Patrick Industries, Inc.

Greetings and welcome to the Patrick Industries second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve O'Hara, Vice President of Investor Relations. Thank you, Steve. You may begin.

Good morning, everyone, and welcome to our call this morning. I'm joined on the call today by Andy Nemeth, CEO, Jeff Rodino, President, and Matt Feiler, Interim CFO. Certain statements 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 2022, and in our other filings with the Securities and Exchange Commission. We undertake no obligation to update these statements to reflect circumstances or events that occur after the date the forward-looking statements are made. I would now like to turn the call over to Andy Nemeth.

Thank you, Steve. Good morning, ladies and gentlemen, and thank you for joining us on the call today. Before we begin talking about the second quarter and first half of 2023, I want to take this opportunity to express my sincere gratitude to our incredible team members and their unwavering commitment to excellence, especially during these dynamic times. Their dedication empowers us as we strive in our pursuit to consistently deliver exceptional products and provide the highest level of service to our customers. They are the foundation of our company and their hard work is one of the reasons we are increasingly optimistic about and well positioned for the future. As we reflect on the second quarter and first half of 2023, we are pleased with our performance especially against the tough comparison to last year's record sales and earnings. This period has seen some of the most significant declines in RV production in over a decade as a result of the incredible discipline exhibited by industry OEMs as they manage field inventories in response to macroeconomic uncertainty. Our strategic diversification, inventory management, and discipline capital allocation have played out largely as we intended and helped partially offset the impact of the declines in production on our quarterly results. Our marine business has been more resilient and helped bolster our margins while diversifying our business model. And our teams have prudently managed our balance sheet and working capital, generating significant pre-cash flow. As we prepare for the marine industry to calibrate to retail, now that inventories are believed to be replenished, we are becoming increasingly optimistic and starting to sense tailwinds building on the horizon for the RV industry. As our estimates suggest, dealers have reduced unit inventories as weeks on hand even further in the second quarter from the first quarter, which Jeff will discuss. We remain confident in our company's strategic navigation of short-term uncertainty and long-term growth for three key reasons. First, we have a business model and veteran team that have been tested and proven as we successfully responded to uncertainties and market volatility. Along with our proactive approach to strategically diversifying our business, we are well-positioned both operationally and culturally to adapt and thrive when faced with dynamic macroeconomic and industry conditions. Second, the OEMs and the markets we serve are making disciplined decisions and thoughtfully adjusting output to meet consumer demand, which fortifies the long-term health of each industry. And third, demographic trends, including new and younger buyers entering the leisure lifestyle markets and heightened interest in the outdoors remain promising, and we believe these trends will drive higher normalized demand in our leisure lifestyle markets than what we were estimating pre-pandemic. Matt will give a full overview of the quarter a little bit later, but first let's look at the second quarter of 2019, the last second quarter before the pandemic, and compare it to the current quarter, which shows the meaningful transformation of our company, its resilience, and earnings power. In the second quarter of 2023, RV wholesale unit shipments were 26% lower than the same period in 2019. Despite the sharply lower unit volumes, total revenue in the second quarter of 2023 was 50% higher than in 2019. Gross margin was 440 basis points higher, and operating margin was 80 basis points higher, helping drive a 64% increase in EPS versus the same period in 2019. In addition, this quarter we generated $163 million of free cash flow versus $58 million in 2019. We believe these data points are a testament to the fact that the strategic diversification of our business model that we've orchestrated is working. Additionally, the entrepreneurial spirit and the customer-focused values that drive Patrick, our brands, and our team members have not changed. We have undergone a significant transformation where the Patrick of today has a more balanced mix of business across the leisure lifestyle and housing markets. Today, we are a more dynamic company, but we remain anchored to our Better Together values with a commitment to grow the breadth and quality of the solutions we provide. Structurally, we have a deep bench of talented and energized leaders with experience and thorough product knowledge who are experts in the industries they serve. Strategically, we have established a solid foundation for success through strategic diversification, organic growth, and acquisitions. Over the past few years, our investments in the marine market have proven fruitful. with these businesses now accounting for 29% of our sales. Our housing end market, which is also 29% of our sales, has a promising future as Americans' path to affordable housing continues to have a long runway. Financially, our strong balance sheet, capital structure, and growing liquidity, in tandem with our leadership team, leave us with the confidence that we can aptly navigate near-term challenges as we remain focused on delivering long-term value for our customers, team members, and shareholders. Time and time again, our team has risen to meet challenges head on, keeping us nimble and continuously positioning us to take advantage of opportunities that can drive our strategic plan forward. As we look towards the back half of the year, the rate of retail declines appears to be decelerating in both our leisure lifestyle markets based on the first six months of 2023. The RV dealer model mix and balance appears to have improved, the marine mix is healthy, and inventory weeks on hand in the leisure lifestyle markets and inventories in the housing markets are poised for stabilization and growth. And finally, turning to the numbers and compared to our record 2022 year, our second quarter revenues decreased 38% to $921 million, and on a trailing 12-month basis, our consolidated revenues were approximately $3.9 billion. Our net income in the second quarter decreased 64% to approximately $42 million, and net income per diluted share was $1.94. We continue to exercise prudent working capital and inventory management, reducing inventories by $113 million in the first half of 2023 to $555 million and by more than $184 million from the second quarter of 2022. I'll now turn the call over to Jeff, who will highlight the quarter and provide more detail on our end markets.