Patrick Industries, Inc.

Good morning, ladies and gentlemen, and welcome to Patrick Industries' third quarter 2021 earnings conference call. My name is Robert, and I'll be your operator for today's call. At this time, all participants are on 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 this conference is being recorded. And I will now turn the call over to Ms. Julianne Kotowski from Investor Relations. Thank you. 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 dates the forward-looking statements are made. I would now like to turn the call over to Andy Nemitz.

Thank you, Julianne. Good morning, ladies and gentlemen, and thank you for joining us on the call today. Once again, we are pleased to report strong revenue and earnings growth in the quarter, with sustained momentum and backlogs building across the end markets in all of our primary market platforms. Our team's tremendous efforts, dedication, and flexibility in this highly volatile supply chain and labor environment is a testament to their will to take care of our customers and their ingenuity to be able to definitely navigate difficult currents. The partnership with our customers is very real and tangible. Our sales and operations professionals have tirelessly continued to work and communicate very closely with their counterparts at our customers' operations to absorb what is happening real time, manage changing production schedules, and strive to anticipate the needs in this ever-changing dynamic environment. Later in this, our focus on investments in the art culture, infrastructure, and automation tools which will empower our team members to be able to do their jobs better and more efficiently and effectively, create better balance, and scale up and down with our customers' needs and business models. Technology and data-driven solutions are just one of the strategic initiatives we are investing in, and a primary focus of ours to enable and empower our team and our customers to collaborate, analyze opportunities, and improve the quality and delivery of our products and services. This includes AI and machine learning and cloud-based solutions, which transform low-resolution decision-making and data silos into high-resolution collaborative solutions and deliverables. Our people and our critical emphasis on human capital and what it means today for our future success remain a focal point in how we do business. Our community and team member initiatives continue to enhance our Better Together, Better Community philosophy. and afford the opportunity for our team members to pursue philanthropic and volunteer opportunities both at the organizational and brand levels. Additionally, our new community outreach committee was initiated, created, and led entirely by employees and fosters our team's commitment to service to our communities through the development of philanthropic initiatives and volunteer events with a grassroots approach. Our geographic footprint continues to expand both organically and strategically. to meet the needs of the markets we serve. We continue to actively cultivate our acquisition pipeline and evaluate opportunities which complement our portfolio of leisure lifestyle and housing solutions, as well as expand our existing product capabilities and solutions model in other parts of the country to better serve our customer base. Trends in our primary end markets remain very positive with channel restocking needed across all sectors and wholesale demand visibility that points well into 2022 and likely into 2023. While raw material shortages across many different commodities and products are constraining retail currently, retail traffic at the RV and marine dealers remains strong among new and existing buyers, and the benefits of leisure lifestyle are now part of a mainstream narrative which is growing on its own accord. The strong state of the residential housing market continues to ideally position our industrial and manufactured housing business models as viable component solutions in addition to DIY and home improvement activity being extensive and prevalent. The leisure lifestyle markets represented 76% of our revenue in the quarter and continue to be driven by strong consumer demand, traffic, and momentum, which continue to deplete dealer inventory on hand. On the RV side, private campground initiatives continue to develop to accommodate the entry of new demographics into the RV space and are absorbing the overflow from national parks, which continue to remain at capacity. At the same time, federal and state agencies are increasingly looking to accommodate boondocking opportunities, which expand the enjoyment of the RV camping possibilities. For both RV and marine, urban to suburban and rural migration and work-from-anywhere trends and policies are increasingly prevalent, which is also translated into demand for all classes of RVs and boats. In our housing and industrial markets, which together represent approximately 24% of third-quarter revenues, Highly competitive housing demand conditions persist, and the popularity of DIY, repair and remodel, and home improvement trends continues to motivate the housing consumer. The strong end market conditions mentioned once again unlocked increased profitability as we leveraged our fixed cost structure, resulting in improvement in gross and operating margins, operating income, net income, and diluted earnings per share. Our third quarter revenues of $1.1 billion increased 51%, or $360 million, compared to the third quarter of 2020. Our net income increased 54% to more than $57 million, and we earned $2.45 per diluted share. I'll now turn the call over to Jeff Rodino, who will provide further details into our end markets.

