Patrick Industries, Inc.

Good morning, ladies and gentlemen, and welcome to Patrick Industries' Second Quarter 2025 Earnings Conference Call. My name is Rob, and I'll be your operator for today's call. 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 will 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 am joined on the call today by Andy Nemeth, CEO, Jeff Rodino, President RV, and Andy Rader, 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. The company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in the company's annual report on Form 10K for the year ended December 31, 2024, and the company's other filings with the Securities and Exchange Commission. I would now like to turn the call over to Andy Nemeth.

Thank you, Steve, and good morning, everyone. We appreciate you joining us on the call today. Our incredible team continued to deliver disciplined performance and results in the second quarter of 2025, despite very dynamic market conditions. We produced top-line growth of 3%, resulting in revenue of approximately $1.05 billion, and on a trailing 12-month basis, approximately $3.8 billion. Adjusted earnings per diluted share was $1.50 in the second quarter, including approximately $0.03 of dilution from our convertible notes and related warrants. To date, as a result of our sales team's continued efforts and partnerships with customers, and along with new product development and advanced product group efforts, we've secured over $100 million in new business tied to the 2026 model year in our outdoor enthusiast end markets. We had platform wins across multiple markets this quarter, including our recently developed composite roofing system for RV OEMs, a new pontoon tower incorporating our own power bimini system, and a new windshield program in power sports, which Jeff will touch on later on the call. We are excited about the energy and momentum being created internally across our brand platform toward our full solutions model, enhancing product integration and innovative design at scale. The diversification of our portfolio continues to be a core strength, providing resilience across our business model in this dynamic environment. April's tariff announcements resulted in a pause in consumer activity in our markets. However, we're encouraged that this appears to be a competence-related pause rather than a fundamental shift in underlying demand. Based on recent commentary from leaders in the industries we serve, we believe people continue to enjoy the outdoor enthusiast lifestyle, which should create meaningful pent-up demand across our end markets. The sustained discipline at both the OEM and dealer level in our RV, marine, and power sports markets gives us confidence in a longer-term trajectory as economic certainty improves and interest rates stabilize. As Andy will highlight, we remain in a position of strength with a solid balance sheet and liquidity of $835 million, enabling us to execute on our capital allocation strategy with discipline and confidence. To that point, we are actively cultivating our acquisition pipeline, and we continue to invest in automation and innovation, which includes advanced data analytics and AI-driven capabilities, further paving the way for a more efficient and profitable Patrick in the future. Our strong cash flow generation, balance sheet, and liquidity position enable us to act quickly when opportunities align with our strategic and financial criteria. While we continue to evaluate strategic opportunities, we are also returning value to shareholders as demonstrated in the second quarter through quarterly dividends of $13 million and over $23 million in share repurchases. Looking to the back half of the year, we believe dealers will remain strategic in their approach to ordering, likely waiting until the fourth quarter or first quarter of calendar year 2026 to begin meaningfully restocking. Dealer inventories across our channels are lean, OEMs have maintained production discipline, and we are strategically positioned to scale quickly and continue executing the long-term vision that we outlined at our investor day last December. Additionally, we have continued to invest in innovation and automation, created our advanced product group, and enhanced and launched our full solutions model while also cultivating the next generation of talent that will take Patrick to the next level. We remain focused on executing on our capital allocation strategy, optimizing our cost structure, maximizing cash flow generation, delivering -in-class quality and service, and continuing to for both our OEM and growing aftermarket customer base. This disciplined approach bolsters the resilience of our model while preserving our ability to capitalize on opportunities to outperform our end markets. And finally, in the second quarter, we welcome back our former CFO Jake Petkovich to the Patrick family as president of our marine businesses. Beyond his past success with the company, Jake is an avid outdoor enthusiast, and we are confident that Jake's leadership will further advance our full solutions model in the marine business while solidifying our position as a market innovator and leader. Rick Ranger, prior president of marine and one of the architects of our marine strategy, remains an important member of the team acting as a strategic advisor. We remain incredibly appreciative of Rick's dedication, passionate service, and commitment to the Patrick team, vision, and culture. I'll now turn the call over to Jeff, who will highlight the quarter and provide more detail on our end markets. Jeff Petkovich Thanks, Andy,

