Patrick Industries, Inc.

Good morning, ladies and gentlemen, and welcome to Patrick Industries' first quarter 2022 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. I would now like to turn the call over to your host, Ms. Julianne Kutowski. From Investor Relations, Ms. Gutowski, 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 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 statement. These factors are identified in our press releases, our Form 10-K for the year ended 2021, 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 Nemitz.

Thank you, Julianne. Good morning, ladies and gentlemen. Thank you for joining us on the call today. We're excited to report our first quarter results, which mark the continuation of strength across all four of our primary markets. Traction was gained from several areas, which we'll talk about, including acquisitions completed in 2021, our automation initiatives implemented over the past 21 months, efficiencies as a result of improved consistency of material flow through procurement, better visibility into customer production scheduling with longer runs, and our team's tireless commitment to taking care of our customers. In addition to our strongest financial performance to date and aligned with our disciplined capital allocation strategy, we strategically expanded our premium audio and aftermarket platform in the first quarter, exemplified by the acquisition of Rockford Fosgate. We are continuing to grow our presence in the power sports and leisure lifestyle enthusiasts, OEM, and aftermarkets, providing an extension of our strategic diversification initiatives while also creating margin expansion opportunities. We are very excited about this addition to our family and look forward to how this will continue to accelerate our strategic growth. While supply chain consistency and visibility continue to present challenges and resonate across our markets, our team and brands have worked together to leverage our combined global purchasing resources and value streams to drive as many synergies as possible. Dealer inventory recalibration and restocking has been taking place in our RV market, which represents approximately 61% of our revenue. Alternatively, marine dealer and housing inventory levels continue to be limited, providing a strong baseline of visibility and foundation in our other three primary markets to continue to drive our business model and capital allocation initiatives. Inflation and commodity pricing continues to remain elevated in our markets. However, consumers in general are also in a strong position to further drive strong leisure lifestyle and housing demand, as personal income levels are at the highest we've seen in the last 10 years. and the ratio of debt service to personal income is at one of the lowest levels dating back to 1980. From a financial perspective, our first quarter revenues increased 58% to $1.3 billion, and our net income increased 137% to approximately $113 million, or $4.54 per diluted share. Adjusting for the impact of the accounting treatment for our convertible notes, our adjusted diluted per share was $4.93. I'll now turn the call over to Jeff, who will provide additional detail on our business and end markets.