Thanks, Andy, and good morning, everyone. Our RV revenues were up $212 million, or 50% in the third quarter, and represented 60% of our consolidated sales. RV wholesale unit shipments were up 23%, totaling approximately 152,000 units for the quarter. We currently estimate retail unit shipments decreased between 15% and 20% primarily as a result of low channel inventories in the same period, or resulted between approximately 145,000 and 155,000 units sold. Despite the decrease in retail shipments compared to the third quarter of 2020, retail is still outpacing wholesale on a year-to-date basis, and matching up with wholesale on a quarterly basis. The velocity of dealer inventory unit turns continues to indicate that wholesale shipments are not satisfying underlying consumer demand, especially when considering growing OEM backlogs and as well indicating further extension of dealer inventory replenishment cycle. Restocking to meet customer demand levels still has not happened and our estimates indicate that dealer inventories are down slightly year over year on TTM retail shipments that are up 15% to 20% over the same period. On the marine side of the business, retail trends parallel the RV and also continue to outstrip wholesale shipments. The delta between wholesale and retail shipments indicates continued depletion of powerboat inventory on dealer lots and resulting in similar extension of the restocking cycle. Our marine revenues of 173 million, representing 16% of our sales and increasing as a percentage of our mix due to our organic and strategic efforts, were up 80 million or 85% for the quarter on estimated marine wholesale unit shipments that increased 15% in the same period. We estimate marine retail shipments decreased 35 to 40% in the quarter, translating into between 47 and 52,000 units sold. Again, not due to the lack of demand, but due to lack of available inventory to sell. In comparison to estimated marine wholesale shipments of 35,000, the channel continues to be severely depleted and potential restocking that could carry well into 2023 based on our estimates and our OEM and dealer channel checks. New entrants in the marine market are further fostering a network effect and generating demand in key demographic touchpoints as wealth and family formation dynamics reach ideal levels. Outdoor recreation trends in fiberglass, pontoon, ski wake, and fishing continue to be fueled by desire to use marine recreation activities as a way to spend time with family and friends, bolstered by favorable weather conditions which are extending retail demand trends. Our estimates indicate The marine dealer inventories are down more than 50% to 55% on TCM retail shipments that are approximately flat to down 5% over the same period. Demand trajectory tailwinds continue for the marine wholesale unit shipments as manufacturers in the marine space are working hard to increase production levels to support the tremendous demand. Overall, our leisure lifestyle markets are ideally positioned to support sustained growth and are expected to continue to benefit from tailwinds of lean inventory, an attractive interest rate environment, an extremely compelling outdoor recreation value proposition, strong demographic trends, and consumer credit and liquidity and expansion of the customer base with new buyers entering the market every day. Based on our checks, pricing inflation has not had an impact on the consumers to date. Retail demand has not subsided, and we believe that the leisure lifestyle markets are poised for continued strength through 2022 and into 2023 based on our estimates and current market conditions. Now turning to the housing and industrial side of the business. New single-family housing starts increased 5% in the quarter, and multifamily housing starts increased 19%. Demand for building supplies remains firm, driven not only by single- and multifamily builds, but also by home improvement projects, and related do-it-yourself activities indicating continued positive demand trajectory for 2022. Housing demand supported by formation and demographic trends, low interest rates, and household formation patterns that support migration from urban to suburban areas lend increasing validation to our MH and industrial markets in single family and multifamily home improvement and the repair and remodel market. Tightness in the housing market and relative affordability of manufactured housing represents strong dynamic for our housing and industrial markets. Urban, suburban, and state-to-state migration, changes in household spending, and the continued increase of builder and MH backlogs indicate supply-demand trends that we believe will lead to continued growth in our industrial and MHN markets into 2022 and beyond. Our manufactured housing sales of $135 million represented 13% of our total revenue in the quarter, increasing 25% over the third quarter of 2020 on an estimated increase in MH wholesale unit shipments of between 9% and 10%. OEMs continue to make progress, working through substantial order backlogs. As MH OEMs even kill production levels through resolving supply chain challenges that all markets are currently facing, Run rates are now trending towards wholesale unit shipment levels not seen since 2011. Revenues in our industrial market sector, which is primarily tied to residential housing and home improvement, were 119 million, or 11% of our overall sales mix in the third quarter, increasing 52% to the prior year. New housing starts increased 9% in the third quarter. We continue to allocate resources based on alignment of trends and customer momentum in our four primary markets. Thoughtful and creative anticipation and build of inventory, attention to amenities and features consistently in demand at customer level, our unlocking of capabilities through human capital and technology and talent, driven missions to dynamically navigate and anticipating our supply chain, and our disciplined capital allocation and financing strategies have positioned our business to remain flexible and nimble through 2022 and beyond. As Andy noted, we are investing in data-driven solutions, automation, AI, machine learning enabling solutions, as well as specialized equipment that is connected to a unified data platform. These high-resolution solutions enable and will continue to empower 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, Jeff, and good morning, everyone. Our consolidated net sales for the third quarter increased 51% to $1.1 billion, driven by increases in all four primary end markets. Revenue from our leisure lifestyle markets, which are comprised of RV and marine, increased 57% with RV and marine revenues up 50% and 85%, respectively. RV content per unit increased 19% to $3,735 per unit, and estimated marine content per unit increased approximately 66% to $3,166 per unit. Revenues from our housing industrial markets increased 36% in the quarter, with MH revenues up 25% versus the prior year, and industrial revenues up 52% compared to the prior year. Estimated MH content per unit increased 10% to $4,961 per unit. Gross margin of the third quarter was 19.6%, increasing 50 basis points compared to the prior year. The gross margin improvement was primarily driven by the leveraging of our fixed costs through the tactical execution of our team's operations, efficiencies in production that we continue