and good morning, everyone. Looking closer at our end markets, second quarter RV revenue increased 7% to $479 million versus the same period in 2024, representing 46% of consolidated revenue. Our RV content per unit on a TTM basis was $4,952, which was flat from the same period last year, despite the continued heavy mix of smaller, less contented units. The improvement in RV revenue was driven by acquisitions and market share gains. RV content per unit on a quarterly basis increased 5% sequentially compared to the first quarter of 2025 and increased 6% year over year. We estimate RV retail and wholesale unit shipments were approximately 109,600 and 92,900 units respectively in the second quarter. This implies a seasonal dealer field inventory D-stock of approximately 16,700 units in the quarter. Dealer inventory weeks on hand was approximately 19 to 21 weeks in the second quarter, down slightly from 20 to 22 weeks in the first quarter of 2025, and reflected continued wholesale production to retail sales discipline. This remains below pre-pandemic historical averages of 26 to 30 weeks. Within our RV business, we recently expanded our product offering to include baggage doors, responding directly to specific customer demand. By leveraging our existing fabrication capabilities, utilizing our automation expertise, and the raw materials we already supply, we have enhanced the quality and efficiency of this common component in RVs while entering a new product category that expands our total addressable market. This move highlights our ability to utilize our operational footprint, scale and flexibility, and highlights the value of our long-standing customer relationships. Our second quarter marine revenues were 156 million, off just 1% from the prior year, outperforming an estimated 5% decrease in wholesale powerboat unit shipments. Through the model year transition, we were able to win additional business and product categories, including electronics, towers, audio, and other high engineered solutions, while bringing new customers in. These wins positioned us to have a positive impact on our content per unit in the back half of the year and into 2026. Our estimated marine content per wholesale powerboat unit on a DTM basis was $4,012, an increase of 2% from the same period last year. Estimated marine content per wholesale powerboat unit on a quarterly basis was up 2% sequentially compared to the first quarter of 2025, an increase 4% year over year. We estimate marine retail and wholesale powerboat unit shipments were 60,800 and 38,000 units respectively in the second quarter. This implies seasonal dealer field inventory D stock of approximately 22,800 units. Dealer inventory in the field remains lean at an estimated 20 to 22 weeks on hand, down from 26 to 28 weeks in the first quarter of 2025 and 22 to 24 weeks on hand last year at this time, remaining well below the historical pre-pandemic averages of 36 to 40 weeks. Our power sports revenues were 96 million in the first quarter compared to 104 million from the prior year period, representing 9% of our second quarter 2025 consolidated sales. We estimate wholesale power sports shipments were down year over year in the second quarter as OEMs and dealers worked to optimize inventory. We believe our position in the power sports market remains advantageous given our emphasis on the utility side of the market, which has shown more resilience compared to the recreation side. We see continued runway and power sports space in part prove to the consumer's preference for creature comforts like HVAC, which requires the cab enclosures SportTech manufactures. As an example of organic content gains, our SportTech team recently added an incremental polycarbonate windshield solution in the golf cart market. This program demonstrates how our integrated approach creates value for customers while driving higher content for Patrick. On the housing side of our business, our second quarter revenues were up 3% to 315 million, representing 30% of consolidated sales. In manufactured housing, which represents approximately 58% of our housing revenues in the quarter, our estimated content per unit on a TTM basis increased 3% year over year to $6,670. MH wholesale unit shipments increased an estimated 3% in the quarter, while total housing starts decreased 1%. Within housing, our manufactured housing business continues to see relative stability. We continue to support our customers through a wide breadth of offerings in the space while benefiting from a lean cost structure and the ability to scale most efficiently to serve our customers. We believe our focus on leveraging our depth and breadth of our product and brand portfolio to deliver our full solution strategy is continuing to create value for Patrick, our customers, and our shareholders. For Patrick, it represents a significant opportunity to capitalize on the creativity and design capabilities of our team to integrate additional value-added components, value-engineered savings, and capture higher content per unit. For our customers, we believe it will deliver meaningful supply chain simplification and overall cost savings, reduce risk through fewer vendor relationships, improve quality through integrated design, and faster time to market for new products. This mutual value creation is the foundation of one of our sustainable competitive advantages. Another example of our advanced product group penetration is the development and prototyping of an innovative RV solution that combines our adhesives, roofing membranes, and our recent investment in composite panels from three of our business units. We're in the final stages of prototyping and are preparing to supply to the industry in the back half of the year. On the marine side of our business, Medallion Instrumentation Systems, whose digital display and dashboard capabilities solidify our ability to provide a complete electrical solution, which includes wiring, fiberglass helms, switches, and gauges, and a customizable digital dash that consumers favor and OEMs can offer at a premium option. Additionally, as Andy noted, our team recently developed a proprietary power Bimini system with our own actuator targeting multiple market categories while still offering a good, better, best solution in a growing segment of the market. I will now turn the call over to Andy Rader, who will provide additional comments on our financial performance.

