TTM basis increased sequentially in Q1 of 2024 from Q4 of 2023. According to the RVIA, RV wholesale unit shipments increased 9% to approximately 85,900 units from the first quarter of 2023. We currently estimate first quarter retail registrations were down approximately 14% to an estimated 73,100 units in the quarter. Our estimates further indicate that TTM dealer inventory weeks on hand at the end of Q1 of 2024 have increased by 2 to 3 weeks to approximately 20 to 22 weeks as dealers plan…

Thanks, Jeff, and good morning, everybody. First, I'd like to thank Andy, Jeff, Matt and the rest of the team here for such a warm welcome. I'm thrilled to become part of the Patrick family at such an exciting time, and I'm ready to work with the stellar team here, maintaining our solid financial foundation and supporting Patrick's continued drive toward profitable organic and strategic growth. Now on to our financial results. Our consolidated first quarter net sales increased 4% and to $933 million, driven by 9% growth in RV wholesale shipments, an estimated 13% increase in manufactured housing wholesale shipments and our acquisition of Sporttech which together more than offset the impact of an estimated 34% decrease in marine wholesale powerboat unit shipments. Gross margin increased 30 basis points to 21.9%, which was the result of our strategic diversification, acquisitions, larger mix of higher engineered products and cost reduction initiatives, coupled with our investments in automation and continuous improvement initiatives. The first quarter gross margin includes 10 basis points of non-cash purchase accounting charges from the inventory step-up related to the Sportech acquisition. SG&A expenses increased $3 million or 3% to $85 million in the first quarter of 2024, but decreased 10 basis points as a percent of sales. The year-over-year increase in expense reflects transaction costs related to the Sportech acquisition. Excluding the nonrecurring acquisition transaction costs associated with the Sportech acquisition, SG&A expenses as a percent of sales decreased 60 basis points versus the quarter of 2023. Operating expenses were $146 million in the quarter compared to $138 million last year, primarily due to higher amortization costs and the impact of acquisition-related expenses on SG&A. Operating income grew $3 million to $59 million, while operating margin improved 20 basis points to 6.4%. Excluding acquisition transaction costs and…

[Operator Instructions] Our first questions come from the line of Mike Swartz with Truist Securities.

Just maybe starting out on the outlook. I think one of the biggest changes versus maybe what you talked about a couple of months ago was just on the marine side. So maybe, I guess, just frame up from a wholesale shipment perspective, maybe how you're thinking about the year now versus prior? Is it deeper cuts in first half, second half is kind of unchanged? Or just maybe any guidelines around how you're thinking about that.

Sure, Mike. This is Andy, Andy Nemeth. As we've looked at marine and really looking across the industry sector in total, and we look at our mix of business kind of geared towards higher engineered product lines with strong presentation and concentration in the ski and wake sector as well as the pontoon sector. We just -- we looked at that model, and we're seeing dealers and OEMs alike remain very, very disciplined. And so we felt that it was prudent to kind of pull back just a little bit, especially given what we've seen I think we noted a greater than 50% decline in ski and wake and greater than 40% decline in pontoon in the first quarter. And we just see that discipline continuing through the second quarter, especially when we look at kind of when the new model year is going to come though with some stabilization expected in the back half. So we just pulled things back just a little bit, especially as it relates to our industry-specific concentration.

And the thought would be that the rate of decline you saw in some of those key categories in the first quarter, that kind of continues into the second quarter. Is the thought on a year-over-year basis? Or does it get better on a year-over-year basis? Because I think most of the destocking was -- or restocking was done first quarter last year.

Yes. We still think that kind of Q1 run rates are going to continue through Q2 at this point in time. So that's really kind of driving that model.

Okay. That's helpful. And then on the -- just on the operating margin outlook for the year, you've reiterated that. Any thoughts on just how that should kind of trend or play out through the year. I think seasonally, the second quarter has the highest margin, and it kind of drops off over that time period over the rest of the year. But given the comments on marine, which is one of your higher margin businesses, would that be expected to look any different this year than maybe years prior?