Thanks, Andy, and good morning, everyone. As noted, we increased our revenues across all of our end markets on the backs of strong wholesale manufacturing driven by continued robust consumer demand. In the first quarter of 2022, our RV revenues were up $319 million, or 64%, to $821 million and represented 61% of our consolidated sales. RV wholesale unit shipments were up 15% reflecting the continued impressive scalability of the OEMs and the return to a more normal seasonal restocking in anticipation of spring and summer selling seasons. Wholesale unit production was approximately 171,500 units during the quarter. Our RV content per unit increased 33% on a TTM basis to $4,370 per unit as we ran record unit volumes during the quarter driven by our automation initiatives over the past 21 months. We have seen improved production scheduling due to better visibility, longer runs, and market share gains. Additionally, commodities have continued to increase over this period from the prior year due to tremendous demand. RV retail unit shipments are estimated to have decreased by 14% during the quarter, totaling approximately 111,000 units. With the addition of approximately 60,500 net units to inventory in the quarter, our estimates indicate TTM dealer inventory weeks on hand at the end of the first quarter are at 18 to 20 weeks, up seven weeks from our estimates at the end of December 2021. Inventory levels at the dealers have increased, but they are still below the historical pre-COVID average for the first quarter at 26 to 30 weeks. We estimate that dealer inventories are currently equivalent to the inventory levels we saw at the end of 2019. Our marine revenues representing 16% of overall consolidated sales increased 84 million or 62% in the quarter to 221 million. Revenues were driven by acquisitions, market share gains, and commodity price increases. Marine wholesale unit shipments were relatively flat in the first quarter of 2022 compared to 2021. on retail unit shipments estimated to be down approximately 8% to 10% due primarily to inventory availability. Our marine content per unit increased 73% on a TTM basis to $4,113 per unit. Marine inventories are still lean with certain raw products such as resins, wire harnesses, computer chips, and small components continuing to be scarce in supply. As a result, marine inventory channels are not rebuilding and marine dealer inventories are far from ideal levels of weeks on hand. Our estimates indicate that marine dealer inventories haven't changed much since Q4 of 2021 at roughly 12 to 13 weeks on hand compared to historical averages of 35 to 40 weeks across the industry. Based on our estimates and channel checks, we continue to estimate strong wholesale production to carry well into 2023 and likely into 2024. Despite the marine industry's current supply chain environment, we expect our marine revenues to surpass $1 billion in annual revenues on a pro forma run rate basis. In addition, our marine aftermarket business has grown to over $250 million in annualized revenues, with contributions on a forward basis from Rockford and Wetlands. Both metrics showcase the steady revenue growth experienced by our marine team and the continuation of our deliberate diversification strategy. We expect Marine to continue to grow as a percentage of revenue and expect our aftermarket component to grow as well. Manufactured housing sales of 174 million represented 13% of our total revenues, increasing 44% from the first quarter of 2021. MH wholesale unit shipments were up 11% and MH content per unit increased 19% to $5,501 per unit. MH is its strongest position over two decades. MHASPs are at their highest, and backlogs are approaching gross dollar value levels that surpass historic milestones, giving us confidence in continued MH growth going forward. Revenues in our industrial market sector were $127 million, or 10%, of our overall sales mix in the first quarter, increasing 39% compared to the prior year. Total housing starts for the first quarter increased 10%, with multifamily housing increasing 26%. Housing demand continues to provide us with opportunities for the remainder of 2022 and into 2023, driven by a fundamental need to supply materials and solutions to housing needs and single and multifamily projects, which continues to grow across an expanding footprint. Moving away from end market results and further into our quarterly operating and strategic highlights. In March, we shared the exciting news