to realize as a result of our investment in processes and technologies, which maximize the effectiveness of production and delivery of our products, and the contribution from margin accretive acquisitions. Warehouse and delivery expenses decreased 20 basis points as the scale of our operations benefited from an increase in the volume of activity and the associated leveraging of our fixed costs. Operating expenses were 10.8% of sales compared to 10.5% in 2020, attributed to an increase in SG&A, reflecting investments in personnel and human capital management initiatives. Operating income of $93 million increased 56% in the third quarter, and operating margin of 8.8% increased 30 basis points as thoughtful strategic execution continued in the quarter. Our diluted earnings per share in the second quarter was $2.45, up 51% from $1.62 in the prior year. Our overall effective tax rate increased to 26.3% for the third quarter of 2021 compared to 24.3% in the prior year. We expect our overall effective tax rate for full year 2021 to be between approximately 24% and 25%. Looking to cash flows, we generated approximately $69 million of operating cash flows for the third quarter of 2021 compared to $73 million in the prior year quarter. Our proactive securement of inventory for the OEMs this quarter supported our strong operational performance. At the same time, this investment in inventory will eventually translate into an acceleration of the cash conversion cycle as normalized supply chain patterns begin to take shape. The size and scale of our operations, in combination with our strong liquidity, enabled our strategic intervention to secure materials and products for our customers in the context of a highly competitive and volatile supply chain. In alignment with our disciplined capital allocation strategy, we invested $18 million in capital expenditures for the quarter to support information technology initiatives, including automation of productive capabilities as well as capacity expansion to support growing end market demand. Business acquisitions in the third quarter of 2021 included the previous announced acquisitions of Coyote Manufacturing, a leading designer, fabricator, and manufacturer of a variety of steel and aluminum products, primarily for the marine OEM market, and Tumex Covers, a leading manufacturer of custom-designed boat covers, canvas frames, and the mini-tops, primarily serving marine OEMs and dealers. Both acquisitions represent a continuation of our strategic expansion of our marine portfolio and custom marine solutions capabilities. In the third quarter, in accordance with our dividend policy, we returned $6 million to shareholders in the form of quarterly dividends, and we further deployed $10 million in the form of opportunistic share repurchases. At the end of the third quarter, we had approximately $454 million of total liquidity comprised of $45 million of cash on hand, unused capacity on our revolving credit facility of $409 million, and total net leverage ratio of 2.2 times. Our comfortable leverage and strong liquidity position us to drive forward our strategic growth initiatives while at the same time providing resources to support the success of our customers' production needs. Our current RV wholesale shipment estimates point to a range of 595,000 and 605,000 units for the full year. Based on current market conditions and trends, we are presently estimating RV retail to be up low double digits for the full year. We currently anticipate marine wholesale unit shipments to be up 15% to 20% from full year 2020 representing between 190,000 and 200,000 units on retail that is estimated to be down low single digits representing between 210,000 and 220,000 units sold, with the availability of dealer inventory serving as the limiting factor in the retail space. Based on these estimates and the continued strong retail demand expectations, we believe channel inventories in both the RV and marine markets remain well below recent historic levels, and also that a new normal as it relates to inventory weeks on hand at the dealer level has been created. We believe based on our estimates that the desired new normal as it relates to inventory levels will not be recalibrated until likely into late 2022 and 2023. For fiscal 2022, we are currently estimating RV wholesale unit shipments to be up low to mid single digits. We estimate marine wholesale unit shipments up between 15% and 20%. For RV retail, we are estimating to be down low to mid single digits. For marine retail, we are estimating to be up low to mid single digits. In the manufactured housing and industrial markets, we currently expect MH Hulsdale units shipments to increase low, mid, double digits in 2021 and new housing starts to continue their strong trajectory of double digit growth in 2021. For fiscal 2022, we are currently estimating continuation of the current trends in both of our housing and industrial markets with unit growth of mid to high single digits in both markets. Our strong cash flow and liquidity support investments in our end market platforms. We estimate approximately $300 million of operating cash flow and $55 to $60 million of capital expenditures for the full year 2021, which reflect increased investment in automation projects to offset the expected continued tight labor market and long-term demand expectations, enabling us to continue to support and drive organic growth across all of our end markets. That completes my remarks, and I would like to kick the ball across the table to Andy. Thanks, Jake. As noted, visibility in our end markets is strong. Retail and wholesale demand patterns and projections continue to point towards an extension of dealer replenishment and resulting OEM production requirements well into 2022 and likely into 2023. We have been proactively focused on and investing in automation and innovation opportunities and initiatives across our platform as we plan for fiscal 2022 and beyond to enhance and drive scalability, flexibility, efficiencies, continuous improvement, and balance with our team members across our platform. Additionally, ongoing supply chain initiatives supported by our strong liquidity and investments in technology, systems, and human capital will continue to provide the opportunity to serve our customers as they flex their models and work to replenish depleted dealer lots and reduce record backlogs. We continue to maintain a patient, disciplined, and focused capital allocation strategy based on data and detailed models to drive long-term value for our customers, shareholders, team members, partners, and the communities in which we operate. The enhancement and well-being of our 11,000 and growing team members is an essential focus of our resources as we work together to continually improve and foster our team culture. Their dedication and outstanding execution during this quarter complement our investments in their success and will drive our efforts to unlock fragmented markets with a solutions-based, customer-centric model, innovate, and deliver quality products in reliable, dedicated, trustworthy, high-quality service. 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. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tell will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Daniel Moore with CJS Securities. Please proceed with your question.