So we still think we're going to see a sequential margin improvement, and I'm talking quarter over the prior year quarter in each of our quarters for 2024. And our business is well diversified as we've looked at it. Our marine business has a strong margin component, is highly engineered, highly innovative. And so just with some of the -- as we talked about the mix, pulling back that segment a little bit with some of the strength that we've seen offset with our housing business in particular, we just felt like, again, we want to keep it at that 30 to 50 bps of improvement. I think if we see some uptick in the back half as it relates to kind of that marine business, we would expect to see some margin lift on that. But overall, we feel again pretty consistent that we will see some improvement each quarter over the prior year's quarter in our financials.

Okay. That's super helpful. And then just one last one for me quickly. Just the revenue growth, the components of that in the quarter on a year-over-year basis, how much was that, I guess, organic volume, pricing, M&A, all that good stuff.

Sure, Mike. This is Andy Roeder. Yes, for Q1, overall industry was down 3%. Acquisition growth was up 5% and organic was up 2%. And that organic is broken down by pricing was down 3% and shared content was up 4%.

Our next questions come from the line of Scott Stember with ROTH MKM.

I imagine that right now, you guys are having discussions on the RV side with the OEMs on where their pricing is going to be looking. Just got off a call this morning with one of the bigger dealers. It sounds like they're not expecting to see a material change in pricing from '24 to '25. What are you guys hearing on your end? And how should we look at that from a content standpoint throughout the balance of the year?

Yes, Scott, this is Jeff. As we go into the model year, every year, we're -- we go through and price our product appropriately going into the model year. And we've seen a lot of our commodities flatten out. As we've talked in the past, we do pass along pricing on a real-time basis with commodities and where our inventories stand. And we've seen kind of a lot of those flatten out over the fourth quarter and into the first quarter of this year. So there's some up, there's some down. It's kind of, I would say, almost flat. In particular to what you're saying about the dealer earlier thinking they're going to be flat. We're seeing the same from our commodities and the pricing that we're putting out there.

Got it. And then looking into the powersports side of it, if we could just take a little bit of a deeper dive. I know you've talked about how you guys are pretty much aligned heavily with the side-by-side utility piece. But can you maybe just overall, just trying to get a sense of how much of the powersports business would be considered mission-critical types of things versus more importantly, maybe just utility, utility or mission-critical. Just trying to get a sense of how this -- we should expect this business to perform in the event that the industry really tapers off a lot this year.

Scott, as we look at powersports, in particular, in our spread across the powersports market, which we talked about is going to include the side-by-side utility primarily, golf carts and motorcycles. When you're thinking about utility, we again expect to see -- we're seeing our content rise in that sector on the units that we're going into a market right now that when you look at the recreational side is a little bit down, but as we look at the model overall and the opportunities to continue to drive organic content amongst our product categories and bring solutions to those customers, we expect to continue to be very aggressive on taking market share there and gaining content. So overall, while the market is in a little bit of a volatile place today, if you just look at kind of the recreational versus utility, we're well aligned with utility.

Got it. And then just last question. There was a comment about expectations for operating margin growth this year. Did I hear 50 basis points. I just want to make sure I heard correctly.

30 to 50 basis points.

Our next questions come from the line of Noah Zatzkin with KeyBanc Capital Markets.

I guess just quick on the RV industry. I noticed you guys kind of ticked down your expectations slightly on the wholesale side. So just wondering relative to a few months ago, what may have led to that?

Yes. Noah, this is Jeff. As we've gotten into 2024, we've seen production rates from the OEMs pretty stable through the first quarter and into the second quarter. We believe that on our model, we were looking at 330 to 350 prior. Interest rate is not going down or at least the Fed saying that they're probably not going to go down as soon as we thought. I think it's going to continue to constrain dealers from wanting to bring inventory in at those higher levels, especially in the second half of the year, where we saw -- that maybe with some interest rate relief, we might see a little bit of that. So we just moved to a tick, not too much. We also note that going into the model change, the OEMs are being very, very disciplined with their production levels. So -- and as we get into June, they'll start to ramp down the 2024 production and start to get into the 2025 starting in July. So we see a little bit of falloff there over those -- over that time period. So overall, not much of a change, but we're just being a little bit cautious on it.