of the entrance into the dynamic power sports market and aftermarket with our acquisition of Rockford Fosgate. Rockford increases the penetration of our existing premium audio platform alongside Wet Sounds, which we acquired in the fourth quarter of 2021 to serve our leisure lifestyle markets and full solution strategic model. These two brands combine tremendous engineering and design capabilities with innovation, premium quality sound, and creative marketing to form a powerful tag team that overlays our previous acquisition of Progressive Group, who has been and continues to be one of the leading rep groups for audio products in the United States. We anticipate having more to tell about Power Sports and aftermarket in future updates. Over the last 21 months, we have deployed over $100 million in capital investments to drive automation, capacity, and scalability, and elevate technology as a strategic advantage in our plans. As a result, we have been able to better position labor and production capacity has expanded to flex with the varying pace of OEM production. So more is made with less. One big win that highlights this quarter's story is our North American Forest Products Division in Southern Michigan. Previously, RV boat trusses produced by North American were built manually through a very tedious process. Our team proactively pushed design and automation boundaries to drive a fully automated robotic solution, which eliminated 42 jobs from the manufacturing cell, allowing us to move that labor to other capacity constrained cells. This initiative has proven to be game changing for this particular product category. In addition, quality has increased, safety has improved, and our team members are energized by the commitment to improving morale, and customer satisfaction, resulting in a win-win for our customers and team members. Another example is across our spraying and finishing platforms where we use significant quantities of gel coats, stains, and paints in our operations. Gel and paint are a material cost input and have had a severe shortage over the past 18 months. To the extent we can reduce overspray, we can save material costs, resulting in better efficiency, productivity, operating margin, and waste reduction. In 2021 and early 2022, our dedicated innovation team targeted this opportunity. As a result, we have driven VOC reduction through a proprietary technology solution, which will be further enhanced in 2022 with a virtual training module inspired by our innovation team across several of our facilities. At each facility where this process has been implemented, we've been able to reduce VOC emissions by as much as 30%. While that reduction is a significant environmental win for us, it is also a human capital win in technology training and raw material savings. Our extensive manufacturing capabilities and how we gain market share in the quarter were attributable to how we're able to supply the OEMs with needed product where capabilities were constrained elsewhere. An example of additional technology implemented as a result of Capacity constraints have been at our lamination operations where margins are generally lower and we run high volumes. Continuous improvement initiatives can be game-changing and add up in material dollars in the aggregate. We continue to implement automation and robotics to improve precision and ease labor constraints to drive improved quality, capacity, and speed. Less waste goes to recycle and upcycle. More goes directly to the OEM. As a result, operating margin and productivity has expanded here as well, further driving and energizing our team's creative spirit. Our customers have benefited from increased volumes, increased quality, and just-in-time production flexing. Again, a win for us and a win for the customers we serve. As noted, our strategic investment in transformative automation and innovation in our facilities has inspired, and energized our team members and produced material savings allowing us to improve scalability. We will continue to harness this energy and passion and push our teams to find creative solutions that will benefit our operations during times of both exponential growth and contraction. These actions afford us the opportunity to be the premier supplier of choice for our customers with added benefits of reducing waste and enhancing safety for our team members. I will now turn the call over to Jake who will provide additional comments on our financial performance.