Good morning. Congrats on the strong performance. Thanks for taking the questions. Quick clarification, the 2022 outlook, let me see if I heard this right, RV wholesale up mid-single digits, retail down low to mid-single digits. Is that right?

That's right, Dan.

And marine up mid-teens on retail, that's up maybe single digits?

That's right. We think retail's up low to mid-single digits.

Got it. Make sure I was typing fast enough. Super helpful. Let's go back to margins. Really strong in the quarter, particularly in light of the rampant inflation and supply chain challenges that everybody's seeing. Wondering if you can quantify the impact of those on gross margin and operating margin in the quarter. In other words, what might margins have looked like, you know, in a more stable or normal operating environment?

Yeah, Dan, again, this is Jake. So margins, we continue to see as we have through this year where we, our business has seen some pretty strong expansion of the cost of our raw materials, but our teams in the field are able to partner pretty closely with our customers to ensure that we can pass those along. And as you know, those are kind of making their way through the entire value chain and, um, still making it down to the consumer. So that ability to pass along those prices and include those in our product pricing have continued to be successful. As we've talked about in the past, there's a little bit of a 30-day lag that works well with our days of inventory to help us smooth those out. And as we've spoken a lot over time, we have a highly variable cost structure. And when we think about it in the context of those key variable costs, which are cost materials and then the labor itself, followed by overhead, We have a lot of good opportunities to continue to manage those costs across those production volumes ebb and flow. When I think about the gross margin, though, the one place we've been most focused is this quarter, and you'll see a little bit of tightness there is coming through the – we've seen some of the raw material pricing, which has certainly been up, but also – Availability, at times, we've bought on the spot to make up for some availability from some of our distribution vendors, but in other times, we've seen a little bit of freight in, as freight's been a pretty big headline out there, and that's certainly contributed to a little bit of increased cost. But you start peeling away those kind of more episodic or current topics, I would tell you that we probably see a little bit of improvement in the terms of maybe 20, 30 basis points at that level.