Great. And maybe just kind of 2-parter. Maybe if you could just kind of talk about how Sportech's performing relative to your expectations early on as well as kind of appetite for other M&A in the nearer term?

Sure, Noah. This is Andy. Sportech is performing better than expectations so far. We're really pleased with not only the team's performance, but the cultural fit, the alignment, the collaboration we're seeing today. As we noted, we're really striving to execute on synergies very, very quickly and see a ton of runway there. So very pleased with Sportech, and it is performing better than expectations. I think as we look at our appetite for acquisitions, as we noted as well, we are in a position of strength from our perspective. We've got a ton of liquidity. We're managing our cash flows extremely well. Our team is extremely disciplined and doing a fabulous job of working with our customers to manage our inventories and be very thoughtful about that. So I would say our appetite, again, is a position of strength and to be on offense, and we are actively looking at the acquisition pipeline, continuing to cultivate acquisitions organically. And again, really prioritizing what could make sense at what point in time, but we are actively looking at acquisitions right now.

Our next questions come from the line of Tristan Thomas-Martin with BMO Capital Markets.

Can you just talk how RV content specifically trended in the quarter, maybe not on a trailing 12-month basis, both year-over-year and then quarter-over-quarter. Just trying to square the 9% shipment growth to your revenue being up 15%.

Yes, Tristan, this is Jeff. Sequentially, RV was up about 1% from the fourth quarter of 2023 to the first quarter. So we are seeing that, and we believe that will -- that trend will continue through the year.

Okay. I guess just kind of the delta of how you outperformed the industry so much on a shipment standpoint, given there seems to be kind of the ongoing ASP pressure?

Yes. We've -- I would tell you, Tristan, over the last 15 months, our team has been really active in the marketplace and picking up business, again, working with our customers, really making sure that we're in the best position to be able to take care of them, both on the quality and service side, but as well on the pricing side. And as we've, again, managed our inventories, but also worked to push our vendors to bring commodity costs down as well. We are -- as Jeff mentioned, we're really active in pushing those prices through to our customers. So we maintain a great balance of pricing and quality and service with the customer base. And as a result, our RV teams have done a spectacular job of picking up more organic content in the RV space.

Okay. And then just one more, 1Q RV retail to get to year, I believe it was down 14%. That implies a pretty big deceleration in March. Am I thinking about that the right way?

Say it again. I really didn't understand your question.

Yes. So RV retail, I think you called out down 14%. But to get there, that would imply March was down more than both January and February year-over-year. Am I missing anything?

With the estimates, we would tell you, it's down a little bit more than January and February, correct.

Our next questions come from the line of Craig Kennison with Baird.

You've addressed many of them, but maybe a follow-on. That last question on the month of March. Any color on April trends in terms of RV demand as we continue to see high interest rates impact the consumer?

Craig, this is Jeff. From our perspective and what we look at are the production levels, I would tell you that through April, they've stayed pretty consistent with what we've seen so far this year. Like I mentioned earlier, looking ahead to May a little bit. We do see a little bit of time being taken off over the Memorial Day holiday. So we'll lose a little bit of production level there. But overall, the levels -- weekly levels of our customers have stayed pretty consistent.

Then on the margin front, 30 to 50 basis points. I'm wondering if you can just share any color on the puts and takes to getting there. I know your marine business tends to be higher margin. You've got Sportech rolling through. I'm just wondering if you can help us understand how you get to 30 to 50 basis points with all the ups and downs in your individual businesses.

Craig, this is Andy. There are definitely a lot of puts and takes in the model. When you look at the diversified business model and what we're doing there, I think when you look at the housing business, which is a highly leverageable business, given the low fixed cost structure that's there. That team has done a fantastic job as well really across our organization when we think about the team's performance. They've done a great job of managing that business, but we've also picked up business there on the housing side and the MH of the business. So leveraging that model is certainly supporting the margin profile and really kind of helping offset what we're seeing as it relates to a little bit worse performance on the Marine side of the business, just given what we're seeing in our mix with the products that we're selling through. It is a higher engineered product, a higher-priced product. And so yes, that does have some impact on it. But when I think about just the puts and takes. There's a lot that goes into our model. But when you look at the industries and the industry performance, it's allowing us to be very, very resilient. And then when you look at the acquisitions that we've done, and I'm going to say over the course of the last 24 to 36 months, we're buying margin-accretive businesses that are supporting the model as well. So we look at that margin resilience that we're able to produce it's a combination of a lot of things with the diversification, the acquisition strategy, the team's performance, the automation initiatives that we've put in place, the increase throughput, and increased quality. And then again, just the team's execution in the marketplace and ability to really drive customer value as we strive to be that component solutions provider as a go-to for our customers have all played into the margin profile.