Thanks, Jeff, and good morning, everybody. For first quarter 2022, our consolidated net sales increased by $492 million, or 58%, to $1.3 billion, driven by share growth and continued strong demand and customer order activity in each of our principal and markets. Gross margin in the first quarter was 22%, increasing 300 basis points compared to the prior year quarter, driven primarily by contributions of our fiscal year 2021 acquisitions, a realization of production and labor efficiencies, and higher production volumes, partially offset by the continued pressure of raw material pricing environment and inbound freight costs. Operating margin expanded by 400 basis points from 8.1% in the first quarter of 2021 to 12.1% for first quarter 2022, lifting operating income by 136%, or over $93 million, to $162 million. Operating margin also benefited from the contributions of our strategic acquisitions, which typically maintain a margin profile in excess of our average profit margins, realization of the value of our efficiency and continuous improvement programs and expenditures, and the leverageability of our flexible operating model. First quarter operating margin also included a one-time benefit related to a $5.5 million gain on sale of asset, which translated into a 40 basis point benefit to margin for the quarter. Our warehouse and delivery expense decreased by 40 basis points as a percentage of sales on leverageability of our platform, more efficient route planning and realization of technology implementations. Our SG&A expense included the benefit of the one-time gain on sale of assets, also decreased by 40 basis points as a percentage of revenue for the first quarter of 2022. The previously mentioned strategic actions, labor management and realization of efficiencies, drove 137% growth in our first quarter 2022 net income increasing from $48 million in the first quarter of 2021 to $113 million. In the first quarter of 2022, we adopted a new accounting standard that requires our 1% convertible notes due 2023 to be presented on an if-converted basis in the calculation of diluted earnings per share. As a result of the adoption of this standard, our first quarter 2022 diluted earnings per share was reduced by 39 cents. Excluding the impact of the new accounting standard, our diluted earnings per share would have been $4.93, which is a non-GAAP metric. We do not intend to issue shares in the settlement of convertible notes that may be converted by their holders. Our overall effective tax rate was 23% for the first quarter of 2022 compared to 17% in the prior year. The increase reflects the change of excess tax benefits of share-based compensation. We expect our overall effective tax rate for 2022 to be approximately 25%. Jeff highlighted some great examples of how automation and strategic initiatives have translated into the realization of meaningful operating efficiencies. The value of these actions are felt across our organization, so they most directly resonate through the improvement of cycle time, reduction in changeover disruptions, improved raw material utilization, and leverageability of our team members' time. Our ability to leverage technology, as well as our productivity and infrastructure investments, should continue to provide benefits for the remainder of 2022 and beyond. Looking at cash flows, we used approximately $23 million of operating cash flows for the first quarter of 2022 compared to a generation of $50 million in the prior year's quarter. Investments in working capital drove the use of our operating cash in the quarter to better position our growing platform, which enabled us to better support our customers' robust production activity in the quarter and mitigate the effects of the various events and circumstances that impacted the global supply chain through 2021 and into 2022. We're well positioned from an inventory perspective to continue serving our customers and gain market share. We expect monetization of working capital to materialize in the latter half of 2022. Moving on to our capital expenditure strategy, we invested $19 million in capital expenditures for the quarter, increasing $5 million over the first quarter of 2022. Jeff mentioned some great examples of how our investments create increased capacity and value for our operations and customers. Strategic investments and business acquisitions totaled $132 million for the first quarter of 2022. We acquired Rockford Corporation and the Rockford Fosgate brand, a global leader in designing and producing high-performance audio systems and components, primarily serving power sports, marine, and automotive markets and aftermarkets. In the first quarter, following our dividend policy, we returned $8 million to shareholders in the form of quarterly dividends. In addition, we continued our share repurchase activity and repurchased approximately 365,600 shares for a total of $25 million in the quarter. At the end of the first quarter, we had approximately $319 million of total liquidity comprised of $64 million cash on hand, unused capacity on our revolving credit facility of $255 million, and a total net leverage ratio of 2.2 times. Our leverage and liquidity profile enable us to be nimble and execute a variety of objectives, including our recent acquisitions, operational improvements, as Jeff mentioned earlier, and capital returns through quarterly dividends and opportunistic share repurchases. We believe our disciplined capital allocation strategy further supports our value proposition. Additionally, our leverage and liquidity profile allows us to navigate market fluctuations, adjust to a dynamic supply chain environment, and meet our customers' needs. As RV manufacturers have continued to scale their business models impressively and quickly, Inventory channels in general, depending on product mix, are healthy as we enter into the spring and summer selling seasons. We currently estimate full-year 2022 RV wholesale shipments to range from 560,000 to 570,000 units, with an estimated 55% to 60% of the unit production to be in the first half of the year. And we currently expect full-year retail shipments to be down low to mid-double digits, or approximately 12% to 15%. Assuming these estimates, we believe overall dealer inventories will still be at reduced levels when compared to pre-pandemic historical averages. In our marine market, we expect marine wholesale shipments to be up low mid-single digits and marine retail to be flat to up low mid-single digits, primarily limited by capacities and supply chain constraints. As noted, the resulting inventory implications point towards lean dealer inventories throughout 2022 with restocking to appropriate levels not incurring until 2023 or even 2024. On the housing and industrial side of the business, we continue to expect MH wholesale shipments to be at mid to high single digits for 2022, with retail sales absorbing available wholesale production on a real-time basis. In our industrial end market, we expect 2022 new housing starts to also grow in mid to high single digits. That completes my remarks. We're now ready for 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 tone 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.