Thanks, Jeff, and good morning, everyone. Our financial results in the second quarter were largely in line with our plan. Consolidated net sales for the quarter increased 3% to $1.05 billion, driven by revenue increases of 7% in RV and 3% in housing, which helped offset revenue declines of 1% in marine and 7% in power sports. Our total revenue growth of 3% was comprised of 4% acquisition growth, 3% organic growth, and negative 4% industry growth. The organic growth consists of 2% share content gains, and 1% related to pricing. Gross margin was 23.9%, up 110 basis points from the same period last year, reflecting the positive impact of the diversification of our business model, our margin and creative aftermarket acquisition of RecPro, disciplined labor management, and returns on our capex and automation initiatives. Operating margin was flat at .3% compared to the prior year quarter, driven by margin and creative acquisitions, absorption from our RV and housing businesses, offset by softer demand within our margin marine and power sports businesses. Our overall effective tax rate was .3% for the second quarter, compared to .6% in the prior year. Net income decreased 32% to $32 million, or $0.96 per diluted share. As noted in our release this morning, we recently sold a non-product related legal matter related to a motor vehicle accident which resulted in a double fatality. We extend our sympathies to the families of those involved for this tragic loss of life. This settlement impacted our GAAP pre-tax income and our GAAP net income. Given the non-recurring nature of this settlement, we are also providing non-GAAP adjusted net income and earnings per share. After adjusting for this non-recurring item, adjusted EPS increased 4% to $1.50, compared to $1.44 in the prior year period. Additionally, our reported and adjusted diluted EPS for the second quarter of 2025 included approximately three cents in additional accounting related dilution from our 2028 convertible notes and related warrants as a result of the increase in our stock price above the convertible option strike price. The prior year's diluted EPS included two cents per share. As we've noted in the past, we have hedges in place which are expected to reduce or eliminate potential dilution to the company's common stock upon any conversion of the convertible notes and or offset any cash payments the company is required to make in excess of the principal amount of any converted notes. For accounting purposes, these hedges are always anti-dilutive and therefore cannot be included when reporting earnings per share. Adjusted EBITDA grew 4% to $135 million, while adjusted EBITDA margin increased 10 basis points to .9% for the second quarter of 2025. Cash provided by operations for first six months of 2025 was approximately $189 million compared to $173 million in the prior year period and purchases of property, plant, and equipment were $18 million in the quarter and $38 million year to date. This implies free cash flow of approximately $151 million for the first six months of 2025. After repaying an approximately $157 million in debt during the quarter, total net liquidity at the end of the second quarter was $835 million, comprised of $22 million of cash on hand and unused capacity on a revolving credit facility of $813 million. With no major debt maturities until 2028, we have the financial flexibility and dry powder necessary to capture long-term organic and inorganic growth opportunities. As Andy touched on earlier, we returned cash to shareholders through dividends and opportunistic share repurchases in the second quarter. In total, we repurchased 277,800 shares at an average price of $84.43 for a total of more than $23 million. Year to date, through the end of the second quarter, we've repurchased approximately 377,600 shares for $32 million. At the end of the second quarter, we had approximately $168 million left on our repurchase authorization. At the end of the second quarter, our net leverage was 2.6 times down from 2.7 at the end of the first quarter. We continue to allocate capital strategically while maintaining a solid balance sheet and pursuing high-value opportunities. Regarding tariffs, we have stated in the past that total import exposure is approximately 15% of COGS, with one-third China, one-third Canada and Mexico, and one-third rest of the world. We continue to de-risk our exposure to China, explore alternative sourcing options, and monitor tariff updates. We have previously outlined a number of tools at our disposal that we believe will help to mitigate the absolute impact to our rating margin. Moving to our in-market outlook, we estimate full-year RV retail unit shipments will be down mid-single digits, and we are tightening our estimated RV industry wholesale unit shipments to be 320,000 to 335,000 units and continue to anchor on equivalent dealer inventory weeks on hand year over year. In marine, our estimates for retail and wholesale powerboat unit shipments remain unchanged, with retail shipments estimated to be down high single to low double digits, implying a low single digit decrease in wholesale unit shipments, again with equivalent dealer inventory weeks on hand year over year. In our power sports in-market, we continue to estimate that wholesale industry shipments will be down low double digits and our organic content will be up high single digits as our content continues to grow given ongoing increasing attachment rates for our cab enclosures. In our housing market, we continue to estimate MH wholesale unit shipments will be up mid-single digits for 2025. On the residential side of the market, we continue to estimate 2025 total new site-built housing starts will be down approximately 10% year over year. Moving to our financial outlook, we continue to expect our full year 2025 adjusted operating margin to be between 7 and 7.3%. We continue to estimate that our effective tax rate will be approximately 24 to 25% for 2025, implying a quarterly effective tax rate of approximately 26% for the remaining two quarters of the year. Regarding the share count, please note that the current share price is higher than in Q2, which if sustained would add additional accounting EPS-related dilution going forward, more so than we saw in Q2. Following the legal settlement included in our second quarter results, we now expect that operating cash flow will be between $330 to $350 million and our estimated capital expenditures will total $70 to $80 million as we continue to reinvest in the business focusing on automation and innovation initiatives. This implies free cash flow of at least $250 million. With the cyclical nature of our businesses, we believe it is important to remain well-positioned, balancing our commitment to deliver value to our shareholders and support customers at any demand level. Should the macro or in-market environments change significantly from our current expectations, we are prepared and ready to act accordingly. That completes my remarks. We are now ready for questions.

