Patrick Industries, Inc.

Good morning, ladies and gentlemen, and welcome to the Patrick Industries Incorporated First Quarter 2021 Earnings Conference Call. My name is Diego, and I'll 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. And I will now turn the call over to Ms. Julianne Katowski from Investor Relations. Ms. Katowski, you may begin.

Good morning, everyone, and welcome to Patrick Industries' first quarter 2021 conference call. I am joined on the call today by Andy Nemeth, President and CEO, and Jake Pekovic, 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 before looking statements are made. I would now like to turn the call over to Andy Nemeth.

Thank you, Julianne. Good morning, ladies and gentlemen, and thank you for joining us on the call today. We kicked off our first quarter of 2021 with the continuation of the strong trends and tailwinds supporting our markets as expected. In fact, momentum accelerated both year over year and sequentially in our leisure lifestyle markets, which represents 75% of our first quarter revenues as the strength of both retail and wholesale shipments in the recreational vehicle and boating markets materially improved year over year. Demand for outdoor recreation remains solid in interest and popularity in alignment with our view of their tremendous attractiveness and potential in both the COVID and post-COVID environment. Energy remains strong, capitalizing on interest in outdoor recreation activities that provide adventure in the exploration of the great American outdoors the ability for families to experience this adventure together, and the inherent social distancing through the freedom of being outside. In our housing and industrial markets, which collectively represent approximately 25% of first quarter revenues, housing, repair and remodel, and home improvement conditions also remain robust, with demand for housing continuing to outweigh supply, the success of the evolving work-from-home model, and the continued urban migration and exodus from certain concentrated regions to less dense and more attractive climate-associated regions. These trends in leisure lifestyle and housing and industrial consumer preferences and activities all provide strong tailwinds for Patrick and our primary end markets, further solidifying an already promising long-term outlook. From an operations perspective, the size, scale, and flexibility of our well-positioned operating and financial platform allowed us to execute strategically and tactically during the quarter and leverage our fixed cost structure to drive increased profitability. Our fourth quarter decision to carry heavier inventories in anticipation of a strong start to the year proved positive, as those inventories were quickly used up in Q1. Our tremendously talented team members and business unit leaders leveraged our internal sourcing synergies, purchasing power, and supply chain partnerships and relationships, proactively overcoming material pricing and supply chain challenges and constraints to support our customers where others couldn't. We further deployed capital within our infrastructure to proactively drive our business model off of, as well as automating and expanding capacity, which will continue to allow us the opportunity to consistently deliver our differentiated products and services to our customers. We continued our investments in innovation, automation, capacity, and our facilities in anticipation of resilient demand and channel restocking for the foreseeable future to, again, match up and flex with our customers' growth expectations and demands. We completed the acquisition of CDOG in the first quarter and also focused efforts on investments in our human capital initiatives. We are actively investing in the tools needed, talent, and energy of our people who work for our customers, both internal and external, to more proactively provide them with access to the solutions and products that will help further drive our performance in end markets. The spirit of our team members, in combination with their dedication and can-do attitude, has led us forward as we partner with our customers in the development and delivery of products promoting and enabling excitement, growth, and enthusiasm toward our end markets. On the COVID-19 front, the passion and compassion of our team members has been inspiring. Our trends continue to improve and our protocols remain in place and active. We will continue to prioritize the health, safety, and well-being of our team members in alignment with our core values and culture. Our ESG and related initiatives continue to be a high priority for us as well as we continue on our journey to drive focus, goals, and vision on sustainability across our platform and the way we use resources through innovative programs to reduce waste and reuse materials. Additionally, we are dedicated to solid corporate governance and accountability to our stakeholders and human capital management initiatives to provide a safe, inclusive, and tolerant environment in which everyone is encouraged, empowered, and supported in the pursuit of their professional and personal development goals. With that as a general update and backdrop, our first quarter operating performance was very strong in alignment with high double-digit revenue growth in our RV, marine, and industrial end markets, and high single-digit revenue growth in our MH market. Our teams worked tirelessly to match up with OEM and builder production levels as we once again leveraged our fixed cost structure to drive improved gross profit, operating income, net income, and diluted earnings per share during the quarter. Our first quarter revenues of $850 million increased 44% or $261 million compared to the first quarter of 2020, and we earned $2.04 per diluted share, a 124% increase over the prior year's first quarter. Subsequent to quarter end, we completed the acquisition of CDEP, the industry-leading marine supplier of non-slip foam flooring, and also closed on new financing with the issuance of $350 million of senior unsecured notes in conjunction with the expanded capacity and extension of our credit facility, which Jake will further detail. We will continue to proactively position our capital structure for both strategic and defensive purposes to remain flexible and nimble in any environment and support our growth needs and capital allocation strategy in alignment with our overall strategic plan. Now turning to a deeper dive in our end markets. Just as calibration of inventories and destocking has occurred in our leisure lifestyle markets in the past, The same holds true currently on the restocking front, as RV and marine dealer inventories, whether new or used, continue to trend at or near historical lows as measured by weeks on hand, and RV and marine retail sales continue to be powered by healthy and growing demographic trends. New buyers, motivated by the outdoor recreation boom, continue to enter the space, and by doing so, also introduce the boating and camping lifestyle to their friends and family, likely