Really helpful. And then as we think about Q4, likely to see, in terms of operating margin, likely to see a little bit of a dip, you know, given typical seasonality and holiday shutdowns, or do we think that levels in Q3 are sustainable?

Good question, Dan. Again, this is Jake. You know, we started this year with an expectation that we would improve our operating margin. I think we started at 100 basis points over fiscal year 2020, and we've adjusted that to 130 to 150 basis points up over that 7% number we had. And we continue to stand by that. To your point, we see fourth quarter. There will be some shutdown activity, and we'll see that in November, a little bit around Thanksgiving holiday, and we expect all of our customers and ourselves as well to take a little bit of a pause here around the Christmas and other holiday season late in December. And with that, you'll see a little less absorption, but you'll also see a lot of monetization of working capital, which heads towards our $300 million of operating cash flow number. But with that, it'll bring down that average – Operating margin from 8.8% it has, but still we feel very comfortable about that up 130 to 150 that we've been talking about since first quarter.

Sorry, I'll jump back in queue with a couple follow-ups. Thank you.

Thanks, Dan. Our next question comes from Scott Stember with CL King. Please proceed with your question.

Good morning, guys. Thank you. Congrats on a great quarter as well. Thanks, Scott. Can you maybe just parse out a little bit more of the expectations for retail in the recreation markets, RV versus marine? You talked about, I guess, on the RV side, availability will be one of the big limiting factors. But is there any other reason why there should be such a divergence between RV and marine for next year?

Scott, this is Andy. Thanks for the question. I think what we're seeing when we look at kind of the calibration of inventories and the availability of inventories is we saw the marine retail very strong, RV retail very strong. The marine retail pulled the inventory through at a quicker pace with less units out there. And so a couple of months ago, we started to see marine retail decline. And that's really a result of availability, as we mentioned. And then RV followed quickly. two months later. And so what we're seeing today certainly is availability is the issue. Traffic at the dealers remains strong. There was a little bit, there was actually a little bit of a COVID or a surge that we got, you know, earlier in the year from the variant and then it settled in and we're still seeing, you know, strong new buyer traffic at the lots from all of our touch points today. So Our view is that, first of all, as we've mentioned, the inventory channel is severely depleted. And second of all, it is constraining retail right now, but we've not seen any degradation in traffic and interest in the retail side. So from our perspective, it's purely inventory-related today.

Got it. And then related to price increases, a lot has been made of what we talked about with the OEMs, continuing to put price increases through and worrying about protecting backlogs as the backlog of orders continues to get pushed out more and more. What are you hearing? Do you expect any potential pushback from OEMs if indeed they do wind up having to work with dealers to protect backlogs? Anything coming back to you guys?

I think our expectation right now is that the raw material market is still elevated really across the commodity space that we're dealing with and the products that we're dealing with. And so I'd say they've somewhat stabilized but still at an elevated level. And so we're going to continue to partner with our customers and be proactive in that partnership as we are able to manage costs and input costs. we're certainly going to share that on the upside and the downside. And so our expectation is that we'll continue to partner, you know, again, with the customer base, make sure we stay with them, you know, and help them as they continue to push through pricing and be able to pull back pricing. I think, you know, everybody would certainly be happy with commodity prices coming down, you know, to be able to continue to stimulate tremendous activity out there. So we're going to partner either way.

Got it. And then, Jake, just one last housekeeping item. Organic sales, what was it in the quarter? And just flesh out between industry and growth specific to Patrick.