Thank you. We'll now be conducting the question and answer session. If you'd like to ask a question at this time, you may press star 1 from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key. One moment please will we poll for questions. Thank you. Our first question comes from the line of Scott Stember with Ross MKM. Please proceed with your question.

Good morning guys and thanks for taking my question.

Morning Scott. Morning Scott. Stand by one moment gentlemen. We have to get Mr. Stember's line back. Stand by Mr. Stember. Mr. Stember please proceed with your question.

Yes, no it's one.

Sounds like he's having a connection. I sense there's technical issues with Mr. Stember's line.

Yep, let's maybe we move on to the next one.

Sure. The next question comes from the line of Joe Alcibello with Raymond James.

Thanks. Hey guys, good morning. I wanted to talk about the end market outlook you guys laid out this morning. Not a ton changing, but if I look at your RV marine outlook for example, it sounds like you're expecting some slowdown in shipments and RVs in the second half, at least versus what we saw in the first half, and the opposite on the marine side where you're expecting some increase in shipments in the second half despite the fact that you know demand is still pretty soft. So maybe if you talk us or walk us through how you're thinking about both of those end markets in the back half relative to where we expect retail to be.

Yeah, this is Jeff. On the RV side, with the production levels that we have, that we're looking at right now, we are going to see the traditional seasonal slowdown of production in the second half. While dealers try to work through their inventories and get their in a better place, we feel like inventories are very good. We feel like our OEMs have been very disciplined with their production levels to match up with retail. So really in the second half, I think it's kind of our normal seasonal change as we move through the third and fourth quarter. As far as marine, you saw a lot of product being pulled out of the inventory in the first half. Inventories are very solid across all of our markets. We feel like the OEMs and the dealers have done a great job monitoring what retails out there and only keeping the production levels where they need to be to keep those inventories in check. So with as much that came out in the first half, we believe there's a little bit of opportunity for some upside with the marine on the second half.

Okay, very helpful. Just to follow up on the cash flow outlook, is the reduction purely the legal settlement or is there anything else going on there?

Yeah, Scott, this is Andy Rader. No, it's purely the legal settlement. Not much has changed as you noted in our in-market outlook. So we pulled down our op cash guidance just based on that cash out the door due to the legal settlement.

Okay, perfect. Thank you.

Thank you. Next question is from the line of Daniel Moore with CGS Security. Please receive your question.

Good morning. Thanks, Nicolas. Thanks for taking questions. Morning, Dan. Morning. Start with, you know, power sports. We talked a little bit about where inventories are today, you know, both the kind of the OEM and dealer level. And what are you hearing from your customers regarding retail demand? Any signs of, you know, getting closer to the bottom or do you see that weakness maybe persisting into 26th and secondarily just talk about momentum on the attachment rates. Obviously, content growth is really healthy at high single digits. Demand for enclosures accelerating. Would you say penetration rates are sort of progressing steady? Any update in color there would be great.