promoting a chain reaction. Housing demand as well, supported by similar demographic trends, low interest rates, government stimulus as a result of COVID, and a shift in migration trends from urban areas to suburban are expected to further bolster our MH and industrial market businesses in single and multifamily housing, home improvement, and repair and remodel. Our RV revenues were up 181 million, or 57% in the first quarter, and represented 59% of our consolidated sales. RV wholesale unit shipments were up 48%, totaling more than 148,000 units for the quarter. We currently estimate retail unit shipments also increased between 30% and 35% in that same period, or resulted in between approximately 115,000 and 125,000 units sold. Units are continuing to immediately retail sell through at the dealer level, and backlogs at the OEMs continue to increase, further delaying the dealer inventory replenishment cycle. And as we head into the peak retail buying season in Q2 and Q3, our estimates indicate that dealer inventories are down approximately 30% to 35% on TTM retail unit shipments that are up 20% over the same period. Household owning RVs has continued to grow over the years with approximately 11.2 million U.S. households currently owning an RV, with an additional projected 9-plus million households intending to own an RV in the next five years. according to the most recent 2020 RV owner demographic profile. Additionally, 68% of current owners plan to purchase another RV in the next five years, according to the same survey. Camping and boating opportunities continue to grow, bolstered by continued public and private investment in the outdoor infrastructure. Outdoor recreation is a natural form of social distancing and the opportunities to explore are everywhere, with national parks and the incredible national American footprint. The RV market continues to additionally benefit from upgrades by existing users, along with recent work and study from anywhere trends. The continued strong traffic of the dealers, widespread awareness of the RV lifestyle, and OEM and dealer commitments to offering a strong value proposition will all provide greater opportunities and capacity for Americans to experience camping opportunities outdoors. On the marine side of our business, momentum is just as strong and continues based on similar trends that parallel RV wholesale, retail, and dealer demand and inventory levels, with marine inventory levels even leaner than RV and a longer potential runway for extended restocking. Our marine revenues of $137 million, representing 16% of our sales, were up $59 million, or 75% for the quarter, on estimated marine wholesale unit shipments that increased approximately 12% to 15% in the same period. Marine retail shipments are estimated to have increased approximately 30% to 35% in the quarter, translating into between 45,000 and 50,000 units sold. New buyers continue to enter the marine space and expand the ongoing network effect, and demographic trends are driven primarily by a sweet spot of the 35 to 45-year-olds at their peak wealth and family formations. Secular trends also advanced in outdoor recreation, and in particular, an interest in boating activities from across the spectrum of boat types, whether it's fiberglass, pontoon, ski and wake, or fishing. Marinas are at peak capacity, and heavy boat usage patterns and resulting demand for new marine products, including aftermarket products, where our presence continues to grow, have created historically low channel inventories. Our estimates indicate that dealer inventories are down more than 45% to 50%, on TTM retail shipments that are up approximately 15% to 20% over the same period. We expect a very positive demand trajectory for marine wholesale unit shipments and favorable supply and demand conditions throughout the remainder of 2021. In summary, the leisure lifestyle markets are well positioned to support long-term growth and are expected to continue to benefit from tailwinds, including historically low inventories, low interest rates, an extremely compelling outdoor recreation value proposition, strong demographic trends, and expansion of the customer base, among others. We believe that the leisure lifestyle markets are poised for continued strength throughout the remainder of 2021 and well into 2022. Now turning to the housing and industrial side of our business. New single family housing starts increased 20% in the quarter, and while multifamily housing starts decreased during the quarter, March showed a significant revival and was up 33% as conditions are improving from COVID-19 related constraints. Demand for new housing starts continue to outpace supply, and combined with activity in home improvement projects and related do-it-yourself activities, the housing sector indicates a positive demand trajectory for the remainder of 2021. Tightness in the housing market and relative affordability of manufactured housing present two strong positive data points for our housing and industrial markets. Urban, suburban, and rural migration demographic trends representing household wealth formation And the continued increase of both builder and MH OEM backlogs indicate supply demand trends that we believe will lead to continued growth in our industrial and MHN markets for the remainder of 2021. Our manufactured housing sales of $121 million represented 14% of our total revenues in the quarter, increasing 8% over the first quarter of 2020, on an estimated decrease in MH wholesale unit shipments of 2%. OEMs continue to work through capacity constraints with increasing backlogs. As capacity opens up and backlogs translate into MH wholesale unit shipments for the remainder of 2021, we believe there is positive trajectory for MH production and resulting demand for our supply to this market in the remainder of 2021. Revenues in our industrial market sector were $92 million, or 11% of our overall sales mix in the first quarter, increasing 16% compared to the prior year. New housing starts increased 10% in the first quarter. Continued growth in new residential construction, the R&R market, and big box home improvement are supported by similar tailwinds as in our other markets and are showing no signs of slowing down. In summary, we are continuing to deploy our resources in tandem with our customers' growth trajectory to foster further opportunities to partner and gain share in alignment with the secular movement in all four of our primary markets. Inventory depth, attention to consumer market interest, Our capabilities of actively managing our supply chain and our disciplined capital allocation and financing strategies have positioned our business for continued growth through the remainder of 2021. We are investing in software, automation, and specialized equipment needs, which will enable our team members to have better balance and serve our customers at the highest level. I'll now turn the call over to Jake, who will provide additional comments on our financial performance. Thanks, Andy, and good morning, everyone.