Thank you. Good morning. Thanks for taking the questions. Maybe start with the RV side of the house. So obviously you mentioned inventory is improving, and you gave an updated outlook. So are OEMs starting to slow production at this point in Q2 after an exceptionally strong March? Just trying to recalibrate. I think you said you expect 55% to 60% of full-year shipments in H1. Just wanted to make sure I heard that right.

Yeah, Dan, this is Jeff. We are seeing that it was an exceptional first quarter, maybe even working its way into April also. But as we start to get into May, we are seeing some right sizing of production levels, more so with the retail levels that are going on out there. So we feel pretty good about the OEMs and their attentiveness to what's happening in the market. and adjusting production levels appropriately.

Very helpful, appreciate it. On the margin side, the 22% gross margin, obviously exceptional. Talk about how much of that relates to just operating leverage on higher volumes versus how much is the automation and some of the other streamlining efforts, just trying to get a sense of the sustainability where margins might level off as production comes down moderately.

Hey, Dan, I appreciate the question. This is Jake. So we've done a lot of work around that, and it's certainly something we've spoken quite a bit about the last couple of quarters, particularly on the heels of 2021, where we spent about $65 million in CapEx, and a lot of that geared towards productivity improvements, driving efficiency, taking some pressure off the labor force, and so on and so forth. When I look at that margin, the 300 basis points, and you break it into a couple of buckets, and we think a lot about durability there, I'd start by saying, as you appreciate, about 80% to 85% of our COGS is what I would call a true variable cost, whether it's material or labor, X, some of the stuff that's going to be a little more fixed inside those categories. And where we saw this productivity really hit the margin line, both in gross and operating margin, is coming more to the labor side, just by the nature of how we experience that in our income statement. But before we even get into that 300 basis points or 400 basis points of lift on our operating margin, I tell you, we still had about 100 basis points of headwind from freight in, some material cost that was lagging getting through. So while we're pretty active on pricing, as we've spoken about in the past, some of that still is dampening down some of the results that we saw. But as you transition through that and think through the components, I tell you about of that 300, we think there's some absorption certainly across the remaining 15% of COGS that is relatively fixed. And we've seen that pretty consistently over the past couple of quarters of strong production. When I think about the labor side, there's probably, call it, 200 basis points in there of that about 100 or so basis points as related to productivity improvements. So dovetails into what Jeff had said, where we can do more with less, where we've seen both stabilization in our labor force. We've seen tremendous wholesale shipments, as you noted, as well as a little bit of restocking out at the OEM side. We've been able to really leverage these improvements, whether it's some of the automation we've done, the software we've put in place, the planning for longer runs and everything else. It leads me back around to probably we're planning on 100 basis points of that being good, durable, lifting our margins on a go-forward basis.

Very helpful. One more, if I might. Smaller piece of your business now, but MH, I'm just wondering – if you're seeing any signs or concerns of slowdown on part of your customers, given the rising interest rate environment, et cetera.

Yeah, Dan, this is Jeff. Great question. Right now, the MH side seems very strong, really the strongest we've seen in several years. Most customers I've talked to have repeatedly told me that their backlogs are strong, really out through most of this year. with a lot of demand out there. They've had a little bit more of a difficult time increasing their production levels, unlike the RV guys who have been able to turn it up a little bit quicker. So I believe that there's still strong demand there, and it will continue through the rest of this year.

Very helpful. I'll circle back with any follow-ups. Thank you.

Thanks, Dan. Our next question comes from Mike Shorts with Truist Securities. Please proceed with your question.

Jake, maybe give us a sense of the 58% top line growth. How much of that was organic? How much was from pricing and unit volume?

Yeah, thanks, Mike. It's Jake. So to break apart that 57% to 58% top line growth, About 45% of that came from other than acquisitions. So call it 12.5% was related to our acquisition growth in the second quarter of 2022. But to break apart that 45%, I'd say we're up about 5% to 5.5% on share gains. And that's some opportunity that Jeff mentioned in his prepared remarks where we were generally If you think backwards, we talked a lot in fourth quarter this year and 2021 and 2020 about the deliberate build and inventory to put us in a position to best serve the market. Put us in a position where availability really put us in a position to gain more share, and that led to a pretty nice share capture that we think has some real stickiness to it. So up 5.5% on that true organic share gain. Up about 10% to 11% on industry lift, as everyone's aware of some of the good wholesale shipment activity we've seen, particularly in the RV and MH sides of our business. And then pricing is about 28% to 30% of that rolls through our top line growth number. So up 5.5% on share, up 12.5% on acquisitions, up 10%, 11% for industry lift, and up 28% to 30% on pricing activity.

Got you. Okay. And then just skipping over to gross margin that you touched on some of it in the prior question, but I mean, is there a way to think about what, I guess, what level of sustainable going forward, given some of the, I guess the efficiencies that you're, you're driving through automation projects and, and, and other, and understanding that a lot, you know, a large portion of your cost of goods are variable. I mean, the way to look at it is like in a, in a scenario, where maybe production or industry volumes down across all of your industries. Is there a sense that you can maintain 20% gross margins at this point?