Yeah, sure, Scott. Again, it's Jake. So as we talked about, up 51% quarter over quarter, up 4% on a sequential basis. So that kind of 51% up quarter over quarter, I would tell you the way to think about about 16% to 18% of that is acquisitions. So up 16% to 18% on acquisitions that – Didn't show up in the third quarter of 2020. Industry growth about 19% to 20%. When we think about that net of industry and net of acquisitions, what remains about 3% of that is attributable to some market share gains, and the rest comes through pricing and other activities.

Got it. That's perfect. Thanks for taking my questions.

Thanks, Scott.

Thanks, Scott.

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

Thank you again. When you talk about the new normal in terms of inventory levels, based on your outlook for retail, in terms of units, what are we looking at from your perspective that we need to restock over the next year plus in both RV and marine?

Yeah, Dan, thanks. We think a lot about that and where that will take us. But, you know, in the meantime, we're thinking a lot about what the trends look like through this year. And maybe to go back in time a little bit, as we transition through this year, I think at the start we expected that retail would, or rather wholesale would outpace retail. And a lot of factors to include this Delta surge that Andy referenced have led to a, as well as adoption of the leisure lifestyle activities to the outside, friends and family, all those wonderful things that are really transforming how people engage with us and our customers, has continued to drive us this year with strong retail. So as we get through year to date, we're just getting to a point where wholesale and retail hit some equivalents. I think this quarter, specifically you think about September, was a record month in wholesale shipments of 55,000 units, and it's where it's finally gotten to the point where there's a little bit of restocking activity going on. But when we still think about the inventory levels, these folks out there at the retail point of sale are still 60% to 70% below where they were on a pre-pandemic basis. And there's been a lot of talk about the units have been taken out over time with the supply-demand imbalance, and that's across RV and marine. We think about them very similarly when it comes to the lack of inventory that's out there and working backwards to the value chain to how to try to ameliorate that some. When we think about that, it takes us into 2023 is still a pretty strong production year as evidenced in our view in some of the facts and figures we put out where we think who's going to be up, who's going to be flat, and what that really means is we still see a very strong production year through 2023, so through the balance of 2022 and 2023 where we'll be filling up the inventory lots, which takes us to get through that restocking activity we've been speaking a lot about for the past year, and that gets to that new normal I think it's going to be something that looks a lot more like a little bit of a pendulum swing as people find their way to where the right velocity of inventory will be. But at the end of the day, we fully expect it will be somewhere north of where it is today and less than what it was on a pre-pandemic basis. Is that up 80,000, 90,000 units on the RV side? That's probably an accurate place to land. I think there's going to be a period of time it's going to take to kind of settle into where you get that unit in, unit out equivalents again. So there'll be a little bit of bobbling as people find the right cadence, but we expect that to really not take effect until we get into the probably late 22 is where we'll probably start to see a little bit more of that into the first quarter, first half of 2023. Marine, fully expect that to follow the same cadence. You know, we've spoken a lot about in past calls that RV really benefits from its ability to scale up very, very quickly given its geographic concentration of not only the OEMs but the entire supply base with us and others like us up here, whereas Marine's a lot more fragmented in the different types of Marine units as well as just the different geographies that they sell into all around kind of the United States. And that's slowed it down a little bit so that when you have the COVID hit and that shift towards leisure lifestyle, which, again, we tend to believe has got some real legs and is very persistent, it really drained the lots a lot more quickly than otherwise with a slower ability to refill up the inventory level. So we think that takes a little bit longer than RV, probably a little deeper into 2023 before you start to hit that search for the new normal. Again, I think that's somewhere that's below where it was pre-pandemic where it is today. I think their shortages on the lots are even a little more acute than what you see on the RV side. But again, if you think about in units, is that up 70,000 units or so, it's still going to take those kind of numbers to get up to a point where they're in some kind of middle ground and feel like there's a good velocity in, velocity out, and everyone's kind of got a levelness across the entire value chain. Dan, this is Andy. I just want to add a little bit to that. You know, when we look at our numbers and the expectations that we're looking at for 2021 and 2022, you know, we include, you know, that new normal as kind of where we're estimating at the end of 2022. And I think we'd like to see some seasonality, you know, at this point in time, give our teams a break here in Q4. So as you see some fluctuations in OEM shipments versus retail pull, you know, the backlogs are still strong out there. People taking units, you know, we'd like to see a little bit of seasonality to give the teams a break. And so we're not, you know, so laser focused on just every single month and annualizing it as much as we've kind of modeled out some seasonality into our plans, and it still doesn't get us to an expectation until the end of 2022.