Our consolidated net sales for the first quarter increased 44% to $850 million, driven by increases in all four primary end markets. Our leisure lifestyle end markets continue to benefit from the popularity of RV and marine outdoor activities, while our industrial and MH markets benefited from consumer investment in homes and remodeling and a growing price differential between stick-built and manufactured housing. Revenue from our leisure lifestyle markets, which are comprised of RV and marine, increased 60%, with RV and marine revenues up 57% and 75% respectively. RV content per unit increased 6% to approximately $3,288 per unit, and estimated marine content per unit increased approximately 44% to $2,426 per unit. Revenues from our housing and industrial markets increased 11% in the quarter, with MH revenues up 8% versus the prior year and industrial revenues up 16% compared to the prior year. MH content per unit increased 3% to $4,691 per unit. Gross margin in the first quarter was 19%, increasing 40 basis points compared to the prior year. The gross margin improvement was primarily driven by benefits of leveraging our fixed costs against a strong increase in revenue, but was partially offset by labor inefficiencies and overtime necessary to maintain quality standards and consistent delivery of our products to end markets. Operating expenses were 10.9% of sales compared to 11.9% in 2020 due to our leveraging fixed operating expenses as sales increased. Warehouse and delivery expenses decreased 70 basis points due to a lower mix of MH sales in the quarter. SG&A expenses were 6% of sales in the quarter, a 10 basis point decrease compared to the prior year, again primarily reflecting the benefit of leveraging our fixed costs against increased sales. Operating income of $68 million increased 74% in the first quarter, and operating margin of 8.1% increased 140 basis points, primarily due to factors previously described. Our diluted earnings per share in the first quarter was $2.04, up from $0.91 in the prior year. Net income and diluted EPS for the quarter reflect an income tax benefit of $5.7 million, or $0.24 respectively, related to the vesting and exercise of share-based payment awards. Our overall effective tax rate decreased to 17.1% for the first quarter of 2021 compared to 26.4% in the prior year, mostly due to tax benefits related to share-based compensation. We expect our overall effective tax rate to be 24% in 2021. Looking to cash flows, we generated approximately $50 million of operating cash flows for the first quarter of 2021, an increase of 281% compared to the prior year quarter. The increase was primarily attributed to the strong increase in net income during the quarter, offset slightly by the continued investment in inventory as we worked to align with strong OEM customer demand and the goal of supplying production lines in a just-in-time manner. As Andy discussed, we have focused on securing inventory levels through the leveraging of our extensive supply chain and continue to make strategic purchases to strive to attain a strong supply for our customers. Strategically, we further invested $30 million in acquisitions in the first quarter of 2021, including the previously announced acquisition of Seadog. After the close of the first quarter, we also completed the acquisition of Hyperform, operating under the industry-leading Seadeck brand, further increasing our penetration into the marine market and related aftermarket. These acquisitions represent investments in best-in-class popular marine categories and aftermarket solutions, positioning our platform to deliver a deeper, value-added, highly engineered spectrum of products to marine manufacturers as they fulfill the increased marine production levels. In addition, in alignment with our disciplined capital allocation strategy and dividend policy, we invested $14 million in capital expenditures for the quarter to support capacity expansion and automation to support growing end market demand. We returned nearly $7 million to shareholders in the form of quarterly dividends. We had approximately $303 million of total liquidity at the end of the first quarter, including $6 million of cash on hand and remaining unused capacity of our revolving credit facility of $297 million. We have no major debt maturities until 2023. Our operating cash flows position us to capitalize on strategic growth opportunities, return capital to our shareholders, and maintain our disciplined capital allocation strategy with attention to our long-term leverage profile. Our leverage position at the end of the quarter was 2.3 times net debt to EBITDA. As Andy previously mentioned, subsequent to the end of the first quarter and in alignment with our strategic growth plan and financing strategy, we completed the issuance of $350 million of 4.75% senior notes due 2029, increased the capacity of our senior secured credit facility to $700 million, and extended the maturity of the credit facility to April 2026. Strong trends in our markets, our sound and flexible capital structure, our disciplined leverage position, and cash flows have positioned us extremely well for growth in our markets. We expect leisure lifestyle channel replenishment well into 2022 as marine and RV dealers work to first obtain inventory for immediate retail sell-through with the goal of leisure lifestyle retailers to eventually build inventory levels to an appropriate level of inventory in hand, and we expect solid and resilient MH and industrial markets growth during the same period. For 2021, RVIA currently estimates an approximate 24% increase in wholesale unit shipments to 533,000 units with an upside range of 544,000 units. and our current estimates point towards a higher end of that range. Based on current conditions and trends, we are presently estimating RV retail to be up low to mid single digits for the full year. We currently anticipate marine wholesale to be up 25 to 30% over the 2020 shipment rates on retail that is estimated to be up low to mid single digits. Based on these estimates and the continued strong retail demand expectations, we believe channel inventories in both the RV and marine markets will remain well below recent historic levels but will not be calibrated to a new normal until 2022 and possibly into 2023. In the manufactured housing and industrial markets, we currently expect MH wholesale unit shipments to increase low to mid single digits in 2021, and new housing starts to continue their strong trajectory of high single digit to double digit growth in 2021. We have continued to invest in our capabilities to strive to ensure that we can meet increasing OEM demand as the markets grow at a rapid pace. Geographic diversification and scale will enable us to support and capture the growth of our addressable end markets. Our strong cash flow and liquidity support investments in our end market platforms. We estimate approximately $45 to $50 million of CapEx for the full year 2021, which reflects increased investment in automation projects to offset the expected continued tight labor market, which will enable us to continue to support growth of all of our end markets. That completes my remarks. Andy?