Sure, Dan. I think as we look at the inventory in the channel, we do feel like things are stabilizing there in the power sports market. We do feel like things are kind of becoming more normalized. As we look at our attachment rates, I think that's where we're really optimistic. We've seen an increase in attachment rates on units while unit production has gone down. Our attachment rates have gone up. And I think one of the things that we're really optimistic about not only in power sports, but across all of our end markets, as we look at kind of model year 2026 and model year 2027 is all the new product development that we've had in each of our markets and the additional content opportunities and gains that are out there for us as we look back half and into 2026. So it's not just attachment rates, but it's additional products and product solutions that have really come to fruition in the back half in 2027 model year that we're really optimistic about.

Very helpful. And that leads to my next question. Love to hear a little more color on some of those products and systems that you described briefly. I think you mentioned composite roofing system in RV, new Bimini and Marine, and I kind of missed the new product or power sports, but maybe any more color there? And just how do you think that more generally the shift, think about the shift from product space company to more systems and solutions provider? How do you see that impacting your content growth as a whole over the next kind of three to five years?

Yeah, Dan, I mean, just start. I mean, we believe that it's really what we need to do to continue to grow that content across all of our markets. We put the advanced product group for all of our different markets in place in the last couple of years, and we're starting to see the fruits of their labor. And when we talk about the roofing system, we have three different divisions within our RV markets that are working together to develop the products that can go together to give one nice roofing solution in a composite with the membrane and the adhesive. So we've seen our APG groups start to look across all of our capabilities. It helps them to understand exactly what we can put together and really simplify things for the customers and bring them a new solution, again, helping our contemporary unit. Because in some cases, these are products that we don't have any, you know, it's not an addressable market for us currently that we're getting into. So we're not really cannibalizing any of our current business with portions of that system. As far as the power Bimini and what we've done on the marine side, same thing. Our team has worked, you know, the last couple of years to find a solution that works, really to keep us in the market within that Bimini and that power Bimini solution with a good, better, best solution for our customers. And then the one thing I talked about was a polycarbonate that, excuse me, windshield for golf carts that Sport Tech's been working on, something that they've worked with customers on to put together a new solution for the golf cart market.

And Dan, as we look at moving the migration towards product solutions in our full solutions model based on the breadth and depth of our product portfolio, you know, we really believe this is an additional opportunity to really partner with our customers to expand not only the good, better, best solution or offering for our customers, especially in this dynamic pricing environment related to tariffs and all the mitigation efforts we can use on that front, but really to be able to value add value engineer products for customers to help them take cost out in these markets where affordability is a big concern today as we know. So as we look at our solutions opportunities and really the opportunity to really embed our partnership even further with our customers, you know, that's what gets us pretty excited again about where the content opportunities can lead to in the future.

Helpful. I'll sneak in more and then jump out. But just talk about the M&A pipeline, number one and number two, you know, 800 million plus in liquidity, kind of in the mid to range in terms of leverage, just your willingness to either take leverage higher for the right deals or prefer to work it down a little bit from here. Any thoughts on the balance sheet? Thanks again for the call.

Sure.

We feel like

we're in a position of strength, certainly in these market conditions with our liquidity or leverage position. The M&A pipeline continues to be actively cultivated. I would say more so on the organic basis than the deal flow that we see from investment bankers, but we're always actively cultivating the organic deal pipeline. And so again, we're out there. We're talking to candidates today. So we're going to stay active in the M&A market, regardless of whether we're seeing investment banking deals or not. But overall, when we look at leverage as well, so at 2.6, we feel very comfortable with our cash flow, the strength of our cash flows, the ability to de-lever. We'll stretch that if we need to for the right deal, a little bit above three times with the ideal and goal of getting back to two and a quarter to two and a half times within two to three quarters. So we can be very active in that, but we feel very comfortable where we sit today as it relates to our liquidity position, our leverage position, and the opportunities that exist in the M&A market, especially through our organic cultivation efforts.

Thank you. Our next question is from the line of Scott Stember with Ross MKM. Please receive your questions.

Can you guys hear me this time?

We got

you, Scott. So yeah, thanks for taking my questions. Question on pricing, what you're seeing right now for 26 in your discussions with the OEMs. With tariffs coming through, it doesn't seem like it's a tremendous impact for you, but just maybe talk about what you expect the inflation to be for next year. I know a lot of folks have been saying mid-single digits, and how does that affect your content expectations going forward for 26?