Our next questions come from the line of Daniel Moore with CJS Securities.

Andy, good morning. Welcome to you. Covered a lot of ground. But just on the content side, content per RV ticked slightly higher in Q1 and marine. I think you said flat sequentially. You think we found the bottom from which we can grow on either or both sides or consumers likely to continue to opt for more entry-level units that might keep some pressure on that metric.

I think as we look at content today, we feel like we have bottomed in general. There may be a few small puts and takes here. But overall, we feel like we bottomed and we would expect content to continue to go up. kind of sequentially as we look at the model going forward, especially with the business that we've brought on. I think one of the other things that we're really excited about is when you think about market conditions like this, and the consumers -- or I'm sorry, the customers at the OEM level, there's a higher concentration on new innovations and product development, and we're actively and aggressively pursuing a lot of different innovations out there in the product space today. So when we look at content and where we sit today, kind of bouncing along the bottom with some uptick with business that we brought on, we get pretty excited about where we think we can go once the market doesn't flag, especially with a lot of the new product solutions that we're bringing to market and working with our customers on, not only current model year out but 2, 3-year models out, as we've mentioned. So our expectation is the -- long answer to your question, but we expect content to sequentially continue to go up. We do believe it's bottomed.

Very helpful. And on Sportech and powersports, more generally. You've had Sportech under the umbrella for a couple of months now. Just how would you characterize the opportunities to drive content over the next few years relative to your initial expectations, described some of those cross-selling or internal sales and initiatives that -- or meetings that you've already had taken place, but just talk about the, where you see that opportunity going?

Yes. We definitely are excited about the opportunity that exists there. With that team's innovation, again, we talk about advanced products. They've been doing that for a while as well. And so you look at some of the combinations of products that we can bring to market in alignment with what they're delivering today as a product solution and a very sticky product solution, we think that there's a lot of opportunity to bring additional value with our product lines and incorporating those into, again, a higher value-added product for the customer base, for that enthusiast space that we think can be really compelling for the end consumer. So I would say our expectations are at or better than kind of what we anticipated.

Great. And lastly, it does sound like M&A could be on the table given the strong cash flow outlook that you just reiterated, talk about your capital allocation priorities for the next 12 months, debt paydown versus M&A versus maybe potential buybacks, opportunistically.

Yes, sure. So I think as we look at capital allocation, we're going to stay focused on making sure that we're reinvesting in the business. We're going to continue to pursue automation initiatives that increase throughput and quality. That's been very successful from our perspective. So we're going to continue to deploy capital there. We're going to remain opportunistic on the buyback side of the business. And we've always got a grid in place as it relates to marker that we will execute upon based on the return model that we've put forth. So we're always actively looking at that, whether or not we execute in a given quarter, we do -- we are very actively monitoring the buyback. And then on the acquisition front, for sure, we're excited about the pipeline that exists out there today. We've got the liquidity. We've got the capital structure to be able to support a continued acquisition profile, especially as we look at our leverage profile as well, which we've been able to deliver upon in bringing that down immediately following Sportech and expect to continue to do so. So I think we remain opportunistic and as we've mentioned on offense as it relates to acquisitions and want to continue to actively pursue them.

Our next questions come from the line of Brandon Rollé with D.A. Davidson. Brandon Rollé: First, just on Sportech, I think you had mentioned expectations for wholesale shipments this year to be flat. What gives you confidence shipments can be flat year-over-year given the state of dealer inventories and also the industry lapping a very strong channel fill year in 2023.