Thanks, Jake. As discussed, our teams have been actively working with our customers during this incredibly dynamic period to support their needs. And our proactive inventory management and investment in our infrastructure have afforded us the opportunity to move with our customers and partner in their growth across all end markets this quarter. We will continue to position ourselves in alignment with our customers' demand and remain flexible and nimble in our end markets as we execute our discipline capital allocation and growth strategy. As always, the health and safety of our over 8,800 team members will continue to remain paramount in our efforts and priorities, and their inspiring dedication and outstanding performance during this quarter have energized and strengthened our commitment to strive for the highest level of internal and external customer service. Additionally, we remain committed to serving our communities, stakeholders, and partners, and driving overall shareholder value. Our focus on human capital management initiatives has resulted in energy, ideas and solutions for our customers and team members. The importance of our people and their talent is both tangible and inspiring. As our incredible market serves such a vital purpose of balance and enjoyment in the well-being and recreation of families and individuals as they pursue and explore the outdoors and invest in their homes, the dedication of our people is visible and evident as our team members give shape and meaning to the solutions and products we deliver to our customers. Our financial versatility, breadth, and depth of our resources, strong liquidity, and balance sheet strength afford us the opportunity to pursue strategic acquisitions and key capital investments to expand the portfolio of brands we offer our customers to further drive capacity, efficiency, interbrand synergies, and continuous improvement initiatives. As we look ahead to the remainder of 2021, we believe the scale and capacity of our infrastructure position us to match up with the cadence of growth in leisure lifestyle and our housing and industrial markets. Our team members, core values, and humble culture represent the center of who we are, and our relationships with our suppliers, board of directors, and shareholders continue to crystallize our efforts in creating long-term shareholder value and in always driving towards our goal of striving to serve our customers at the highest level. By investing in and protecting our talented and dedicated team members, dealing ethically and responsibly with our business partners, and supporting our local communities, We believe our contributions will continue to enhance our overall brand and thriving end markets. This is the end of our prepared remarks. We are now ready to take questions.