There is, and we do, Mike, and there's a couple of pieces to that, and certainly the flexibility and nimbleness of our production platform lends to that, which helps us maintain margin in up and down markets. But also, you asked a great question about that durability of some of this improvement we've seen. And while we certainly acknowledge there's an element of absorption that comes along with increased production levels, we've got, as I mentioned, a little bit of headwinds from raw material input pricing as well as the freight in, and I think folks are feeling that just generally across the board. But we think 100 to 125 basis points of that overall lift we see that resonates through both gross margin and operating margin is attributable to our productivity improvements, which take a lot of different forms but lend off the CapEx spending we made last year, which is why we're focused on continuing that trend this year. I mentioned $100 million is our planning number for 2022. We think, again, that's 100 to 125 basis points of durability in that margin lift. And there's an element of that, too, that comes from, as we continue to think about our mix, and you're all aware of our strategic activity, as we've talked about our strategic diversification efforts, and we had a pretty good call with you all about the Rockford acquisition. We see 50 to 70 basis points of our margin expansions related to that higher value added, higher engineered products that are coming to us through our acquisitions. And that's even before we start to do a lot of work with those folks to help them run more efficiently or to achieve those cost synergies or some of the revenue synergies we can experience through our pretty extensive distribution networks and customer relationships. So 100, 125 basis points on productivity, and we can expect to continue to see a lot of lift and benefit from the acquisitions that we make.

Okay, that's helpful. Thanks a lot.

Thank you. Our next question comes from Brent Andres with KeyBank. Please proceed with your question.

Hey, good morning, guys. If I could focus on that 560, 570 RV shipment forecast for a second, you know, there's been downward pressure on a lot of industry wholesale forecasts lately. So I guess, do you think that that's low enough, or is there more downside risk than upside risk to that from here.

Brett, this is Andy. I think as we look at it, there's tremendous awareness out there right now as it relates to inventories and whether or not they're balanced with retail. And as we kind of talked about, you know, from a weeks on end perspective, we think that the dealers are in a great spot today. We also think the manufacturers have been very thoughtful about how they're thinking about production. And so we're teed up for the spring and summer selling seasons right now. We're seeing the awareness, we're seeing production levels start to back off a little bit in alignment with that discipline and expectations of retail being down kind of in the low to mid-double digit range for the year, keeping things in check. And so right now, what we're seeing as it relates to a 560 number feels pretty good to us, and we like what we're seeing. It feels like we're ahead of the game in as it relates to inventory rebalancing. I think there's, like I said, tremendous awareness. There could be some downside risk to the wholesale number, but I don't think that's a bad thing. And if anything, we like what we're seeing today as it relates to just the discipline that's being put in place. As Jeff mentioned, I think that we had a very strong March. I think April is going to be strong as well, but we did start to see some days come out in April as well. And I think we're seeing some days come out in May and expect that you know, through the second quarter and third quarter. So we feel pretty good, you know, that it's strong first half, backing off in the second half, keeping inventory levels in balance, you know, kind of with that optimal weeks on hand today. So things feel like they're equally balanced across the spectrum. And I feel like, you know, everybody's focused on that and want to maintain that.

Got it. Okay. And then on the full-year Marine program, wholesale forecast, that one came down quite a bit. Is that based on what you saw in the quarter, or is that something you're maybe getting communicated from the OEMs? It seems a little bit harder to hit those retail numbers, that production number, given where inventories are at. So just trying to figure out what maybe drove that forecast.

Yeah, on the marine side, on the wholesale side, you know, I think that A lot of different supply components out there are still hit or miss that we're seeing. I think that the manufacturers there are doing a great job flexing their models to be able to adjust to what's coming through. And we would expect that as supply chain kind of eases a little bit, that they'd be able to become more efficient with driving better consistency of scheduling. I think they're doing a great job today of managing in a difficult environment. But overall, when you look at Marine, it's just a different model today. Retail demand is constrained today simply by wholesale availability. And so the manufacturers are aware of it. I think they're doing a fabulous job of managing their production. And we're certainly working with them. So we brought it down, but we like the stability that's there. And the runway, we believe, without question, on the wholesale side, even despite some potential risk to retail, we think extends through 23 and into 24. So we're pretty confident on the marine side and feel good about what the manufacturers are doing.