Yes, Scott. This is Jeff. In general, in partnership with our customers so far through the first half of the year, we've kept pricing relatively flat. We've had to pass along a little bit here and there. I think we will see some additional pricing in the second half as the tariff and increased pricing in the market starts to hit our inventories, and we'll work directly with our customers, and we are in contact with our customers to give them an idea of when and how much. I would say that low to mid-single digits is kind of, I guess, a pretty good mark on where we need to be in some of our product lines. That's not across the board, and we're being very active as it relates to looking at our supply chain and making sure that we're mitigating as much increase as we can. We're seeing some of the increases out of domestic supply as well as what's going on with the tariffs, so it's kind of across the board, and it's our teams working very hard to mitigate those and work with our customers and our partners to make sure that we're keeping those as low as possible. Whatever that ends up being, that will affect the content as we roll into 2026, as we get through the end of the year here with, I'm going to say, some low to moderate increases in some product categories.

Got it. And then, did you guys give an update on your operating margin expectations for the full year?

Yes, Scott, we kept it unchanged, 7 to .3% for the year.

Got it. And then lastly, maybe talk about the aftermarket. Obviously, you have RecPro going on, you have a lot of white space there as far as cross-pollination efforts with Maureen. Can you just talk about any wins there and the status of that initiative?

Yes, Scott, this is Jeff. Really, RecPro has done a great job connecting with all of our businesses across all of our markets just to get a sense and a feel for what products they have available that need to be in the aftermarket are already in the aftermarket and how they can help increase the visibility of those products into the market across not just the direct consumer, which RecPro is really good at, but also in the dealers and in the distribution side. We put a pretty hard push on the Maureen side with regards to getting out there into more distribution with our aftermarket products. But in particular with RecPro, we've added well over 100 SKUs into the RecPro site that are from Patrick. That puts us over 500 product, excuse me, Patrick SKUs that are on RecPro. So we're starting to get that exposure out there on that direct to consumer side. And we're putting more emphasis on aftermarket across our company. We're putting some additional structure in place to be able to really capitalize on what we think is a lot of white space, as you mentioned in your question. So we're excited about where we're at, kind of everything that we know about what we can do in this space and where we're going.

Got it. That's all I have. Thank you.

Thanks,

Scott.

Thanks. The next questions are from the line of Craig Kennison with Baird. Please proceed with your questions.

Hey, good morning. You've addressed many of my questions. But I wanted to ask about the RV shipment trends we've seen lately. May was down significantly, then June was up. What are you seeing in July? And what's maybe the broader message from the production side of the RV industry?

Yeah, Craig, this is Jeff. From the production side, I think there's a few things in there with the down in May, up in June, and where we are in July. I'll tell you in May, as there was a lot of transfer or switchover from their 25 to their 26 model year, really we had a really light week over the Memorial Day week as a lot of those transitions were happening at the plant level. June, a little bit different than previous Junes, a lot of the 4th of July shutdowns would happen with one week out at the end of June and one week out in July. This year, most of the OEMs ran through the month of June and then took off the first two months of July, which leads me to the other part of your question about July. July is going to look light because of that. I mean, you got two full weeks out of July's production levels. However, I would tell you that the production levels that we're seeing moving forward at the last two weeks of July and into August seem to be pretty consistent with where left the pre-July 4th shutdown production levels. We feel pretty good that the OEMs, again, are being very disciplined with what they're running versus what they're seeing on the retail side.

Thanks, Jeff. Going back to the advanced products group line of questions, I'm just curious if we probe that a little bit. You make a lot of acquisitions in and of themselves that are generally very good businesses and you can grow them, but are you seeing more synergies or more magic happen between or among those businesses as you try to create products that really you couldn't build if you didn't make acquisitions?

I'll take that. Craig, this is Andy. Without question, the energy amongst our brands and the excitement towards the opportunity to expand not only their product categories but to bring a solution together, we've absolutely seen that. We did our own internal product expo to make sure that all of our brands had awareness of the other product capabilities amongst our broad portfolio. There's just a lot of excitement. I think the other thing that we think about, especially in today's environment with shipments and the disciplines out there and retail wholesale production levels, the tremendous efforts that have been put towards new product development in the last six to 12 months have been significant. The opportunities that we see being created, especially with this pricing environment, for us to bring these solutions together are really an opportunity for us. I think the excitement amongst our brands, the continued education to keep them in the loop on all of our capabilities, all that is working in positive towards our advanced product group.