Thank you. And at this time, we will conduct our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press the star key followed by the number two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Once again, to ask a question, press star one on your telephone keypad. Our first question comes from Brett Andrus with KeyBank Capital Markets. Please state your question.

Hey, good morning, guys. So thinking about the updated wholesale outlook for RVs, we've seen monthly shipment numbers kind of ramp from the 40,000s into the 50s, and now I think the mid-50s here in March. So how are you thinking about April and May here with the information you have? Do you think the industry kind of shoots up into the 60,000s plus, or are there just too many constraints? holding industry back in the near term.

Brett, this is Andy. I think that there's opportunity for that type of number. I think there are some constraints over the next couple of months as we look at kind of the supply chain. That being said, the manufacturers have done a fantastic job of adapting and flexing towards or to the supply environment. And so, you know, we've really worked hard. Our teams have worked hard to make sure that we're matching up with production needs. And so as we look at it, I think there's some constraints, you know, just in various places, but certainly nothing that's gating, you know, from our perspective to continue, you know, to see strong production levels at the OE level. So our view is that, you know, the OEMs are very, very good at flexing, and, you know, the supply chain as well is very, very good at flexing. And we would expect, you know, a consistent cadence really through the next couple of months that will be very positive and continue to support the flow through to the retail channels.

Okay. And then I'm just curious what you're seeing with Indiana Transport, maybe first just the financial profile of that business in this environment, but also any insights you're seeing from that business as it relates to retail here in April, how quickly delivered units are getting sold. It just still seems like a very heavy pre-sale market.

Certainly, we've got two transport companies today, and they've done a phenomenal job, and they're performing extremely, extremely well. We continue to grab share. I'd also say that they're very, very efficient at managing their driver pool. As it relates to inventories that we're carrying at each of those particular operations, they are at lows right now, and so units are moving just as fast as they come on the lots and going right through to the dealers. And then the channel checks that the dealers are indicating that units are flowing just as fast to the retail consumer. So it's moving very, very quickly and very efficiently through those operations. And we're seeing, again, no real signs today of any headwinds out there.

All right. Thank you.

Thanks.

Our next question comes from Daniel Moore with CJS Securities. Please state your question.

Perfect. Thanks, Andy and Jake. Given just what we've seen in terms of rising raw material costs, obviously you don't have a ton of steel, but others are going up. What are your expectations for margins in Q2 relative to what we saw in Q1?