Got it. Thanks, guys.

Thanks, Brett. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for questions. Our next question comes from Raf Juratskas, Bank of America. Please proceed with your question.

Hi, good morning. It's Raf. Thanks for taking my question. First, I wanted to ask, you highlighted some of the strong share gains that you've had. Can you talk about how maybe the supply chain challenges that some of your smaller competitors are having are creating some of those, potentially creating some of those share gain opportunities? And then would you expect those share gains to sustain as the supply chain eventually kind of eases up.

Right. This is Andy. I think when we looked at, you know, kind of where we were at coming out of the pandemic, you know, we really pivoted very quickly to focusing on heavier automation opportunities to improve capacity and as well kind of equipping our teams with inventory levels, you know, to be in the position to be able to take advantage of these share gains. And so, You know, we're heavy on inventory right now and have been heavy on inventory for the last 18 months. And that's been deliberate to be able to put ourselves in this position to make sure that we can leverage that. I think additionally on the procurement side, you know, our brands have worked really well together. And that's one of the value propositions that we have, you know, in our ability to look across our brand platform and utilize best practices and synergies there to be able to to position ourselves for that. So, you know, I don't know that it's as much about others not being able to do it. I think it's, it's, you know, we've been deliberate about making sure that we've fully equipped our teams. And I think it's one of the advantages that we do have as a, as a sizable, scalable partner with the manufacturers in the space is that, you know, we've got that capital to deploy and absolutely want to make sure that they're best positioned to be able to take care of their customers. So. And what I'd say is it was deliberate, and I'd say that, you know, again, we're running hot on inventory today. We know it, and I think it's been something that's paid off, and we expect it to continue to pay off. So, you know, we really value the partnership that we have with our customers, and we want them to know that we're going to do what we need to do to be able to flex up and down with them and keep them in the best position as possible.

And then, you know, You've made some acquisitions in power sports. Marine has obviously been growing for you. How should we think about the long-term and market mix? Where would you expect to continue to grow, and how might that play out longer term? Sure.

This is Andy again. At the end of the day, we're leisure lifestyle enthusiasts. We're housing enthusiasts. We believe in taking care of our team members and their families. I think we're optimistic about where each of our markets is at. We definitely see the runway that's there in that leisure lifestyle market, and it's been very successful for us. As Jake mentioned, the margin profile has helped lift our margins, which in turn allows us to give back to our team members and community. I think we're going to continue to focus on that leisure lifestyle space, and we continue to cultivate and keep that pipeline full. We like what we see there. We like our four markets. But as we look at it, we definitely see attractive opportunities in leisure lifestyle. So if you were going to ask, we're probably geared a little bit more towards that, but that doesn't mean we're excluding other opportunities in the housing and industrial space. We see opportunity there as well.

In terms of the M&A environment, what are you seeing in terms of multiples and then the pricing out there? Does it differ by end market?

It does. We've seen, you know, we've definitely seen multiples come down from the uncertainty that was there last year in Q2 and Q3. We've seen things stabilize a bit. And so, you know, we're seeing attractive multiples and returns, you know, but I think as well as we look at the long run, you know, or the outlook for us for 23-24, especially in the leisure lifestyle and housing space, you know, we think there's opportunity to capitalize on those. So overall, to answer your question, I think multiples have have come down just a bit, but have stabilized is probably a better characterization, at least in the deals that we're seeing and we're exploring. So I can't speak to the global world, but certainly with what we're seeing, we've seen a stabilization, which keeps our pipeline full and obviously plays well into our model.