Thanks, Andy. Maybe just as a last question, looking at the tax legislation that just passed, I'm just wondering, is there anything in there that might drive decisions? I know for example, there's interest deductibility for toll bubbles that should be good for the industry. I'm wondering if maybe there are provisions that might affect how you think about cap acts or R&D decisions because of the legislation.

I'd say I don't know that there's any headwinds in that legislation, only tailwinds. I think though, as we look at our cash flow, it really hasn't changed our mindset in the way that we think about managing our business. Certainly again, I think it's a tailwind versus a headwind. We'll certainly look at opportunities there to stay opportunistic. But overall, given the strength of our cash flows and the discipline inside our capital allocation strategy and the way that we think about our return models, I feel really good about our ability to continue to leverage the business regardless of the tax legislation. But again, if anything, I would say it's tailwinds versus headwinds.

Great. Thanks, Andy.

The next question is in the line of Tristan Thomas Martin with BMO Capital Markets. Please proceed with your questions.

Hey, good morning.

Morning, Tristan.

How should we think about the margin profile of some of these higher engineered products and systems relative to some of your commoditized products?

Without question, the higher engineered products have a better margin profile as we solutionize. I'd say the other side of that as we think about things is that, again, the ability to bring a good, better, best product offering to our customers. I think that as we look at it, it's a tremendous opportunity to partner to help them take cost out while adding value and adding higher engineered products with our customers. So I think we can bring benefit to our customers in this affordability, where we're sitting in an affordability issue right now in the marketplace. We think we can bring a lot of value. But overall, the margin profile is better on higher engineered products.

Okay. And then I know you called out dealers probably waiting until 4Q or 1Q next year to meaningfully restock. What do you think they're looking for to start kind of ordering in more volume? Or what are their signs that this goes on?

Right now, I think the overall headline is affordability at the consumer level. Consumer traffic is there, but consumers are looking for deals, at least from everything that we've heard in the marketplace. And so I think there's tremendous discipline. The other is the other headline, dealer, wholesale production to retail sales, unit sales is roughly at one to one, if not a little bit less. And that's tremendous discipline in the space at the dealer level. But overall, I think at least what we hear is just, affordability, consumers are there. We need some movement on interest rates, which certainly help things, will move things along. But I think consumer confidence as well with all the volatility that we've seen in the last quarter has impacted the consumer and really kind of paused the consumer in the quarter. So hopefully as we get through that, consumer confidence will improve and then hopefully we'll get some rate relief that will help as we move forward.

Okay. And then I'm just sneaking one more. Just in terms of thinking about kind of the industry mix shift in the backgap of 25 and into 26, is it strictly just affordability improves, rates get cut, consumers can afford more? Or is there any opportunity for the industry to innovate and try to encourage trade-ups relative to kind of what we were at before with all the single axle?

Yeah, I think it's going to be a combination of a few things. Certainly, any macroeconomic help they can get, interest relief to help with the affordability. I think continued innovation by the OEMs to be able to add components and add value to units without adding a lot of cost. And we'll work with them on those type of innovations. But overall, the second half of the year isn't going to be as much single axle, I think, as it has been. But I don't think the trend isn't going to change, I should say. It's going to be, the mix is going to be there. I don't think it's going to get any different or any, I'm going to say, worse towards the single axle. So I think as the affordability happens and we get into a core trade-in and trade-up cycle with some of the lifetime RVers that I think have held off as they waited for some affordability to happen will help. And especially the interest rates will help them bring them back to the market as well.

Got it. Thank you. Our next question is from the line of Mike Albanese with Benchmark. Please proceed with your question.

Yeah, good morning, guys. Thanks for taking my question. Just have a quick one here on RecPro and aftermarket exposure. You obviously highlighted some strong internal momentum, adding SKUs, gaining DT6 exposure, I guess, building the infrastructure. From your seat, how much visibility do you have or is that large enough for you to get a read through into overall aftermarket demand? And I guess from your seat, what are you seeing in terms of end market activity, overall usage, et cetera? If you could just comment on that, that'd be great.

Yeah, it does give us a good view into the aftermarket. We've been able to look at that. I mean, it hasn't been, you know, as far as year over year, it's been up. I can't tell you if it's been up across the board with everybody with the aftermarket. I mean, some of the aftermarket is specifically attachment to new units. And if retail is down, then some of that aftermarket will get a little bit slower. So, I mean, it really does give us an opportunity to understand a lot more about what's happening in the aftermarket. They have a, you know, as I mentioned, there's over 500 Patrick SKUs on the RecPro site, which they have a broad breadth of product across many different product categories outside of Patrick. So we can kind of see, you know, what's being bought out in the market and what's, I guess, what's hot and what's not on the aftermarket side. So overall, I mean, we feel good about, you know, kind of our visibility and what's happening there. And we'll continue to utilize RecPro as that visibility into the market. We do have other channels within our other markets in marine and even within RV where we're selling through distribution and into dealers that, you know, continues to give us good visibility on those channels.