Sure, Dan. This is Andy. We've definitely seen commodity costs really across the platform go up. We're definitely in an inflationary environment. Our teams have worked very hard to mitigate the impact of those commodity costs as it relates to being you know, our customers. And so, you know, our expectation would be is that we won't see any material degradation as we work with our customers, both on the upside and on the downside when materials are flowing, you know, upwards or downwards. And so we really partner with our customers through that process, have continued to do so, and we'll do everything that we can to mitigate the impact on them. But we're working very hard. But that being said, we are definitely seeing, you know, commodity costs, you know, continue to rise and have seen it in Q1 in this environment.

Helpful. And then SG&A, is Q1 a kind of reasonable run rate to think about? Anything unusually good or bad in there?

Nothing unusual either way. No anomalies. You know, we're a high variable cost component, and so I would expect our SG&A to stay pretty consistent.

Perfect. One last one. You mentioned the growing, or maybe it was Jake, mentioned the growing price differential between stick-built and MHH. Can you just give us your thoughts on what's driving that? Is it a more efficient operating model for MH? Is it the ability to pass on rising raw material prices a little better? Just, you know, maybe any thoughts on that would be helpful.

Sure, Dan. It's all of the above, but also there's an embedded – kind of infrastructure of the stick-built that's probably a little more mature than where they're putting in some of the manufactured housing. So what you end up with is a supply and demand paradigm is driving a lot of buyers still to the stick-built just because there's a little more inventory. We've talked about in previous calls, and you can see it, that there's a little bit of capacity constraints still on the MH side, so that drives people who are looking for homes into more of the stick-built. or the lot ability to do that. There's a lot more builders out there that can help satisfy that demand. And then when you get with the supply demand driven by the migration patterns, you see it from just the household formation and everything else, it's pushing a little more pricing on that side as well. So I would say input costs are certainly impacting everybody out there and supply chain availability for all the folks, whether they're building MH units or a stick builder, are still seeing that inflationary pressure as well. It's creating a delta, but I would tell you while there's strong demand, I think, across both categories, there's just a little more availability out there on the stick-built side, and that's driving a lot of people that way rather than waiting maybe for an NMH house.

Okay. Super helpful. We'll jump back with any follow-ups. Thank you.

Thanks, Dan. Our next question comes from Scott Stember with CL King and Associates. Please state your question. Good morning, guys.

Good morning. Jake, did you give what the organic sales growth was, whether it's Patrick-specific on top of what the industry is doing?

No, I did not, but I'm happy to provide that. So we're up 44% just at the top line. We're up 6% net of industry on the organic side. About 28% is up on industry growth, and the rest of the balance of that is coming from some acquisitions we made beginning in second quarter last year.

Okay. That's perfect. And then on the supply chain side, I know that you guys have been doing a great job of dealing with this, but are there any specific areas, whether it's fiberglass or anything else that's giving you guys any headaches right now that we need to be aware of?

Nothing significant, Scott. I mean, it's really kind of in a number of areas is what I would say. And from week to week, things can change pretty quickly. But our teams have really done a great job of staying on top of things, working with each other, working with our like brands to make sure that we mix and match to be able to keep a constant supply chain going internally to our customers. So I expect it to continue, but again, I expect us to continue to manage that very actively and continue to work to match up with production needs. But it's really, you know, in a number of different areas, you know, we're seeing it. So I think it's going to, like I said, I think it's going to continue to be a challenge, but it's something that I believe our teams are doing a fantastic job of working through.

And keep in mind, Scott, we, as Andy mentioned in his initial comments, We started the year in a great spot to give us both the stock that we need and the velocity to drive us through periods of this kind of supply chain tightness. And we spoke a lot about it at fourth quarter, that proactive inventory build. And it's really helped us out as we come into a point where some folks are starting to falter a little bit and we're coming from a running start into the first quarter that's helped us carry us through and put us in a position to take share as well.

Okay, very helpful. Thanks. And then last question on labor. Specifically in the Elkhart area, how's that going? And labor, any inflation on that front that we need to think about?