Okay, and then the last one for me, just the inventory rebalance on the RV side, it sounds obviously prudent, sounds like they're getting ahead of it. does sound like retail has changed, has moderated over the last couple of months. Do you have a sense of either what drove that or what's changing at retail? Is it higher rates, gas prices? What's driving the change on the retail side?

Today, we're not hearing a lot of resistance as it relates to rates or fuel prices. We think that the fuel prices are are really not impacting the buyer. I think what we're seeing is, in our expectation, is that there's just some mix shift going on. You know, when you look at the inventories that are out there, there's definitely a preponderance of, call it lower end, you know, total units, higher end, total motorized are in demand and heavier, or heavier demand as it relates to the inventory that's available. And so we just think there's some mix shift going on, but dealer traffic's been strong. You know, younger buyers are continuing to to support the market. And so we're just seeing a little bit of calibration, but we don't think those headwinds have taken shape yet. And like I said, you know, I think dealers are in a very healthy position for the spring and summer selling season. So there's certainly headwinds out there, you know, as it relates to inflation and pricing, but we've not seen that be a major impact today with the buyers at least, you know, at this point in time.

Okay. Thank you. Very helpful. Thanks.

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

Thanks again. You documented this quarter and before. Obviously, the working capital build has been strategic, although I assume some inflationary pressures are impacting near-term cash flow as well. Just any update in terms of outlook for direction of working capital and cash generation or cash from ops generation for the remainder of the year? Thanks.

Hey, Dan, thanks for the question. It's Jake again. So absolutely, as Andy mentioned, and I think we hit in the last couple of learning calls, we've been deliberate about this build of inventory. And there were a lot of factors that contributed to the intent behind that from what we anticipated in our read into where production activity would be. But also, you remember the first quarter, there was a lot of port activity that was causing problems, grayouts, China Olympics, so on and so forth. As we think about what the balance of the year looks like, which we've spoken about on this call here today as well, and I think it's generally a pervasive view that there's going to be a little bit front-end balanced, so more units in the first half of the year than the second half of the year. We also anticipate drawing down those inventories as time goes on for the year and expect to see that monetization. We expect this year cash flow from ops to be in that $450 million area, so elevated over the past couple of years in accordance with our growth, but also as we think about moving and seeing these RV volumes move towards a more typical seasonal type of activity, that should lead to that increased monetization even beyond what our deliberate monetization will be as we think about where inventories need to be coming into the end of the selling season. So we expect good monetization there. We'll continue to work on our capital allocation, which is something that we're very focused upon, and we anticipate having some more news there. Comments that you made or the question, rather, around the pricing impact, without question, as raw material inputs have generally been rising up and to the right over time, there's a pricing element that's very similar to what we described for our component of our revenue growth that resonates through our inventory, but nothing outsized, which is also a catalyst for our desire to keep managing our inventory to make sure that it's right-sized for the businesses we have in flow.

Perfect. Thanks, Jake. Appreciate it again.

Thanks, Jake. Ladies and gentlemen, we've reached the end of the question and answer session. I will turn the call over to Andy for closing remarks.

We're incredibly proud of our team's performance and Better Together philosophy as we continue to leverage our combined resources, capacity, capital investments, and acquisition strategy to enhance our operating platform and position our business to better serve our customers. Consumer demand remains strong despite inflation, and rising interest rates, and RV dealer inventories are better calibrated versus a year ago. These factors point towards more historical seasonal trends, thus providing the opportunity for better balance for our team members, and marine, MH, and overall housing inventories remain lean with extended channel refill runway. We remain focused on heavily investing in and driving automation and innovation initiatives, which are producing the anticipated results, and we expect our financial performance to continue to benefit from these initiatives. We will continue our disciplined capital allocation strategy to drive value over the long-term horizon for our customers, team members, partners, communities, and shareholders. I want to thank all of the Patrick team members and partners for their continued support and efforts. We couldn't do it without you.

Thank you, ladies and gentlemen. This concludes today's teleconference. We thank you for participating. You may now disconnect your line. Thank you.