Sure, Brandon. This is Andy Nemeth. As we look at Sportech, again, the utility sector is where Sportech is primarily focused. And when we look at the combination of demand, that exists there today. inventory levels in the channel that we see in the utility side of the business and then the backlog that exists at Sportech. That's what gives us kind of our confidence as it relates to the stability of that business. So again, we see that. That was one of the things that we looked at as we kind of pursued Sportech as well and gain confidence on, but that's really driving that. That utility sector has a solid demand profile to it. And then that coupled with the backlog gives us confidence in Sportech's performance. Brandon Rollé: Okay. Great. And then just one other question. I think currently, over the past couple of months, the model year '25 bidding process within the RV industry has been going on. Could you comment on the state of competition, any increased competition or any potential -- it seems like OEMs are looking to get prices lower, given affordability issues within the industry and elevated interest rates. Any commentary on the model year '25 bidding process?

Yes, Brandon, this is Jeff. Every year, we kind of go through the same bidding process. We have competition in every one of the product categories. And there is always competition out there. we're obviously working to be kind of best-in-class in all of our product categories, making sure that we're hitting on our automation, our efficiencies as well as pushing our vendors to pass along the pricing so we can get that to our customers. So we're being aggressive out there where we can be and pushing that. But certainly, we're always dealing with competition. We've got competition in every one of the product lines.

[Operator Instructions] Our next questions come from the line of Alex Perry with Bank of America.

I guess just first, any more color you can give on the sort of expectations for whether it's Sportech or the Powersport segment should contribute for the year. I guess, specifically, any color you can give on sort of the phasing in any seasonality we should be thinking about with the business as we build our models up?

Yes. This is Andy. I think as we look at kind of seasonality, we expect kind of existing run rates or current run rates that we're seeing today. As we look at kind of overall powersports for Patrick as a whole for the year, we're estimating around $400 million of powersports revenue in that space today. So again, we feel like where we're geared, where we're focused, kind of flat market growth or organic -- let's call it, flat market growth with up organic content as we continue to pick up business, but also gain content on products, especially as it relates to additional solutions bringing to the table.

That's really helpful. And then just my follow-up is on Marine. I think you said 2Q decline similar to 1Q. I guess as we move into the back half, what gives you the confidence that you should start to see an improvement in the Marine business?

Sure. I think as we're looking at Marine, there is resilience at the retail level, and we do see solid traffic out there. There's a lot of interest. The marine OEMs do a fabulous job of innovating product and continuing to push the envelope as it relates to innovations in the space. So we don't believe that there is a lack of attractiveness of product out there and nor do we believe that there's a lack of demand right now, as we just kind of look at where the market's at, the anticipation of the '25 model year and the new innovations that do come out in marine kind of hitting in the back half we feel -- and we also feel like inventories in the channel are in balance. We think the OEs have been extremely aggressive in managing production in alignment with the dealers. And so there's a lot of discipline. There's still tremendous demand out there, especially for the new innovations, and we just kind of look at that model today and think that we're kind of bouncing along here on the bottom. It's been soft in the higher concentrated components, to date, through Q1, and we just expect that to continue, especially with what we're seeing from a macroeconomic perspective through Q2. So as we look at things, again, we wanted to -- we thought it was prudent to kind of make sure that we're looking at the market according to our mix. But overall, again, the demand is still out there, and we're seeing that resilience with certain product categories in the space. And again, that's what gives us confidence towards the back half that we'll see some stabilization.

Thank you. Ladies and gentlemen, I will turn it back over to Andy Nemeth for closing remarks.

Thank you. I want to end the call, once again, by thanking our amazing team members who have made these past 65 years as a company possible. Their leadership, tenacity and passion for what we do is evident in the company that we are today. Patrick's ability to adapt, grow and evolve over this time period from a manufactured housing supplier into a more diversified partner to the RV, marine, powersports and housing industries supports our goal of being the supplier of choice to the outdoor enthusiast space. We will continue to be stewards of good business, accelerating the transformation of our company, while optimizing our financial and operational health. Thank you very much for your continued support.

Thank you, ladies and gentlemen. This concludes today's teleconference. Thank you for your participation. You may now disconnect.