Sure. Scott, this is Andy. Labor continues to be very, very tight in the area. Again, I think the teams have done a great job of working through kind of some labor headwinds as it relates to efficiencies. We're working a lot of overtime, certainly, but our teams have done a great job of managing that. We're definitely focused on maintaining balance with our team members and making sure that they've got some balance especially in this environment as we look forward but overall I think that it's going to continue to be tight and you know some of the things certainly on the automation front that we're working on we're very excited about to be able to continue to offset some of the labor constraints that we're seeing out there and so again it's a tight market for sure but we're doing a good job of managing through it got it that's all I have thank you thanks

And just a reminder, to ask a question at this time, press star 1 on your telephone keypad. To remove yourself from the queue, press star followed by the number 2 on your telephone keypad. Our next question comes from Steve O'Hara with Sedoti. Please state your question.

Yeah, hi. Good morning. Thanks for taking the question. On the, you know, think about 2Q here, you know, obviously, you know, like, you know, obviously ramped up, you know, from January into February, I'm sorry, January to March. And then, you know, I mean, so it's like, you know, you can, you know, something like 50 to maybe, you know, 55,000 unit range is the right way to think about, you know, 2Q on a monthly basis. Is that kind of, does that make sense on the RV side?

I think that definitely makes sense, Steve. I think, again, there's just a little bit of constraint here or there as it relates to some of the materials that are out there. But overall, again, the manufacturers have proven that they can manage through that and operate at that type of cadence. So I think that's definitely an opportunity to achieve out there.

Okay. And then... And then just on the, maybe the margin performance, you know, it was really solid in the quarter. I want to say it was an easy comp, but it doesn't look like it, given the year change. But how do you think about kind of a normalized operating margin and, you know, kind of, you know, should we be thinking 3 to 5, you know, or 30 to 50 basis points overall? you know, kind of last year, or is there a better kind of starting number to think about, maybe a normalized number for 2020?

Yeah, Steve, I appreciate the question. It's something we certainly put a lot of thought into, and you can see the margin expansion that we've been able to drive, both the gross margin and the operating profit lines here as we come through first quarter. Good leverageability of our fixed costs, and as Andy has mentioned both today and in the past, we have a pretty significant variable cost component to what we do, And that's helped drive that. You know, some of the input costs, we talked a little bit about labor today. We talked a little bit about raw materials today and our ability to manage those. So I would tell you, as we think through the remainder of 2021, we're thinking, you know, backwards at that 30 to 50 and maybe moving that upwards to thinking about 80 to 100 basis points of margin expansion versus last year for the full year.

Okay. Great. Absolutely. And maybe just on the marine market, you know, you know that inventories are, you know, extremely low there as well. Do you have a sense for, you know, that industry's ability to, you know, flex up, you know, to the same, you know, extent that the RV industry has performed? Is there any, you know, further constraints there or, you know, are there... you know, other issues that they face that maybe the RV industry doesn't in terms of their ability to kind of meet that, you know, demand or, let's say, inventory shortfall?

Steve, this is Andy. There's similar constraints, if you will, as it relates to the material supply that's there today, but they're also very, very resilient on the OE level, at the OE level on the marine side, and would expect them to continue to flex as well. And we're continuing to partner with those customers and our customers to make sure that, you know, we're doing everything that we can to match up in similar fashion as we are in the RV industry. So I don't see any reason why they can't. I think, you know, again, it's just going to be a little bit choppy here on the material side for a couple of months. And so, you know, I don't expect that to go away in the near term. But everybody's managing through it as best they can right now and doing a great job of managing through it. So I don't see any reason why they wouldn't be able to.

Okay. All right. Thanks. I'll jump back in queue.

Thank you. And we have no further questions at this time. I'll now turn the call back over to Ms. Julianne Katowski for further remarks.

Thanks, Diego. We appreciate everyone for being on the call today and look forward to talking to you again at our second quarter 2021 conference call. A replay of today's call will be archived on Patrick's website, www.patrickind.com, under investor relations. And I'll turn the call back over to our operator.

Thank you. Ladies and gentlemen, this concludes today's teleconference. Thank you for participating, and you may now disconnect.