Patrick Industries, Inc.

Good morning, ladies and gentlemen, and welcome to Patrick Industries' third quarter 2023 earnings conference call. My name is Rob, and I'll be your operator for today's call. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. And I'll now turn the call over to Mr. Steve O'Hara, Vice President of Investor Relations. Mr. O'Hara, 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 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 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, everyone, and thank you for joining us on the call today. Before discussing the results for the third quarter and first nine months of 2023, I want to take a moment and continue to thank our amazing team members for their dedication and commitment in driving solid organizational performance during incredible dynamic market conditions. Our success would not be possible without their hard work, attention to detail, and commitment to excellence and quality customer service. Our team continues to be driven by a purpose and passion for the great outdoors and the impact our branded quality innovative products and services can have as we strive to elevate the customer experience for our valued partners in the outdoor enthusiast and housing markets. Over the past few years, our strength, resilience, and results have reflected the benefits of our strategic diversification, and this quarter was no exception. In spite of the fluid dynamics of our end market landscape in the face of challenging macroeconomic environment, specifically related to the highest interest rates in more than 20 years, Our team and flexible business model continue to adapt and perform. Our balance sheet remains well capitalized with plenty of liquidity, and our cash flows evidence the underlying strength of our portfolio of branded companies that drive our organizational model. In addition to the benefits of our diversification and strategic model, our three end market focused businesses have unique advantages that complement each other in our portfolio. Our RV focused business units generally have highly leverageable variable cost structure, that is also highly scalable up and down in alignment with real-time changes to production levels. Our marine-focused business units generally have a higher fixed cost structure that generally delivers a higher engineered core competency value proposition. And our housing-focused businesses generally offer us a more stable, low overhead platform with a low fixed cost structure that is highly leverageable, especially in the event production volumes improve. Many of our businesses cross-pollinate in manufacturing competencies continuous improvement opportunities, product lines, capacities, and markets, allowing us to constantly synergize and continue to bring new innovations to our customers. The current general theme across our end markets from our perspective can be broadly centered around the overhang of high interest rates and their impact on retail consumer sales conversion, dealer inventory stocking, and overall increased hurdle rates for return on capital. Over the last 15 months, OEMs in the RV industry have skillfully managed their production downward, showcasing the industry's real-time scalability, adaptability, and maturity. As we head into the fourth quarter, we see the industry currently matched in a period where retail registrations and wholesale production are closely aligned and positioned for a one-to-one basis and very nimble, ready to pivot. Our teams have done an exceptional job of flexing our cost model in alignment and executing on numerous automation initiatives to improve our productivity, throughput, and efficiency. And we will continue to support our OEM partners' diligence and remain prepared to respond swiftly when we need to ramp up production or scale back further if needed. On the marine front, as we noted last quarter, marine OEMs have responded in real time to inventory restock calibration in the field. in partnership with what we believe, similar to the RV industry, is a cautious dealer base that appears extremely sensitive to inventory imbalance in the channel and the high carrying cost of floor plan financing. Retail on the marine side has held up better than we expected with OEMs and dealers alike intent on keeping dealer inventories and their floor plan costs as low as possible in this environment and extremely manageable. On the housing front, Our housing markets, both manufactured and single-family multifamily, have also been very disciplined in their production and build schedules. In markets where we believe there is and expect will continue to be a shortage of overall housing inventory. Beginning in mid-fiscal 2022 and carrying through fiscal 2023, we have worked to identify and eliminate costs without compromising the quality and reliability of our operations. On an annualized basis in 2023, we eliminated an estimated $100 billion in total costs, enhancing our ability to maintain margins as we respond to market conditions and industry trends. Our margins have remained resilient amid slowing marine production and what we now expect to be the lowest RV production in 10 years. Our team's disciplined execution on labor and cost management, in addition to our investments in automation and continuous improvement, helped drive gross margin improvement of 170 basis points, while our operating margin declined just 10 basis points, despite the 22% reduction in net sales. Additionally, our adjusted EBITDA margin increased 130 basis points from the third quarter of 2022. From a working capital perspective as well, we have continued our disciplined inventory management strategy that enabled us to reduce inventory by $37 million in the third quarter of 2023 and $150 million year to date, and more than $215 million in the last 12 months, further evidencing the nimbleness of our operating model and our team's ability to adeptly and successfully manage working capital. These measures have not only bolstered our financial stability, but have also paved the way for us to seize opportunities and maximize the profitability of our business when production increases in the future. The core of our business is built around a brand-fronted foundation anchored in the entrepreneurial spirit, focused on our innovative full component solutions model. We've strategically and organically built a product offering that strives to deliver a good, better, best value proposition, with our strategic diversification representing a further extension to bring the best solutions to our customers. We offer customers a full line of products, both up and down scale, in order to meet their needs, along a continuum of feature and price. Our goal is for our customers to be confident that we have what they need to design, engineer, and build their RVs, boats, and houses, no matter what category of product line they are producing. With RV OEMs looking to reduce their ASPs in this environment, the importance of our Good, Better, Best model is clear and evident and remains the cornerstone of our brand-forward go-to-market strategy. With this model, we expect to continue to gain share, which will continue to pay dividends when production levels increase. The strength and resilience of our operating model, liquidity, and competitive leverage position has enabled us to be proactive and strategic in a cautious environment and further invest in our foundational model to continue to future-proof our business and drive off of our already solid foundation. As mentioned, our brands and the strength of their teams are the foundation of our company, driving our innovation and the engineering of new products every year, bringing new ideas and solutions to our OEM partners. As we continue to be forward thinking, we plan to further enhance and embed our strategic value proposition. One example, as we head into the last quarter and upcoming model year, is our deep focus on collaboration across business units to create a seamless process to improve product solution innovation through the creation of Patrick's Advanced Products Evolution Group. This independent, focused engineering team will work closely with our already established innovation team and together will help our brands collaborate, shorten product development times, and elevate our commitment to excellence as we look ahead to the exciting rollout of model year 2025 units and beyond in our markets. Before we highlight our third quarter year-over-year financial performance, let's revisit the 2019 comparison we've made in the past two quarters that we believe demonstrates the improved resiliency and profitability of Patrick. In the third quarter of 2023, RV wholesale unit shipments were 21% lower than the same period in 2019. Despite the sharply lower unit volumes, total revenue in the third quarter of 2023 was 53% higher than 2019. Gross margin was 460 basis points higher and operating margin was 160 basis points higher, helping drive a 97% increase in EPS versus the same period in 2019. In addition, this quarter we generated $105 million of free cash flow versus 24 million in 2019. Compared to our results last year, our third quarter revenues decreased 22% to $866 million, and on a trailing 12-month basis, our consolidated revenues were approximately $3.6 billion. Our net income in the third quarter decreased 33% to approximately $40 million, and net income per diluted share was $1.81. As a reminder, we are comparing to a prior year period where we hit third quarter records related to revenue and net income. Our team delivered another impressive cash flow performance this quarter with operating cash flow of $115 million, implying free cash flow in the quarter of $105 million. We ended the third quarter with total net liquidity of approximately $700 million, which along with our free cash flow reflects our prudent financial management and heightened ability to execute on growth opportunities while maintaining the flexibility to continue to pivot and weather current and future macroeconomic challenges and opportunities. I now turn the call over to Jeff, who will highlight the quarter and provide more detail on our end markets.