Got it. That's helpful. So I guess just as a follow up and maybe take the question a step further. I mean, you mentioned a lot of it, attachment tied to new units, but I'm trying to get a sense of the product portfolio here and how much benefit you would get maybe from an increase in the used market. And obviously just general activity kind of going hand in hand with that within your business. Does that make sense?

Yeah, I don't know. Yeah, I don't know if I don't think I meant to imply that, you know, the majority of what we had was attachment for new units. I'm just saying that within aftermarket, some of the products are, you know, attachment to new unit. The majority of the product categories that we have are for upgrade and refurbish of RVs versus, you know, something that's only going to happen on a new retail unit. So that's where we're going to see the majority of the sales that come out of RecPro and any of our other direct consumer products.

Got it. That's helpful. Appreciate it, Cass.

Thank you. The next question is from the line of Noah Zatzin with KeyBank Capital Markets. Please, just use your question.

Hi, thanks for taking my question. Most have been asked and answered, but maybe just one on PowerSports. There was a major OEM who recently announced that retail for UTVs was positive in second quarter. Obviously, your wholesale shipments for PowerSports are unchanged at download double digits. So just kind of wondering how you're thinking about that dynamic and maybe, you know, when maybe inventory is in a better spot and dealers kind of want to begin restocking there, like, how are you thinking about kind of timing, given that there appears to be pretty resilient demand for those products?

Sure, Noah. I think as we look at our backlogs and our order patterns, we have some decent visibility into kind of where we see production levels. And so the resilience in the utility side of the business, you know, certainly has outweighed that in the recreational side of the business. That being said, you know, I think we're still kind of anchored around, you know, model year 27 units and really that kind of being the baseline increase for us on a production level, you know, as we head into 2026, you know, for the 27 model year. So we're still pretty consistent expecting kind of flat, you know, down a little bit, but stabilizing inventories out there. And in the utility side, we don't feel like utility inventories are out of balance. So I think, again, as we look at the back half, we really haven't changed much of our thoughts as it relates to increased production levels. We're still kind of thinking, hey, it's going to be late this year and into the next year. But the new content opportunities, again, that we've talked about in addition to the increasing attachment rates, you know, give us optimism for the 2026 calendar year, 2027 model year.

Thanks. Maybe just one more, not to get kind of too detailed on power sports, but what percentage of the business would you say is indexed to UTVs versus like golf carts or kind of other types of products? And then like maybe, you know, not the harp on golf carts, but like, are there other pieces within that business that are growing even faster?

It's a little bit fragmented, but just in general, if you think UTV to rack probably 60-40, 60%, UTV 40% rack, then the golf cart market for us is, I don't want to say it's on tap, we're hitting it, but there's a ton of potential there as it relates to content opportunities. Audio as well, and then even into the motorcycle market where we participate on the audio side, it plays into the power sports. So it's somewhat fragmented within the entire power sports market, but our categories are generally going to be ATVs, UTVs, you know, motorcycles, you know, golf carts, watercraft. Those are, that's really where we play on the power sports side.

Thanks. Very helpful.

Thanks.

Thank you. At this time, I'll now turn the call back to Andy Nemeth for closing remarks.

Thank you, everybody. I really want to thank more than 10,000 team members out there. They've just worked so hard, and their dedication and discipline and diligence in these dynamic conditions has been incredibly inspiring and energizing. We also want to thank our customers for their support and their partnerships in these volatile times, but again, hopefully we continue to really embed ourselves as a valued partner, which is our goal. And, you know, again, as I think about where we head as we look into the back half of the year and into next year, we remain really energized about the opportunities that are in front of us, the earnings power of the business, you know, the team that we've got in place today, the customer partnerships that we have, and really the ability to positively impact, you know, lives not only in our markets, but in our communities. And so, again, we feel good about where we're at. The team's done a great job, and we're incredibly appreciative of the opportunities we have in front of us. So, I want to thank you again. Really appreciate everybody's participation, and we look forward to talking to you next quarter.

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