Excellent. And when you look at the supply chain labor and everything else, your RV outlook would imply something in the low 50s, 52, 53, 54,000 monthly shipments. On average, comfortable that what you see now, you and your OEMs can handle that.

Yeah, Dan, this is Jeff. Yeah, we agree with that. We kind of keep a pretty good pulse on where our production levels are through the marine and RV sectors and believe that there's still, you know, strong activity, but, you know, it's measured in that, you know, 48 to 52,000 range, you know, through the rest of the year and and we'll see things kind of bump up from there as we get into 2022.

Got it. And if you'll indulge me for one or two more, just any sense for some of the automation and AI initiatives that you're pursuing as well as the potential benefits, any commentary there would be interesting and helpful.

Yeah. Again, Dan, this is Jake. So if you look at our CapEx that we've made, $18 million in the quarter and about $44 million through this year, talk with the year-to-date number 44 million, about 30 million of that has been capacity expansion. And of that capacity expansion, about 24 to 21 million of that has been away from just absolute physical plant where we're buying a lot for our transport business and then improving it so that they can move efficiently around there or standing up a new building and putting in ventilation, for example. So about 20-plus million of that is true machinery capex and expansion, increase of productivity, and practically all of that has some element of heavy automation element with software and all sorts of, you know, a little bit of robotics here and there as we try to find a better way to make more with less so we can reduce waste, increase our productivity, mitigate some of the difficulty in hiring folks to fill out increased production needs. So we're really focused on it. And there's an element of software. We're investing in that across the enterprise, both down at the factory level from the machinery from the shop floor to the supervisor's office all the way back to what we call our headquarters here in Elkhart and how we think about our ability to gain and analyze information in a more sophisticated manner, whether that's automation to the accounting advance functions or implementing, as we think about that's phase one, into a phase two that includes some more robotic process automation type applications. A lot of that going on, we expect that to continue. I think those will drive great benefits for us, not only now when we're working hard to do more with what's available, but also meet the production schedule with our customers, but also in the future as it will make us better and more nimble. I wish you could come out and take a look at some of the work that folks are doing, particularly at our North American Forest Products business. They've created this kind of Back to the future, I was calling it. That might not even be the right thing, but you go from one facility, which is the old way of doing it, heavy manual content for boat trusses and other things, you walk across the parking lot and it's splittering new, highly automated lines. It's got robotics moving things around. It's really making a difference for us, and it's taking some of the pressure off the people out there and making us better at what we do every day. So we're real excited about it, and it's definitely worth the cost. Returns are great. And honestly, with the increased expense to practically everything we're seeing over the past year and a half from labor to materials, it really makes a lot of sense to do now and then that investment for the future.

Excellent. Last one, just a little bit of a reporting question, but amortization expenses now upwards of $60 million annually. And if you tax effect that, you get back similar to what Winnebago just reported last week you'd get to an adjusted EPS number this quarter, somewhere near $3. Just wondering if that's something you'd consider on a go-forward basis.

That's a great question, Dan. Again, it's Jake. And Andy and I were just speaking about this yesterday, as a matter of fact. One thing we really pride ourselves in is that cash flow yield that we have on our shares and our ability to convert any measure of financial reporting from EBITDA to operating income into free cash flow. And That drives our capital allocation strategy, whether we're returning capital to shareholders, which was $16 million this quarter, or the continued investment in our business, which you can see is just under $300 million in strategic acquisitions through year-to-date. It's a great measure for how we're able to generate that cash flow, which is, in my experience, very non-typical for an industrial company, but we've been doing it for a long time, and it speaks to the nimbleness of our platform and that controllable cost element where 70% to 80% of our as measured as percentage of revenue, are manufacturing controllable and variable costs. So something we're thinking about, more to come on that. We're thinking a lot about that as well as, you know, everything else that goes into these calculations and making sure people can appreciate the earnings and cash flow power of our business.

Very good. Thank you again for the call.

Thanks, Dan.

Thanks, Dan.

As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment, please, while we poll for questions. And we have no further questions at this time. I'll now turn the call back over to Ms. Julianne Kotowski for further remarks.

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

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